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

Good morning, everyone, [indiscernible] an audio-video conference where we will present the results of Randon for the first quarter of 2022. I always like to remind you that the information presented today are not a guarantee of future performance, involve risks and certain premises because they predict future events. So it depends on circumstances that may or may not occur. Having said that, let's move on to today's agenda. We will start the video conference with the presentation of our CEO, Sergio Carvalho, who will speak about our business. Then our CFO, Paulo Prignolato will talk about our consolidated results. And finally, Esteban Angeletti, who is the Director of Finance and Investor Relations, will give us the results by verticals. After that, we'll have a question-and-answer session. And as always, I'd like to invite you to participate. [Operator Instructions] Remember that our event is simultaneously translated into English and also in sign language. [Operator Instructions] This will be made available on our Investor Relations website immediately after completion. Let us now go to the initial introductions, starting with our CEO, Sergio Carvalho.

Greetings to everyone. Thank you for being with us at the video conference of results of the first quarter of 2022. After many achievements and records obtained last year in a very demanding market with our companies working at full capacity, we began 2022 knowing that we would face as a less severe scenario for business. Nevertheless, we challenged ourselves, and we presented a robust guidance with growth of our operations, indicators that you can see on the screen. When we planned 2022, we were already expecting high inflation and an increase in the interest rate, for example. But we didn't count on the Omicron variant, the war in Russia and Ukraine and all the impacts, either direct or indirect. Nevertheless, I'd also like to highlight that, even in the midst of this more challenging scenario, we had a great first quarter in our companies. And I am convinced, the biggest differential for this strong start of the year was the incessant efforts of our teams in each of our over 16,000 employees. I also have to thank them and say that the individual effort of each one is what resulted in this collective success. We have been dedicated 2 aspects of sustainability, investing in health and safety of our personnel, developing talent and always having a pleasant work environment, recognizing and developing the excellence of our teams. A few other highlights from the beginning of the year. When we look at our revenue, this was the best first trimester of our history. Thanks to the high levels of sales and the prices of our products in Brazil and abroad and revenues from new projects. An important aspect is that despite the scenarios being very challenging, we made significant efforts in cost controls, which were essential for us to reach solid results, robust margins, as you can see on the screen. We continue to invest very -- with a lot of conscientiousness, focusing on productivity and innovative projects, reinforcing pillars to maintain our accelerated growth. We kept our debt at healthy levels. And we continue to deliver great profitability -- yield over the capital invested. So as you can see, quarter after quarter, our results have remained consistent, and this consistency is one of the attributes, which I'd like you to look at in greater detail with our companies. We continue to grow and evolving seeking to build a more sustainable future for Randon. We also were able to achieve significant funding during these first months of the year. In February, we had our ninth issue of bonds for BRL 500 million. And in April, Fras-le raised BRL 629 million. In this opportunity, we expanded our participation in Fras-le's capital stock, increasing our participation in this company, which is fundamental for the future strategies of Randon companies contributing strongly to the diversification of our revenue. So I'd I like to highlight another important step that we did -- that we took to reinforce our governance reporting to the market even more transparently, even one of our -- each one of our businesses. As you can see and we've reinforced this several times, we're growing intensely in a very accelerated manner over the last several years. Our revenue has more than tripled between 2017 and 2021. And we are on a path to deliver another year of growth. Just to give you an idea, based on the numbers of 2021, we have 3 companies that had more than BRL 2 billion in revenue each, and even our service and technology company, which despite being smaller, already show great future potential. Therefore, we decided to update the way in which we present our results. In the 3 divisions that you were already familiar with, which are on the screen, we now have 5 vertices. The trailers vertices, which focuses on our implements and its subsidiaries focusing on the manufacturing of trailers and parts related to this. You have auto parts and commercial vehicles, which have Suspensys, Master, Jost and all of its subsidiaries focused on these parts for the vehicle and agricultural machine markets. We also have motion control, commercial and light vehicles vertices. This is represented by Fras-le and its subsidiary. The fourth vertices is financial and digital services, concentrating and obeying consortium Randon Ventures, which is our financing arm for start-up investments. And finally, our advanced technology and headquarter vertical, which has the company's CTR, NIONE, Conexo and is dedicated to innovation. In this new format, we want to give you a possibility to a company each vertices in more depth. That way, you can learn about the potential of each one of these and its importance to our business model. And our vertices allow us to do this with more speed, executing our strategy with sustainable growth of our business. In this format, we're working internally, and we entered the market with our results of the first quarter of 2022. For those who want more details about the changes we made available on our website, several articles and other material -- with explanatory material. It's worth checking out. And finally, I'd like to reinforce that 2022 will be a year of several new launches, new projects and lots of innovation. There's lots of good things coming soon. We know that we have several challenges as we do every year. But it's in adversity that we find a way to overcome. And in the challenges, we become stronger to continue planning a Randon, which is larger, more modern and resilient. So now I give the floor to Paulo Prignolato to continue this explanation.

Thank you, Sergio. Good morning, everyone. I'd like to start by thanking each of you for your participation in this conference call. This is a moment, which we consider to be very important for our relationship with the markets, the financial markets, and we want to invite you to participate in the Q&A session. So starting with the trailer markets -- trucks and trailer markets, in 2021, we had a year with record demand in certain specific markets. Several customers decided to expand their fleets looking at the strong demand for cargo transportation and the favorable conditions in general. What we see now is that with the elevation of the interest rate, certain sectors such as retail and uncertainty in the economic scenario, the market has been purchasing in a more rational manner according to need. You can accompany on the screen the numbers produced, sold and exported in the first quarter of 2022. You can see that despite being at very healthy levels, we can see a slowdown when compared to the previous year. Nevertheless, the expectation is that 2022 show a significant level of demand especially in the segments related to agribusiness. Now speaking more related to our results is, as Sergio mentioned, we had records for our revenues in the first quarter, BRL 2.5 billion, an advance of almost 30% in relation to the same period of last year. This growth was due to the market volumes, which remain at sustainable levels and an increase in sales to the foreign market, both the exports and the Brazilian plants. Also, some of the revenue coming from the companies purchased after the first quarter of 2021. [indiscernible] [ Alten RTS ] and Randon Consórcios, and also an increase in the average price of our products necessary to make up for the effects of inflation. Speaking about the foreign market, we had $2 trillion, 48% more than the previous year. These are positive highlights of this indicator, strong demand for replacement parts in the heavy-duty line as well as agribusiness, which continue to drive the markets in South America despite the breakage in the harvest at the beginning of the year, recovery in inventories of distributors and winning over new customers and supply contracts. There is a point that we want to pay attention to regarding to exports. We have an increase in logistic costs, inflationary pressures and the exchange rate variance, which can affect the competitiveness of our exports. Going to looking at consolidated EBITDA, we had BRL 401 million with a margin of 16.2% in the first quarter of 2022. This is the best EBITDA margin since the first quarter of last year. This was only possible due to the excellent management and supplies, which mitigated a lot of the effects of the input, the good volumes sold, high levels of volumes sold and the recomposition of certain prices. We know that there will be several challenges to maintain our profitability throughout the year, but we're working on various fronts so that our margins can remain in good levels in the next quarters. As for the net profit, we had BRL 130 million in the first quarter with a net margin of 5.3%. Here, I'd like to remind you that we had several nonrecurring expenses throughout 2021 that ended up impacting the comparison with our indicator, a fact which did not occur in the first quarter of this year. Looking at the analysis of the net result for the quarter, which I've already mentioned some points regarding. But for this specific one, I'd like to compliment by talking about the financial result, which was impacted significantly with the increase in the SELIC interest rate and the exchange rate variance. Despite all the challenges, which I mentioned, regarding the results, we were still able to deliver a great quarter, thanks to our diversified business model. This was a major difference maker because it brings resilience to our operations. I'd like to share some information that highlight this model. In this graph here on the screen, you can see the origin of our business, by vertices. We have 3 industrial ones, the trailers; auto parts; and movement and control commercial vehicles, electrical vehicles. Each one of them has significant relevance in our revenue and present distinct characteristics that complement others. Opening up net revenue by product. We see good distribution between auto parts that meet the needs of different markets, whether it be OEM or replacement both in Brazil and abroad; however, the relevant product growth are the semi-trailers, the 31% of the total. It's important to note that within this segment, we have significant diversification because this is connected to various sectors of the economy, but especially agribusiness as well as the export market, where it is present in various countries. Speaking of geography, on the graph in the side, we can see that almost half of the revenue of the foreign market comes from Mercosur and Chile regions related to mineral and agricultural commodities, which have performed well. Another significant region is the United States, Mexico and Canada with 25.7%, relevant and significant destination for the vertices of control, movement in auto parts. When we look at revenue by segment, they are exposed to the OEM markets, replacements, exports and services. In this quarter, 58% started with trailers, for trucks and buses, agriculture machines that serve various economic segments. In Esteban's presentation, he will go into more detail regarding our business. Now going to the financial highlights. I start talking about our net debt. At the end of March, net debt without including the Randon Bank was BRL 2.1 billion with a leverage of 1.58x EBITDA over the last 12 months. Graph with the history of the debt, you can see the increase of this indicator in the last few months. This is explained primarily by the greater need for working capital within the company. In this graph, as a cause of NCG, we saw an increase due to the inventory and client accounts. Speaking more specifically regarding inventories, this happened largely because of the anticipation of purchasing of raw materials to mitigate inflation effects and to ensure supply. Another point regarding indebtedness that I should mention is the cost of debt in national currency that went 10.9% a year at the end of 2021 to 13.1% a year at the end of March 2022, especially because of the elevation of the SELIC interest rate. In this quarter, we invested approximately BRL 150 million in CapEx, paid in capital and residual payments for acquisitions made in 2021. The large most part of this value was the paying in of capital of Banco Randon, Randon Messias, [ Randon Peru, ] NIONE and Castertech Schroeder. Regarding the capital markets, preferred shares RAPT4 was quoted at 10.68% at the end of March 2022. The average daily traded for the quarter was BRL 31.4 million, and our shareholder base was made up of 40,391 shareholders. And you can see on the screen the profile of that base. I'd like to finalize my speech here and give the floor to Esteban.

Thank you, Paulo. Good morning, everyone, and thank you once again for participating in a Randon video conference. As Sergio mentioned earlier, as of this quarter, we started reporting our results in 5 business vertices. I want to start with the trailer vertices, which is responsible for 35% of the net revenue of the company for a total of almost BRL 1 billion for the quarter. I would like to highlight the following points: A reduction of volume in the internal market, but a 34% growth just sales abroad when compared to the first quarter of 2021. Even with lower volumes, net revenue increased 29% in comparison year-by-year due to a higher average price and the mix of sold products. EBITDA of BRL 119 million and EBITDA margin of 12% reflected the strategic decision taken at the end of 2021 to prioritize price and profitability. However, with the slowdown of the market, higher interest rates and higher levels of uncertainty, this strategy had a negative effect in reducing the sales volume, resulting in a loss of market share. But for following quarters, actions are being taken to seek balanced volume and profitability. Exploring origin of our revenue a bit more, we share on the screen the graph of the net revenue per product. Beyond the sale of semitrailers for the internal market, approximately 70% of our revenues. And we already explained, you can see that almost 18% of the revenue started in the foreign market, which I'd like to highlight, the good demand for the countries of South America, especially Chile. Other regions such as Africa, Central America had lower volumes, but with gradual growth. The sale of replacement parts represent almost 11% of the revenue for this vertice. And we have an intention for them to gain more relevancy in the following years. The sale of trailers remained low, 27 units. The sale to the agribusiness is around 70% of the revenue. Even with a breakage in the harvest in the southern region in the first months of the year, the expectation for the harvest of 2022 is for growth in relation to the previous cycle. Now going to the commercial vehicle auto parts vertices, which showed the main indicators. Net revenue of BRL 984 million, $11 million of revenue in the foreign market. EBITDA of BRL 170 million with a margin of 17.3%. As you can see, this was the second most significant vertices in terms of revenue for the company in the first quarter of 2022, and which provided the highest yield among the industrial vertices. In comparison of revenue with 2021, it was 54% of growth standby advancing volumes in some product lines, composition of pricing to mitigate inflation effect and buy acquisition made by this vertice. In this sense, it's important to highlight the revenue obtained by the new consolidated companies added BRL 93 million in comparison with the first quarter of 2021. The graph that appears on the screen shows you the distribution of the revenue for this vertice by type of product. The most representative are the axle suspensions of Suspensys representing 43% of the total followed by Castertech with 22%. These items are very significant because they are present in all the segments of trucks and semitrailers because they are essential to the system. Opening up more per segment, we can see good distribution between the different groups of products led by highway implements, 28%, and the heavy-duty truck line with 27%. Both segments very relevant to agribusiness demand. For the next months, we had to pay attention to some of the negative effects of trucks and buses due to the lack of components. But we expect minimal impact, which should continue with the robust portfolio, and we want to recover our inventories. Moving now to control of movements. Basically, Fras-le and its subsidiaries, we have net revenue of BRL 704.8 million, where 46% originate in the foreign market for a total of around BRL 74 million in this quarter and EBITDA of BRL 160 million with an EBITDA margin of 15%. As with the trailer vertices, this vertice dropped in volume, but with an increase in revenue in comparison to the first quarter of 2021 due to the recovery of pricing throughout the year and the good mix sold. Disclosure for Fras-le is the 3 main markets, Brazil replacement, OEMs and international market, which I'd like to highlight the following points: In replacement, we face greater competition in parts focused on the light line due to inflation and the reduction in the purchasing power of the final consumer. But in the commercial line for replacement parts, we see more robust performance driven by agribusiness and the retaking of urban transportation, the rebound of urban transportation. The heavy line also had good performance in the North American market. At the same time, our sales were positive. We faced a challenging and complex scenario with the exchange rate changes, conflicts in Russia and Ukraine and difficulties in global logistics. The graph on the screen now shows the distribution of revenue by product. You can see that almost half is with friction material. But with the acquisitions over the last several years, other groups gained relevance with sales in suspension, steering and powertrain with approximately 26%, followed by brake system components with almost 17%. Now we look at the financial and digital services vertices. We had BRL 100 million in net revenue, a 53.6% advance in comparison to the first quarter of 2022. 2021, an EBITDA of BRL 25 million with a margin of 25.3%. I'd like to highlight the following points about this vertice. An increase in the number of motors sold by Randon Consórcios, which reached record revenue this quarter driven by the agricultural market and by the increase in the interest rate, which makes a consortium, a more attractive option for the acquisition of assets. And the growth of the Banco Randon portfolio, which is directly related to the other businesses of the Randon groups since we've refinanced customers, suppliers and distributors. The margin had a drop because of the cost of funding for the bank with the increase in the interest rate. But Randon Ventures reached a mark of 8 start-ups invested. In this quarter, we decided to invest in Money Money, a fintech that connects investors, willing to loan money to small- and medium-size business is looking for credit. Finally, We look at the vertices of advanced technology and headquarters. There is where we have NIONE, which continues to develop nanotechnology products, which present several application possibilities. Beyond technology companies, the holding also includes this vertice, and one of its main attributes is to leverage synergies and optimize processes between and the companies and the group. In this vertice, we recorded net revenue of BRL 32 million with an EBITDA of BRL 145 million due to the equity equivalency of the holding with BRL 149 million, just a result of the corporate shares of the Corporate Center and the vertices. These numbers are eliminated in the consolidated because it's an intercompany. I'd like to thank you for your participation. And I'd like to give the floor to Davi to begin our question-and-answer session.

Thank you, Esteban, Paulo, Sergio, for your presentation. I'd like to start now our question and answer session. [Operator Instructions] We'd like to start with a voice question by Lucas Marquiori, BTG Pactual Bank.

Can you hear me?

Yes, we can hear you.

Two questions on my side, regarding topics. First of all, you mentioned, the projection for truck production throughout the year, some of the impacts and just bottlenecks. I'd like to know how you're doing today in terms of production for trucks and implements, and the industry as a whole for 2022? What have you heard in your conversations with customers, both trucks and implements? And the second topic, we were surprised by the margins reported this quarter, where you are today, in the higher level of event, what are you thinking for the rest of the year? Are these margins going to accommodate after the first quarter? I just like to know what are your thoughts in terms of margin performance with this strong start around 15%.

Thank you participating in our conference of results. I'd like to share this with Sergio, but when it comes to the forecast for semitrailers for the year, Sergio can add more, but first of all, Lucas, we have to remember that we left a historical record year 2021 with over 90,000 semitrailers in the internal market. and several of the foreign market. So it's natural that there would be some reduction in demand and the major associations say in terms of summer trailers at least, a reduction in 10% to 15%. It's hard for us to repeat the levels of 2021, especially considering the conditions which we experienced today with a higher increase in the interest rate and the cost of financing and lower performance in retail and consumer goods, which often demands are semitrailer products. Sergio, feel free to expand your opinion.

Lucas, thank you for your questions. We had excellent results, 15% of EBITDA. We are very happy getting started off on the right foot. When it comes to the segment of semitrailers throughout the year, and why that's not so strong is 2021? There was a change in the amount of units. I'm talking about the market as a whole. The production rate of the market shows us that we're expecting 85,000 units for this year, which still is a wonderful market, a record, which we had around 2013, when the volumes for trucks and semitrailers reached their records, was around 70,000, 75,000 units -- 70,000 units. So to put that in the perspective, even though the market should be smaller than in 2021, it will still be a wonderful market and start the year, we're moving in that direction. Agribusiness, as explained by Paulo and Esteban, continues to be very strong and consumes lots of products in terms of semi-trailers and trucks in such a way that we believe that we will have a robust year. The truck production continues in a very positive rate, but there are other factors there. Availability of microprocessors, the lack of the so-called chips. This impacted us a lot. With several manufacturers like Scania closed for entire month of January, Mercedes also stopped because of supply issues. So we started the year. We have problems with the chip supply. Now we have the impacts related to the lockdown in China as well as the direct impact and indirect impact from the war in the Ukraine. We have Euro 6 entering in 2023. If there's conditions to produce, this should help the numbers especially in the second half of the year. The parts market already reduced its predictions for 2022, we're looking at 155,000 for this year, which are good numbers. I think it's in both segments, the numbers are robust, but they won't be as expressive as 2021.

Thank you, Sergio. Lucas, in relation to your question about margins. As Sergio mentioned, it's a great margin, but we know about the challenges throughout the year. We're going to continue to fight to deliver the upper side of the range, the upper range of our estimate. But the challenge will be constant, both regarding price and cost management.

Our next question is from [indiscernible].

I have 2 actually. First, it's about the trailer vertices. We saw an EBITDA margin that was very strong, yet a quantity that is a little bit smaller. I'd like to understand what is your position for the next few quarters regarding this balance between margin and volume to know what you're thinking. And also regarding the auto parts for commercial vehicles had very strong margin. I'd like to know what you think regarding the continuity of that margin throughout the year, strong demand regarding the OEMs and a favorable scenario to sustain prices.

Thank you, [ Renata, ] for the question. I want to get started here. And then, Sergio, feel free to add. I know you have some information here as well. Regarding the assembly of these highway implements, we saw lower volumes. This is reflected in the market share for the quarter. On the other hand, we were able to have better margins riding what we expected. So this was a decision we made on purpose. This was something that the company chose to do in 2021. And we need to remember that for several years, we added lots of technology and automation to improve the efficiencies of our operations. I think this is affecting the assembly or the trailer margin. In terms of commercial vehicle parts, there are several factors. It's not just one factor that contributed to the positive results that we saw. It's a combination of positive factors, which we've been working on since 2016 at least. One of them, for example, with an increase in [indiscernible], with acquisition of companies and assets last year, as we mentioned in the video. Additional revenue for the quarter and ends up with diluting costs and improving the performance. Another fact, as Sergio mentioned, is the demand of trailers to remain heated up. This helps us maintain the efficiency in our factory. And finally, the continual investment in automation is where we have more -- a product that's more in series, which allows us to include more automation. And since the purchase of the robots and the foundation of RTS, we were able to advance very quickly using automation as a way to help our margins. Sergio, please, if you can add, I appreciate it.

Thank you, Esteban. Thank you, [ Renata, ] for the questions. I'd like to add a few points regarding trailers and semitrailers. Within the Randon companies, we value all aspects related to our partners. We had start of the year -- it was a bit more complex. We had predicted certain situations such as inflation and difficulties in supplies. Of course, we didn't plan for Omicron or for the war in the Ukraine. We mentioned about how we value people for each employee that had a positive diagnosis. We set aside everyone who had contact with them to fill the various protocols and tests and only then return to work. So we have certain moments, especially in January, we only had 20% of our work staff of our labor force. This had an impact on our production, but we did this on purpose because we value the health of employees. And we've also experienced smaller volumes in the first quarter because of the typical phenomenon with this highly unstable situation. We've seen in terms of supply, especially in the production of trucks, we're a premium brand. We have a premium price in the market. We're considered the best product. So customers that buy the best product like to buy Scania, which is considered a premier producer of trucks, and they spent all of January without producing because of supply issues, especially because of semiconductors. There is another element that's impacting this. It doesn't make a lot of sense. It doesn't make a lot of sense for someone to buy a whole bunch of new trailers, semitrailers that will stay part because they don't have the engine to pull it. I hope that was clear.

Our next question is from Victor Mizusaki of Bradesco BBI.

Congratulations on your results. I have 2 questions. First, you already answered in terms of pricing market share. But I'd like to know if you could talk about your pricing strategy and how that's impacting the backlog of Randon. And second question, as regards with this new opening comment. This BRL 330 million, BRL 340 million for 2022, how can we expect this capital allocation? And on this topic, could you talk about M&A, Fras-le side? I think it's very clear regarding the growth strategy, but can you talk about what your strategy is for the other companies in the group.

Thank you, Victor, for your question. We will begin to explore these aspects. Regarding price and market share, i think Sergio can comment on this a bit, and regarding CapEx distribution and capital allocation among the different vertices, I want Paulo to contribute. Sergio, please, you can get -- you can start.

Victor, thank you for participating once again. We were together yesterday. Our situation is a bit more stable. What do I mean by that? Last year, we experienced situations, where we had to be very careful because we didn't know the product cost. We could have sold much more at the third quarter, thinking we will in the beginning of 2022, but we opted to be more cautious. We didn't know how much steel will continue to increase and if we'd reach more stable levels or not. And now 4, 4.5 months gone by, we have raw material inflation. We have a higher confidence level, which allows us to provide quotes for months ahead with more authority. I'm not going to say it's a more aggressive posture, but we're returning more to our more traditional position going away from that more defensive position. So we believe we'll be able to have sharper competition and this should impact our margins, but nothing outside of what we saw last year.

Thank you, Sergio. Paulo, would you like to talk about the capital allocation between the vertices?

Thank you for your participation and questions. Talking, first of all, about organic guidance which we had is regarding investments that are organic. We stipulated there around BRL 240 million to BRL 270 million. We have a way of allocating capital in organic investments that are very related to cash generation in each of the companies. So on average, this works both in the point of view of the divisions as well in the consolidated percentage always around 25% of EBITDA generation. And obviously, these organic investments are being maintained in expansion, automation, prioritizing the gains in productivity. We talk about organic investments. We already mentioned, we did a follow-on of Fras-le, and the use of proceeds for this follow-on is mostly for M&A operations. And our operations -- and our objective is to focus on these operations increasing our revenue share abroad. And this attention to increase our portion in abroad, this should not occur only at Fras-le. We plan to increase this in the other vertices and grow abroad as well. These are objectives that we're working on, and we will report these in the future to the market.

Just to provide some follow-up regarding this question. Regarding the trailer line, given the size of the investment and the acquisition, would it be possible to finance the balance of Randon or would it be necessary to find other means of financing?

We always analyze our leverage in a consolidated way. We like to always be around 1x EBITDA, and we might reach as much as 2x EBITDA during certain projects, but actually Victor, at Randon and trailer assembly, the trailer per se is a smaller project that can be financed by these funds. That's our idea.

Before we go to our next voice question, we received written questions by [ Joshua ] of Morgan Stanley, asking about the market for how we implement. I think we've already answered that, but if you have any further questions, let us know. And now by voice, I give the floor to [ Fernanda of XP. ]

Congratulations on your results. I'd like to understand, after the entry of Euro 6, what do you expect regarding the behavior of the demand of trailers, assemblies, companies, should we expect this? Or will one be impacted more than the other? Please comment, on this.

Thank you, [ Fernanda, ] for your question. I'd like to start here, Sergio, if you allow me, and feel free to add. We have received this question often with some investors trying to see what happened in 2012, 2013 After this transition with Euro 5 to Euro 6, we had a significant prebuy, and then the market had excess -- had a hangover of excess offer. We believe that that's not the current situation because the financing conditions are a bit more restricted than they were at that time. Secondly, the change in classification, especially for heavy-duty trucks is not as much of an impact as it was then. And the third point is, Sergio mentioned in one of the first questions. Regardless of how much the companies want to produce, they still have bottlenecks and lack some inputs, which keep them from delivering everything that they'd like. So our vision is more related to stability in demand for this year and next year, and some of the demand might move on to next year, creating more market stability. So we're thinking the same way about semitrailers. Sergio, please feel free to add anything.

I think you already described the situation very well.

Okay, great. Thank you, Sergio. Thank you Fernanda.

Our next question is by voice comes from [ Anderson Meneses of Dalton Research. ]

Can you hear me?

Yes, we can, Anderson.

Sergio, Paulo, I have 2 questions. First is about market share. I know you've already talked about that a bit. What caught our attention is the third consecutive quarter drop in market share. Correct me, if I'm wrong. But regarding this loss of market share, was this due to passing on pricing, this positive margin that you delivered? I'd like to know your perception regarding your competitors. Did you see that they also passed on prices in this division of trailers or are they waiting to pass on their prices? That's my first question. Second question is about cash flow. [When you started off ] BRL 60 million negative, this is due to the need for working capital, which you explained. Because of the inventory, which you anticipated in purchasing. I'd just like to have an idea about this anticipation of raw materials to protect yourself in this scenario? How large was this? Is it just for 1, 2, 3 quarters? What impact could this have on the future quarters? Congratulations on your results.

Thank you, Anderson. It's a result that we're celebrating here in a very complex scenario. No planning that's going to anticipate all this. But regarding market share, I'm going to send this to Sergio. He and Paulo can maybe answer about cash flow as well. You're correct, we dropped market share for the third consecutive quarter, and perhaps my colleague can share about competition.

Thank you for your question. In fact, in 2021, there were large volumes. We reached 93,000. And all this growth happened, and this led the several bottlenecks in our production. So beyond the price factor, we worked as a leading company. And so we hope that other companies will accompany this, especially the issue of capacity. Not just capacity due to the review of our assembly division, but also all the suppliers, we could have produced more. We could have sold more. Yes, we didn't have these restrictions. The third point is what I mentioned before. We opted to have a bit more confidence in terms of margins, placing products in a shorter supply and not opening our portfolio for future months because we did not know the margins, which these products be sold months later. Not everyone did that. This translates into the results, but we started the year in a different reality, with unheralded happenings. We expanded our production capacity. We resolved several of our bottlenecks. And this is more under control. I mentioned the pandemic, Omicron, which hit in terms of protecting the health of our employees. We had 20% absenteeism in January and part of February, this absenteeism impacted the results. But we are undergoing a phenomenon, which is a bit different than what we've seen in the previous years. So when you talk about market share, market share is determined by the amount of new licenses. We sold more than what the numbers show because there are many customers who bought the product, paid for the product, but they didn't license it. Usually, there's some difference between your revenue and the amount of licenses. Usually, we have a very small number. It's just a matter of weeks, but that's not happening at the beginning of the year. We have a huge number. Over 2,200 units that are sold, but do not have licenses yet. So our market share -- our real market share is much larger than what the numbers are showing. Secondly, we're focusing not just on the quantity of products. What do I mean by that? There are semi-trailers. Allow me to give an example. With a container holder, the value-added is very minimal. It's a steel base with axle suspension below. There's no product above. There's no tanks or cooling chambers, it's our lowest product cost. We're strong. We want to continue to be strong in these segments where the added value is stronger. So we have some of this impact. So I hope I've helped your question.

Thank you, Sergio. Paulo, do you want to comment anything about cash flow?

Anderson, thank you for your participation, for your question. In fact, I won't answer the specific issue, how many months of strategic inventory we have because this is strategic. But I will talk more about the cash conversion cycle, which is an open account. What happened? We finished the year with a cash conversion cycle around 70 days. And now closing May, we're about 90 days. So we increased by 20 days, more or less, of revenue, our investment in working capital. This is due to several reasons. Mostly the issue of minimizing the effects of inflation, and most importantly, the issue of trying to reduce risks in supply [indiscernible] especially because of the war in the Ukraine. All the problems we see in China, and this data as a whole -- has been impacting as a whole. So we want to invest more in working capital so we can reduce the impact of these 2, which points I mentioned. Beyond that, we increased the inventory of ready products, especially in the trailer vertices. The original equipment manufacturers are taking a long time to deliver the trucks and this makes it harder, but we're working with several aspects, and we expect there to be stabilization for this need, for working capital over the next few quarters.

Next question comes from Marcelo Audi, Cardinal Partners. I'm not receiving audio. We wait from Marcelo. Until we connect, I'm going to move on to the next one. Jonathan Koutras of JPMorgan. Jonathan, thank you for participating with us.

Can you hear me?

Yes, yes, we can.

Congratulations on the results. I have some questions. I see that the foreign market is about 18% of revenue and company wants to increase that, what would you think is a reasonable expectation for the end of the year? Do you have a goal for the medium and long term? And secondly, the forecast for the Wagons division, around 25%, 30%, if I'm not mistaken?

Thank you, Jonathan. I want to talk about the forecast for wagons. And internationalization and expectations, I'll let Sergio answer, and Paulo will comment if he wants. I think that regarding the issue of wagons, I think we have other questions in the Q&A. So we want to address them as well. We had an expectation for a better year in terms of wagons since we got some of the main concessions, especially with the regulatory and the new regulations, but this won't result in investments. The main companies invest in infrastructure and then invest in their wagon. I think last year, this year, we sold 3 wagons to transport railway material. So people are investing in the day infrastructure of these concessions. I think that the expected market be around 1,500 wagons, something similar to what we did last year. But over the medium term, next 5 years, we expect this market to return to a level of around 3,000 to 4,000 units a year. Remembering that within our transportation matrix, railways is less than 25%, and there's expectation for the federal government this will reach 30% in the next several years. In our opinion, this affects the demand for wagon and/or trucks and semitrailers. Last year, we invested in our plant for wagons to meet this demand, which we expect in the following years without having to stop producing highway equipment. Sergio, Paulo, do you want to comment about internationalization?

Just to add a little bit about the previous answer. First of all, thank you for the questions. The wagon market in the number of quotes regarding 2023, is very large. So we're very encouraged. We're seeing this movement to have more significant volume as of 2023. Just to add to what Esteban said, we want 30% of our revenue in international markets whether exports from Brazil or production outside of Brazil. This over a 3-, 4-, 5-year horizon. You're aware we have various projects ongoing. We obviously don't have the freedom to comment about these projects, but we are working to try to reach this objective.

Perfect, Sergio. I don't have anything to add.

Great. I'll try to connect Marcelo here. [Operator Instructions] Can you hear us, Marcelo? I think Marcelo still has some difficulty. This is a question from Andressa of UBS.

So Esteban, Sergio, Paulo, I'd like to approach the foreign market. Can you talk to me about the dynamic of the demands in these primary markets? And that's my question.

Thank you, Andressa, for the question. I'd like to divide this question with Hemerson, who is the Fras-le Investment Relations Director. I'd like to congratulate Fras-le for their great results, which they've reported yesterday. And I'd like to start by commenting about the auto parts and the trailer vertices. So I'll give the floor to Hemerson, so he can talk about movement control.

Regarding the trailer vertices, Andressa, Randon is the company with the largest market share in the foreign market. We reached up to 80% of the foreign market share in terms of exports. And this is because many of the premises, which we see in the internal market also were confirmed externally, especially regarding countries in Latin America where we have similar characteristics to Brazil in terms of depending on commodities and relevance of agribusiness, which ends up having a [ complementary ] for similar to our products. The expectation is that we see these products, maintaining their expenses with strong volumes and the foreign market. The auto parts and commercial vehicles, we have sought greater internationalization, whether due to our operations abroad, which is Suspensys in Mexico or through opening new customers abroad such as Master done in the last 2 years. Especially, we comment that the pandemic helped us open some doors, and our competency and quality of our products had kept the doors open. This is -- I confirm this year, we saw increase in volume for parts, for brakes in the American market from last year. Hemerson, I want to invite you to share some about the movement for the control vertices.

Thank you, Andressa, for your question. I want to talk a bit about Fras-le and its subsidiaries. This is going through a very special moment when it comes to exports, very concentrated in mature markets, but also markets in South America and geographic exposure in Europe and in Asia, and we've seen very strong demand. This is related to several aspects, some related to supply problems in Asia and China specifically, which provides business opportunities and especially two of our lines in the friction sector components for heavy-duty vehicles. We have an important customer in North America, which is better and their volumes have grown very, very significantly year after year. And this year, with absolute records. Also, demand in South America in these product lines. In the second line is great risks. We do this through Fremax, our subsidiary. And we have been able to position the company well, and the only limit we have is our production capacity, which is close to full capacity. We have invested recurringly in capacity, and we always said that if we had 2 Fremax, if we had double capacity, we could sell all of it. I also think it's worth noting that we are introducing the Nakata lines. An acquisition we made in the end of 2020. We had shock absorber line in Colombia, and other suspension lines. This will provide for us space to grow in the foreign market. So we continue with very positive outlooks for exports, which should be significant for our future results for Fras-le and Randon.

Thank you Hemerson for sharing this with us.

I hope I've answered your question, Andressa.

We're going to close our question and answers now. I'd like to thank you all for participating. We hope that we've answered the questions here. But if you still have any questions, we're available to answer them after our video conference. I will now give the floor to Sergio to give the final remarks.

Thank you, Davi. I'd like to thank everyone for their participation. All of this is an important dynamic. If you have any questions, you know all the channels. You can contact Davi, Esteban, Hemerson, and our entire team. So feel free to access us. We can add any other information that might be necessary. Thanks once again. Have a good afternoon and see you at the next event. Have a great afternoon. Good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]