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

We are many -- in many points of Brazil and around the world with passion for new paths, we inspire and mobilize dreams and people, innovating and creating solutions for challenges every single day. We are in search for shared prosperity, which respects our relationship with the planet and people that always has space -- where there is always space for more new ideas, new products, new services, creating a sustainable future with a new way of thinking and getting mobility. We have people who know that in our world to be on the move is fundamental mobility. This is how we continue with appetite and courage to live the future. So we're always evolving to connect people and riches, generating prosperity. Randon Companies now are, Randoncorp. Good morning to all. Welcome to our conference call for earnings of Randoncorp for Q1 2023. Yes, now we are Randoncorp. If you did -- if you were not present -- for example, on April 28, our brand went through a change. Today, we will hear more about this. The highlights of Randoncorp is our CEO, Sergio Carvalho. We have with us also CFO and DRI, Paulo Prignolato and the Director of Finance and Investor Relations Esteban Angeletti . They will share with us economic highlights by business. Before passing the floor to Sergio, we have on the screen important announcements. The information given here is not a guarantee of performance. They involve risks and uncertainties. They refer to future events and depend on circumstances that may or may not occur. At the end of the presentation, we will have our Q&A session. [Operator Instructions] I remind you that this event has simultaneous translation in progress for English and sign language. [Operator Instructions] It is being recorded, and the recording will be in our website right after the end. We will begin now the presentations, beginning with our CEO, Sergio Carvalho.

Good morning to all who are with us in this conference call for earnings. It is with great pride and satisfaction that we're here today presenting our earnings with our new corporate brand, Randoncorp. This is a very important moment for us as a company. It is a landmark in our history, not only for everything we lived until here, but what we want to build in the future. Those who are with us more time know that we are growing in an accelerated way and also accelerated transformation. Today, we are a company with focus on mobility that is expanding internationally and the most important growing in a sustainable way. Our new name brings these characteristics, a modern company, dynamic company and always on the move. For those who want to know more details about this change, we have complete material, which was aired on April 28, and you can see this in our Investor Relations site on the same day. We also have the ESG ambition event and our sustainability report. Please check all our initiatives, projects that reinforce the sustainability. Now talking about Q1 2023, we're very happy with our results. We began the year with many political economic uncertainties apart from the impact of the change from Euro 5 to Euro 6 in commercial vehicles. And this resulted in the production of trucks and buses to drop in the beginning of the year. It is this scenario that our strategy of diversification helps with the difference. The robust numbers we reached in the first 3 months of the year reforce that we're on the right track. Even with the reduction in volumes of auto parts, our results maintain in a consistent way with the excellent performance in aftermarket with Frasle Mobility and the recovery of margins in OEMs, especially Hercules in the U.S. Our vertical for financial services and digital services also helped with consistent numbers and disruptive innovation of advanced technology has had an impact on other verticals in a more and more relevant way. And since how are we doing all of this? I have said that there are many, many points in Randoncorp, but we would need a lot of time to talk about all of them. So I'd like to highlight the most recent that are a summary of what we're doing in our companies. In Q1 2023, we concluded the acquisition of AML Juratek, a company with focus on aftermarket in the U.S., which opens important doors for us in Europe. And also, we finalized the purchase and control of DB Server, which will bring capacity and creation and development of software, which is fundamental for any company today. Also talking about innovation, we advanced -- we inaugurated the suspensive plant focusing on e-Sys electric traction and also batteries that are used in this solution. This is new for us, but also the first in Latin America, which places us in a leadership role in technology for this type of product in the country with an investment of BRL 60 million to be made in the next 5 years. Our expectation is to get within 5 years to a capacity of at least 1,000 units of e-Sys systems per year. Another highlight is Compass, a new brand of composite materials from Frasle Mobility. Right now, they are making items for semitrailers and trucks, but other projects are in progress and the opportunities and perspectives of new products with this concept are enormous. So this is how we're building the future, focusing on disruptive development and innovation. And to do this, we have a very good team that is rethinking the traditional models. We made internal changes to improve even more our executive structure and to have more focus on the management of business. As of 1st of May, the directors of each vertical that are part of the Executive Committee now will be COO's, Chief Operating Officers and Director Superintendent Cesar Ferreira will be responsible for advanced technology is now part of the team. Now all the verticals are represented with a member enriching the exchange of experience and ideas. Before closing my participation, I'd like to reinforce once again our guidance for 2023 with the indicators are on the screen and show that even a year that is even more challenging than 2022, we trust that we can grow our revenue, deliver good margins and maintaining our discipline in investments. Now I pass the floor to Paulo, who will begin his presentation.

Thank you, Sergio. Good morning to all who are with us in this conference call now with our new brand, Randoncorp. In this -- in Q1, we had very positive numbers even better than expected initially. Net consolidated revenue reached BRL 2.7 billion, an increase of 7% in relation to the same period 2022. Here, I'd like to reinforce the importance of recent acquisitions for this growth. With the revenue of Hercules, Juratek and DB, BRL 128 million were added to the consolidated only during this quarter. These new businesses, together with diversification in all the verticals had a fundamental role in the growth of consolidated sales with also with road implements compensating the drop in other parts. Another highlight is the performance of the export market. These values were obtained by exports and also controlled companies abroad. The progress in this indicator in relation to Q1 '22 is due to the strong expansion of business in the U.S. through Hercules or exports to that region, both semi-trailers and auto parts. This is no doubt one of the strategies where we have invested the most in Randoncorp, the internationalization to mature markets. Now talking about gross cash generation. We reached BRL 442 million in consolidated EBITDA with 16.6% of consolidated EBITDA margin above the amounts that we published in our guidance between '13 and '16. Many factors contributed for these margins. For example, better prices, better pricing, better margins in companies acquired and gains in operational efficiency. Another relevant point was the cost of steel, which dropped in relation to the last quarters. Our profitability continues consistent with a net margin of 4.6% and but also -- but now heard by financial expenses and high interest rates. I'd like to remind you that even with this excellent level of margins, the market scenario has many uncertainties, and we should continue working intensely for Randoncorp to continue strong. Now talking about another indicator in our guidance, CapEx, BRL 61 million in the quarter, half of this value was invested by the vertical movement controlling the acquisition of machines and equipment to expand the capacity. Nonorganic investments and integralization of capital were also done in the period with a highlight to the acquisition of Juratek BRL 101 million and also [indiscernible] [ 40 million ]. With these payments, amongst others made in the period and with the increase for working capital, the net without Randon Bank reached BRL 2.5 billion at the end of March 2023 and a leverage of 1.67x. Our investor base went from 41,000 shareholders at the end of 2022 to more than 45,000 shareholders in Q1 '23 due to the higher number of individuals. So those who most increased their position were foreign investors and institutional investors. Now I'd like to pass the floor to Esteban to talk about the business verticals.

Thank you, Paulo. Good morning. It's good to have you with us in one more conference call of the company. 2023 began in a very intense way. We really had many events and important announcements such as guidance, ESG ambition and the change from -- for the new brand Randoncorp. I'd like to thank you for following us in all these moments. As Sergio and Paulo already shared with you, Q1 had consistent numbers. And now I will talk about each business. But before that, let's see the market scenario. As already expected, the production of trucks had a strong drop in comparison with Q1 '22 and Q4 '22. OEMs anticipated production of vehicles Euro 5 in Q4 to guarantee the inventory of these products to be sold to dealerships until the end of March this year. So different from production, the sales of trucks continued on a normal level. More than 94% of the vehicles registered had Euro 5. As you were able to see on the media in the last few weeks, OEMs have announced production stops to avoid higher inventory. The value of the new product, together with the current interest rates and difficulty to access credit are the main factors that affect demand on -- in this moment. This scenario was mapped in our projections, and we continue to be cautious, especially in auto parts. On the other hand, we have semi-trailers, which represented stability in volumes and especially for the continuity of agro business being strong and strong demand in the export market. Aftermarket has benefited with the complex system of production of vehicles, which increases maintenance and the sale of trucks and automobiles in the secondary market. So our presence with the alternatives and resilience we have helped us. I'd like to begin the highlights talking about OEMs. We had an important recovery in margins in relation to the previous quarter. Among the factors that contributed for this recovery are the prices of sale of semi-trailers remained at adequate levels. The reduction in the cost of steel, which increased our margins, also the results of Hercules with more than 1,100 implements and revenue of BRL 98 million in marg,double-digit margins. The export of 600 containers to the U.S. compensated the drop in sales in Latin America, especially to Chile, which is having a political crisis with a strong impact on demand. We continue leaders with 27% participation in Brazil and 64% in exports. Even with the drop in the production of trucks, the dynamics of sale and sale of semi-trailers continued positive. Our portfolio goes until the Q3 and agro business is the main generator of demand. Now talking about auto parts, which had a great impact, suffered a great impact. We can see that even in this scenario, this vertical showed its resilience with good margins. The units are working to mitigate the impacts of drop in demand expanding sales to export markets and aftermarket. Another measure was the internalization of production of some items by Caster Tech using better their capacity and adding margin to the company. Other points I'd like to highlight are: growth of sales of brake systems to the U.S. by Master, the increase in the portfolio as the case of [ Yost ] for -- with BusLink, the expansion of sales to the agricultural sector by Caster Tech representing 13% of the revenues of this unit and suspenses which has invested in electro mobility, once again adding new sources of revenue to this vertical, as already mentioned by Sergio. Now going on to movement control, Frasle Mobility and its controlled companies, we had historical margins with a new record in revenue. The expansion and internationalization has allowed this vertical to deliver results that are more and more robust and with great potential to be explored. The main market, which is aftermarket is in an excellent time, maintaining the prices. The reorganization of the distribution centers in [ Garmin ] in Argentina and [indiscernible] Brazil have already brought important synergies. Apart from this, we are now back with production in China after the lockdown with a benefit in logistics costs, apart and also composite materials are in a new phase now called Compass with investments in automation and capacity expansion, adding more revenue and sustainability to this controlled company. With the conclusion of the purchase of Juratek, this vertical will expand its presence in the European market in the next quarter. It has good perspectives for the next few months. Now going to financial and digital services. We have another vertical with important progress. The great highlights are Randon pool sales, which is doing very well with a growth of 66% in pool sales in comparison with Q1 '22. This increase is due to the high interest rate, which makes this option cheaper and more attractive and agro business, which continues to help our sales. Randon Bank, Bank is expanding its work, becoming more and more important in the ecosystem of Randoncorp. The revenue from DB represented BRL 17 million, adding a new business in the vertical. And [ Adianti ], which will game representation. The company has contracts for the rental of more than 200 assets and others are being negotiated. The market is receiving very well this business model. Talking about advanced technology, we had the union Alton with RTS industry reinforcing the work and synergies. With this, we will have one name Alton. 91 continues with its projects, currently 65 in progress with 35 that are advanced in terms of maturity. Apart from this, they began the building of its spirts product, which is a nanoparticle solution used in paints. CTR had a drop in revenue, especially due to the seasonality of the period. and less activity of the OEMs in Q1. I always like to remember that this vertical is fundamental for technological progress of the company. And its relevance will be evident not only for its results, but also for the contribution and other verticals. Now I pass the floor to David to begin our Q&A session.

Good morning to all. Once again, thank you for being with us in our conference call for earnings in Q1 2023, now as Randoncorp. I'd like to thank Sergio and Paulo for the presentations, and now we will have the Q&A session. [Operator Instructions]. So now we will begin and now, Victor Mizusaki, Bradesco BBI. Well, Fernando Urbano, [ XP ]. Fernando, please ask your question.

Good morning, David Sergio. Congratulations for the results. Two questions. I'd like to understand about the impact in the transition to Euro 6 engines. Should we -- do you believe we will have an improvement in Q2? And the second point on the export of implements. You have improved in the U.S. Could you give us more details about exports to other markets?

Thank you, Fernando. Two relevant topics for us. We highlighted some of these points, but it's good to explore more. Sergio, you are the best person to give us details about the transition to Euro 6 and effects in the market for -- in Q2 and onwards and international market exports to the U.S.

Can you all hear me? Well, thank you for the question. Yes, we have felt the impact of Euro 6 in Q1, but our expectation is that we will continue to feel the impact in the next quarter. The market needs a better alignment with price increases for -- because there was an increase in price for Euro 6 trucks. And there is a movement in the direction of normalization, but we're also seeing a scarcity of credits, which is together with this concern with Euro 6. So OEMs are increasing Euro 6 trucks, but we believe that this -- in the second quarter, we will feel the same impacts in this segment of the market. As we already said previously, a great advantage for us is that we have a business model where we can navigate in difficult times as this one. When we have a great reduction in the production of trucks. And even with this situation, we are growing. So we are diversified. Our vertical for implements, road influence. The -- our exports continue and in South America, we see drops in production in Argentina, Chile and other markets. But this is being compensated or even more than compensated by our exports to the U.S. market and our production in Hercules, who is -- which is doing very well. We're very happy with Hercules with good results, and they are more than compensating the other drops that we have seen.

Thank you, Sergio. I'd like to add a point, which is very relevant for me. You mentioned about the impact of the production of crux when we compare with Q4, the production of trucks dropped 46% in Q4 last year. And our vertical for auto parts had a drop in revenue, much lower than this, a drop of 20% versus Q4 last year that had been a strong quarter for auto parts. Another highlight the margin in auto parts is 16%, very relevant. So this should be said, especially to show that our investments in a business model that is more diversified is bringing us good results in a difficult year like this.

Let's go on to the next. Now with Victor Mizusaki, Bradesco BBI. Okay. Victor, please.

Congratulations for the results. I have 2 questions. One concerning implements when we look at average price Brazil and the U.S., we see a difference even comparing average price in Brazil, Q4. And so we see an improvement in margins, too. First question, can you comment what we can expect in terms of the difference in profitability in Brazil versus the U.S.? Is it because of the product? How is competition in Brazil? And so we had an increase of 6%, but this sacrificed market share. Do you see an improvement in the next quarters? And the second question, looking at auto parts aftermarket 10%, 11%, which is different from Frasle, do you see opportunities to change the mix in auto parts?

I will address your first question. The issue of average price and the expectations for margin and profitability and then Sergio concerning aftermarket auto parts, you can comment. Victor concerning average price, there are some components that are important. First, talking about competition. Yes, we -- the market did not grow. The market was bad, but competitors are also more rational, the market, the market has news about expansion. But sometimes it's important to read the use about drops in capacity. This happened in the last year. We saw this in Q1, and this capacity of industry capacity with volumes that don't grow. We were expecting a drop in volumes. Only agro business is strong. This helped the market the offer to be more rational, more conscious. Companies are being more rational, more conscious and not aggressive as in the past. Specifically on Randon, it's important to remember that we have more and more products with value-added products. Thus, the tickets rose at Randon, not only price increases, but also more value for our client with a higher ticket. Now concerning export products, initially, we have a greater concentration to the U.S. of chassis and platforms in containers, different from Brazil. This product is more simple. The average ticket is lower. And it is -- that's why we have this difference between the export market and the domestic market. During the year, in relation to profitability of implements, we have to follow in this first quarter. We did what we had said to the market to balance market share with profit. And this is what we will do during the year. As Paulo mentioned in his presentation, the price of steel is dropping. This helps us to defend margin. Now we have to also work on price to sustain these margins during the year. And Sergio, if you want to talk about auto parts and aftermarket.

Just to supplement the answer given by Esteban, our margins in the U.S. are significantly higher than our average margins in Brazil. We're very happy with our investment. But yes, one of the first actions in terms of how to compensate or attenuates the drop in revenue in the beginning of the year due to lower production and sales of Euro 6. We made efforts to grow in aftermarket, with auto parts, for different companies that make up our auto parts and the majority we're able to increase their revenue and so and work more with auto parts an aftermarket to attenuate this drop in volume and also exports. We have important projects we're working on.

Well now, the next question by audio, Lucas Marquiori, BTG Pactual.

I have 2 topics. Good morning. First, the transition from Euro 5 to Euro 6 in road implements. Maybe we saw the end of Euro 5 production in Q1, maybe we will have lower volumes in Euro 6. Is this what you believe will happen minimum in volume and then recovery. And the second topic concerning margins. I know that it's early to think about numbers for the year. But Q1 was higher than the guidance. What are you expecting in the next quarters? Do you believe you will have the numbers of the guidance? So I'd like to hear you about these topics.

Okay, Lucas, thank you. Sergio, you can comment the transition to Euro 6 in Q1. The sales of trucks were not affected the production was affected. 94% of the sales were Euro 5, very little of sales in Euro 6 in -- only in this quarter, we will have more sales of Euro 6. Paulo, if you wish to comment on margins for the second half of the year. And how this compares with our guidance.

Lucas, thank you for the question. Esteban talked about this at the end of last year. Production was very high, very large with Euro 5, and all these sales happened in Q1 in the dealers, and they can continue selling what they have of Euro 5 even after March 31. But this additional production of Euro 5 at the end of last year, really many companies have vacation stopped. The reality of Q2 is different. Q1 was expected. Q2 we have the pressure due to price of the new products and how this impacts transportation company and whether it makes sense or whether they will wait for prices to go down. This is already happening. In FENATRAN a product that was sold at BRL 700,000 was presented at BRL 1.2 million and today, we're hearing about BRL 950,000. So we see a drop in prices and the manufacturers that we're not so aggressive in price, those who are able to handle this, and two manufacturers did this. They have a good portfolio. They have good sales. Those who are less aggressive in price. So this is what we're seeing lower prices, prices going down and owners are waiting for better prices and there's also a lack of financing right now. We know that this is -- many commercial banks are going a little are avoiding the sector. And there is less financing, and this is having an effect. So different realities. Q1, only a compensation that was expected because of over production at the end of last year. In Q2, lower prices and financing, we hope that we will have more -- a more normal situation.

Thank you, Sergio. Yes, there is a restriction on credit, and this has a positive impact on our services. Pool sales run on consortiums are doing well and now Paulo second question of Lucas, if you wish to comment about the behavior of margins in relation to our guidance.

Good morning to all, Lucas. Thank you very much for your question. In reality, it's important to highlight some factors related to some uncertainties that make us maintain the guidance on this level. It's important Sergio mentioned a lot the dynamics in relation to Euro 6. Apart from this, we see the exchange rate being very volatile. Interest rates, there is an expectation of a drop in interest rates in Brazil and in other markets during the second semester. Steel is an important component. We announced to the market that we had a drop or deflation in the cost of raw materials during the first and second quarters. In Q3, we see this drop continuing, but Q4, we don't have a conclusion about the price of raw materials. Last of all, the behavior of the competition in the many sectors and markets where we are present. So right now, Lucas, although we have overcome the EBITDA margin and the guidance in Q1, we are maintaining the range of margins. And if during the next months, we feel that there is space for a change, we will inform the market about this.

The next question, Andressa Varotto, UBS.

Two quick questions. The price of steel and raw materials, how do you see the relationship between lower prices and price increases. Also market share [ road ] implements, 6%, which is a little than your market share. Do you have any strategy? About go back to a market share of 30%. Are you comfortable with these levels?

Thank you, Andressa, for the questions. I will join this with a question from Fernando laid down. You want us to comment on the market share rundown. This question, Sergio, you're the best person to answer this. And the first question, Paulo, cost of raw materials, especially steel, you have the information.

Andressa, thank you for your question. As I had answered before we have many verticals and in some of these verticals, the price increase is being done, especially with OEMs where we have contracts and others to follow the competition. We have a relevant purchase of steel. We have an important buying power and this brings us a competitive -- an important competitive edge in relation to other competitors. So for the first semester, we had an important drop of price in steel third, Q3, we're negotiating. And in Q1, these robust margins because the market dynamics allowed us to have an important margin in some of the verticals but we did not increase all the prices. That's why we're maintaining our guidance with an EBITDA margin on these levels. If anything changes during the next few months, we will inform the market of the changes.

Thank you, Paulo. Andressa, talking about market share, sharing with you our way of thinking. Our objective is to work in a responsible way, in a professional way. So we want to do everything that is possible to maximize the return for our shareholders. This is our main objective. So what I mean is that this happened again. We have bids for products with low value for low value-added products with prices are lower -- where prices are lower than where we want to focus we don't give priority to market share going after products with compromised margins in order to continue with our leadership in value. So there are products, the products that we saw in these bids in where the value is too low. Our average ticket is much higher than these products. So we maintained many -- we are many percentage points ahead of #2, the second company, but our vision is to bring value to our shareholders, maintaining our leadership in products. Some products, we saw for $100,000, others for $300,000. We prefer to work with products that cost $300,000. Like in the case of trucks, you have small trucks in the city that sell for an ex price and heavy trucks on the roads with prices that are 4x, 5x higher. So when you look at the market share of small trucks and large trucks, this is not a good comparison. So we work with products with more -- that are more value-added. And if we were -- if we looked at market share based on value, it's much higher we have different products with higher prices. Having said this, our expectation is to see an improvement in our market share. And in the beginning of the year, we have stopped and this impacts the market share after the beginning of the year, things are recovered. I hope I answered your question, not only yours, but also the question of the other colleague, Fernando. Fernando, I hope I answered your question.

The next question, [ Gabriel Tian ] from Santander.

With this strong demand, especially in the U.S. market, do you see opportunities for more expansion in the U.S.A., expanding Hercules or M&As, more acquisitions. Give us an idea of the margins there.

Gabriel, thank you, Sergio. You can comment on the U.S. market, Hercules and new opportunities.

Okay. Gabriel, thank you. Certainly, our intention, we have already said this. Today, we have between exports and sale outside Brazil, 20% of our revenue and our objective is to go to 30%. This will happen through expansion, whether they are organic or inorganic in general. So in terms of OEMs, yes, we continue to export from Brazil. We're working to expand the capacity of Hercules. And also, we're beginning in the next few years, to think of other product lines so we can participate in other segments of the U.S. market. We are looking at these auto parts in the U.S., the auto parts where we can participate. We have auto parts which are restricted to South America, and we will not violate our agreements. But those in the U.S., we are prospecting businesses and a lot of interesting discussions in progress and also opportunities for M&A. We're looking at everything. So you know that we're always analyzing these opportunities. Looking at the best synergies, as we always say, so this is our plan, our intention in terms of how we will get to 30% revenue. We purchased Juratek in the U.K. And we're working on other projects too.

Sergio, the issue of Hercules and its margins, you said they have healthy margins. And in the U.S., the market is different from Brazil. The demand continues strong in the U.S. And those who have capacity like Hercules, they are being able to charge more, and this sustains margins, a favorable scenario for us.

Second question, a follow-up for auto parts, you internalized production at Caster Tech. will you follow the same strategy in this next quarter? What do you expect until the end of the year?

Gabriel, truly, we have been working in the last 5 years in 3 fronts, more exposure to aftermarket. Sergio mentioned this, greater flexibility in production with the acquisitions of Caster Tech, increasing our capacity and adding quality revenue, allowing us to have more flexibility with new products and allow us to go to new markets like agriculture. Caster Tech with the assets they have, they can participate in the agricultural market. And the third point, Sergio just said, the opportunity for internationalization of auto parts, suspenses and Caster Tech are ours. We don't have geographic restrictions and we want to continue to explore geographic diversification. So flexibility, diversification for aftermarket and geographic diversification to compensate the domestic market that is -- that has dropped this year. If you allow me an additional point in auto parts which has to do with Caster Tech, today, we buy 35,000 tons a year. We have -- we sell much more than what we can produce. And with the drop in production, we bring part of these purchases to our plans to mitigate this. So we have this ability. We're doing this. We are in-sourcing.

Our next question, Luiz Capistrano, ItauBBA.

Two issues that were already discussed. The first, the price of trucks from Euro 5 to Euro 6. You made clear surge that now prices are improving. And now OEMs are being forced to drop prices. Did you see sales in BRL 900,000 -- by BRL 900,000 or BRL 1 million. So also, the production volumes in April were lower than March. Our prices dropping. So please give us more details.

Thank you for the question. There are two factors. Sergio talked about this. There are 1 or 2 manufacturers that were not too aggressive. They gained market share. And there's a second group of OEMs. There was an aggressive increase in price. Now they're dropping prices. Sergio, if you want to answer.

Well, I believe you said what I was going to say. Luiz, thank you. That's it. Two large truck manufacturers had a different price policy. They're gaining market share and their portfolio is full. The others tested the market. And now they're adjusting their prices downward. So we have this period and this is what is happening.

Luiz also, I'd like to remind you we mentioned a lot about the real demand different from the transition from Euro 3 to Euro 4where there was an artificial demand. This year, we see a real demand. What I mean is that trucks will have to be sold. So we're close to seeing a normalization of this.

The other manufacturers are dropping their prices. So May and June should be better?

Yes. We see April as a month when adjustments were made. At least there's another factor, the scarcity of financing this has to be solved.

Second question, inventories. You made it clear that you noticed a significant drop in the price of steel. How is this reflected in your inventory on March 31? Is the price this drop in steel? So what happened after March? Paulo, if you could answer this?

The price of steel we use an average last as we by cheaper steel. We use an average price at a lower price in relation to December. This changes according to verticals, some verticals work with 1.5 months in others a longer period. But I would say that, in general, this first quarter -- in this first quarter, we have the steel that we bought for a lower price. It doesn't mean that in Q2, we will have even lower prices.

My last question related to inventory. We saw strong cash consumption in Q1. We hope this will change. Can you comment on working capital. When you expect to have more working capital?

Perfect. Thank you. Working capital, we discussed a lot, Paulo. I believe you can comment on this.

Of course, Luiz, this is a topic that we treat with a lot of discipline. Yes, we have considered important factors, seasonality in our business. So we had some stops during the last quarter of 2022. This happens this way. So there is a drop, especially in inventory. And even in accounts payable to suppliers, so what happened, we saw a drop, and now naturally with the recovery of operations in Q1 an increase in inventory. And what we see is that during Q2, we have an increase in inventory, but a normalization of your accounts payable to suppliers. So consequently, we hope a certain drop in working capital during Q2 and Q3. But naturally, Q4 is a quarter because things change. There are stops in some clients going back to lower levels. In other words, normally, Q1 suffers a lot in terms of working capital. Stabilization in second quarter, third quarter and a drop in Q4.

Next question, Marcelo Motta, JPMorgan.

Follow up more details about investing BRL 60 million. Can we expect more revenue based on the plan you have? Or do you intend to build another plant to exceed 1,000 units.

Thank you. Okay. I will pass this question to Sergio. I can say that we continue very optimistic with this product, e-Sys. So when we look at will transport in Brazil we have a lot of road transportation. And with this impact e-Sys electric traction, we can decrease emissions. So this helps the environment. Now on operation and sales, Sergio has more details.

Thank you, Marcelo. We see this type of product, e-Sys electric traction with 3 phases of adoption. First, the early adopters the companies that are more focused on ESG. And we are working with these companies. They are not concerned with that concern with financial issues. They are concerned with carbon footprint and want to invest. So we should sell 50 units this year. This week, we made more sales, but it's a process. Some companies are testing. They already bought. We're waiting for their results and then it becomes more popular with an exponential curve. You begin small and then volumes grow. The second phase is the business case. We're near this when we have larger volumes, in some components, especially batteries, the cost of this architecture like in automobiles and trucks. Batteries are the most expensive item, then we will have a higher volume. And then the third phase, mass production of this technology. These are the 3 phases, certainly Phase 1, Phase 2 will develop in the next 4, 5 years, mass adoption will take a little longer. Having said this, the e-Sys has an axle, electric traction inverter, battery and software. And we won't be selling all of this as a package. When it's semi-trailer, yes, a complete solution. But there has been demand in -- for batteries. So there is the possibility in some components to have more than 1,000 units per year. So when we reach Phase 2, as I said, the potential is many times higher for this business. So that's why Esteban said we're positive, but myself is like all technologies that are new, it takes time.

Well, our next question comes from Igor [indiscernible].

My first question, you talked a lot about strategy, market share, mix price, this was answered. A topic in the release, you said that you have some rental contracts 200 assets in the software company. I'd like to understand, what was the yield in these contracts? What kind of assets are you renting in the software company and this we know if you can give us these numbers, it will help us.

Okay. Thank you for the question. Also Fernando's question, market share and the other on Adianti company and the rental contracts. At the end, I'd like to ask Paulo to comment about this operation. It's a new operation. It's a startup. But there is a lot of interest, especially in the scenario with high interest rates. This helped us to have the first contract, which is not random or geared down.

Thank you for your question. In reality we cannot comment. We cannot give you more details about the size of the ticket and the margin. As you all know, the operation is in a ramp-up phase. We believe that it's an operation with a lot of potential business in comparison with other mature markets has a lot to grow. And of course, what was set, the objective is to show that we're better than we forecasted in the business case. We're forming the team. We have the CEO of Fabio that began at the end of last year. We're putting together the team that will support Fabio. And as soon as we have this information and our partner, Gerdau, we will structure how Randon and Gerdau will be able to share with the market more information and details about this company called Adianti. So please wait a little more and we will define the best format to give you more details.

Our last question, [indiscernible], RW.

Three questions. Two of them are long-term growth and challenges of the company. This we already mentioned. Please call us if you need more details. One of the questions is to talk about measures being taken to increase efficiency and lower costs. Sergio, operational efficiency and investments in this area.

We don't have a silver bullet a single answer in terms of what we have done to improve our efficiency. It's a set of actions where we work consistently. First of all, we knew about Euro 6. We knew we would have these stops in production. And we began the year with actions controlling expenses, costs, travel, all types of expense. So we began with lower expenses this year, delivering 16.6% EBITDA in Q1. And this makes us very happy. But we're working to improve synergies among the units. We work looking for all types of improvements in our costs and not only in international freight but also lower cost for distribution and we consolidated all the freight in Minas Gerais with the exception of the deliveries in the south of Brazil. So many synergies, automation, creating internal solutions to automate improving productivity and many others. So new raw materials, changing the specs, so a set of actions there is no single solution that is a magic bullet. Changes in specs alternatives that bring us benefits. So all these actions are contributing for this improvement in cost.

Just to supplement Sergio, the main is the mindset. We see this in the company there is a guidance to improve efficiency in all the areas in investor relations, in production and engineering.

Well, we thank [ Vanderson ] for the questions, reminding you that you can get in touch for any further clarification. Now we would like to conclude the Q&A session and Sergio will make the final comments.

Thank you, David. Once again, thank you for participating for the support, the questions. If you need any further clarification. If you remember something, please call us, call our IR team. It will be a pleasure to clarify and continue sharing Randoncorp with you. Thank you, and we will meet again in our next event.

Thank you, Sergio, Paulo. Thank you to the IR team. [Statements in English on this transcript were spoken by an interpreter present on the live call.]