Randoncorp S.A. (RAPT4) Earnings Call Transcript & Summary

Good morning to all. Thank you for being with us for the presentation of the earnings concerning Q3 and together with our APIMEC Meeting 2021. This year, we will not have a physical meeting due to COVID-19. As soon as possible, we want to meet you. For today's event, we invited our main executives to speak a little about the results, our strategy and also the conclusion of some recent projects. This transmission is being made at Connect, so one of the Randon companies following all the health and safety protocols. I'd like to remind you that this event is being translated simultaneously into English and also interpretation to sign language. [Operator Instructions] I also inform that the event is being recorded, and the recording will be available in our Investor Relations website after the meeting. On the screen now we have important notices remembering that these declarations are not guarantees of performance. They involve risks, uncertainties and assumptions. They refer to future events and depend on circumstances that may or may not occur. Before beginning our presentation, let's take a quick look at our agenda today. To begin, our CEO, Daniel Randon, will speak about our work, the strategy, the sustainability and innovation. And together, we will have the participation of our COO, Sergio Carvalho. Next, our CFO and DRI, Paulo Prignolato, will speak about the highlights of Q3 and our performance. After that, the Finance Director, Investor Relations Director, Esteban Angeletti, will talk with directors about our business. Finally, we will have the Q&A session. [Operator Instructions] You may also send your questions through Whatsapp at 5499989126. To begin the event, I invite our CEO, Daniel Randon, for his presentation.

Good morning to all, and thank you for being with us, our video conference for the results of Q3 2021 and our meeting in partnership with APIMEC. We have meetings with them for 21 years and is represented here by the Chairman, Lucy Sousa. In a year when we are having the best results in our history, we would like to begin the presentation with these results from a garage for manufacturing air breaks and revamping of engines, Randon became one of the largest global players in the automotive sector being a reference in the most -- in many segments. A lot of work, persistence and vision of the future, brought us until here. But I would like to highlight the most important, the leading characters, which are our employees, our people with ethics in a responsible and proactive way, based on our principles and values, they are the main actors in our history that we built. And they are at the center of the transformation of cultural transformation we are going through. And this cultural transformation is based on our way of being and doing in our beliefs, reinforcing that the future is made by each one of us, and the search for improvement is fundamental to continue growing and developing. And we know that people are guided by objectives. And when we feel part of something greater, we are motivated to do more and better. And we, from Randon companies, want to have a positive impact wherever we are, knowing that through our operations, we will generate an environment that is more prosperous and better for all. That is why our objective of connecting people and riches, generating prosperity makes so much sense for us because it summarizes in one phrase, what we intend to do. How we want to do this and the impact that we will generate. All of this is connected to the way of doing our business. In other words, how we act. We have a robust planning process, which is anchored on seven important pillars. I began talking about differentiation, innovation and technologies whether it be in products, processes, manufacturing or services. We want to be ahead. We want to be pioneers in new trends and in the transformation of the automotive market. And our innovation has a great focus our clients to deliver the best products and services with quality and safety. Looking at the needs of each client, this is something that sets us apart in the market. To make our company more resilient and prepared for the future, we have continuously looked to diversify our business, expanding the portfolio, segments and geographies. This is a process that has given us excellent results, and this is how we intend to reach our objectives. Our financial -- robust financial situation is the pillar that allows us to do all these movements with safety. Thus, we may really face market cycles and continue investing in our growth and in our transformation. Our strength also comes from synergies that we capture as a group. And these are not only financial synergies or economic synergies, but yes, connecting people, ideas and resources in the search for solutions for common problems from the simplest to the most complex. With a collaborative environment enabled by the synergies and by our culture, we want to be a company that people want to work in, and that all may prosper seeing the result of their work and feeling part of something greater, something greater for themselves, for the company and for society. And when we go after this result together, we reach sustainable development and we generate a positive impact for all our stakeholders. We, from Randon Companies, give priority to sustainability in our strategic planning, after all, it doesn't make sense to think of the future without thinking of the future of the planet. For a company that wants to continue growing and generating value for the shareholders, the adoption of best governance -- practices in governance is fundamental, even being listed as Level 1 within the segments of the stock market, B3, we go beyond the requirements of this index. We count on an administration council with three independent members and with different backgrounds that ensure the discussion and the solving of topics with diversity for the company. We have an executive committee with professionals that are qualified in with great experience, and they have led our company in the success that we have observed in the last few years. With our recent expansion, which included new structures and complexity in management, it was necessary to expand this committee to gain agility in the decision-making process. Today, we have more than 40 companies and 15,000 employees. Internally, the business in the Industrial division, led by the COO Sergio Carvalho, are now segregated in three great divisions. Each new member of the Executive Committee is responsible for one of them. In the OEM division, in the segment of semi-trailers and railway cars, we have the director, Sandro Trentin. In the companies linked mainly to the market of OEMs, which internally we call auto parts division, the Director responsible is Ricardo Escoboza. And in Fras-le, together with the controlled companies, we have the Director, Anderson Pontalti. It's important to stress to the capital marks that we will continue reporting results in the same way in the main companies, auto parts and digital and services under the CTO, Daniel Ely. I would like to welcome the new colleagues in the Executive Committee and a lot of success in doing business. Now talking about the export market, Randon Companies have an international presence for more than 50 years with their products. We began exporting parts and semi-trailers, two neighboring markets such as Uruguay, Argentina and Paraguay. And today, we have operations spread around the world, and our products get to more than 120 countries. On the map that is on the screen, you may observe that we have plants, distribution centers, commercial offices and strategic partners in four continents. And since we are a company that is a benchmark in products and processes, we want to use this potential to continue expanding our presence in the international market, opening new doors and opportunities in the different markets, expanding our geographic diversification and reinforcing the image of Randon as a global company. We are a company that wants growth and value generation in the long term. Those who look at Randon 5 years ago and compares with it today, sees a company that is totally different. Apart from the organic growth of our operations, we made many movements with acquisitions, partnerships and new companies -- opening new companies. All of them added relevant aspects to our business, whether it be in increase of capacity, expansion of the portfolio, internationalization and innovation in its many fronts. We invested business and solutions, transforming our business through digitalization of our processes, expansion of our solutions and disruption of our products. Always with focus on the preparation of our companies for all the changes to come. A strategic -- long-term strategic vision, consistent and robust growth is only possible if ESG aspects are totally linked to our strategy. for this, in the month of June this year, we gave to the market our ESG ambition, which shows what we believe in and where we invest, connected to the objectives of Sustainable Development of the United Nations in our business, we concentrate our ambitions on five pillars: ethics and responsibility, excellence and safety as a value, sustainable innovation, commitment with the environment and prosperity for all. All of them with the main topic together innovating for a better future. Also, we are committed to points that we consider very relevant, such as climate change diversity, safety of our employees, the better use of natural resources and innovation and with public commitments of to double the number of women in leadership positions until 2025, reduce 40% of greenhouse effect gases until 2030, zero, the zero wastes in industrial landfills and wastewaters until 2025 and to zero serious accidents and improved consolidated net revenue on an annual basis with new products. As I said before, we want to evolve constantly in governance, and this can be observed on this graph. We went from 51% adherence to practices, suggested by IBGC together with CVM, the [ SEC ], to 74% in 2021, above the average of companies that make up all the levels of governance in the stock market B3. We're very satisfied with this progress, but we know that governance should be something continuous and for which we will always have new opportunities to make progress. Randon was always recognized by the market as an innovative company with products and solutions that are differentiated for its clients. Nevertheless, when we speak about innovation today, it means much more than in any other period of our history. We understand that it is a collaborative process. No one innovates by himself, herself. So we connect to other companies, institutions, universities and governments. So together, can look for innovative solutions and relevant solutions in many areas. We are always looking at the megatrends in mobility, such as greater use of electricity, Internet of Things and intelligent materials. We have dedicated teams to spread the digital culture in our companies, focusing on new technologies, such as the use of RPAs, artificial intelligence and agile tools. Our innovation fronts today are in all the areas of the company in back office processes, projects for efficiency and productivity at the plants, investments in start-ups and our ecosystem of logistics in products since improvements until disruptive innovations. We invite our Vice President and COO of the Randon Companies and CEO, Fras-le, Mr. Sergio Carvalho, to comment a little more about these fronts.

Hello. We'd like to welcome you once again to our Implementos e Randon 2021. As you saw, Randon Companies are going through a very special moment. We have grown at great speed, and we have delivered results that are very good, historical results. And we have done all of this at the same time as we have invested on expansion capacity, we have improved our governance, we have given a lot of attention to our organizational culture, we evolved a lot in our organizational culture, we have given a lot of attention to all our collaborators and also, at the same time, making important investments for the future of the company in many areas. But today, I would like to stress one area, which is innovation and technology. In this field, we have invested in the digitalization or digital world, we have invested in the transformation of the process and their digitalization. We created companies. We created joint ventures to accelerate the influence of the digital world in our business. So we can be prepared with this trend. But we have also invested a lot in our transformation, industrial transformation. In this sense, you may remember that we announced 2 years ago, in reality, 1 year and 2 months, the purchase of 260 robots, also the creation of a new industrial unit called RTS Industry with the objective of accelerating our industrial transformation, creating equipment that are dedicated to our processes with more productivity, more safety, more quality and much more automation. We liked it so much that we bought another company in this field, a company called Auttom, and we made this transaction in April 2021. But also, we have invested a lot in technologies, more advanced technologies for the future, which happens in companies in general, but especially our CTR and also [indiscernible], our I -- HR. I also mentioned in the units, we have created many good things in terms of product innovation. Just to give you some examples, we involved -- we have, for example, we're using our electric product. And now we are making -- running tests with fleet owners with a hybrid product. This has to be regulated, so we can begin selling. And now we're in the phase where we can see the beginning of the sale of this product, which will be transformational for us because it saves a lot of fuel and with the high cost of fuel, we have the need to be more also more friendly to the environment. This type of product, we have hopes concerning its future. In this line, another division that was created within our Fras-le company, is Smart Composites. What are Smart Composites? They are materials that are specific with engineering substituting steel. And the first product is in production today. It began -- we began production in August. It weighs 65% less than steel. The weight is lower. It has the same durability, and it is extremely competitive in terms of cost. If you imagine the impact of 65% lighter, the vehicles become much lighter and thus, they need more energy -- they need less energy, less fuel to operate, and they increase the [ third o ] for transportation companies, things become more favorable. So we're very optimistic concerning the future of our Smart Composites. We also launched our concept trailer truck 1.5 months ago. We have a concept product with 1,000 kilograms less with a lot of embedded electronics, automatic covering, using structural adhesives, truly something very important that is becoming important, not only in Brazil, but also outside Brazil. This project specifically our concept trailer truck was created by our OEM division. So these projects give you an idea in these few minutes of the why we are so optimistic in relation to new technologies, our obligations with the environment and the preparation of our company for the future. But we have another product that we announced to the market 30 days ago, which has to do with the new company that we created called NiOne. So what will this company do? NiOne? NiOne will produce nano particles of niobium. And what is the nanoparticle of niobium? niobium you know very well. It is a rare mineral. It's expensive, but it's extremely important and improves the mechanical properties of steel-cast products. It exists. It's not new. You have seen this, but we created and we created and we patented our Fras-le company and Randon companies together, they have a process to transform niobium into a nanoparticle. This process, the transformation or the creative creation of nanoparticles existed, but it was not commercially viable. We patented the process of creation of nanoparticles, which are commercially feasible, viable, and that's why we're optimistic. The applications, we're still discovering the potential that this has, but to apply paint, for example, it lasts 3 to 4x more. This is already a proven test and the fact that it's a nanoparticle, thousandth of microparticles, the internal reactions, the connections, the benefits are much greater then if you used only microparticle of niobium. So you can use this in paints, protections. You can use in steel. You can use in cast products. All of this with great benefits and great gains of productivity, performance and resistance. So as I mentioned, we are still learning all the potential of this. We are very optimistic and positive with our NiOne company. And this process, as I said, is protected by patents on a worldwide basis.

Okay. So you will see next, our colleagues talking about our projects, our trends, so please stay with us. And once again, thank you for participating with us. The examples brought by Sergio are the result of the movements, the actions we have had that become products and processes in our strategy of innovation. Now I pass the floor to Paulo Prignolato, our CFO and Director of Investor Relations. He will comment on the earnings of the quarter.

Thank you, Daniel. Good morning. It's always very good to be with you, our shareholders, market analysts and public in this event. I'd like to share a little more about what we are doing to reach positive results during 2021 and especially Q3, the fifth quarter in which we had record revenues. Without doubt, Randon is living in a very special moment of its history. The market once again has strong demand, both in semi trailers and auto parts, they had good performance, with an increase in sales in practically all the product lines. The positive movement can be seen not only in the domestic market but also in the international market. with the current level of the exchange rate, the high prices of some commodities and vaccination, the countries to which we export or have operations are buying consistent volumes once again. The strong demand allowed us to deliver great volume of products, which help to dilute our fixed costs and in the maintenance of our margins at good levels. in spite of the scenario of inflation and scarcity that continue in the market. The strong demand allowed us to deliver a great volume of products, which helped to dilute fixed costs and the maintenance of our margins on good levels, in spite of the inflation and also scarcity in the market. Apart from operational results in Q3, we had two nonrecurring events concerning tax credits that affected positively our results. One of them was the approval of the credit process in the exclusion of ICMS tax in our unit in Randon, Sao Paulo. The other was the recognition of tax credits with the decision from the Supreme Court on the non instance of income tax and social contribution on net profit on SELIC. In our materials, you can follow with details the amounts that were recorded. In this quarter, we had highlights not only in terms of results, but also important movements related to our growth as a company. With the expansion of Randon are quite in the conclusion of the acquisition of assets of Menegotti Casting Company. As Daniel already mentioned, we are very enthusiastic in building our future in innovation, in our processes, in products and in the trust and commitment of our employees. Therefore, without doubt the positive results have been the result of this constant surge to always do more and better. One of our strategies is diversification of businesses. On the graph here, you can see how our revenue is distributed by division, auto parts, financial services and OEMs. The most representative, which is the auto parts division, concentrated 52.3% of the net revenue -- consolidated net revenue in the quarter after -- with a great demand from OEMs and aftermarket, apart from revenues from companies acquired in the last months. The OEM division also had a relevant participation, 45% due to the record sales of implements and good volumes of railway cars. Financial and digital services had a 2.7% participation. When we analyze the revenue by product, we observed that the most representative line is semitrailers with 37%, followed by Fras-le's products that together represent 26%. In exports by geographies, we noticed the relevance of the block form by Mercosur in Chile, which represented almost half of the exports of Randon Companies in Q3, and this shows the recovery of these economies and a good moment because commodities and agricultural products and minerals are doing well. When we look at the market, we see 60% of the revenue comes from OEMs. But within this group, we have a great diversification with semitrailers and trucks of many types and also to different segments. Apart from railway cars and vehicles for urban mobility such as buses, subway and automobiles. Now talking about the general view of the automotive market, the numbers are very expressive, as you can see on the screen. The production of trucks, for example, grew 86% in the comparison year after year. We also observed significant variations in the semitrailer market. Sales grew more than 16%, and exports grew almost 91%. Concerning the economic context, 3 aspects influence positively our businesses: for the expected growth of the GDP of 4.9% for 2021, the harvest of 253 million tons of grains and the exchange rate at BRL 5.50 to $1, thus benefiting our exports. The points for attention are the increase in interest rates and inflation, which are at high levels and may bring negative impacts for demand in the medium and long term. After going through the highlights, in the quarter in talking about the macroeconomic context, I will comment now on our numbers. Beginning with the indicator, net revenue, which grew 64% in comparison with Q3 '20 and 80% in comparison with year-to-date. And a highlight, the good performance in the market in general, which enabled the growth of all the volumes in all the lines, also the sale of railway cars with a delivery of 171 units in the quarter and revenues from new operations and increase in exports, which you can see grew 50% in the comparison with the quarter and 45% in the year-to-date. As in Brazil, agribusiness has created many opportunities in South American countries. Apart from this, the price of mineral commodities, such as copper in Chile, have generated important demand for transportation. These factors added to the level the exchange rates allow the company to make progress in many markets. Nevertheless, we have to say that there are points that need our attention, especially logistics, such as the lack of containers, which increased the price of ocean freight around the world. If this can hurt some routes and operations on the other, it makes Brazil a cheaper alternative for imports to some regions, especially neighboring countries. Going now to the EBITDA of the company. We see an increase of 47% comparing year with the previous year and 101% year-to-date 2021. We reached BRL 397 million in the quarter, with a margin -- EBITDA margin of 15.9%. As I mentioned previously, we have nonrecurring events in the period. Adjusting the EBITDA to these effects, we have an adjusted EBITDA of BRL 389 million, with an adjusted EBITDA margin of 15.6%. As we have said during the year, the inflation and inputs has had an impact on this indicator since the inventories with higher costs, higher prices are being consumed. The high volume of sales was a key factor in Q3, allowing us to dilute fixed costs and maintain margins at good levels. Apart from this, we have also reap the fruits of the capture of synergies from new operations and the return on investments in automation and productivity. These fruits that have result in the increase of profitability in the company. Net profit went -- rose 149%, reaching BRL 288.5 million in the quarter, with a net margin of 11.6%. In this period, we have the positive impact of BRL 133.7 million concerning tax credits, which I mentioned previously. Even excluding these nonrecurring effects, we can see the profitability of the company having a good performance during the last quarters. All the growth of our operations is supported by a solid and safe cash position. At the same time, this has demanded an increase in NCG, especially to support the level of activity of the company, and the addition of new businesses. This represented an increase in the net debt, reaching BRL 1.8 billion at the end of September 2021. Our leverage went to 1.02x the EBITDA in the last 12 months without the numbers of Randon Bank. We consider this a healthy level for the indicator. We also observed in the period, an increase in the average cost of debt in local currency, especially due to the increase, the rise in interest rates in the last months. To grow and prosper, you also have you have to invest in CapEx in new businesses in this quarter, Randon Companies invested BRL 180 million. Here, you can see some highlights of the period. In a nutshell, BRL 71 million in assets, BRL 52 million in the constitution of Castertech Schroeder, with the purchase of the assets of Menegotti, BRL 10 million in CTR for the constitution of NiOne, and approximately BRL 46 million in the payment of earn-out for the acquisition of Nakata. Talking about Randon in the capital markets in this quarter, the liquidity -- the daily liquidity of RAPT4 went to BRL 43 million, and then we closed the period with a base of 41,000 shareholders. Of the total shares in circulation, most of them are with institutional investors and foreigners. Before concluding my participation, I'd like to share with you a fact that made us very happy for the third consecutive year, Randon was recognized as one of the most transparent companies in Brazil by ANEFAC. This award then allows us to continue expanding our governance, improving the -- our results and reports of our results for stakeholders. For us to be here in a clear and transparent way our numbers, this makes us very happy. It gives us great satisfaction. You can count on us. And now I invite Mr. Esteban to share information about our business segments, together with the directors invited.

Thank you, Paulo. Good morning. It is good to count on your participation in our APIMEC meeting. Today, I'd like to share the presentation with the directors that are that are heading our operations. I will begin with the OEM division, which reached BRL 1.1 billion in net revenue during this quarter, with an EBITDA of BRL 133 million and a margin of 11.9%. To speak about the highlights of this division, such as the recent expansion in the plant that we acquired in another important movement, I invite our Directors Superintendent of the OEM division, Sandro Trentin.

Hello. The OEM division had another positive quarter, the best in its history, continuing with the good results from previous quarters, where we had increase in revenue, volume and profitability. We observed this year a consistent demand in semitrailers, both in the domestic market and exports. The most relevant segments have been the ones linked to agribusiness such as [ Indiscernible ]. The other families of products also had good performance. semi-trailers, also for meat packing and railway cars due to the increase in transportation. We reached the daily average of 143 implements manufacturers by [indiscernible] in Q3. And with 150 on average in September, the highest number. So we reached 9,000 units of semi-trailers sold in this period. Approximately 8000 units for the domestic market and a little more than a 1000 units for the export market. This result is due to an increase in capacity in all our plants, the most relevant was the inauguration and expansion of Randon Araraquara. Apart from new capacity, we gained flexibility, allowing this unit to produce implements and railway cars at the same time. We also announced also the building of a railway terminal that will connect to the railways, optimizing our delivery of railway cars and delivery of materials, making us even more competitive in this segment. This investment has the objective of putting Randon for a new cycle of growth in railways in 2021, which has showed a recovery in comparison with the previous years. The first semester was marked by the sale of 141 railway cars above the number seen in the last few years when the railway market was affected by uncertainty in renewing the model of concessions, In Q3 was even better overcoming all of the volume of the first half of the year with a 171 units. Our best performance since the first quarter of 2018 due to a new environment in this sector. Apart from Araraquara, I'd like to highlight also our units such as Randon Triel, which has become a an export base with customized products, Randon [indiscernible], which is now 10 years old of a lot of success and the beginning of the industrial operation in [indiscernible], which is focused on railway trailers. In the export market, the good performance of the Argentina plant in [ Indiscernible ] which is increasing its production and now with challenging times in this country. Another business line, which is a highlight in the OEM division, is the aftermarket for parts net revenue of more than BRL 100 million in the quarter and has grown strongly. This is a segment of great potential for which we have dedicated a lot of energy as all our distribution network. This is another important point. Together with our partners, the distributors, new units are being built to expand our capillarity in sales and to increase even more the sale of implements and parts. We already have 175 points in Brazil and abroad, one of the greatest distribution networks on a global level that continues to grow. To conclude, I would like to comment that this year, we delivered our product number 500,000, 0.5 million of semitrailers produced in our long journey, an important landmark reached by the recognition of our history, brand, innovative products that bring a great edge and also our excellent network of distribution with a better return on investment. And now one more step, we are with Randon Concept Trailer, a product -- a concept product that anticipates the future and brings new technologies for the segment, a true lab on wheels. Therefore, I invite you to see now the launch of this product which is a revolution in cargo transportation. Thank you very much. [Presentation]

It is very good to see the OEM division reaching record production and investing in new products and segments. Now let us go to the auto parts division, responsible for 52.3% of the net revenue of the company, and which represented BRL 1.3 billion in the quarter in net revenue, with an EBITDA of BRL 249 million, and a margin of 19.2%. I invite two directors to explain in more detail the recent movements of the company in these divisions. Let's begin with Ricardo Escoboza, superintendent of the -- for OEMs and road implements. He will talk about the expansion of Castertech and the performance of the business and other highlights of this and other companies.

Good morning. Before beginning, I'd like to thank the participation of each one of you in our APIMEC meeting. We are in an exceptional year for the auto parts companies. I will focus on those linked to the supply of products for commercial vehicles and manufacturers of road implements. Next, Anderson will talk more about the Fras-le division. As you know, the numbers given by Anfir and Anfavea show that we are going to a year of record numbers in road implements, and the best year for the production of trucks since 2014. With this, the demand has been intense during the whole year, whether it be brake systems, coupling systems, suspensions, axles and cast parts, among other parts. And the third quarter was the best in the year. in volumes and one of the best quarters for auto parts companies. With this good moment, I would like to comment with you some highlights of our companies. At Castertech, we went through important movements, increase of capacity and expansion in portfolio in the last 12 months. At the end of last year, we acquired Fundituba in Sao Paulo, a foundry with Castertech [indiscernible]. And the beginning of the year, CNCS, [ machining and technology ]. And on September 1, we finalized the greatest M&A of this company with the conclusion of the purchase of the assets of the Menegotti foundry, with which we made Castertech Schroeder. We made three acquisitions in 9 months, and with these new companies, Castertech reached the potential of more than 100,000 tones of foundry per year, making it one of the largest in Brazil. Apart from the foundry, we added machining and assembly, which add even more value to our products. Apart from the segments, road vehicles, we expanded our presence in the agricultural market with good opportunities. In suspenses, we are now part of the consortium of Volkswagen trucks and buses. We're delivering the suspensions. The client now counts on this new product since July after a great period of development and testing and approval -- Now it's a regular product for Volkswagen and will become part of the METEOR line for heavy vehicles. At Master, we have -- this company was the first joint venture of Randon Companies and auto parts and was the beginning of our diversification process as a company. During this time, we produced more than 15 million breaks for commercial vehicles, 5 million cylinders and 5 million disc brakes. Apart from being a leader in brake systems for commercial systems in Latin America, Master has an important volume sold to the U.S. All the units have presented excellent performance due to the growing volumes but also investments in productivity and in the capture of synergy with the companies, but I'd like to stress the continuous development of auto parts division and advanced technologies connected to megatrends in the sector of commercial vehicles and implements.

Thank you, Ricardo. Before going on to the Fras-le division, let's see the video to launch the full care suspension from suspenses. [Presentation]

This new product from Suspensys is very good, showing all their technology and benefits for the clients. Now let's talk about the Fras-le division that really reported its results last Wednesday. The Superintendent, Anderson Pontalti, will talk about the companies that make up the Fras-le universe and their markets and the performance of the quarter.

Good morning. My objective is to talk about Fras-le, the last quarter, Q3 2021. In fact, it's a very positive quarter, reflecting like the previous quarters, good conversion, solid revenue, reinforcing the thesis of diversification of markets, geographies and products that Fras-le had in its last expansion efforts. The quarter had record results, growth in all the operations, all contributed a lot for the result to be very solid. We also had a year of Nakata. We celebrated the year of Nakata and with a performance, as expected, with all the transformations and synergies being captured during this period, a lot is to be done, a lot is to be captured in terms of synergies, but Nakata has brought very good benefits for all of us. The report is available on our Investor Relations site, ri.frasle.com. You have all the details in our release and the presentation made in the Fras-le universe. Now talking about sales performance. In the domestic market, we observed less a drop in sales due to the difficult that OEMs have to position their volumes in production and logistics problems in the international market, and this made the environment or the business of used vehicles to grow above average. Today, for every new vehicle, we're talking about the sale of 6 used vehicles. For Fras-le, this is positive. The vehicle that is on the road that is older, needs more repair. Consequently, our model with after parts, we have items that need repair and substitution make this volume to help in the sales performance of Fras-le in the domestic market. OEMs. When we look at OEMs, heavy line, numbers are very strong. Agriculture is bringing demand for trucks, semitrailers. Consequently, Fras-le, which is market leader, in friction material for heavy vehicles, benefits from all this scenario. So the international markets recovering open economies after COVID incentives from countries and more liquidity in the market makes the international market demand more products. And since we have most of the footprint in our plants in Latin America, we are having a unique advantage since the restrictions imposed by China due to the energy crisis or inflation or difficulty due to international freight costs, open an important window for us to export and benefit its industry. Including Fras-le. As a relevant fact, I would like to talk about the launch of Smart Composites. In last year, we were -- we prepared the market, we informed the market that we were working a lot on the launch of alternative materials for electric vehicles. Electric vehicles will have to be heavier. Batteries are very, very heavy. But we will need, due to energy efficiency, to remove some of the mass of these vehicles. Smart materials that Fras-le launched in its first product, for example, these parts reduces significantly the weight of the vehicle, also giving the advantage of being able to transport a greater net load. But this is only the first of many projects, which will come soon. At the right time, we will be able to tell more to the market. We made this announcement, but many products are in development process, and this is how they will be launched. We use a lot, the expertise of Fras-le in working with chemicals. And with this knowledge, with the growth of structural design, intelligent design. We launched this line. We believe that in the long term, this will be a very important line in the portfolio of products of Fras-le. Thank you, and an excellent demand.

Thank you, Anderson. And I'd like to reinforce his invitation. If you want to know more about Fras-le, look at -- please look at Fras-le universe at our website, ri-frasle.com, where the main executives presented a little more of the results and the strategy of the company. Now migrating to our financial services and digital services division, I'd like to highlight some points. First, with the financial operation of this division, we finance part of our clients, distributors and suppliers, whether it be by full sales or credit via Randon Bank. With the progress of the other divisions, we also observed more revenue in this division, not only with the growth in volumes, but also the increase in price of finance products. Another important point to highlight with the increase of the interest rate, the bank also increased its cost in loans, which affected the EBITDA margin of this division. Finally, I highlight the connection with startups through Randon Ventures, which has seven companies invests and 12 with co-investments, accumulated investment of BRL 18.9 million. To close our revamp, I invite our CDO, Daniel Ely, to talk about the objectives and strategies of this division and how important it is for the digital transformation of Randon Companies.

Hello. Good morning. It's a great pleasure to be here with you, sharing with you and APIMEC, Our transformation process, as you have observed in the previous presentations, Randon -- the Randon Companies are developing and expanding with innovation in all the areas. I would like to say this to you, reminding you that this process for us begins by placing people at the center of our strategy. Innovation strategy is a consequence of how much we are being able to make progress in a fast way in changing the way of thinking, mentality, paradigms in our company. I'd like to highlight 4 points that are extremely important for us, for our morning, our conversation, and which is connected with everything that was presented. First of all, this is not a journey that began 1, 2 or 3 years ago. We work -- we have been working on this to change the culture of the company since 2014, 2015. And we truly were able to expand and accelerate in the last 3 years due to this base that was built, rethinking some points in our culture. We decided to strengthen some of these and other points in the culture that are going through a transformation. This is the first point. So this is a process that was not born yesterday. It's a consequence of a journey. The second point that I would like to highlight is that all this journey of transformation of culture has enabled us from Randon Companies to really giving new look to innovation in all our companies. We innovated since we were born in 1949, always strong with focus on products, technologies, processes, as Sergio mentioned previously. But we expanded this innovation also to the organization area, the other areas of the company, and for services. In other words, there was -- innovation now is more democratic. It's present in all our companies, in all the main areas and processes. And this makes us be able to accelerate a lot our goals in the last semesters. So we had many new things linked to these systems. This is the second point I'd like to highlight. The third point I'd like to comment quickly, the issue of services. Services were always an area which was important through the Randon Bank and also pool sales, especially for the sale of road products and also pool sales. We have a very big plan. In the last quarter, we gave significant steps to prepare the whole platform that we are calling Randon Services, where all these services will be in a single place, where you will be able to access financial services from a digital bank or a digital pool sales, insurance company and others. And this project gained speed in the last few months, beginning with digitalization of the bank, creation of R4. R4 is the first startup born inside Randon Companies in partnership with another technology company, and it creates our bank-as-a-service, which is this technology bus, allowing bank services to be extended to other ecosystems. And talking about ecosystems, our public, our goal is logistics and transportation. Logistics. This is where we want to grow our revenue and also more profitability. To close, as a fourth point, all of this happens because we have been working intensely on this change in mentality and also in terms of open innovation. Open innovation allows us not to continue alone, to work in a collaborative way, working, as I mentioned, with start-ups, working with other companies for solutions to our challenges. And this innovation platform, which is our Conexo now became a year old. Today, we have many challenges of the Randon Group being solved together with this platform where we have entrepreneurs of our community from Brazil or other start-ups. This enables us to accelerate our steps in all these projects for innovation, whether it be product, process, technology, innovation in these administrative areas and in -- as I said, in innovation and new services. So these four points show that we're on the right track with everything we mentioned this morning, and this will allow us, yes, to increase even more our speed, our commitment with future results.

Thank you, Daniel. Before going on to the Q&A, we want to hear the Chairman of APIMEC, Mrs. Lucy Sousa.

On behalf of APIMEC Brazil, I'd like to thank Randon, led by its Chairman, Daniel Randon, for this meeting. 21 years of meetings where -- and I'd like to congratulate the company for the award, also our associates, analysts and our partnership, APIMEC, now APIMEC Brazil, be able to continue with Randon for many years. Thank you.

I'd like to thank the participation of all the directors in our APIMEC meeting that helped to explain the context of Randon Companies. And the audience with us, now I invite you for the Q&A session. Thank you.

Thank you, Esteban. I'd like to thank all those who were with us. We will begin the Q&A session. We received many questions. We're very happy. [Operator Instructions] Our first question will be made by Victor Mizusaki, Bradesco BBI.

Congratulations for the results. I have two questions. Looking at the financial services division, we see a drop in EBITDA margin. You mentioned the increase in digitalization expenses. In the presentation, you mentioned Bank-as-a-Service. Do you have other projects in financial services that are demanding more investments? When should we see the results revenue? And can we expect more profitability from this division? And the second part concerning M&A strategy, the last transactions were focused on Brazil. Are you looking at opportunities outside Brazil?

Well, Victor, thank you for following us. Thank you for the question. And to be able to talk about services, Well, three factors that caused the drop in margins. We mentioned during the video conference and in the report, one of the factors is the rise in interest rate, which increases the price of loans. Second factor, a change in systems in the pool sales, and this paralyzed the sale of pool sales quotas for some time. but this was necessary to increase efficiency and the scale. And the third, Daniel mentioned, digitalization investments of the Randon Bank. We're still in the ramp-up we should expect additional investments in the bank due to this digitalization in pool sales too, to make it more digitalized. So in the short term, we shouldn't see a significant change in relation to the services operation. But we believe that this will be done to increase scalability of this division. Internally, we say that for the time being, we're really burying the -- we're burying the structures and the pipes in the future, we will get the results. We don't have a guidance about margin in services, but services as a whole, not only Randon, but as a whole, especially digital services, tend to have a better margin than industrial services, industrial production. Concerning M&A, you are right. Recent acquisitions were concentrated in Brazil, which is where we identified the best opportunities. But one of our objectives is to decrease volatility in revenue and margin in the long term, and we understand that for this to be feasible, we must also advance in mature markets that have less volatility and can attenuate market movements. We're looking at other markets outside Brazil, our pipeline in project is always active. We always look at opportunities aligned with our strategy. So yes, we're looking inside Brazil and outside Brazil. And the long-term objective is to decrease volatility, which is more aligned with purchases outside Brazil.

The next question comes from Aline [ Indiscernible ], BTG Pactual.

Good afternoon. Two questions. The first is on price increases. How do you see the impact on margin next year? Are you absorbing part of the price increases? Or are you transferring them to prices? How is competition in implements? And the second question, M&A, consolidation, auto parts -- Can you comment your vision in relation to consolidation of the company in auto parts?

Thank you, Aline. In terms of raising prices, it was inevitable due to the pressure on costs. We did not we did not increase prices, not even by 50% of the higher costs. Our objective is to mitigate price increases through gains in efficiency, gains in scale, like we saw in the Q3, although we saw the cost has a great impact, we increased our scale. Thus, we diluted costs and improved our EBITDA margin when compared with Q2 this year. So the price increase was sufficient for us to maintain our margins. The cost in CPV was much higher. In terms of market, as Randon increased prices, our competitors also increased prices. It was not opportunistic. It was raise to maintain healthy margins and the production capacity. Concerning M&As for auto parts, I will comment a little on our vision in relation to this. Our vision, we try to have three objectives when we look at auto parts M&A. First, we want to increase exposure to aftermarket parts. We want to have a more stable flow of revenue aftermarket has this characteristic. The second objective is to look at new geographies. The recent movements have been in Brazil, but we look at other geographies. And the third increase the portfolio of products. And the example Fremax that produces disc brakes, Nakata, which supplements Fras-le and recent acquisitions of Castertech, that opened doors, not only in terms of capacity but also doors in new markets such as parts for agricultural equipment. These are the three pillars that we look at when we evaluate and study M&As.

[Foreign Language] Our next question -- some questions here, Gabriela, [ Jans ], [ Jose ], are individuals, investors and the questions have to do to the railway sector how we see the expansion in the city of arcade for this railway market, which should improve in the future. And together with this, the increase in capacity not only in Araraquara but also in other operations, how this is aligned with the company's strategy to recover market share. The pressure we have on market share and your -- what you expect for 2022?

Okay. Thank you, [ Gabriela ], [ Jan ], [ Jose ]. Thank you for participating with your questions. Well, beginning with railways, we've seen the renewal of concessions, new auctions, everything in the agenda that is very positive. When we look at the metrics of railway transportation, it's 18%, knowing that there is a giant potential when we compare with the U.S. and Europe. The railway transportation is more efficient. We can transport more cargo with less cost. This favors other industries and consumer. The market tends to be promising for the next 5 years. The operators announced investments in railways. Initially, these investments will concentrate on the tracks, the infrastructure and later on railway cars. So this may bring more demand for this specific segment of the company next year. That's why we expanded our plant Araraquara. We created a dedicated line for railway cars. Until then, our plan was versatility. It could manufacture semitrailers or railway cars, but not both at the same time. And since we believe with the numbers that we see for semitrailers and railway cars. 2022 may be a year with interesting volumes. The company decided to make this investment for a dedicated line for railway cars. In Araraquara, we can produce semitrailers and railway cars at the same time without having to stop one or the other. Now concerning the increase in capacity, yes, we have a booming market. You can see in the release that we published market share of the company is lower than what we want. We have 31 -- between 31%, 33%. Our objective is to have a market share above 35%. We were not able to reach this due to capacity. It was not because of price, but due to delivery capacity. In the third quarter, we reached a record 143 products a day, an interesting average due to the investments we made recently, Sergio mentioned especially the issue of automation, use of automation, rationalization, standardization. This allows us to do more with less. And this is what we want in relation to increase in capacity from now on. We don't intend to build in plants. We want to invest in processes, automation, which will give us, not only an increase in capacity, but also flexibility to adjust production, if necessary, when there are -- when there is a crisis in the market. So automation, innovation, we want to do more with less.

Our next question, we had Minister Tarcisio in a road show with investors showing projects in railways. So in the long term, more -- another 5,000 kilometers of railways, this represents BRL 80 billion in investments in railways, infrastructure for the country. As Esteban said, close to 20% in the metrics, it may get to almost 30% in the future railways, reducing road transportation. But we look at this opportunity as an increment in railways and road transportation because railways go from point to point. They will need a lot of trucks, semi-trailers to continue the transportation. We're optimistic. Now we have regulations and others that contribute were the long-term increase in our GDP. So we have part of these concessions is -- there are many opportunities for growth in this market in the medium and long term.

Now we have a question from Gillie Diane, JPMorgan. And her question, what are the opportunities and threats with the use of electricity and your pipeline for the next few years. Use of electricity new opportunities.

Thank you, Gillie. We have studied the three megatrends in the automotive industry: electric vehicles are one, Smart Composites, and the third is connectivity, IoT. And for all of them, we already have initiatives in practice. For electric vehicles, we presented the DCSs, our electric axle. We have other initiatives. We have other projects. In Smart Composites dedicated line. And in IoT, we are studying some solutions, some advantages of application, concept trailer uses on an experimental basis some of these connectivity technologies. In terms of electric vehicles, we see this -- it's very -- we need time we're not waiting, but we don't believe that electric parts will be overnight. There is a lot to be done in infrastructure to allow electricity to be used in heavy vehicles in Brazil. In Brazil, we have less than 15% of the roads being paved. So we have a lot to do and then use electricity in a large scale. Another obstacle, it is a country that is very large. We know that electric vehicles have an autonomy problem, and this can cause a bottleneck, a barrier for the use of 100% electric vehicles. So we're seeing, first, the hybrid, for a transition. And now the hybrid, our electric axle, is a solution that can be used almost immediately. Another point where we were recognized is on weight reduction. Sergio mentioned our concept trailer. It weighs 1 ton less in relation to normal vehicles, less fuel consumption, even with electric vehicles, this will have to be substituted by the weight of the batteries, and this makes our products better, more adequate for the use of electricity. If Daniel wishes to supplement, we're very optimistic with the projects. There are some steps of improvement to improve competitiveness, lighter batteries, more efficient batteries. We also have projects that reinforce the increase of -- to increase the speed to replenish the batteries. We have tests, a 20% to 25% reduction in the use of fuel. Even with a higher cost, we begin to see that some companies have this demand because they have ESG ambitions published. So they are looking for more value-added products. So for us, we're very optimistic. We see as an opportunity. And the hybrid model is the most efficient, but new technologies and autonomous vehicles are being researched and this is included in our positive vision as opportunities for Randon Companies to grow, we don't see it as a threat. So these, we're making investments. We're very optimistic with our opportunities, and Randon Companies will thus reach its goals for 2025, 2030, especially in emissions.

The next question comes from Egor [indiscernible] Investments. First, thank you, David. Congratulations for the results. The M&A. I know that Randon has strong partnerships in South America. Are you considering expansion to other markets exceed? Have you defined the model to build these products? Will it be services, sales?

Thank you Egor. Concerning M&As in other geographies. In fact, we study other geographies. There is a fact that I always like to mention, in the global market for trucks and semitrailers, 1/8 only is below the equator, South America, Africa 7/8 are in the Northern Hemisphere, where we have the largest consumer markets, U.S., Canada, Europe, Russia and China. So there is a lot of scale, a lot of opportunity, but we know that it's not a simple movement, both in terms of opportunity to enter these markets due to the culture and products. Those who don't know the product, it's not only -- it's not only selling the same semitrailers sold in South America to the U.S. we have to adapt to local legislation. We have to certify, and there's also the cultural aspect, the preference, the brand and also product issues. In relation to a [ cease ], we haven't defined the model, both the sale, whether it's going to be sale of a product or rental of the electric axle and also whether it will be used only in new models or if we can use it to substitute semitrailers that are running and applying this new technology too. Yes, it's possible, but we're studying the best model to take it to the market.

When we're close to the end. Last question now. And to I will hear what I will join 3 questions. We can answer many topics. The questions come from Renata Cabral, Citi; Carlos, Insider, Flavio; [indiscernible] Investments. They refer to our expectations for 2022 and the risks and opportunities we see ahead of us and a specific point, how the interest rate can affect Randon and the capital goods market? Can this influent and also scarcity supply chain for next year. We know that this year had a lot of restrictions challenges. How can this impact Randon next year. So these are the questions And we thank you all for your participation. Okay. Thank you Renata, Carlos and reminding you, the questions that were not answered, our team will get in touch to give you the answers. While concerning perspectives for next year, Hanabi yesterday published perspectives on a new record harvest, so 68% of our revenue comes from the OEM division. And it's linked to agribusiness. This is very positive. The main entities in the market believe that next year can be a year that is very similar to 2021. We see this as positive. So it can be a record year for semitrailers. A year with a more significant recovery in trucks, volume getting to 150,000 trucks. So it's a year of stability 2022, but at a high level. In terms of challenges, we have to monitor the interest rates the rise in interest rates and the scarcity of raw materials. There is pressure on the supply chain, which continues to be a concern. Now concerning the interest rate, different from the past when we had artificially low interest rates, and this provoked an artificial demand. This year, the demand we're seeing is due to need. There are no trucks that are parked. They are all running. They are being bought because there is the need for transportation. So, while we have this situation, this production of wealth, we believe this demand will continue. Our concern may be with interest rates when they get to double digits. This could bring a de-acceleration for the economy as a whole and not only semitrailers or trucks. And another concern concerning the scarcity of materials, we are not directly affected by the lack of chips or components as we see in light vehicles, in passenger vehicles. There, we see interruptions in the production chain. In heavy vehicles, it's not the same situation. So we continue producing the release of OEMs, show a continuity of production. And the type of chip that goes in heavy implements, heavy trucks is not the same that is used in passenger vehicles, light vehicles. So in general, it's a product that has a better profit margin, so they give priority to heavy vehicles. For this reason, we don't see this as a restriction for production next year or for the market next year. But we have to pay attention to this point, we have to be aware of this, and we do this on a daily basis with suppliers looking for alternatives in our supply chain to avoid stopping our production.

If you allow me, Esteban, just to conclude this issue of the supply chain, I believe that the market noticed in the last quarters, we invested additional resources in working capital. And this is not only in our companies, other large companies in the sector, too. And it was the right decision. So we have more inventory of inputs in raw materials. We increased our inventory to anticipate ourselves to these problems with inflation on materials and to avoid lack of supply. So it's a trend that should continue bearing in mind that we have a capital structure that is robust. We have conditions to do this.

Well, we'd like to close our event, our conference call, APIMEC Meeting, we'd like to thank our directors, Paulo, Daniel, Esteban and other directors that participated, too, and the RI team, [indiscernible], for this fantastic event. The questions we were not able to answer, we will answer later. And we'd like to say that our channels are open, our RI department, our e-mail to be able to talk to you when you need more information. Thank you, and we will meet again in the next event.

Thank you.

Thank you.

Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]