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

Good morning, everyone. Welcome to the video conference for the earnings of the first quarter of '25 of Randoncorp. I'd like to thank the presence of all the investors, analysts and all the other participants that follow us this morning. Our event has simultaneous translation to English and sign language interpretation. [Operator Instructions] This video conference is being recorded. The recording will be made available on our website for ri.randoncorp.com website. In the screen, we bring the legal statements. The information in this video conference is not a guarantee of performance, involves risks and uncertainties, involves future events that depend on circumstances that can and not happen. In today's agenda, we have a message from the President of Randoncorp, Daniel Randon; the highlights of the semester presented by Paulo Prignolato; the detailing of the periods mentioned by Esteban Angeletti; the perspectives for the next months brought by our CEO, Sergio Carvalho. Finally, the Q&A session conduced by our IR Manager, Davi Bacichette, that will count on the participation of our IR Director, Hemerson De Souza. [Operator Instructions] I pass the floor now to Daniel to start the presentations.

Good morning, everyone. We start one more year excited with everything we've done and we still want to do at Randoncorp. You have followed the intense pace of relevant movement that we realized in the last few years. And the biggest one without a doubt was that the Dacomsa acquisition, an aftermarket in Mexico, that has gained important results in the beginning of '25. The closing of the operation happened in January, the month where we concluded the acquisition of AXN, a North American manufacturer for axles and suspensions and Delta Global, a company from -- a technology company that is part of our brands. These companies came to reinforce even more the transformation of Randoncorp in a protagonist in mobility sector globally. With them, not only we access new geographies as we widen the diversification of our businesses, which is paramount to go through complex moments like the one we're going through that will be explained later by our executives. The capturing of synergies should give us fruits in the next months and will contribute in an important manner in our future performance. And talking about what's to come, another movement that we announced in April that will strengthen even more our business middle, long term is the strategic partnership of Rands with high-growth funds of Patria Investimentos that will allow to accelerate our growth plan with greater digitalization, which is very important for this segment, increasing our sales channel. The transaction is in the process of being approved by the competent bodies. We hope -- we expect a conclusion by November, December this year. Another announcement we had after the last earnings presentation was the change in governance at Randoncorp with the continuity of our succession plan. We are doing the transition of Sergio Carvalho in a very constructive way. Our Executive Committee is well structured with a competent team in heading our businesses. September on, Sergio will be our Senior Executive Adviser. At the same time, me and Anderson Pontalti will take on new positions at Randoncorp at Fras-le Mobility. During the preparation of the presentation for earnings of the first quarter of '25, we showed our guidance, presented our guidance, our ordinary assembly, extraordinary assembly in an event at Automec with investors. About guidance, I would like to mention that it's very realistic under the point of view that we have of the current market today. Sergio will detail this in his talk. Regarding the assembly, I would like to highlight the approval of all matters, the reelection of the Administration Board and the changes of the [Foreign Language] of the company, now Randoncorp S.A. with the brand we adopted 2 years ago. Finally, I finish my participation thanking the over 40 investors that participated in our event, investors at Automec. Moments like these, we are able to show that Randoncorp has solutions for several sectors of the economy and has increased its business in resilient segments like aftermarket. Despite this challenging scenario at the short term, we are convicted that our pillars are well established in a solid base. We are determined to advance this year, especially focused in the integration of new businesses, seeking synergies, reducing our leverage. I pass the floor now to Paulo for his presentation.

Thank you, Daniel. Good day, everyone. To talk about the Randoncorp results, we need to highlight meaningful changes that we had in our business environment at the beginning of this year. As you can see in the screen, the number of trucks in the first quarter of '25 are good and grew so much in production as well as sales. But what these numbers don't reveal is a change in the mix, which heavy trucks lost representativity with the other lines. This happened especially due to the increase of interest rate and other factors continue to be positive, like a strong harvest of grains with a record harvest. This macroeconomic scenario has affected strongly the demand of trailers. Despite having a decrease of 15% to 16% in production and sales, if we focus only in the lines linked to agribusiness, the reduction is even higher, close to 40%. The volumes of the first quarter are being pulled, especially by the segment of industrial cargo, where we have a lot less exposition. We have the increase of aftermarket with workshops, increase in the circular fleet and at this favorable environment to buy new vehicles and for exports for trailers with the uptake of sales in Argentina and Chile. Focusing on the international market in a broad way, the big point of attention, no doubt, are the uncertainties regarding the tariff policies. Currently, we understand that for Randoncorp, there are more opportunities to be explored than threats regarding this topic. But even like the rest of the world, we are paying attention to the unfolding of new changes can impact business. Starting with our main indicators now. I'd like to highlight that net revenue has increased in the quarter, supported especially by the new acquisitions and the heated demand for aftermarket. Esteban will bring us more details later, but I'd like to highlight that we reached important milestones in this indicator that we're seeking for some time, the increase of representativity of international revenue from aftermarket in our business, strategic pillars of our growth. On the other hand, we had the impact of deacceleration of sales for agribusiness, penalizing especially the OEM vertical and update of ERP of this auto parts vertical and our partner, Schroeder. They impacted the dynamics of business affecting not only revenue, but also the margins of this period. When we analyze the EBITDA margin adjusted, we see stability compared in the quarter. Even with the challenges that we faced the results of the companies acquired, especially Dacomsa, that has a good level of cash generation and works in aftermarket and the growth of international revenues that have greater profitability when compared to the domestic market, also contributed for this indicator. Regarding the net results, we had a relevant reduction in the period. We didn't present the adjusted values for this indicator, but we'd like to highlight the impact of a one-off, which is the last parcel of [indiscernible] affected us BRL 70 million. Additionally, our financial result was affected negatively by interest rate currently and the increase of debt to finance our expansion -- nonorganic expansion. These factors aligned to a greater level of investment and affected also our ROIC. Going to net debt, you can see in this plot the variation between the closing of '24 and the first quarter of '25. We had relevant capturing to acquire Dacomsa, AXN and Delta this quarter besides integralizing capital of [indiscernible]. The rest you can check in Chapter D of investments of our results or earnings. We had a greater need for cash working capital, especially in stocks. This happened due to 2 factors: the business model and distribution of Dacomsa that demands higher availability of more ready products and a greater number of trailers in stock of the vertical OEM due to deacceleration of its main sector where they act. These factors impacted our leverage that temporarily is higher, as you can see in this plot. I highlight that our financial covenants established a leverage of 3.5x the EBITDA of the last 12 months being checked at the end of the exercise and considered EBITDA pro forma of the acquisitions. When we calculate the leverage, we consider this premise, the indicator is 3.2x. Adjusting EBITDA by one-offs, we get close to threefold, 3x. I reinforce that one of the objectives this year is the reduction of our leverage, especially with the capturing of synergies and the integration of our units that are strong generators of cash. Now we bring to the screen some data about our debt. As you can see, the increase of interest rate influx and the total cost of the debt that today the majority is in domestic currency. We're working on several alternatives to improve the profile of our debt, like the increase of the average term and the reduction of average cost fund that we achieved this semester. I'll finish off my part bringing information about Randoncorp in capital market. Despite the valuation, the increase in our value for Fras-le Mobility and make evident our valuation of our co-op buying plans with Patria, our market cap had a reduction of 30% in this period, but our liquidity -- average daily liquidity increased to BRL 5 million. Besides paying JCP January this year, deliberated and assembly the point of dividends and BRL 15.3 million that will be started May 3. They have the right to receive, the shareholders, from April 30. Now I pass the floor to Esteban.

Good morning, everyone. I want to thank you for being with us in another video conference of Randoncorp. As Daniel and Paulo highlighted up to now, we live an intense quarter full of relevant deliveries strategically, but very challenging in the business environment. I'll start bringing the information about our net revenue. In the distribution vertical with the acquisition of Dacomsa, we had an important advance in the revenues of control of motion vertical getting to the level of 40% of net revenue as you can see in this plot in the screen. Second place in participation, we have vertical auto parts that has the revenue from the acquired companies like EBS and AXN. The OEM that used to be our main revenue is now in third position in the first quarter of '25, a reflex of our growth strategy for all the other verticals and the market movement with a decrease in volume and a less favorable mix. And what we -- result that we bring in screen, we're bringing revenue per segment. In this quarter, we added over BRL 450 million through new businesses and majority in foreign market. The aftermarket industrial has increased and agribusiness has been explained by Paulo. Analyzing now revenues of foreign market, we highlight the increase of representativity and total revenues. Over 30% of our revenue come from abroad, and our objective is to seek greater balance in the middle long term. What made possible this advance is without a doubt the acquisitions. We had other important factors in the quarter like recovery of sales of trailers to Chile and Argentina, besides the continuity of delivery of a lot of order of Hercules opening the representative of foreign revenue per region received more than half comes from USMCA that accounted from January on with the Dacomsa Mexico and AXN USA. Another region that has grown a lot is EMEA, especially through the acquisitions of Juratek and EBS. The region of Mercosur and Chile, despite a decrease comparatively has shown gradual recovery with a recovery of Argentinian economy. Looking at the EBITDA of the first quarter of '25, we had an increase in nominal value and established margin. We had important factors during the semester that penalized EBITDA in BRL 85 million that in turn the data on the screen are adjusted. See in the plot in the bottom, the origin of the generation of our cash. First in relevance, we have vertical motion control, followed by auto parts and financial solutions and services. And cars are always seen to be an important increments in revenue, but our margin in the OEM vertical suffers pressured by the decrease of its main market and a business environment that's more competitive, where there's not a lot of space for readjustment. Besides this, we have the new units of auto parts in Mogi Guaçu and ramp-up forecast to finish in the fourth quarter of '25 and the margin should follow this gradual improvement as the volumes increase, which should lower the fixed cost for the operation. About the CBD, I say that inflation is stable in the period, an increase of specific prices in raw materials like aluminum and metallic goods. The comparison of this M&A is affected especially by the addition of new businesses. I reinforce that we are very diligent in working with expenses and investments so we can advance in our profitability levels. To finish, I bring in the screen the value of investment comparing quarterly. As Daniel and Paulo mentioned, this was the quarter for relevant acquisitions represented in blue, light blue in the plot. Besides this in CapEx, we continue to invest in the building of the plant of Fremax Energy for Fremax and new units in Mogi Guaçu and the efficiency of all our operations, we are prioritizing necessary investments, seeking to preserve our cash to reduce leverage. Now I pass the floor to Sergio to talk about the perspectives for next months.

Thank you, Esteban, and good morning, everyone. As you saw with the talks of Daniel, Paulo, Esteban in today's presentation, the year of 2025 will be a very challenging year. We are operating in a business environment that's quite complex in Brazil and abroad, where we have a lot of uncertainty, interest rate that is high increasing in the domestic market, tariff policies being changed in a meaningful magnitude in the international scenario, several issues that end up impacting the normal pace, the usual pace of our business. With this, we are preparing Randoncorp in the last few years to go through these periods in a safer manner with more resilience. It's not by chance that today, the aftermarket revenue is a lot higher than we had in the past. The material you received, we reported in this first quarter something like 46% of revenue of Randoncorp in terms -- global terms, they come from aftermarket. We understand that this segment brings this resilience that we're seeking. But to grow -- for us to grow in aftermarket, we had relevant investments, which made us in this moment, we have a peak in our leverage. We don't foresee more investments of this level in the short term. Our focus is now in integration, that capturing of synergies, the expansion of the synergies with the acquired companies and the reduction of our leverage. So Gustavo, next slide, please. So in this context, you can see in the screen the numbers we have forecast for this year. Under our revenue, we believe we're going to close between BRL 13 billion to BRL 14.5 billion and all of this supported number one, by the addition of revenue coming from the acquisitions, nonorganic movement, the good demand of the aftermarket segment as well as a positive demand, a greater participation in the truck market with the operation of Suspensys and Castertech in the region of Mogi Guaçu. This number will not be higher due to the decrease of heavy vehicles and trailers linked to agribusiness, as Paulo mentioned, which showed an expressive decrease when we compare to the previous year. Regarding revenue from international market, we presented a great advance regarding compared to '24. And the main highlights are our expansion in North America with Dacomsa, AXN and the recovery in the segment base container market through Hercules, the increase of relevance of our revenue that come from European continent that also count with our company, EBS. And in the South American market, we see a gradual recovery of sales in Latin America, where Argentina is -- it has an economic stability and Chile, it has a reuptake or it's reuptake of trailers and the adjusted margin is inside the guidance gap in the first quarter, and we believe we can seek margins similar to last year in the current year. Regarding investments, we have a moment of austerity according to the current moment and the forecast, we have the conclusion of Mogi Guaçu unit and investments in gaining productivity and efficiency. All of the numbers obtained in the first quarter of '25 regarding the guidance indicators are very much aligned with what we forecast for the period. Now I finish the presentation part, and I pass the floor to Caroline, so we can start our Q&A session.

Thank you, Sergio and the executives that had the presentations. So we're going to start our Q&A now. [Operator Instructions] Our first question of today comes from Gabriel Tinem from Santander.

Two questions from my side. The first, focused in the segment of trailers as a whole. I know that the market has gone through a complicated moment, demand impacted by high interest rate, new competition. On your side, can you give us more details what are the initiatives that you're working on, especially for gaining efficiency, operational improvement and the timing also issue, if you can mention when we would see these improvements? Second point, focused on the earn-out of Hercules. Can you explain this transaction if there is values that are pending or what would demand new investments, anything that would demand new investments? That's it.

Thank you for the questions. First, I will hand it to Esteban. It's important to highlight the year that we see the trailer market with higher difficulty. We are not halted. We're doing many actions in the company. Esteban can detail this. And Paulo, can you give us more details about the earn-out of Hercules? Esteban, first with you.

Thank you, Gabi. Thank you for the team for participating in this video conference. Thank you for the question. It's important to give context to the OEM of trailers segment as a whole, we're going through a moment of not having a decrease in volume, 15% to 20%, but mainly maintaining, if there is continuity, the change of the mix to a less favorable mix for our product portfolio. We're talking about when we look at family of products, those products are destined for agro, the dump truck and dump trailer and the grain trailer, the decrease even higher. What sustains the market volume for this drop to be slower or lower the products destined for industrial cargo to retail where we naturally don't have as much competitivity. With this, we have 2 separations here when we look at market, we have the understanding that assets that are running for agro, transporting agro, they have a higher use rate because the harvest is good. So they're probably having heavy usage, more intense use. So there -- they will suffer more where if they don't want to renew to save money or to avoid higher leverage, once the interest rate comes down, we should have a double impact in volume due to a renewal that was retained for longer, then you will have to do the renewal in an accelerated manner be the expansion of fleet. We've seen the scenario in 2018, 2019, 2020, after 3 years where the market was not selling not even enough for the renewal of fleet, we ended up having 3 years with volumes that are a lot higher than previous 3 years. From the point of view of the market, we do believe we see a possibility of recovery motivated by this. On the point of view of what we do from inside, we have initiatives in all fronts, be it product, process and structure also. We're doing the adjustment, especially in the point of fixed cost to go to this smaller volume and tighter margins. But we also move product and process so when the volumes come, we're even more competitive. And the proof of this is despite all the perfect storm, especially from the OEM part in the first quarter, we are able to preserve a positive EBITDA, something that in other moments in the company, we would not have the same situation. Finally, I finish mentioning we showed in the presentation, but this revenue share of OEM naturally decreased less than 1/4 of the consolidated net revenue, given we have a higher growth of the other verticals, but also the lower volume of domestic market. We believe that as the market recovers, if we put in practice the initiatives for improving efficiency, OEM will represent a higher level of revenue. Unfortunately, we cannot be exact when it will happen because it depends on the market also. But I can guarantee you that everything that's inside, we're doing in the first moment, a higher operational expense due to the adjustment. But the idea is that we can have better performance in the short term. Now earn-out of Hercules.

Guys, thank you so much for being with us in this Q&A, Gabriel. Thank you for your question. About this topic of earn-out of Hercules, this value is part of the value what is owed to the sellers due to the acquisition. And I can affirm it's a final installment. So we don't have any more payments to do. So this amount is due to the EBITDA of Hercules the year after acquisition, November '22, November '23. In '24, we paid the first installment of the earn-out that was forecasted. It was the amount initially mentioned in the transaction. And in the financial demonstrations of '24, we highlighted that the negotiation was still ongoing. So it could mean additional values in the following period. So the negotiation -- the conclusion of the negotiation happening now in '25. We got to consensus between the parties with the liquidation of the additional installment of $18 million, as I mentioned, this final installment. Seeing that this happened after the accounting of the investment in '22, the reflex of the additional have to impact the current exercise of the company following technical guidance, PC15. I hope I clarified this point as you asked.

Let's go now to the next participation of Kiepher Kennedy, analyst of Citi.

I have 2. First about cash generation. You mentioned now in the presentation something regarding this. But with this first quarter with the leverage is 3x -- close to 3x considering EBITDA with the acquisition, I want to understand how you're thinking the scenario for '25. We have interest rate that is high compared to main geographies. This increases the cost of the debt as a whole. What are the main leverages that you see for the year of '25, given the operational context of the business units not in the best moment. I want to understand what you're thinking about this. And the second question is regarding you talked about the earn-out, but if you can give us details about the EBITDA, these numbers, from what you mentioned, this was measured from '22 to '23, right? So now we are in '25. Over a year has gone the end of the exercise that you accounted for this earn-out then at the end of last year in the you mentioned this negotiation was still open. But once again, this was already -- it was already a year after the finishing of that moment of the accounting moment. It's not very clear for me at this point. I want to understand more details because last year was a year still bad year for trailer market in the United States. And when we do the math regarding the initial price of acquisition, considering the earn-out, it's twice the initial value. So since we don't have a lot of information of the process and you have all the information and a lot more of the negotiation, I would like more details about what was the final negotiation, what was the EBITDA of Hercules in the moment taking into account, so we can understand the final value of acquisition.

Thank you, Kiepher, for your questions. In the beginning of this year, we talked in the first quarter that we have a peak of leverage, higher leverage than we are used to presenting due to the movements that we did, obviously, but Paulo can bring more details of the main focus that we have this year of unleveraging the company this year. And after Paulo, since you brought initially the talk about the earn-out, can you please give more information and answer Kiepher's question regarding EBITDA and the timing that we had with the payments of the earn-out.

Very well, Kiepher, thank you so much for your question. And in fact, you are right to raise this. Regarding leverage, we can guarantee to you that historically, we always -- we're very disciplined in the finance point of view. This year, we have to be more disciplined with management of cost, organic CapEx management and cash working capital management. This leverage was already foreseen. It should -- it would increase due to the important acquisitions that were aligned in our strategy. So this year, we will really focus in the capturing of synergies of these companies that we recently acquired. In a given right moment, we can share with you all of the synergies that are being captured, be it in the supply side, be it optimization of the structure or be it in opportunities for working capital. Besides this, according to what we have showed you already, we have the operation announced through Patria. So we're selling our participation in our side of co-op payment plans. These are resources that will come to the company around BRL 180 million. And the forecast is this should happen in the last quarter of the current year. Regarding the topic of the earn-out, it's valid to rescue some aspects -- important aspects. The price of acquisition of Hercules had 2 elements, the fixed price that was paid in '22 and the earn-out based on the positive variation of EBITDA after the closure of '22 and what was verified the 12 months after the closing of October '23. This was the period where the North American market was very good. And of course, especially in discussion of calculation of earn-out many times, you can have that doubt understanding, both parties. For this reason, last year, we paid what we understood as being the value that we owed. And also, we reinforced that there were an ongoing negotiation with the other party. And it's something that was extended and has been concluded now, April 25 -- '25, sorry. So this parcel that was paid in April '25 after the understanding of both parties is the last installment, the final installment, and it was recorded in the committee in the current exercise.

Let's go now to the next question from Gabriel Rezende, analyst of Itaú BBA.

Two points from our side in Itaú also. If you can mention a bit about the expectation of profitability of parts for the next semester. We saw a margin close to 12% in this quarter. You talked about the negative impact in the first quarter, but I want to confirm if we can see a better level now of profitability in the second quarter. And then also connecting to Fras-le's presentation yesterday, we talked in Fras-le call, Fras-le could be 2x or 3x or below this. How do you see this level, the conversion of the group as a whole, obviously, seeing -- we know there's uncertainty this year. Interest rate is fluctuating and exchange rate is fluctuating, how do you see the level by the end of the year, that would be great.

Thank you, Gabriel, for your questions. Esteban, I'll start with you to detail not only the auto part margin in the first quarter, but what we expect for the next months. And Paulo following talking about leverage and Kiepher's question before if we can bring the other elements considering also Fras-le that has higher leverage with Dacomsa's acquisition and how it speaks to consolidated leverage. Esteban can start, and then Paulo.

Thank you, Gabriel, for being on the call for your question. Well, auto part margin in the first quarter was pressured. We talked about this in the release. We had internal and external factors. Looking at external factors, we're talking about an important client that demands a meaningful volume of this vertical, updating his system and interrupting his production temporarily. And we also had market factors that despite the production volume presenting sales and production was not affected meaningfully. But when we look at the component of the families themselves, that family where we have more exposure, which is heavy, this has a meaningful drop, which ends up impacting volume and fixed cost in this vertical. When we add to these external factors the internal factor, which is especially the ramp-up of our units in Mogi Guaçu, Suspensys and Castertech, we end up delivering this margin, which is a bit below that usual margin for this vertical that transits between 14% to 16%. Then yes, once again, analogy with the OEM vertical in-house, we're acting to have this ramp up as fast as possible. And with this, have the fixed cost dilution. Once again, in the first quarter, we have the expenses of the new operation. It's not in an ideal level of profitability and production yet, but we have in the plan and according to the increase of the value that's invoiced, we have the lower -- we lower the fixed cost. And bringing another update, we have the first revenue of Mercedes with the front axle supply and Suspensys is also doing this invoice, they have a ramp-up in the plan, Castertech also has their revenue. They reached breakeven in the first semester. And with the higher volume, now it should improve profitability of this vertical as a whole. I pass the floor to Paulo to talk about the expected leverage.

Gabriel, thank you for your participation. Thank you for your question. Well, regarding leverage, we reported exactly pro forma without the one-off events and the EBITDA of the acquired companies, we are already below -- a bit below 3x EBITDA. So -- our expectation for this year of '25 would be to get to the last quarter with a leverage between 2x to 3x the EBITDA. In other words, we are forecasting this additional reduction, especially due to the initiatives of working capital, capturing synergies and to the following terms, then we retake, redo our work to be between 1x to 2x the EBITDA with capturing the synergies and with our financial discipline.

Now we go to the next question from Lucas Laghi analyst of XP.

I have a question aligned to what Paulo was saying regarding the group valuation as a whole. We saw the movement with Patria for the operation of insurance and the co-op payment plan. If we look at the co-op payment plan, it's a mature asset in terms of profit that the operation generates. Macro despite not helping in the current valuation of the group as a whole, thinking more, what do you see in terms of opportunities inside the asset portfolio of the company to unlock value. The operation with Patria would be an example for the financial part here. But thinking, do you have other alternatives to unlock value that you see in your asset portfolio in Randon to mitigate this hard macro situation? We share your vision. You remove Fras-le, remove insurance and copayment plan. It seems too much discount. But this installment is pressured in the short-term by interest rate and a hard macro environment. So thinking more what could be done thinking about the asset portfolio to unlock values. I don't know if you talk about buyback. It would be hard to think about this in terms of leverage. But is this something you might think about for the future? I want to understand your mindset regarding these points.

Thank you, Laghi, for your question. Nice question. We've done this work of evaluate so much so. We had this deal with Patria, very relevant and different of the usual deals that we hold. I'm going to pass to Paulo so he can comment a bit if we have worked and thought about other similar alternatives. And Esteban, feel free to add also.

Lucas, thank you so much for your participation, for your question. This topic is recurring. Our role is to always have the help of our partner banks analyzing alternatives of capital allocation. Regarding the valuation itself of Randon, in fact, it doesn't reflect the true value of this asset. And this clearly is defined through what would be the current market versus the consensus of market that points to a value that is almost twice the price that it is currently. So regarding the buyback shares, we're not doing it, seeing that we had to make a choice. The choice was to conclude the M&A projects. So it's not in our radar. This would increase -- given that it would increase our leverage even more. So it wouldn't be the case to do so. And we're always paying attention in a right moment in case something, the opportunity happens or pops up, we would share it with you. I would add, Lucas, that in this moment, despite obviously having this concern of showing the market value to the market, the value of the company to the market, we are obviously very much concentrated to capture the synergies. This is one of the best ways we can show this market value to the market to really translate the planning and deliveries and the execution of our results.

Next question now from Luiza from Safra Bank. She's an analyst of Safra Bank.

Still in the discussion about the mix that has exposure to agro. Do you have an intention, a project to change the mix a bit, considering that the other lines offset a bit of drop? And another question about ROIC. ROIC, I want to understand if you have a target ROIC with the acquisitions? And what are the leverages to reach this number?

Thank you for your question. I'm going to hand off to Esteban to talk about the portfolio issue. We know that agri business has 60% to 70% of the demand. And it's a different moment. Currently, agri is a bit slower. And let's see if there's a perspective to change this or change the portfolio. And also about ROIC, we know that there were a lot of one-offs affecting our indicators that the normalization of this should be higher. We can have more details about this also.

Nice, Luiza. About implements, it's important to say we have the high -- the biggest diversity and the biggest family of products, considering that agri the last few years is 60% to 70% of our revenue in this vertical, specifically, it's natural that we were concentrated higher investment in the product development that are more efficient and efficient in this family of products for agribusiness. This change in the mix makes us also look at other family of products. Traditionally, we have a good tank to transport liquids. And now we are focused also in the development and improvement of products for the industry and retail. Despite this -- our agility and speed, these are investments that take time to become mature and to go to market and to bring a benefit. But I can assure -- and the moment is, yes, to think about innovative ideas for the other family of products also. I'll give you an example. 2015, in a low market moment, we had a relevant change in our dump trailer, the material of the dump trailer to make it lighter. It wasn't used a lot in agri business, and it ended up using for agri business, and we had a better position in this segment with this. Obviously, we use -- having a CTR in-house, we can do tests, but the go-to-market and translate into revenue takes time for this to happen. Talking about ROIC, this quarter, we had impacts in the denominator and the numerator. And it's a perfect storm for this indicator due to the fact that we had a meaningful increase in invested capital, so increase of LCG of the acquired companies, be it stock and raw material. But we must remember that we had an increase of capital invested in Mogi Guacu, Suspensys and Castertech that still not impacting or contributing the return indicator, the profitability. So this is a fact that as we gain scale in this unit, working also in the reduction of the common denominator and the working capital applied, the trend is that we should improve the indicator. Regarding the target, we want a ROIC spread that's positive, higher than the cost of capital. I shouldn't -- I can't detail the target. But obviously, our concern is to generate value, yes, for shareholders and society as a whole.

Let's go to the next question from Andressa Varotto, analyst at UBS.

I want to talk about 2 points that you mentioned quickly. First, regarding the OEM -- in the release, you talked about dynamic competition. I want more details of what you see in terms of movement of the competitors, the challenging dynamics that price -- passing on price is hard. And the other point is regarding Hercules and tariff and volatility issue in the U.S. Hercules, you forecast that with the order of last year and deliveries this year there would be an improvement. I think these tariffs impact the North American macro delaying investments. I want to know if you feel this already in terms of new orders for Hercules or not.

Thank you for your question. First part is Esteban can answer to add to his previous answer about the implements and the other, Sergio, can you talk about not only Hercules, but since you're in the U.S. and you had rounds with associations, bringing the vision of the tariff issue, how it impacts not only Hercules, but our other businesses and the North American market. In parallel, this speaks to [ Jose Altera's ] question in writing and asking, how is the capturing of synergies in the new companies since we have AXN in the North American market and the Kuo in Mexico, if you can mention this answer also about tariffs in the North American market.

Andressa, in this quarter, our OEM vertical is 1/4 of revenue, but it's important to mention this. The competitive scenario is more challenging because the majority of the competition increased their capacity in the last few years. And also in the end of the year, they have a stock of ready products that pressures price. So you imagine with ready product stock, SELIC rate, 14% to 15% hurting working capital, we need to think and it happens a high pressure in price. I highlight that we have faced this price pressure keeping our market share as leaders, even so we sustain an EBITDA margin that is positive. This is due to all the adjustment that was made in the past, our diligence, maintaining a tight belt in the period, even in a period that had higher volumes and also now the continuity of the adjustments so we can go through this period of pressured prices. Regarding competitive environment, we know that the moment of lower volumes helps to clean out the market. In other words, we also believe that some competitors will end up exiting. They won't have the capacity, the financial capacity to go through the period and in a revamp moment -- like we had in '18, '19. And in a revamp moment, we see some competitors became stronger, which was our case. We benefit from this higher volume due to renew and fleet expansion also. I hope I answered your question, and now I pass the floor to Sergio to talk about the North American scenario and capturing of synergies.

Thank you Esteban, thank you so much for your question. First part of your question, talking a bit about Hercules and our contract, the big contract with this customer in anticipation the possible tariffs and risks. What our Hercules did, they anticipated the acquiring of raw material in such a fashion that for this year of 2025, the risk that we have with the big contract that we're working on and producing for the economic risk associated to this, the exposure we have to inflation coming from this moment in North America is very small. We acquired a lot of raw material anticipating, overall, we're protected. We have exposure, yes, but very little. This is -- I guess that answers part of your question. As Esteban said, I'm in the United States in this moment. I am part of an entity -- relevant entity in the United States that has -- is dealing with the U.S. government in the topic regarding tariffs. And there's no topic that is more relevant being discussed currently here. And the reality is that the uncertainties, the volatility is so high that it's hard to make any affirmation without running the risk of being excessively punctual and not having a complete view of the consequences. But what we know is that there is an objective by the government to foster manufacturing inside the United States, number one. Number two, to disconnect from China. These are the 2 declared objectives officially. Tariffs to Canada, to Mexico, to Brazil, steel tariffs, aluminum tariffs, reciprocity of tariffs, all of this is bringing stagnation. All the investments, all the activities in the North American market are in a halt. So there is more visibility about what will happen. And yesterday's event, a big transporter used the expression, I apologize. He was driving with fog, a lot of fog, and he couldn't see the light at the end of the tunnel. His objective is to continue to move vehicles, but very -- very much with a lot of concern and care because you don't know, well, where all of this is going to end. We have information from different sectors where they have dismissals, the volumes are decreasing. The supply is going to be affected in the next 30 days, we have stops due to lack of product. This type of situation is being designed or forecasted with the current situation. With all of this, this is repeating something that was said in other meetings. If Brazil can maintain itself with, let's say, 10% tariffs only, we will have more opportunities for Randoncorp, and we see more opportunity than risk. So the part of aftermarket, and we are preparing for this. We're in Mexico, 95% of what we do in Mexico stays in Mexico. Therefore, we don't have an immediate risk, only 5% is exports, the majority to the United States. But those that feed the aftermarket segment in the United States is Chinese -- is China. If the China doesn't feed the North American market for the recent acquisition of Dacomsa, this is a huge opportunity for us to fill in also and for auto parts, this, yes, can represent a huge opportunity. So today, we see more opportunities for us than risks. But we don't know what's the end of the game. AXN that we just acquired had a plan to do a domestic integration. So they are anticipating this plan to have a higher domestic control. So the acquired companies in the United States, Hercules is doing very well. We have very good results this year. We have -- it has gone through a decrease last year. The fact that they did this adjustment, big adjustment last year, even with bad wins, the expectation is that in the segment that they act, they will have more consistent volumes. AXN, performing well with their higher integration plans, more local content and the opportunities, many companies of ours working very hard with opportunities to feed the North American market even more.

Let's go to the last question of today from Marcelo Motta, analyst of JP.

Very quick, can you comment the tax issue? You mentioned in a press release that you're activating that loss. This is why you're able to reduce the aliquota. We want to understand a bit how long do you think this effect will impact? And do we see the end of the impact? Yes or no?

Thank you, Motta, for your question. Paulo, you can answer this about effective aliquota.

Motta, thank you for your question. Thank you for your participation. In fact, this quarter, there was an effective aliquota that was lower for 2 reasons. First, as we explained in the results of '24, we went through a period without recognizing the deferred in the last quarter last year, we recognized so there was accumulation. In the first quarter, this effect of the expense of the earn-out of Hercules had a positive counterpoint on the tax impacting positively the aliquota. So in fact, the fiscal loss is will continue to be recognized. The earn-out effect of Hercules is positive, but it's something very specific for this quarter.

Thank you, Motta. Thank you, everyone, that asked the questions for today's call. We want to thank the Executive Committee members that are not present now as speakers, but are online and Randoncorp family. And now I pass the floor to Daniel to finish the event.

Well, once again, I want to thank all the investors, analysts present on this call. I'd like to reinforce the work that the Executive Committee and the Randoncorp colleagues have done, so we can continue in a very cautious moment in this volatile moment. Our concern with North America especially in this moment, the deals between U.S. and China, but also we see this with opportunities that Randoncorp has worked on, we believe that Brazil has a lot of competitiveness in this scenario compared to other regions. We reinforce the work to pay attention to opportunities and reducing our leverage that we're working to have better results for the next quarters. We are available, our RI website, any question you might have that we didn't answer in this call, you can ask in the website. Thank you. Have a great weekend, everyone.

Bye-bye, everyone. Thank you so much, guys. [Statements in English on this transcript were spoken by an interpreter present on the live call.]