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

Welcome to our conference call for earnings of Randon Companies, apart from presenting our numbers, we will also introduce to you the main products that were launched and the highlights in innovation, efficiency, sustainability at FENATRAN. I would like to say that the information that is on the screen is not any guarantee of performance. They involve risks and uncertainties that refer to future events and depend on circumstances that may or may not occur. Today, our CEO, Sergio Carvalho, will talk about important actions during this quarter, and we'll show some products that show our leaders, technological leadership in the automotive market. Paulo Prignolato, who is our CFO and Investor Relations Director, will talk about the consolidated results in Q3 '22, even in a complex scenario. And then Esteban Angeletti will show the results by business vertical. Finally, we will have our Q&A session and we invite you to participate. [Operator Instructions] If we don't have time to answer all the questions, our Investor Relations team will get in touch with you after the video conference. [Operator Instructions] I inform that this is being recorded. It will be available in our website at ri.randon.com.br after the end of this conference call. Now I pass the floor to our CEO, Sergio Carvalho. You have the floor, sir.

Thank you, David. I'd like to welcome all of you. I'd like to talk about my satisfaction in really holding this conference call from the FENATRAN Expo, FENATRAN Fair, showing to you what we're doing to build the future today. But before beginning the presentation, I'd like to thank you all who participated in our event, investors at FENATRAN. For us, it's a great honor to receive the -- those who invest and follow our company and to talk more about our products in the automotive sector, how it is doing a segment that is in a very important part of its history. We are seeing fundamental changes, significant changes in the truck market and semi-trailer market related to electricity, new materials, telemetry, amongst other innovations. Randon companies were alert to these movements, and we're doing our part to transform these trends in solutions that will benefit our clients with more efficient and sustainable products. In this way, through our business, we're contributing to all of society since the reduction of CO2 emissions in transportation is something fundamental to fight climate change. And it's always important to reinforce that ESG is always present in everything we do in Randon companies. In this context, I would like to begin showing to you a new concept of refrigerated semitrailer, Randon Solar. And as the name suggests, it uses solar energy to improve the efficiency of refrigeration in the semitrailer. This product not only uses flexible solar panels and high-efficiency panels, which may be placed practically in all the surface of the truck but has an intelligent system using the energy generated in an efficient way. This is the great edge of this product. This system is unique and exclusive for Randon and is patented. To give you an idea of the benefits of this new solution in regular operation of a refrigerated semitrailer, we're talking about a reduction of up to 1,800 liters of diesel per year, a great reduction in CO2 remissions, considering only the refrigeration system. Imagine if we use Randon together with the ESS system. Now I will present to you our modular platform, a new era in the type of manufacturing that Randon uses and aligned with the best practices for production. The great highlight of modules is a reduction in 70% in the use of weld, decrease in gas in greenhouse gas emissions, simplifying logistics and the assembly of the products in the different units and geographies where we are pressed and making the products lighter, optimizing their efficiency, energy efficiency and operation. Another launch made recently is Randon Smart, which is a platform developed in partnership with Randon Ventures, Delta Global and our Randon Institute. This is a solution exclusively from Randon with embedded intelligence and generates data for greater control of the fleet. As I said, many changes in our products with a lot of innovation. I can -- I also would like to talk about hybrid ARM, our hybrid trailer. Recently, we began to sell this line of products. It is equipped with EC system, electric traction system, which was launched in the last edition of FENATRAN exhibition. We had good news to share. The first unit sold to clients in Brazil and in Chile and other negotiations are in progress. We're very happy with the good receptivity of the market for this solution. Before passing the floor to launches and auto parts, I would like to talk about an important action that we made in OEMs. We concluded the acquisition of Hercules Enterprises -- we had a video conference on this on November 1 and this video is available in our Investor Relations side. It is a landmark in the internationalization for OEMs because now we are present in the largest market for semitrailers in North America. And not only this. During Q3 2022, we began the export of semitrailers to the U.S. In total, 800 basis of containers until the beginning of the next year. And we have new contracts for more 2,000 units more confirmed for 2023. This should make the U.S. market-- the U.S. market becoming the main geography abroad for our semitrailers. Well, as you know, all our companies are working on new products, new solutions. And now I'd like to comment on what we're doing in auto parts and movement control. In our stand, we showed products concept products like hubs and drums from Castertech, which now include nanometric niobium in the cast iron making them more resistant and durable and also lighter and efficient. They are under JOST development, they show great potential in the future. JOST brings to FENATRAN the joint articulated bus in the segment of buses. The articulation in buses is produced in the new plant in Campinas, which began to be sold now in September. The technology was developed and led by the team of JOST in Brazil with the support of CDR and will be exported to Europe. With Suspensys, we present Unisys suspension, auto directional axle, which will also be sold in 2023 and the main edge is a reduction in weight in relation to previous models by approximately 25% and an increase in durability at the same time. Unisys especially has potential to be sold in the U.S. market, apart from the market in Brazil. And these were only some highlights of what we're developing together with our Institute, IHR, CTR and. Talking about [indiscernible] our vertical movement control. Last year, they inaugurated their smart composites line which supply solutions in composite structural composite material. In the exhibition, we have the support for bumpers used in semitrailers arriving at 60,000 parts produced showing our pioneer work in the use of intelligent materials in road implements. This product is 65% lighter than metal. Another project more recently is the support for tail lights and trucks, 3 parts and 1 in reducing by 40% the weight of the product in comparison with steel parts. We will begin to supply the solution next year for an important OEM of trucks in Brazil. Apart from many new things and products, we continue working to expand our manufacturing capacity, and we had an important announcement on November 4. We acquired in an auction, the assets such as machines, equipment and real estate from [indiscernible] located in[indiscernible] Sao Paulo. As you know, our Castertech is in an expansion, and this new unit will be fundamental for us to expand the productions of cast and machine products, allowing us to grow in an accelerated and sustainable way. The forecast is that we will begin the activities of the new company in the second semester of 2023. Last week also, we aired the closing, and we formed a joint venture that will offer to the market rental services for vehicles and also road implements and other solutions related to cargo movements. This business model, which is used a lot in other countries is not well explored in Brazil. So we saw an opportunity of growth in the Brazilian market and in the next months, we will detail in a better way the growth plan and our expectations for this new company. And before ending my part, I would like to highlight the strength and accelerated growth of Randon companies. The number of movements we're doing, we are making presenting new products, new solutions, expanding our portfolio, accessing new geographies and adding companies give us the security that we're on the right track in building the future. And all of this is aligned with the best practices in sustainability and governance, which makes us proud and gives us great satisfaction. You will notice from the results of Q3 "22 that Paulo and Esteban will present next, that even in a complex scenario in the market full of challenges, we were able to reach once again record revenues and consistent margins, showing the strength of our diversified business model, which has made us more and more resilient. Now I'd like to pass the floor to Paulo to continue the presentation.

Thank you, Sergio. Good morning. I'd like to thank all the participants, and we are here at FENATRAN exhibition. I'd like to thank investors and analysts that participated in the event that we had here this week. The results that I will present today come from everything that Sergio mentioned and a strategy that is very well built and executed every single day. Before presenting the numbers of the company, I would like to bring to you the data about truck market and semi-trailers, which have a great impact on our business. After a few months, affected by the lack of semiconductors, the production of trucks grew once again in Q3 '22, so the robust demand and better availability of parts helped for the higher volumes. The production of semitrailers is recovering gradually with agro business doing very well. Exports also made progress, both in semitrailers and trucks with a good demand in South American countries. And finally, the aftermarkets market, which is resilient and has benefited from the low availability of new vehicles in Brazil and also due to high prices of new vehicles. Let's see the main numbers for Q3 2022. We delivered another quarter of record revenue with margin recovery in comparison with Q2 '22, even with a complex market and a challenging business environment. Beginning with consolidated net revenue -- we reached BRL 3.1 billion, 23% more in relation to the same period in 2021. Year-to-date 2022, the progress is even greater, 27% in the comparison to last year and representing BRL 8.3 billion. The main factors that enabled this progress were a good demand from the market, trucks and semitrailers, higher prices due to price increases made during the last 12 months, more capacity in our companies, added capacity through acquisitions or automation and use of robots, increase of sales in the foreign market 40% more and our diversified business model which strengthens the Randon companies every day, adding new solutions to clients in all the verticals of the business, in the most different geographies and sectors where we are present. On this graph, you can observe the distribution of revenue by business vertical. Our industrial verticals continue well represented similar to the last quarters, showing that our companies are growing and also prospering. Here, you can observe the distribution of revenue by business segment. Approximately 58% of the revenue comes from OEMs, among them, truck companies, semi-trailer companies and also railway cars. I'd like to remind you that most of our exposure to OEMs is connected also to agrobusiness since more than 2/3 of the semi-trailers and heavy trucks sold in the country are for agro business. So aftermarket and export market represented 38% [Audio Gap] to our results. As I mentioned previously, the sales in the export market had an important increase you can observe on the graph here, an increase of 48% in comparison with last year and year-to-date. This evolution is due to the following factors: favorable exchange rate for exports, also price increases of products sold, new clients and new projects abroad semitrailers had a relevant increase in exports with the first basis of containers sent to the U.S. and the controlled companies outside Brazil are performing as planned. On this graph, you can see the distribution of the revenue in the export market by geography. Currently, [indiscernible] represents half of our revenue -- this region and the 3 business verticals are very relevant. North America represents 24.3% of the revenues of the quarter and should increase even more with exports of semitrailers to the U.S. and the acquisition of Hercules. The other regions did not have great fluctuations, and they are taking care of especially by movement control. Now talking about EBITDA, we have an important evolution in comparison with Q2 '22, even in a scenario that it has more competition. In the comparison with the previous years, our margins had a drop of approximately 2 percentage points. The greatest challenges for the recovery of margins were more competition in OEMs with a difficulty in increasing prices, some segments of products with demand under pressure, for example, closed trucks. But the great advantage of our model is to be exposed to different markets. In this period, this helped to mitigate the negative effects. In this sense, we highlight movement control vertical with consistent margins with a good level of prices and many synergies among the units and the auto parts with the margin recovery in relation to Q2 '22 by price increases at OEMs and increases in the volumes sold as a result of the pressure on margins that I mentioned and also financial expenses due to higher interest rates. Our net margin also had a drop and as you can observe on the graph here. But when we compare with the margin update in Q2 '22, we already have an increase of 1 percentage point. We must remember that last year in Q3 '21, we had nonrecurring revenues concerning tax credits of approximately BRL 134 million. This changes significantly the comparison with the year of 2021. Now talking about the company's debt. At the end of Q3, we reached BRL 2 billion in net debt without the numbers of Randon Bank and a leverage of 1.42x the EBITDA in the last 12 months. On the graph, you can observe the reduction of these indicators, the drop in these indicators in comparison with the previous quarter. This was possible because we're working hard to decrease our needs for working capital and to increase the free cash flow. Now I'd like to give an update about the 2 topics that are important also financial topics and relate to Q3. On October "21, we announced a relevant fact concerning our 10 issue of debentures, a material fact. So through this operation, we received BRL 500 billion in series. They will be paid in 5 and 7 years after this date. This loan will be used totally to reinforce cash and liability management. The documents related to this operation are all available in our Investor Relations site. You can access also the maturing fact scanning the QR code on the screen. The second important fact was the maintenance of our corporate rating, BRAA+ from Standard & Poor's or S&P as it is known. In accordance with S&P, the company should continue to benefit from the increase in revenues coming from abroad and its exposure to the segment of aftermarket in the next few years, compensating the challenging scenario in the domestic market in Brazil for production sale of trucks. To access the complete rating reports, please access the QR code on the screen. Now talking about our investments, we have observed how much we have added capacity and innovation to our plants, apart from making acquisitions and also integralization of capital. We invested in Q3 approximately BRL 120 million with a highlight for investments of BRL 73 million in machinery and industrial equipment. Year-to-date investments totaled BRL 728 million and of this total, BRL 368 million referred to the [indiscernible] I remind you that our guidance for the year is only for organic investments. Now I'd like to comment the performance of our shares in the stock market. On September 30, RAPT4 had a price of BRL 9.5 and RAPT3 BRL 8.84, reaching a market cap of BRL 3 billion. In this quarter, we began buying back shares as we announced last year. Until September, we acquired 718 -- 718,200 shares RAPT4. We have a free float of 60.2%, and our share base has 41,000 shareholders. Our share profile highlights the participation of the controlling group and institutional investors and foreigners, which represent together 80% of the shares of the company. To conclude my part, I'd like to talk about an important topic, corporate governance. And at the end of July, we informed our governance regulated according to regulation from the SEC #586, -- the graph that you can see now shows the evolution that we went through. So we passed 35.3% that we showed in 2018 to 78.3% in 2022 in a survey made by IBGC together with Ernst & Young at [indiscernible] office, they showed the average of companies by governance, we see that Randon has an average superior to all levels, including Novo Mercado and our stock market, which is the reference in corporate governance. We're very happy in making progress every year. In the last year, we implemented the management council and reviewed our statues addressing important topics such as conflict of interest and assemblies and transactions with related parties. We continue in this journey, making progress not only in governance, but also in the other aspects linked to sustainability of the company. Now I pass the floor to Esteban to continue with the results by business vertical.

Good morning. We're very happy to be here at FENATRAN exhibition showing to you many new things for the future of the company. I would also like to thank all the analysts and shareholders that visited our stand, and were present in the second largest exhibition for vehicles in the world, commercial vehicles. I would like to talk more about OEMs. This vertical had another quarter of growth in revenue with new lines of products competitive new offers and a good performance in the export market. Net revenue reached BRL 1.3 billion in Q3 '22, an increase of 13% in comparison with the same period 2021. This increase has to do with many factors, also price increases in the last 12 months, agrobusiness, which also helped the sale of semitrailers in the domestic market and also abroad. To give you an idea, only in this quarter, this quarter, 72% of the revenue in this vertical had origin in this economic sector. Now going on to the export market, we had an increase of 68% in the quarterly comparison, reaching $50.9 million -- we began exports of semitrailers to the U.S. in September and we had good volumes sold to Latin America and especially to Chile. This country was the first to receive our modular platform, as Sergio mentioned. But now I'd like to show a video prepared, especially to show this product. [Presentation]

In the next quarter, we will expand in importantly our revenue from the export market in this vertical, especially in the U.S. markets. We will intensify the exports from Brazil with the order mentioned by Sergio previously. And apart from this, we will consolidate the revenue of Hercules in November and December of this year. Now going on to EBITDA, the good levels of revenue, we're not enough for us to conquer a recovery of margins. In Q3 '22, this indicator reached BRL 88.2 million with an EBITDA margin of 7%. This happened mainly due to the following factors: a reduction in the volumes in the domestic market, more competition, stronger competition and difficulty to increase prices and high raw material prices, especially steel and also our strategy to recover leadership and market share. We also -- we conquered an important market share in the market, as you can see on the graph, our effort to expand the sales of semi-trail gives the best market share in the year reaching 32.4%, 9 percentage points ahead of the second player. Here at FENATRAN, the business environment is very positive and though implements launched many products, some showed previously by Sergio during our conference call. Now anticipating sales, the organization and strength of our distributors and unique products offered to our clients, our portfolio orders is already full for the next 3 months. Looking at auto parts with another growth in this another quarter with growth, I would like to highlight a revenue of BRL 1.1 billion in Q3 '22, an increase of 21% compared to the same quarter in 2021, growth in sales in all the controlled companies, price increases with OEMs increase in productivity and dilution of fixed costs due to good rhythm of production for OEMs, synergies among the operations in synergies and also we added Castertech 52 million revenue, which is part of the consolidated as of September 2021, even on a smaller level, revenue for [indiscernible] also evolved for auto parents, $12.5 million in Q3 '22, an increase of 23% when compared to the same quarter of the previous years. Due to all the factors I mentioned, we reached an EBITDA of BRL 191.4 million with a margin of 17.1% in this vertical. It was an important recovery of margins in comparison with the previous quarter, showing the resilience of our auto parts business. It's important to stress that we have made many investments, especially to increase the capacity of production and casting. In this quarter, BRL 74.2 million invested both in CapEx and also integralization of capital. We will continue investing in this vertical. Sergio showed that the acquisition of [indiscernible] in Sao Paulo was important. This plant had was deactivated and then we will invest in the second semester of 2023. It will be operational contributing for our growth. To conclude the presentation, I would like to show the integration of our auto parts with semitrailers. Here, you can see the Unisys suspension that Sergio mentioned, like the other suspensions made by Suspensys, it is part of our auto parts with hubs manufactured by Castertech and a brake system by Master, which uses friction materials from Fras-le. Now I'd like to talk to you a little more about movement control, our powerhouse of aftermarket parts for commercial and light vehicles. Here, we have the products from Fras-le Smart composites that have great benefits when compared to steel with more resistance durability, but especially reduction in weight. For example, this support is 65% lighter than the steel version. Apart from using a Randon, we also delivered this project to an OEM. And so smart composites from [indiscernible] great potential. Now let's go to the numbers of this vertical. I would like to highlight the continuity of good results with another quarter of growth in revenue and margins. especially for aftermarket that is booming and the capture of synergies in new businesses, BRL 823.9 million in net revenue and the revenue from the export market contributed significantly totaling $79.3 million. This graph on the screen here, you can see the distribution of the revenue of this vertical. 55% comes from aftermarket, which gained a lot of relevance since the acquisition of our controlled Nakata. 40% a margin in the export market through exports or revenues from controlled companies outside Brazil. Another 5% comes from OEMs, especially commercial vehicles. This year, we made an important movement at Fras-le with the logistics integration in the plant of [indiscernible] in the state of Minas Gerais with more agility and efficiency and selling products to clients, apart from the reduction in operational costs. The synergies with this operation are very important for our results. This vertical reached an EBITDA of BRL 137.9 million in the quarter and an EBITDA margin of 16.7%. This margin was possible due to a booming demand in the aftermarket, price increases in some product lines and expansion and more market share of Nakata with shock absorbers, which is growing in an accelerated way. Apart from this, in the export market, we had a high demand from the U.S., especially for the disc brakes and also an expansion in the participation of markets of Fras-le in Argentina due to restrictions on imports on the part of our competitors and a good performance of other controlled companies of Fras-le in other countries. Now I'd like to talk about financial services and digital service, which is also present here with Banco Randon, Randon Food Sales, Random Ventures and Random Insurance Company. Now giving you information in Q3, BRL 133.8 million in net revenue, a growth of 77% in comparison with the same period 2021. EBITDA, BRL 25.2 billion with the margin, EBITDA margin of 18.9%. I'd like to give you some details about this performance. Randon Consorcios, Food Sales and Banco Randon had record -- reached records in volumes and revenue. The increase in the sale of food sales sold is linked to good performance in agro business. Also the highest volume in history of operations by Banco Randon, which is linked to the other businesses of our companies, the bank finances, clients, suppliers and distributors. Now talking specifically about the margins, we had an increase in costs for Banco Randon due to higher interest rates, which is the main factor that had an impact on this indicator. Other aspects are linked to new businesses in this vertical. We're very happy with the potential of [indiscernible], a joint venture with Gerda for rental of equipment and machines and trucks. Also, another -- also, [indiscernible] IOT company specialized in intelligent manufacturer and works already with Randon companies, increasing our operational efficiency. Some of our companies have stands here at FENATRAN and our clients from OEMs are invited to see the solutions we offer that can add a lot of facility to your day-to-day activities. Finally, we have advanced technology in headquarter. The highlight is [indiscernible]., which has had a great evolution in studies using nanoparticles of [indiscernible]. and is present here in FENATRAN with many new solutions, especially applied to Randon products, as Sergio mentioned. And there is much more that you will see in the next few months apart from -- we also have industrial automation and collaborative innovation apart from the holding. In this vertical, we had a revenue of BRL 41 million with an EBITDA of BRL 144.7 million, especially due to the equity of the holding BRL 151 million, which is the result of the participation of the corporate center in the other verticals. These numbers are eliminating the consolidated because they're inter company. Excluding this, we observed a negative result in this vertical due to the fact that the units that make up are still in the maturity phase with more investments in the short term and great gains in the long term. I'd like to close the presentation. I'd like to pass the floor to David Dave to begin the Q&A session.

[Operator Instructions]. So let's begin now the Q&A session with Lucas from XP.

Congratulations for the results. I believe you're very busy at the Penton exhibition. I'd like to explore the strategy and objective for OEMs. -- in this context of lower margins with greater market share and Euro 6 being implemented next year. The idea is to consolidate the market in products where you have more relevance like products for agro business or increase your sharing products like ciders and other types. Now in terms of our margin, how do you analyze market share versus margin? How do you think internally of optimizing EBITDA in this vertical? That's the first question. I have one more concerning Euro 6 in 2023. This is a year when we expect a drop in the sale of implements -- this greater market share that you have recorded the higher market share in Q3 like with more exports. Exports, you mentioned the U.S. as a market that is becoming more and more relevant. Could this combination, in your opinion, compensates this drop that is expected in this vertical next year. So general strategy, market share versus margin and Euro 6, bearing in mind this alignment of factors, whether this could compensate the drop in the market. Thank you.

Thank you, Lucas, for the question. I will share the answer with Sergio especially the market for implements for OEMs -- but Lucas, in general, I can comment a little[indiscernible] We are in this market more than 70 years of history. We're market leaders in practically all the business lines. Of course, in some lines, we have a stronger competition, but we want to use this portfolio of products, which is very diversified even in a country like Brazil with diversified products. We want to use this as a powerhouse to take this know-how also outside the country. Sergio, if you want to supplement the answer, feel free, then I can also talk about the second point Euro 6.

Thank you, Esteban. Can you all hear me? Yes. Thank you, Lucas, for the question. Esteban described well. We have a complete line of products in the Brazilian market. There are profits where we have a strong market share in the subsegments. These products have to do with agro business and our intention is to defend yes our leadership position that we have in this segment with all our strength. Now concerning other product lines, we have developed-- the few products where we're not leaders, we have developed leadership technologies, leading technologies to add value to our clients -- and this will be the way we will grow our penetration in the market .

Thank you, Sergio. Now concerning the second part of the question, I will begin answering about the possible compensation in OEMs in our parts and the sales abroad. Hemerson, you could talk about movement control the outlook for aftermarket but in a nutshell Lucas, yes, we see maybe greater difficulty next year, first semitrailers. This can be linked to higher interest rates but also substitution due to Euro 6. We also see opportunities to use this moment to expand exports reminding you a drop in the domestic market would be compensated by the 5,000 units of Hercules. That's their production capacity plus 2,000 units that we are exporting next year in the U.S. market. So in this point, it would be more than sufficient to compensate. Concerning auto parts, I see not only an increase in -- for our vertical in auto parts, but also more capacity with the purchase of balances by Castertech. This should help us to continue with the growth rate we had this year. It's worthwhile reminding you our strategy of diversification with focus has given us results, bearing in mind that in the year with lower volumes as we see this year, we have been able to have a growth, a double-digit growth, showing that we're on the right track. Hemerson, I would like you to talk about with control, but I'd like to congratulate you and Fras-le for the excellent results announced yesterday. This is part of our strategy.

Thank you, Esteban. We're very happy to leverage and grow Fras-le's business for Randon shareholders. The performance of Fras-le benefits onto since Randon has 52% of the shares of Fras-le and controls the company. Thank you, Lucas, for the question. We always reinforce Fras-le's leadership in aftermarket in Latin America with a strong reference in Brazil. We're one of the main players for aftermarket price parts -- the leaders in many of the lines where we are present. And this is a different market in terms of stability. These are markets that don't suffer that much with different interest rates or economic uncertainties. They grow in more complex moments, we can see especially Fras-le if you look at that it always grew. And now it's a time to consolidate this platform with acquisitions and with a footprint of future projects that show to us that the outlook continues to be optimistic. And obviously, due to many issues, but due to 90% of the revenue of Fras-le comes from the aftermarket parts. Thank you. We're available not only here in the conference call where we participate, but also through our Investor Relations team, please get in touch with us.

In the first question, volumes was clear, but thinking of margins, we saw this drop year after year in OEMs. So what is your strategy to increase margins when analyzing market share and profitability[indiscernible]

Okay, Lucas. While I'd like to remind you every family of products, as we call them, has its contribution margin, its EBITDA margin, we control this in an analytical way both in Brazil and abroad. And the truth is that we have capacity to be market leaders, as Sergio mentioned in all these lines. We don't need to look at volumes in a selective way. Well, we sell with good margins, always looking at the market, our market share, reminding you that the return to shareholders is not only for semi traders, but also auto parts.

Esteban, if I can supplement it's important always to bear in mind this vertical the many units we have investments we made during the last years. Araraquara 1, 2, [indiscernible] giving you some examples because this is directly linked to the decisions that we evaluate on margin in each product line.

Well, our next question Lucas Marquiori, BTG Pactual.

Two points. First auto parts, we saw the group increasing exposure and also capacity in casting. I believe this is one of the bottlenecks for expansion in volume and auto parts. Apart from foundry, do you have any other bottlenecks painting and other areas that you will have to invest to increase capacity in auto parts? And the second question, OEMs trying to understand economics for transportation companies. The price of fuel went up, although there is volume, we see the, for example, semi-trailers being expensive. So what are transportation companies doing? Are they buying less year after year -- what is the situation, the economics of transportation companies to understand purchases next year?

Thank you, Lucas, for the question. I will share this answer with Sergio. Sergio, I'll comment quickly about our strategy in foundries and the casting market. then you can comment on the other auto parts and transportation companies. We had a good week talking to clients at FENATRAN Exhibition and Lucas, talking about cast products. Yes. Today, this is one of our bottlenecks. We bought -- we buy some cast products from third parties. But one point that I have mentioned to the market since the acquisition of Fundituba, [indiscernible]. Sometimes -- it's important to say that Castertech doubled its production in the last 18 months. And now with the purchase balance, we see the importance of this vertical for our business, and this comes from 3 factors: our captive demand of our auto parts, cast products also because we're going to new markets, increasing our exposure to agribusiness and also from new technologies, as we mentioned, an important pillar of Randon in the future, developing applications of nanoparticles [indiscernible] and titanium, which can be used in the CAS products. So with all of this, we have made progress growing in auto parts. The other companies also have also grown. And now I'd like to pass the floor to Sergio, please talk to us about this.

Thank you, Esteban. Lucas, thank you for the question. Yes. Esteban already mentioned, there is no doubt cast products are a bottleneck. We invested a lot in the last few years to expand our production capacity in all the companies. We invested in all the companies. So we've removed bottlenecks control in the Fras-le world. We invested in Nakata, we invested in the Fras-le world. As I said, we have a new shift 6 by new work regime in Fras-le Brazil to expand our production capacity for heavy linings. We expanded our capacity in products for OEMs through Araraquara 2, our second plant there. We invested in the expansion in Rio. In [indiscernible], we invested in our company Master, we expanded capacity at JOST of Brazil with new equipment for Suspensys removal of bottlenecks. So we made a lot of progress in this sense, but foundry cast products continue to represent bottlenecks. That's why we acquired these equipments -- as you mentioned, we purchased Fundituba [indiscernible] but also in the life line in Fremax, we have cast products, which also represent a bottleneck for us. So we're investing as we just did, and we intend to continue investing wherever necessary to remove these bottlenecks. Now your second question. Yes, 2022, we had higher interest rates increase in the price of fuel, a great increase of prices for transportation companies and consumers, the semitrailers, making difficult -- making the life of these companies, our clients more difficult. But the interest rate now stopped going up, fuel prices stopped going up. Inflation is dropping. And now the situation is better. With the stabilization to the business and in these sectors, we're able to adapt themselves to the reality and they are buying once again. And we saw this as something very positive and the continuity of this is been seen here at the FENATRAN exhibition, we see a lot of optimism, which surprised us with a good performance. Reminding you that Agribusiness is a very important part of everything we're discussing and businessmen in agri business are well capitalized. They have conditions to face problems and continue making their investments. So our expectation is that agribusiness in Brazil has an enormous potential. We don't see anything in the short term 12 months to have a negative impact on this market.

About FENATRAN, the exhibition the fair, Sergio mentioned the transportation companies, trucks, sales in Q4 for semester of 2023. And especially with Euro 6.

Yes, we covered this in the first question, but the horizon shows us a more delicate scenario for new products because of the increase in price of Euro 6 and also higher interest rates, higher interest rates. This should make volumes drop. But we have a strategy to win new markets and go into new markets, new geographies and new products. Finally Rogerio, price reduction, price drop in raw materials, if we intend to pass this on 2 clients and how this can affect the revenue in the next quarters. Rogerio. First, we want to see if this reduction is here to say. We expect to have a drop in prices, but we haven't been able to pay less for our purchases. So first, let's feel if there will be an actual drop in raw materials. The market is -- we need to see what will happen in all our negotiations. We try to have the best combination of volume and price.

Esteban, next question from Renata Cabral, Citibank.

I have 2 questions concerning the strategy for the U.S., you announced the purchase of Hercules and the exports of trailers to the U.S. possibilities in the short term to manufacture trailers in the U.S. Because of the worldwide trend called nearshoring, -- many companies going to the U.S. and Mexico because they want companies close to them, close the supply chain. How are you seeing this? And also smart composite -- what is your ambition concerning percentage of products using these materials in the next few years in the next 5 years.

Thank you, Renata, for the question for following us. Concerning the first question, I will share the answer with Sergio, Hemerson on smart composites, feel free. Now giving you a vision about Hercules. Hercules manufactures and assembles semi-trailers with a different model from Brazil. Ours is more verticalized in the U.S. They buy components -- they are -- they assemble -- they are not verticalize like us. They don't produce all the parts. We see a great opportunity to replicate the model we have in Brazil in the U.S. Certainly, there -- this is the right time to do this with the price wars between the U.S. and China. Sergio, please comment and then also Smart Compose.

Thank you, Esteban. Renata, yes we made the acquisition. As you know, we have exported and our objective is to expand our presence in the U.S. Hercules, so has a certain production rhythm, we want to expand, to grow, remove obstacles and expand our production capacity and as you said, near shoring is here to stay for this market. The U.S. market for trailers America is almost all produced in the U.S. The expansion of this production capacity, the expansion of the portfolio of products will increase our revenues in the U.S. We have the intention to expand in a more accelerated way our production. We may make more acquisitions in the U.S. or start a greenfield project in the U.S. For the time being, we're expanding the production capacity in our operation in Hercules. Concerning your second question, perfect. Smart Composites, we see a great potential Renata with this technology that we announced shortly an agreement with a large manufacturer of trucks in Europe and in Brazil, with this type of product. It has gained a lot of visibility, attention in many important projects and this is only one type of product with composites. There are another 4 categories of composite materials that we're interested in and we're not participating in these other segments. So our expectation is that in 5 years, this will become a relevant business within the -- our structure. We don't want to give you numbers here we have shares in the stock market Fras-le too. Our expectation are that this will be -- this will have a relevant growth, these products will have a relevant growth. And soon we will give you more highlights on this.

Well, the next question from Gabriel Rezende.

One question, competition. We saw Randon with more competitive prices, recovering market share, and we have the scenario that is challenging for your competition. What should we think of the competition, their capacity next year -- in a scenario that may not have space for them to recover share? Randon is a very diversified company. It has auto parts, exports. Now it is stronger in the U.S. also aftermarket. Your competitors are not diversified like you. So what happens to the players next year?

Thank you, Gabriel, for the question, good point. And I believe a lot of our strategy to diversify aims at avoiding this dependence on a single market, this volatility. We have shown this -- we have shown how this has added value to the company. Today, only 35% of our revenue comes from semitrailers. The other 65% come from other products, other geographies, other markets especially the aftermarket that is more resilient Gabriel, yes, we believe that a more difficult year next year in volumes, we'll give an additional challenge to our competitors especially in working capital with high interest rates and also margins. There should be pressure on margins. In this sense, we don't see -- we don't see a great space for consolidation. The main players have financial health -- and the small players will probably suffer more with a more complex year.

Our next question, Victor Mizusaki, Bradesco.

Congratulations for the results. The first question as comment. The exports 2,000 semitrailers to the U.S. For cost -- is this -- are you developing resellers in the U.S. Could you give us more color for this and the products you are exporting? And the second related to auto parts, commercial vehicles. You mentioned in Lucas' question, acquisitions, removing bottlenecks to accelerate growth but at the same time, with verticalization, this can have a positive contribution in EBITDA margin. Could you comment on this? Is this improvement in Q3 is due to the strategy? And how much more can we expect in the future?

Thank you, Victor. I will pass the floor to Sergio but a quick comment on your last question. concerning the better margins due to verticalization, you are right. An analogy part of the production of Castertech for the sale of Castertech that we acquired from third parties, we have a penalty in margins and also tax, a surtax that we have to absorb and pass on to the clients. We could have a better price and better margin. Sergio, please comment on these 2 points.

Victor, thank you for the question, Victor. The sales that we have for next year, exports from Brazil. They are they are not sales to distributors. No, these are sales direct directly to a segment, the market is booming, we're selling direct and our products have a -- they leave Brazil ready. When they are unloaded in the U.S., they go into our operational immediately because they are registered already. We send -- they send us the license plates because they need these products. It's a niche market, as we mentioned, for the reasons that we explained on other occasions. It's a simple product. We don't need a large structure to distribute this product on a vascular -- these are concrete businesses with great potential for 2023. We're not talking about larger volumes due to logistics problems, international logistics. If the world economy suffers a drop and if we have more availability in logistics, yes, we can increase our sales. We can export more than the numbers we announced.

Thank you, Sergio. If you wish to talk about acquisitions concerning improvement in volume and margin potential.

You already mentioned well is time. We have today a business with many foundries. We buy a large part of CAS products from other companies. We have a new technology nanoparticles that brings improvements -- it's transformational for this type of product. And we don't see -- we developed this technology. This adds value will make us more competitive but we need capacity to produce them. That's why we're investing more in production capacity, not only to continue cooperating with our clients. to do what we believe will be transformational to have new products with alloys based on nanoparticles of [indiscernible] So it's an important action and we intend to continue to expand this more and more.

Well, our last question -- we had additional questions from the chat. We won't be able to answer now but after the conference call, we'll get in touch and answer. We have a question from [indiscernible]

Thank you, David. Congratulations for the results and also the events. 2 points. Financial planning for next year. And the other, the strategy of the bank -- talking of plans for next year with the last actions, the acquisition, the entry of the U.S. market. How much will this increase your investments next year? And the second part, strategy of the bank. Since you're going into rental -- what is your strategy to expand the portfolio of products? Do you see new opportunities within the bank? These are the points.

Thank you [indiscernible]. Thank you for following us. These 2 questions are for Paulo. He can help us with the answers. Investment planning and financial planning for next year, and the bank's strategy due to this partnership with Gear down for truck and implement rentals.

Thank you, Esteban. Igor. Thank you for the questions. Thank you for following us. Concerning financial planning for next year 2023, our commitment is to grow with financial discipline. So these operations of M&A that we just announced with the exception of [indiscernible], all the others will add EBITDA immediately like the case of Hercules that will add revenue as of November and EBITDA volume seen by will need maintenance. The plants have been shut down. So they will bring revenue as of the second semester of next year. And organic investments, historically, they have always followed a percentage in a cash generation. You can expect investments next year very similar to historical levels. At the end of the day, we want a leverage between 1 and 2 with larger M&A projects, but always with plans to go back to what's the EBITDA in terms of leverage. Concerning the second question related to financial services, the project will gear down and the bank's strategy. The project with Gerdau is a joint venture 2015 and both Gerow and Randon will not consolidate these results and debts in their year-end reports. It's a business that works with greater leverage and it's a format where this joint venture in the future, we'll have to take out loans from banks and even get other partners for this business. And Randon Bank with its 12 years of existence, year-after-year, we have grown in an organic way in the bank. It's very important to help us in financing for our clients, and we want to continue growing in an organic way so the bank can grow together with the industry. Since last year, we announced this new line, of investments in the bank, which is to use a digital strategy. We have done this, launching an application, an app and the intention is to grow in this market to [indiscernible]

If you will allow me a quick follow-up Paulo, the idea is to work in your market niche. Are you thinking of working with your partners in auto parts? The idea is to be closer and closer to our end clients, the logistics operators and drivers. So is this universe of logistics, which is the priority offering a complete service package. So we have the bank. We have full sales. We have our insurance company. We have the apps for information of groups, services so our idea is to be closer and closer to our end clients offering these services for logistics.

Thank you, Igor. Well, we'd like to close our Q&A session for Q3. Now I'd like to pass the floor to Sergio for his final comments.

Thank you, David. Well, I'd like to thank all the participants. It's always a great pleasure to be with you. We are honored to have you here, have your support, our investor relations team, Paulo and I are available for any additional clarifications you may need. All the materials shown is on our website. You know us please feel free to contact us, and we will give you more details and give you all the clarification that is necessary. Thank you, and we wish you a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]