Tupy S.A. (TUPY3) Earnings Call Transcript & Summary

Good afternoon. It's a great pleasure to meet once again in our Tupy Day. My name is Lucas, and I'm Investor Relations manager of the company, and this event is happening also on the Internet. So I would like to welcome those who are participating through our platforms, webcast, YouTube and they will have the opportunity to ask questions also during the event. So we have with us also our CEO, Fernando Cestari de Rizzo; our CFO, Thiago Struminski, the leaders of Tupy Tech, to be up Andre Ferrarese, Daniel Moraes and other people from the team from sustainability, communication, strategic planning, sales. Please rise. They will be available to talk to you after the event. Safety is very important for us independent of our locations. So if we have any emergency here in the auditorium, please stay calm. We have the emergency exits at the back and follow our leader, Rafael, who is there at the door and will help you. And for today's agenda, let's talk about how we're building the New Tupy, the basics behind it, and we will talk about Tupy Tech, Tupy UP and how they are related to our business, to innovation, technology. After the coffee break as in other events, we will have some guests. We will have MWM, the Chairman of the company, will talk to you. And later we will have financial perspectives, final comments and a Q&A session. So those who are following us virtually, please send us questions, they will be read here. You probably have seen that we have some objects on the stage to show our innovation, products, processes, and we -- these will be presented. So I pass the floor to Fernando to begin the presentation.

Well, good morning to all. I'd like to thank you all for being with us and also those who are online. As you saw on the agenda, we have an important guest, a client of the company, a reference in the industry as we always did in other Tupy days. Today, our guest is the Chairman of MWM, Jose Eduardo Luzzi. He's an important traditional client of the company and can add a lot of knowledge to our event and due to the work of MWM decarbonization. I'm saying that the transaction we announced in April involving Tupy and MWM is still subject to examination from the authorities. Although in the same segment, I'd like to stress that both companies continue independently until the authorities analyze the operation and approve it. While talking a little about the new Tupy and the basics in the long-term. Where we are headed in the transformation that we're promoting in the company. As always, we begin our presentations showing our vision of the world. We have 7 billion inhabitants on earth with many needs in common. And we observed many inequalities in energy, and this impacts the standard of life. Some regions consume a lot of energy. When we talk about energy consumption, we're talking directly about emissions. And other regions consume very little energy and the consequence is that life expectancies reduced is shorter. As an example, when we take South America, Africa, Oceania and Asia, we have 61% of the population, emitting 26% of CO2. And this population consumes only 24% of the total energy on earth. This is a relevant piece of data. It shows the life expectancy. We have regions in the world like Africa where life expectancy is 60 years, sub-Saharan Africa and in other regions, we have life expectancy that is higher than 80 years. We noticed 20 years of difference in the average life expectancy. And this is directly linked to the consumption of energy, hygiene, also safe housing, access to food and so forth. This is a very relevant topic for Tupy. When we talk about needs in common, we're talking about a population that wants healthy food, safe housing, drinking water, sewers, sanitation, electricity, which are fundamental for life. And here, we begin to see the changes and the paradox, some using a lot of energy and others using very little energy. This is what we call energy poverty. We have a great challenge, climate change. Because we will need to increase the use of energy and reduce emissions and here begins our journey, a world that is growing the population should get to 9.2 billion inhabitants in 2040. The GDP will grow. We estimate 60% growth in per capita GDP population is migrating to cities. Today, we have 55% living in urban centers. In 2040, we will get to 70% of humanity in urban centers. Life expectancy here is 77 years and will go to 77 years of age. All of this, when we live more, we consume more, we live in better homes, we get richer, and we have a growth in the use of energy and the estimate is that energy -- primary energy should grow around 30% until 2040. This is a low number. This number will be reached with measures to increase efficiency. And here, the connection with Tupy, with our clients are the companies that make capital goods that enable the production of food with efficiency. These are companies, our clients that generate infrastructure and transport goods. They transport food, drug, they also transfer pharmaceutical products. And the way to do this in an economical and decarbonized way is fundamental so we can reach these objectives. When we look at some basics, I will talk about this when we notice this growth, what is the consequence for the industries, cargo transportation. Here, we see road transportation. We estimate it will grow 36% until 2040. So the fleet in operation, the number of equipment, the trucks will have to grow. This -- a population that gets richer and demands more infrastructure that lives in larger houses that has access to sanitation, better roads and so forth we observed also a need for investments in infrastructure with an increase of 40% annual investments in infrastructure, these are not the necessary infrastructure to eliminate inequality. These are the ones that have been planned for this period. And also, we will need much more equipment in operation to take care of these needs. In the same way, a population that gets richer, also needs more protein. And therefore, we will have to increase the number -- the amount of food available. When we increase protein, you need more grain. And here, we see the need, 49% more food in a period when earth, arable land grows 9% this is what we can grow see. So the increase in efficiency is fundamental, so we can take care of this growth. Going forward, when we have energy, we have life -- this is a fundamental concept. When we look at the consumption curve of energy since 1800, when we had access to biomass or wood then we began to use steam and then we began to use coal. Then we discovered oil in Pennsylvania and society began to consume oil. The consequence is that life is better and life expectancy also increased with the consumption of all these energies. So what is important to stress here, although the fractions decrease in reality, we never decreased any -- the use of any sources of energy. We never consumed as much coal as we consume today independent of the issues. We never consumed so much wood as we consume today. And as we include new sources, they are more dense, more abundance -- more abundant, more economical. So we had these energies, but we don't stop consuming the sources that we had in the past, like wood and coal. The good news is that life expectancy is better, but climate changes, of course, the emissions of CO2 are directly related to the consumption of energy. A small reflection about energy consumption from 1950 to 2010, energy consumed in all the world grew at a rate of 2.3% a year. From 2010 to 2019, we used 2019 because in 2020 with the pandemic, we had a drop, and here, our messages with gains in efficiency, we reduced the growth to 1.3% in the -- in these years. And this should continue. We are finding new ways to use this energy. We have increased the efficiency of the equipment from, for example, 50 years ago, we had an efficiency of 50% with heat exchangers today, 94% efficiency and the same with airplanes, everything has improved its efficiency. And with this, we have the consequence. But we live more. The population is growing and we're getting richer. We live in larger houses, more comfort, we travel more. When we look in more detail how this number came about from 2010 to 2019. First point, fossil energy, which was 81.4%, dropped to 80.9%. We see a lot of news about this. Look, our dependence on fossil fuels is falling. But in reality, the absolute consumption grew and grew a lot. So you can see that of the total growth, 75%, 80% was in fossil fuels. 76% increase in fossil fuels. When we look at this data in green here on the right, the annual growth of the use of energy was 8.4 exajoules per year. So let's look at the future. The investments in renewable energies to compare. When we look at 2020 to 2025 with investments in progress in renewable energy plant, we see 2.3 exajoules per year. So in reality, 30% of the increase in energy consumed comes from renewable sources and this, we can see here, if you look at this period, this 2.3 was 1.5. It's an extraordinary growth. For example, 1 Itaipu hydroelectric power plant per year is 1.3 exajoules. We increased we had an increase of 8 Itaipu hydroelectric power plants in renewable energy, a lot of energy. But as an offset, it's important to stress. If we had to eliminate all fossil fuels by 2050, we would need to build 1,500 -- 1,500 Itaipu's, 1 per week until then apart from the need to guarantee the increase. So this is the great challenge. And here, we begin to see looking at this data what we are doing in our company and how we can make progress where we believe the new technologies will make sense. Here, when we look at emissions of CO2 per sector, electricity is the largest emitter of CO2, the production of electricity. On the graph on the right, global emissions, 41% emissions of CO2 come from the production of electricity. 4% trucks, 3.5% are trucks; passenger cars, 6.6%; important industries, steel plants, 6% equal to passenger cars and double those of trucks and cement 4%. These are industries that are very difficult to decarbonize. Looking at electricity. The emissions from electricity in the U.S., 59% come from the use of coal. Europe, 68% -- not the 59% of electricity is produced with coal. But of the total emissions. When we look at Brazil, Brazil, 5% of our electricity comes from coal. Nevertheless, 44% of the emissions in Brazil of CO2 for the production of electricity come from these 5% that is coal, which is the villain. We know that we know the villain. Now we have to really decide what to do. When we look at transportation, in Brazil, 13% of the total emissions come from transportation; in the U.S., a larger participation. And when we look at agro, total agro, Brazil is higher than the U.S. and Europe. Why? Because of methane emissions, methane from agricultural waste, sugarcane, corn, rice and so forth. And this is a great opportunity we have in Brazil because we can produce biomethane. This is the methane that is going to the atmosphere that can be captured and converted into electricity. We have 2 effects. We would reduce the use of diesel, the use of coal to produce electricity and also reduce our emissions of CO2. This is an important thought because we talk a lot about electrification. For this, we need electricity. When we look evidently here. Okay. Let's go to the next. When we compare production with transportation. Coal, looking at the U.S., the emissions from coal 990 million tons. If all this electricity were produced with gas, we would have a gain of 635 million tons of CO2, which is practically identical to the emissions generated by commercial vehicles. And these are possible decisions, feasible decisions in the short-term because it is necessary to make this effort to decarbonize in an organized way. So I mentioned the primary energy we use, how these energies emit CO2. And in reality, this is also important for our business, diesel and natural gas are the fossil fuels that have the lowest carbon footprint and the most efficient. Therefore, we have sources to substitute and this priority that we believe the governments will decide on will really -- will also make diesel and natural gas important sources of energy in the next few years. Talking about passenger cars. Passenger cars, today, our industry is measured exclusively by the amount of fuel. When we look at how a car emits CO2. We look here. But in reality, we should look the whole picture? How much CO2 did I need to produce the car, the steel since mining, iron, aluminum, what is the recycling rate? How much CO2 to produce a battery. But today, industry is regulated exclusively from the fuel tank to the wheel. Only the consumption of the car is taken into consideration. Brazil should be the first country to have legislation on this because ethanol, if you don't consider from the tank to the wheel, it is equivalent to 85% or 90% of gasoline. You can see here this slide, when you consider the production of ethanol, this emission goes to zero. You would have only the emission inside the ethanol mill. When we look at the life cycle of the vehicle, the maintenance, you also emit CO2. So the cars with batteries, you need to substitute the batteries at least once in their lifetime. So you have all those emissions again. And in the recycling of the vehicle, you have another cycle of emissions to be controlled. I mentioned here hydrometallurgy because today, we're looking for the adequate technology to reduce the environmental impact of the recycling of batteries. A project involving hydrometallurgy is much more efficient environmentally than current technologies. We're nowadays, we are burning batteries to recycle them. When you look at this combined process, we get to this cycle. So a car to be built. It emits before getting to the dealership around 5 for combustion cars and 17, 18 for electrical cars. And depending on the metrics you use of electricity to supply it, it will determine the carbon footprint where it is driven. So ethanol, wherever we have the availability of ethanol, it's unbeatable. During the life cycle, this is what we will have 15 to 18 tons of carbon. When we look at the electrical cars, electric cars, we have a challenge in the beginning, the mining. And here, once again, it's important to show the importance of recycling. If we can have a closed system, and this is a fundamental technology, we will be able to decrease the emissions of electrical cars. So here, we show which we -- batteries should be changed with 160,000 kilometers. But industry found another solution, which was to reduce the autonomy of the vehicle. If I work with the same autonomy as a combustion car, we have the previous curve. Now I've reduced the autonomy to something like 25%, 40%. This graph was built with 25%, which is more favorable to show the impact of these vehicles. And here, we see that the gas-powered car is worse in its full life cycle, electrical cars even operating in Europe have a better cycle, but unbeatable -- but ethanol is unbeatable. Ethanol is the best. We believe that there is an enormous potential to use ethanol and the importance of recycling of batteries that will have decreased mining in the beginning and also a process that emits less carbon during recycling of the vehicle. Well, when we look at this scenario, what do we believe as to be what should be our strategies. Brazil should migrate to ethanol as the legislation is from is here, we will see electrification with hybridization with ethanol, which makes sense in larger cities, electric cars, will be a niche market and an important data about agro. Pickups and SUVs will grow a lot in sales because of the of the wealth we generate in agro business. So we will have more pickups and SUVs. The U.S. are using 15% of ethanol in their gasoline. The transition for electricity will be focused on hybrid cars in the main markets. And some states have heavy subsidies and will give incentives to convert to electric cars, New York, California. In the same way in Europe, there's a discussion that all vehicles should be calibrated with ethanol, a high growth of electric cars with subsidies. So for example, they have a discussion in Europe, should they import electricity or ethanol. In Europe, ethanol is treated as a fuel that is as bad as gasoline. So in passenger cars, diesel passenger cars, we see vegetable oil growing, but it's an expensive choice, but it's more economical than batteries. And then discussions of CO2 -- zero CO2 in 2035 this week were not accepted. Well, there is a great effort. Here, we showed some news, but certainly, we will see growth in biofuels in the world based on ethanol. Because it's very efficient for this type of application. So OEMs -- wherever OEMs in countries where there is ethanol, India, Brazil, this will grow, and we're making our investments seem to be in this direction. Here for commercial vehicles, there's this dilemma of alternatives that we have. We brought a graph of diesel as a base which is the most economical and efficient solution for transportation, for construction equipment, and we see a transition with -- to natural gas, biomethane, hydrogen engines also cells, fuel cells and batteries. Diesel is easy operation, high, very stable. This is very important and high durability, construction machines work with heavy loads all the time, like trucks going up a hill. You need a lot of strength continually. This type of application is difficult in -- with other technologies. Natural gas, the same molecule of biomethane that is generated in the field with a great potential. We're not exploring this. Methane is an exceptional fuel, very good fuel. Today, we can work with these engines with the same power as diesel engines. So we will see a migration because it reduces emissions of CO2 by 30%. Now going to 0 emissions. This group that has biomethane, hydrogen and fuel cells and batteries 0 emissions from the tank, fuel tank to the wheel. The production of biomethane through waste and then we get to hydrogen. Why are these technologies with hydrogen important? There is, for example, hydrogen or electricity -- for example, should we use hydrogen tanks in trucks or in steel mills, Tupy may use hydrogen in its furnaces. How will this work? So hydrogen engines, they don't need pure hydrogen. This is important because hydrogen is a fuel that is hard to be captured and the comparison with fuel cell that everyone believes is the best needs very pure hydrogen, 99.99%. This is not easy when this fuel is transferred. And finally, batteries, a tremendous energy efficiency without noise, but I need electricity. And they don't have -- the autonomy is small. The range is small. When we see these challenges, the challenge of diesel, the emissions of CO2 alternatives to add biodiesel to diesel and vegetable oil. This is happening. This will grow but it's an expensive option, but more economical than others that we are discussing. Vegetable oil reduces emissions by 80%. Natural gas depends on infrastructure in countries where we have a high offer of natural gas like the U.S. and Brazil. Naturally, this should be a fundamental source for use in vehicles. So we will see a strong growth with many launches in OEMs, MWM has important work in this direction, which is the same as using biomethane. Biomethane or natural gas, the engine is the same and may use these 2 types of fuel. And then we get to the hydrogen motor. What is the difficulty? Energy and infrastructure. We understand that hydrogen engines are simple. We use 80% of the components of diesel engines, and we can consume hydrogen and we will have a clean engine, which operates at full load. So this should be the choice that we will see both for machines, for off-road vehicles, mining vehicles and equipment in general. This is the cleanest type we have. The fuel cell and batteries, have important challenges, not only reach but the fuel cell has a problem with durability. To have the range of a diesel truck, you have to change the fuel cell 3x. So it's very expensive, more expensive than the engine. So looking in the long-term, when this technology becomes mature, it will make sense as long as we have clean energy, probably a nuclear metrics looking at the picture, and this technology would be -- if it is mature, we can operate, but they are very sophisticated and complex systems. In the same way, the batteries, they have a problem of durability and high loads, they get hot. They are -- we need clean energy, range and in markets where we have -- they are feasible in markets with a lot of subsidies. Transportation with batteries is more expensive than diesel. This is -- so when we look at Tupy, what is Tupy doing? Industry we'll make these choices. These choices will depend on the country. We will have multi fuels in the future. So in the field of engines, biomethane natural gas, diesel, we are prepared with components, new materials for each one of these fuels with the assembly, machining, possible conversion of motors, MWM is working with this with services and also parts. So this world will grow. There will be a greater need for equipment, and we will be present in these activities as MWM when we talk about fuel cell and batteries, we will be involved with reuse and recycling of batteries in our company. We will talk more about this. And here, we see diesel as the main fuel for heavy transportation. Every time you look at these numbers, you have to admit, first, we will improve the efficiency of the equipment that uses diesel. So the number of equipment in operation should grow more than the percentage you see here because the systems will be more efficient than today. So Brazil, this is a projection from a company from the Ministry of Mines and Energy and here a global vision from Bloomberg in terms of how this will happen. Once again, Tupy is preparing itself. We are well-positioned in these points to take advantage of the opportunities in this market. When we look at regional trends, applications, Brazil, diesel with adding 15% of biodiesel. Great use of biomethane and gas, especially in the field in rural areas, farms can be self-sufficient for their tractors and trucks with material generated in the farm. And here, also the [ VUCs ] in large cities have the trend to be electric, a niche market. In the U.S., diesel will predominate with the use of hydro vegetable oil, natural gas growing and hydrogen in a slow transition for the future, especially for engines. So initially, to have zero emissions, they will use hydrogen engines because fuel cells need to become mature. So the medium heavy and electric in niche markets and electrical [ VUC ] in large urban centers. In Europe, it's a little different Europe has strong subsidies and a strong regulation on this industry. And here, we will see a transition with hydrogen engines earlier than in other regions of the world. There are launches for 2030 of fuel cells and probably a transition to hydrogen before that. With the strong penetration of vegetable oils, vegetable oils come from waste from society. So this is a raw material that can be reused and you can transform it into vegetable oil, adding hydrogen and mixing with diesel. And in the same way, we see a strong penetration of electric vehicles in medium and vans in large cities through strong subsidies. In the case of machinery, it's different. There's a great difficulty to use battery and fuel cell. So we will see some small machines with batteries. For example, a Bobcat a small machine working in cities. But the large machines, the trend is the transition from diesel to hydrogen. This has already been announced by some OEMs, and we have shown this. So clients, we see the same thing used. So our clients they are developing technologies and all these alternatives. So they have investments in all the alternatives in the evolution of diesel engines, too, but also in all the other alternatives, too. Here, we have some news showing this. And also hydrogen engines that haven't been mentioned very much, but there is news in technical articles and events recently a large German OEM announced that all the off-road trucks will use hydrogen engines. So we will see this in the next few years. And this is something that really is interesting for Tupy with our current products and strategies. Now talking about our business vision. This is the vision of the market. So what is the consequence for Tupy, for our company? Within this vision, the challenge is to reduce carbon, how the company can position itself to do this. Another important point, the decarbonization needs to be feasible. It's difficult for a company to invest in technologies that will depend on government subsidies. So we have looked at the opportunities in decarbonization that don't demand subsidies. We're going to talk about this later. Energy Safety is fundamental for society as we signed previous graphs the future will be multi-fuel. Each region of the world will use the fuel they have, they will have -- regionally, Brazil has ethanol and a lot of biomethane, and we will use a lot biomethane. This makes sense. Our clients have positions in all these technological solutions, and we're trying to understand how we can support this process and our clients and the availability of sources of energy will determine many things. If we don't have clean electricity, so other technologies will not make progress. We believe that the availability of clean energy to be used in vehicles will come when we have large investments in other clean energies, and this will take a long time, probably nuclear. So based on this design with a solid governance and also a balance between these factors will show the future of our company. And here, we have a new architecture with a value proposal that is unique in the industry. Our clients are very occupied with many investments in technologies. They don't know exactly which technology will be the winner. We have different technologies in different regions, and this is very expensive for them, the clients. So our company, first, we have reinforced our investment in R&D. Thiago will talk about Tupy Tech, what we're doing, the technologies that go beyond metallurgy, but also together with MWM, we have 2 very strong teams in terms of knowledge. First, in metallurgy, the case of Tupy and MWM use of fuels, operation of engines and technology to assemble these components. So within these technologies, some highlights, ultra-light iron, this example, we showed this in a symposium in Vienna. This is a specific product for use in hybrid vehicles. This will be very important for ethanol. Why? It's a product -- the only interest in converting and using aluminum is because of the lower weight. And this lower weight reduces fuel consumption. But aluminum is very expensive and emits more CO2. So when we compare the performance of aluminum with light iron, we have less weight and the emission of CO2 and the production is 50% lower in light iron and the cost of the product to the client will be 25% lower because it's equivalent to aluminum. And this difference should increase because the price of aluminum has gone up much faster than other materials. So we believe we have an interesting solution with light iron and this means that we will go back to making engines for passenger cars. We increased our participation. And here, we have a solution that is important. This is a technology that will reduce the carbon print of the vehicle with the use of ethanol and also in the construction of the vehicle with the lighter engine. Going forward, hydrogen also used in combustion engines has an important interaction with the materials, and we can bring a lot of value and improving materials to be used. And that's why we launched this process. We announced this last year with AVL, a company from Austria that develops engines, a Canadian company that works with fuel injection, so we can develop an engine that is more efficient. And this is happening right now. And in parallel, we see our clients announcing similar projects. So certainly, here, we will be able to supply to them better materials that will improve the performance with the use of hydrogen. Well, the recycling of batteries. Tupy is a materials company, Tupy is a company that understands the combination of chemical elements and batteries are this -- we understand that we don't have good technologies to recycle batteries in the world. As we study the cycle of batteries, we observed that there are other opportunities when the battery leaves the vehicle, it's not ready for recycling. It has a second life. For example, a fast charger base. For example, it can be used to accumulate energy. So we're seeing how we can certify batteries for use in their second life and then recycling. This project, we have 1 project in the University of Sao Paulo where we see the 6 chemicals and in Sinai Electrochemical with BMW working exclusively on the chemistry that BMW used. So the result of this process for recycling is that this product can go to the battery plant to close the circle. So we understand that this is the great problem of this industry that is in mining and recycling. If we can make progress, we will reduce the 2 impacts that issue emit CO2. Also in the new Tupy, new Tupy as a leader in the West. First, when we joined efforts with Teksid, we began to have an important participation in this market, having a relationship with all the manufacturers of engines for agro, for trucks in the west and with long-term basics. Whatever the technology probably our clients today will be the winners to take care of infrastructure, production of food and cargo transportation. In this way, how can we really supply this industry in an efficient way. We are located in countries where we have energy available at competitive, Brazil and Mexico. Availability of raw materials, also Brazil and Mexico, and close to universities and technological centers that help us evolve in this process. So once again, the company is well prepared with production capacity for the growth of this industry. And now we begin to leverage our efficiency in the operations. The process with Teksid is recent. We joined forces 6 months ago. And thus, we're guaranteeing the efficiency -- improvement of the efficiency of these operations. So for example, we are improving the efficiency of Tupy by 63% and Teksid 35%. This will bring us better margins, more competitiveness for the company. Also with local content. Today, the U.S. imports from other regions, 70% of engine blocks and heads. This product until 2027, according to the U.S. will have to be internal light, will have to be produced locally. We have production capacity in Mexico with great efficiency, and we will be able to take care of this demand of products that will have to be located in the U.S., in North America. And we're well-positioned in relation to Europe. Since Europe imports energy, they will import our product because it's energy intensive, and we have a natural advantage when we look at our competitors in Europe. So here, our company becomes very competitive for these other markets like Europe. Combining this in a company with a product base with all these manufacturers of capital goods in the West as clients. And with MWM, we create the capacity to add value to these products. And here with MWM, we can also do the final assembly and testing of engines. So machining, assembly, subcomponents, assembly of the whole engine and testing. This is what our company can offer. This is important. We get to a value proposal that is very complete in a space that we were not able to occupy before. And in an industry where we have many alternatives there will be a proliferation of many types of engines, hydrogen, methane. So this helps OEMs, and we will be able to supply to the OEMs, these solutions that they need. So we are positioned -- so the company can really offer all these products. So we have casting as we can see in the blue line casting. In the West, machining services growing. There is a trend to outsource machining because OEMs are investing in other things. And gradually, we believe we should have an important penetration in low series -- small series engines, engines that are imported from Brazil and then we will evolve to subcomponents and exports to Europe and the U.S. from Brazil and from Mexico. The technical competence, the credibility that is necessary, we will have with MWM Technology. So this company is very strong. 20% of the trucks in Brazil use MWM assembled engines. So this is our business card. We have a great relationship with international clients that are satisfied with MWM. And here, we create a new opportunity and value to operate in Brazil and other markets. Also, the New Tupy is very focused on decarbonization and a great variety of projects that we have will take care of the needs of this industry using biogas with MWM, recycling of lithium batteries, the use of biomethane natural gas for truck fleets, agriculture, urban use and also sewer treatment plants and ethanol, which will grow with ultra-light iron, use of hydrogen. As I mentioned, new materials for hydrogen combustion engines and [ hearing ] new projects that we can see solar energy, natural gas through recycling of panels that have a lot of silicon and silver. We're studying this and other alternatives to use natural gas. So this company will truly have great opportunities in decarbonization. Here an example, MWM manufacturers diesel generators, gas generators that can be used in rural properties, where you use the waste from animals to produce biogas and generate electricity for the farm. If you want to filter the gas, you can use engines that MWM supplies, engines designed to be used with biomethane for trucks and also tractors. As I said, in biomethane, these opportunities come from the filtering of biogas. And this should be used a lot. For example, sewer treatment plants can also collect biomethane and use them in urban buses. And if you don't have enough, you can supplement with natural gas. And you will reduce a lot the emissions of carbon in a feasible way reducing the operational cost of these vehicles. Also, sugarcane farms have a lot of methane if this can be captured for an engine these mills will become self-sufficient with the gases that are aired to the atmosphere to be used in trucks and tractors. So we're studying this. We believe there are great opportunities and there's a great international incentive for these uses. And our new company, New Tupy is also diversified. Today, we're a company that depends 100% from our relationship with large OEMs. And now we begin to diversify even more. We also have marine engines. Here, there's an important detail, MWM is the largest manufacturer of engines in Brazil. And we inherit intellectual property in some engines, also a great network of dealerships, 300 companies that are accredited and know how to fix these products and 600 stores that distribute components parts. So generators, for example, benefit because we have a network of technical assistance. Marine engines to and domestic parts for marine engines. MWM is also represents some large international brands, a [ MAN ] for example, for leisure boats and also for commercial boats, we are the main distributor, and we render also services. So here, we create a new industry that is growing with marine engines, and this will bring a lot of growth for the company. In the same way, in aftermarket parts, an important sector where we always try to be present, but we didn't have enough volume. MWM is very well-positioned. The largest fleet of diesel engines are MWM, but we also work with other engines. So here, we can add some products that Tupy manufacturers, and we understand that can bring important growth in this sector. So our vision of the future. The company has a strategic plan for medium and -- short- and medium- and long-term. And also uses R&D and business opportunities. So now I'd like to pass the floor to Thiago. He will continue to talk about our initiatives in innovation and disruptive technologies.

Well, good afternoon. I will talk a little about our approach to new businesses based on the assumptions that we heard. We have these challenges, energy metrics, energy transition. My name is Thiago Struminski. I'm the CFO of the company. I'm responsible for new business. And I'd like to begin talking about Tupy Tech, a unit that works in a disruptive way and Tupy UP, open innovation and also digital transformation. As we expand our main competencies, we were always very focused on metallurgy. We try to use different professionals, different competencies and expanding our core business. We need discipline. We need to guarantee that we will work with focus. So we have many inputs from our Strategy Committee to generate a new plan and new portfolio after some -- these will be studied. If they are feasible, they will become projects and if -- and then they will become projects. What is a project? A project is the fruit of the engagement with the University of Reacher Center and specialized consultants. Today, in Tupy Tech, we have 3 large cells, battery, powertrain, and sustainability. In batteries, they work with programs. First, development of hydrometallurgy. Hydrometallurgy is a way that is more economical, less energy intensive than the current process of [ pyrometallurgy ]. So today, at the end of the recycling batteries are burned. This process is more environmentally friendly. So we understand that the future of recycling of batteries will have to go through this way. So we have a project with the University of Sao Paulo with more than 20 researchers working on this process. And by 2024, we will have a plan to demonstrate with recycling with this process. What we learned is that metallurgy through hydrometallurgy has a great opportunity to resynthesize these products. Today, the way the batteries are burned when recycled they cannot be used in a normal battery production process. So together with BMW and Senai, we developed a process where the waste from hydrometallurgy will be immediately reutilized for the production of a new battery. So from end to end a circular process. This is a project that will be announced in the next few weeks. It's our effort to certify this to reuse these batteries in a second life. The first, a certifying institute that will guarantee that the battery that ended its life can be used for stationary use and we can even sell these batteries in the second life. So these 3 projects, this first nucleus that we call the main effort for battery cells. The second that we call powertrain of the future, 2 projects, Fernando mentioned, ultralight iron. This is a product that if you are curious, after the break, you can access the QR code and see a demo in 3D. It's important because iron was always cheaper than aluminum and is more resistant than aluminum. The difference here is that it has the same weight as aluminum. So it can help for a trend that will be used in many geographies and bring us an interesting volume of sales especially for light vehicles, passenger vehicles. Also here, these engines can be used with hydrogen. So we are focused on combustion engines. And the third is sustainable processes. So we have announced here a program using biomass. These are specific products to use. We consume a lot of resources. We're trying to decrease our CO2 footprint and alternatives within energy efficiency, reduction of CO2. For example, we want to use more natural gas in our plant, technologies to capture carbon, use of other fuels in order to decrease our CO2 footprint in the plant, in our plants. We have many other projects which will be announced during the next few months, but this is what we have already announced. On the other hand, Tupy UP has opened innovation and digital transformation in open innovation for dimensions, up in growth, but also to increase the use of our brand. So this is for innovation entrepreneurship and the output, new businesses and operational improvements. The way we have deliverables is here through products like ShiftT. It is our accelerator of start-ups. It is equity free together with start-ups, of many types of proof of concept, also investments in the future valuation to define what we did last year. We had more than 100 candidates. We chose 4 companies, the one the first Pix Force visions of contaminants in scrap, examining deviations in relation to what we want. We consume 600,000 tonnes of scrap roughly 20%. And here, there's an impact on Fusion, which is 50% of our costs. So if we can develop a tool that may allow us to manage this process will bring a lot of value. Here, we have a second start-up developed an example of the prototype greenfield. It works with systems for internal combustion engines, reducing energy consumption using hydrogen. So right now, we have proof of concept. It's a new business by structuring this. A third startup that is being developed is Exy. Exy works with customizable systems of exoskeletons. We have some challenges in ergonomy in our plants. So in the critical areas like finishing, we have opportunities to improve work conditions of our employees. And finally, we have [indiscernible]. This is another start-up, low-cost sensors, high resistance sensors for work in hostile areas. So they're highly adaptable. They can work in very hot environments, and they are cheaper than the current technology. Another deliverable that is important in corporate innovation is our portal for open innovation. We launched this last year, many challenges. We had more than 60 proposals received, generating 5 tests this way, we can dialogue with universities, start-ups, research centers and even employees who use the portal to develop operational improvements. On the other hand, Tupy UP also has the challenge of digital transformation. This is for companies like us to translate the technical complexity to the business, to the management of the operation. So the way we found to do this in a more feasible way is through digital pillars. We have 6 digital pillars quality is very centered on traceability of data for the deviations in real time. So clients, obviously, looking at this. We also have the management of the business. We're talking about digital office integration of databases and in operations, the objective of accelerating industry 4.0, many processes here. Right now, we're working on more than 240,000 signals per second in the Joinville plant, a lot of opportunities to integrate these databases. And in terms of asset management, our plant uses a lot of maintenance. We have a lot of friction. So this effort for predictive tools for maintenance are good. ESG too, not only in terms of transparency, but also use of sensors in environmental systems. So we also have -- we want technological leadership in our sector. And finally, focus on people and knowledge. It's no use having the technology if people are not ready to implement these technologies. So the combination of Tupy UP Tech and strategic planning, this is the way we believe positions us to take advantage of what in the future. We will have a small break, and then we will hear Jose Luzzi on MWM. So I invite you for a coffee break. If you wish, you can access the QR code for ultralight iron to understand the process. Thank you. [Break]

I think to continuing our event, we will call Jose Eduardo Luzzi Chairman of MWM.

Good afternoon to all. Can you all hear me? Good afternoon to those in the audience and also to those following us online. I'd like to thank the invitation from Fernando and Thiago to participate in Tupy Day and talk about MWM. It's a great satisfaction. I'm very proud to talk about a company where I have worked for 37 years. It's a challenge talking about MWM in 25 minutes. And Fernando already made some comments, but -- it will be a pleasure to talk about MWM to you. Our company is a traditional company in Brazil. Next year we will be celebrating 70 years. Our 70th anniversary. We're in Sao Paulo and Santa Amaro, where we have our headquarters, our technology center, where we develop technologies for MWM products. We have our distribution center for parts in Jundiai, a strategic position because it's a distribution hub for parts in Brazil. Today, we have more than 1,400 employees. And since we began in Brazil, we produced more than 4.6 million engines. MWM is very well known as a manufacturer of diesel engines for OEMs. So the company is known as a company that develops technology and produces diesel engines and supplies to OEMs of pickup trucks, buses, harvesters, but in the last few years, we went through a diversification process -- a strong diversification process, a very successful endeavor, and we work in many segments with many technologies. So my objective is to talk about what MWM is doing in the segments that we defined as core, which are energy and decarbonization, marine engines, as mentioned by Fernando, our competency in engines for third parties and important lever for this merger, MWM-Tupy. Our competency in machining and assembly, machining of engine blocks and after sales. All our businesses have support, after sales support. Talking about energy decarbonization. Historically, we are a manufacturer of engines for generators. We manufacture the engine and supply to the companies that assembled and sold generators. At a certain moment, we noticed that the Brazilian market needed a generator manufacturer that consolidate high technology, high quality, reputation, respect to the client and after-sales support. So we decided to invest in our own generators with our own brand, by our own technology. And then in 2019, we also had the objective to be leaders in this business. And in less than 3 years, after our launch today, we are the leader in the market in energy generation in Brazil with 40% market share, and we export more -- another 17% of our billing. We're not satisfied. We have a growth plan with the introduction of 5G in Brazil. So we have a strategy of how MWM can give support to the growth of 5G in Brazil, growth in exports. I mentioned 17% of our billing. We still have a great market to be explored in exports. We're also going to condominiums with natural gas generators and GLP. And we're expanding our work. We're going below generator sets and offering accessories and services linked to energy generation. And a spin-off of generator groups are lighting towers. We discovered that most of the clients of MWM, they rent generator sets, 65% of our sales are to companies that rent generator sets and they also rent lighting towers. And in August, where we will be launching our line of lighting towers with photovoltaic cells to decarbonate and we are sure that it will be a success, too. We will have a diesel version as an alternative, but the service show that 65% of this volume is for photovoltaic energy, and there is a scarcity of suppliers in this area. So we're working with decarbonization with competitive edge for our clients. Decarbonization, every company, every large company every government, municipal, state, federal governments, they're all committed to with -- they have goals for decarbonization. Because of ESG and also sustainability and maintenance, agro companies, agro business companies that don't have well-defined goals for decarbonization really tend to have their market reduced, especially exports. So knowing this, MWM prepared a plan that helps our clients in their decarbonization goals many times in Scope 2 and sometimes in Scope 3. Here, we have some examples of solutions that MWM is working on and that offer these opportunities for decarbonization for our clients. Always bearing in mind that decarbonization is important, fundamental, relevant, but it must be accompanied by economic gains. So decarbonization is an objective, but what we offer is decarbonization with economic gains too. A fundamental part of our plan for decarbonization goes through biofuels. We work with methane, I'll talk about hydrogen, but fundamentally, biogas. Brazil is the country that has the greatest diversity and the greatest amount of biomass. And in reality, this biomass is not well explored in Brazil. If we take biogas with biomethane, it has a cost that is 30% lower than diesel oil for many reasons. First, it's a biofuel that is not linked to international prices nor the U.S. currency. It's not linked to the barrel of oil. And this reduction is greater when the consumption of biogas biofuel happens in the same place where it's produced. So an extraordinary potential. We explore less than 3% of our biogas, it's estimated as 150 million metric tons per day, and it could substitute 70% of the consumption of diesel in Brazil and 30% of electricity in Brazil. And the government has taken some measures to give incentives. It's that's an incentive, not a subsidy to develop the exploration and the sale of biogas, biomethane. Some measures are here on the screen. So we believe a lot in this potential, and this is the main route for decarbonization for commercial vehicles in Brazil. Our objective is always to transform the environmental problems into energy assets for generation of electricity or for mobility. So we have many problems coming from the decomposition of organic material, a subproduct from agriculture and cattle raising in Brazil, not only cattle raising, but also solid urban waste where there is a great generation of methane, and this methane is burned. Why not transform all this methane through a circular economy into energy, whether it be electricity or mobility. So MWM is in this -- is part of this package of solutions, not only with generators using biogas or trucks or tractors or agricultural machines using engines with biomethane as a fuel, but as a company that is ready to offer total solutions to the clients. We offer from design architecture of the biodigester until solutions for treatment, filtering and monitoring of biogas, the installation of also electricity mills with biomethane, biogas. If we take large rural producers, today, we're working in 19 projects and we consider this just as a pilot project. These 19 projects in progress with MWM will generate 8,900 kilowatt hour of electricity renewable, sustainable through biogas. These are farms that already have an abundance of biogas, this biogas was lost in the atmosphere and now it's converted into an energy assets for them. If we consider the potential and scalability with thousands of projects, not only in Brazil, but in countries that have similar characteristics to those in Brazil where agrobusiness is strong and where the production of biomethane, biogas is interesting. If we look at small rural properties, the small farms represent 70% of, for example, of the emissions of carbon in the production of milk. For example, you have mills that buy milk from many small farms with 100 head of cattle. And in these small farms, the emission of carbon is high. So this -- so this mill with decarbonization, if they buy the milk from a small farmer who has its production decarbonized they include this in their goal in terms of decarbonization. So MWM develops a solution, a complete solution from biodigester to the energy generator with biomethane. So we develop a generator with the adequate size for the farms, for example, those that have 100 cows, and we include equipment that monitor, filter the biogas. We have 1.5 million farms with up to 50 heads of cattle. So you can see the potential of these projects. Another project we have in decarbonization is the substitution of diesel engines for engines with biomethane. So farms that produce sugarcane, they consume millions of liters of diesel per year with many diesel trucks and are committed with decarbonization. If they use this project through the natural renewal of the fleet, they will have time. So MWM has a project that we call turnkey. So independent of the truck, independent of the brand, we convert the diesel engine to an MWM engine with biomethane. We do the validation, installation certification and also the documents, and we deliver the vehicle ready and running. To give you an idea, for every 10 trucks converted, this is equivalent to 1 new truck. So the farmer can accelerate the decarbonization plan. And this applies both to biomethane and natural gas and for agrobusiness and also urban buses, tractors, many applications and we supply the complete system. MWM doesn't install only the engine and the engine evolves everything. Now as I said, not only the objective of decarbonization. We must offer to our clients some additional advantages. The first interesting advantage is a reduction in operation costs, 10% to 15% per kilometer. So the natural gas or biomethane has more energy content than diesel. So if we develop the same engine with the same torque and the same power use -- it uses less fuel. This gives savings to the clients and plus other advantages that we can see here. Today, considering only the farms and the clients we have contacted, we have a potential of 1,200 trucks to be converted from diesel to biomethane in our range of 300 horsepower and with ethanol mills a potential of 7,600 trucks. If we think of the fleet of trucks for garbage collection, we're talking about another 2,000. So there is a great potential, great scalability, and this brings a great benefit of decarbonization. Right now, we're talking to strategic partners to expanse the use of the product apart from 300-horsepower offering this solution for heavy trucks and very heavy trucks. Another field where we have been present is in hydrogen. This was mentioned by Fernando too. In the case of hydrogen, our focus right now is energy also for transportation, but we're working on energy projects, an interesting project in the Amazon where we have barges with photovoltaic use to generate electricity during the day. Part of this electricity goes to an electrolyzer that produces hydrogen and this hydrogen supplies generators with engines, MWM engines running on hydrogen at night. This is a very interesting solution where diesel is difficult due to logistics and also a sustainable solution for the generation of energy. We noticed the feasibility of this type of energy in segments like mining, housing, ports. I have an example, the Port of Pecem that is getting ready to be a great hub using green hydrogen not only for energy, but also to support railways and also ships and also transportation by water on rivers and also hydroelectric power plants. Hydroelectric power plants can use hydrogen as a secondary way of energy from because of the hydrogen coming from the water. All these projects of decarbonization that we're offering to our clients. And these projects that I mentioned, I'm not considering the scalability, the potential. But the projects that are known, mapped in progress bring a potential of decarbonization in 10 years of 5.4 million tons of CO2 to give an idea, this is equivalent to planting 33 million trees or 19,000 hectares. And if we consider them the potential of sales of these carbon credits. We're talking about BRL 600 million. With the scalability that we're working with, we will be working on it, this potential will be multiplied. I'd like to talk about manufacturing contracts. MWM is a company that for 30 years manufactures engines for third parties. And within our competency and contracts, we do the full machining of engine blocks, heads with subassembly of components, also the assembly of complete engines. Here are some examples in terms of instead of 4 parts already 500,000 parts, 400,000 subassemblies delivered to our clients and 400,000 and non MWM engines produced by MWM. This is very relevant, although we have all this expertise. Today, we have restrictions. You know that we belong to a holding, [ Traton ] and this holding has Scania, Volkswagen, MAN and Navistar. So we have a competency that other manufacturers see as a competitor. So there is a certain conflict of interest. So when MWM becomes to be, it will once again be independent and have access to all the manufacturers engines in the world where we already offer parts to all these OEMs. Even with this restriction, the manufacturer of engines and components for third parties represents more than 50% of the physical engines produced by MWM and also the billing of the company. So 30 years of experience. Today, it's the main business of the company engines and also manufacturing for engines for third parties, we use a total solution, total package. So we not only assemble the engine. We begin the process of support to clients until the final delivery. So we work together with our clients to nationalize components, to find local vendors, qualification of local vendors, all engineering support in the development of parts within the company. We do the complete work machining until the delivery of the engine. And after the delivery of the product we have engineers that give service. Apart from this, we manage 100% of the supply chain whether they be local suppliers or international. We place the orders. We do the consolidation. We bring all the parts to assemble the engine and supply the complete engine to our clients. So it's a transfer of complexity from the client. So the client can be focused on other priorities and we manage this business. This includes engineering support. MWM has a development center and a research center in Sao Paulo, which is a center recognized as the largest development center in Brazil, an R&D center in Brazil for engines. And this allows us to offer engineering services even for engines that are not MWM. This is seen as an interesting value that accredits us to attract business especially manufacturing contracts. Now after sales, MWM has the second largest distribution network for parts and services in all of Brazil. And we believe that after sales is a fundamental link in the business chain. So it's not enough to have the best product, to have quality, you need respect -- you need to respect the clients after the sales. This is a picture of our distribution center for parts for after sales [indiscernible]. Through this chart, you can see the size of this business and our operational excellence. Today, we work with different lines, genuine parts, those that substitute original parts, also multi-brand. Multi-brand, is called Master Parts where we offer parts for other brands and including brands that are not for engines. We have optional parts, these are strategically developed and interchangeable with MWM parts to fight piracy. So it's more competitive, but with our client, our distribution channel is very complex. And with national capillarity, we offer advanced distribution center, regional distributors, also workshops and also OEMs, and we have -- we also deliver parts at dealerships to offer services to all these clients. As Fernando mentioned, more than 600 points of sales for parts in Brazil. And if we add the dealerships abroad, we also take care of Master and MAN, we're talking about 1,250,000 points of sale and 500 points of technical assistance for engines. We're not satisfied. We have a growth strategy. This strategy is based on 3 pillars. The first, new distributors in new markets as we are multi-brand and we sell parts from other manufacturers, we have access to markets where that manufacturer is relevant. Here, we see some examples. We have strategic partnerships. Our network abroad sells shock absorbers of Cofap and also the offset in Brazil here, companies with whom we have partnerships to be, I would like to stress, a great potential for synergies and the optional line. Our engineering doesn't stop approving new items every day. We have a goal to have one new item per day, at least one. So we're supplying our network with new parts. Also marine engines, MWM has been working in decades in marine engines, especially in what we call work segment. For example, so fishing boats. And recently, MWM launched a new line of marine engines for work and for leisure. And we supplement our line with a strategic partnership with MAN engines from 200 horsepower to 2,000 horsepower and we believe in this segment that is growing. We have a new law that was approved. The objective is to promote also navigation between ports to increase by 40% the fleet in 3 years and the increase between ports, this brings other segments. So MWM with this new line of engines with complete solutions, the MWM also -- always offers complete solutions. We offer propulsion through inverters, also solutions for the management, for example, control panels and generators. We have a partnership with the U.S. company called [indiscernible] which is the leader in generators, and we're bringing to Brazil generators for boats and ships. So we are offering this for work and for leisure boats. This is what I had to say. I hope I was able to cover everything. Thank you very much.

Thank you, Luzzi. We will talk now about financial perspectives. Well, we will begin our approach, looking at the performance since 2018. What we can see is that even with so much volatility, we have the pandemic, inflation in materials, problems with availability of materials, semiconductors, scarcity of semiconductors. We had a strong EBITDA performance. In this period, the physical sales volume dropped almost 15%, and our EBITDA grew 30%. The volume did not fall because of lack of demand. We noticed that inventories dropped a lot. There was -- after the pandemic, many sectors, especially OEMs were not able to sell everything they could sell. So there is a challenge to conciliate profitability with this drop. When we look at a more recent period, and here, the year 2022 with 2021 it's not normal yet, things are not normal yet. We still have many difficulties to deliver -- in the delivery of components, especially semiconductors, and our EBITDA has had a good performance. These numbers show this evolution. And without including the numbers from our plant in Betim, we can see here that we are -- we have a boom. We closed the first quarter with 15%. This shows the resilience. We went through a period of very high inflation volatility, we're able to increase our prices. Yes, there are quarters when we suffer a little more, but we're being able to have a profitability higher than recent history. And all of this was done with a level of investments that was reduced looking from 2015 onwards. We have a long sequence of investments below depreciation. We invest 3% to 4% of our billing and not more than 30% of EBITDA. This resulted looking at these numbers of ROIC with -- now including Betim and the plant in Portugal, Aveiro, ROIC of 12.1%. Reminding you that this ROIC doesn't -- this does not include all of Aveiro and Betim plants. So every month, every quarter, when we publish results, we will have a quantum leap with the capital invested by including these plants. The operations in Betim and Aveiro were included in Q4, but we did not consider all the sales and these penalize the numbers in 2021. So these numbers will grow as we include the numbers from Aveiro and Betim. This discipline in working capital gave us your buffer to make the recent acquisitions. Betim and Aveiro plants EUR 67.5 million and MWM, this acquisition, EUR 865 million. So the multiple -- with multiples of 4x. We're talking about a motive lower than 5x. So we're not talking about forward EBITDA. In the case of Teksid 2019, MWM EBITDA 2021. This brings an additional leverage which is not very relevant for the year-end report we have today. This leverage begins here [ 1.38 ] first quarter MWM depending on the time of the inclusion and the more it takes time, we will have a more positive effect from Aveiro and Betim plants. We don't have 12 months of production from these plants. So [ 1.38 ] will drop a lot with the inclusion of the Betim and Aveiro plants in Portugal and with MWM [ 2.1, 2.2, not more than 2.4 ] according to our projections, far from our covenants. Now what these acquisitions bring, they bring a new dimension to the company. Here, it's important to stress that these bars in green don't show any guidance or projection. These are -- this is annualization of the first quarter and the composition the performance of MWM in 2021. So we're simply adding the numbers. When we look at the revenue since 2019, it went from further small quantum leap in 2021 due to the inclusion of Teksid, but the annualized numbers and Q1 is normally weaker. Here, we have a revenue of 9.5%. If we add the performance of MWM 2021, reminding that these curves don't have synergy. We're only mentioning what was that. We get to a revenue of $12.2 billion. And the same analysis here, we go to an annual number with Betim and Aveiro annual numbers in Q1 2022, 1.2, adding MWM we have more. The important thing now is to guarantee that this message get to the capital markets, a company with a market cap of $3 billion. In a very end reminding you this is the EBITDA that was done. So we're not including upside or synergy. So the daily liquidity has gone up. The number of shareholders has gone up 62% to 63%. Our credit is being recognized, especially due to the scale and diversification with these acquisitions. So this is our message. We have to communicate this to the stock market, showing that we have a new size, a new scale and many opportunities and synergies that are not in these numbers. This is simply an annualization of the numbers in 2021. Now I'd like to pass the floor to Fernando. He will talk about the market and his final comments.

A new Tupy. So we're talking about what we are building and the avenues of growth that we're creating with new technologies, acquisitions. Now talking about the market, what we see in the next months, next year. North America, what we're seeing in light commercial vehicles, we have 3 years when sales were below the potential of the market. Thiago mentioned this fiscal sales dropped 15%. When we compare macroeconomic indicators of 2018 with what we see today, today, the indicators are better. So our sales should be larger. What is stopping the company to explore all its potential has been the lack of components and not only semiconductors we have lack of tires, lack of certain parts. For example, in the U.S., there is a lack of flywheels restricting the company. Even with economic deacceleration, there is a lot of demand with a low inventory of vehicles that is not enough for dealerships. So in the next quarters, we can sell more. Now talking about medium and heavy trucks, production and sales have been limited due to the lack of components. Some groups in trucks and passenger cars have restricted allocation of parts, and they're using the parts in more expensive models. So we're seeing strong demand due to backlogs in inventories. If you look at the backlog in Classes 5 and 7, it was always -- it is the highest, the sales of 1-year backlog. When we look at Class 8, they sell 250,000, 260,000. We have a backlog of 230,000 units. These are old trucks. We see the market with a high occupation of cargo. And this high occupation of cargo, they're not -- the trucks are not stopping for maintenance. The operating costs are going up. So they have incentives to buy new trucks. It's true, interest rates can be a problem. So we see a sector that is under pressure and the -- so demand is very strong. In construction and agriculture in the U.S. and North America, we supply the main players in this industry. There is a growing backlog. You can see the guidance of Caterpillar, their backlog at the end of Q1 is growing. And in agriculture, the price of food is high, they have a good profit margin, and this leads farmers to buying new equipment. So some areas of attention, components and high interest rates. Talking about Brazil, a similar scenario in the inventory of light vehicles, very low. We see clients stopping. Stellantis stopped for 2, 3 weeks because the operation is very inefficient when there is a lack of components and with strong demand. Now what calls our attention is the drop in the price of used trucks and pickup trucks. This didn't happen for 2 years. This shows a smoothening of this demand. In the case of medium and heavy trucks, there is a robust export of engines. So Brazil is a large supplier of engines for vehicles in the U.S. and Europe. So we see a strong demand for the end of this year and next year. And in construction and agriculture, strong in Brazil and here in Tupy, we are beginning to supply larger structural components due to the demand from clients with new machines, larger machines that need more complex geometries, complex alloys. Now we're going back to the sector. We have 30 projects in development. It's a sector that should grow a lot and be important in our revenue. Europe read a drop in the market, cars and light commercial vehicles, the issue of energy has created difficulties. So a drop in Europe. On the other hand, medium and heavy trucks, which is important, strong demand for medium and heavy trucks in the next few months and quarters, and they're not being able to supply the demand. Why? Because this market was not adequately served in the last 2 years. So even if the economy is weak, this sector should have a certain stability. So our agenda for 2022-2023, in terms of management, we made many efforts. Because of the war, the price of iron went up, price of energy went up. We are trying to deal with this. So the Q1, we had also an exchange rate problem in relation to previous years, higher price of energy, stronger inflation in materials. So we made important restructuring efforts when we designed the operation with the acquisition of Teksid. We prepared the company for a higher volume, a larger structure. Since this didn't happen with the final design of the transaction, the company saw the company could operate in a lighter way, and we did this restructuring during the first semester. This also had an effect on costs. But paying this, we improved numbers, and this will generate result in the next quarters. Now the operations of Tupy are very efficient. The operation in Brazil in Joinville is at its best historical level in terms of -- we gave a quantum leap in Mexico. We've seen every month a great progress in the operations in Mexico, a lot of progress and also our capacity to raise prices. We still see the impact due to lack of components in the second semester. Although in the second semester, this situation should improve. A lot of focus on cash. When we have a stop -- when an OEM stops due to lack of components, we cannot stop our plants. We cannot turn off our furnaces. So the production plan for the month or 2 months, we have to preserve. Normally, these products need working capital. This has been a problem in 2021. We're still trying to manage and see how to deal with this. But as soon as it stabilizes, we will lower this working capital and convert this into cash. We have a robust pipeline of new products, new processes, new projects, new versions of engines. New rules for emissions determine this. And here, in a nutshell, we're seeing a gradual recovery in margins, especially with the synergies of Teksid that are coming in every month contributing for the total margin of the company. In the integration of Betim and Aveiro plants, they are aligned with our plan. The margins have improved. We're executing. We're making investments, as Thiago mentioned, investments inside the plant in Betim in the state of Minas Gerais, also the plant in Maua, we're redesigning the plant in Betim. We allocate products where they will be more efficient. And we -- when there is a recession, we can reallocate products between plants. The plant in Betim is very efficient for products with a certain alloy. Joinville, too. So they are being designed to always operate at full capacity. Even when we have a fluctuation in demand, we have products. Since the plant in Joinville is more efficient, we always maintain the plant in Joinville with 3 shifts, full capacity, and we lower the production in the other plants. With this design and with the plants of Teksid, depending on the alloys we are restructuring, the synergies haven't appeared yet. It depends on the products, the movement of products between the plants. So we will see the synergies as of next year. While in terms of MWM, we -- the integration plan is in progress. A review of competition will be analyzed by the authorities. And we believe their approval will come in the fourth -- Q4 of 2022. Now the final part, I will talk about our initiatives for sustainability, and then we will have the Q&A session. So the company, there is governance, the father of the other elements. We'd like to highlight our committees. So we have a committee for strategy and innovation. The Chairman of the council, Ricardo, is here. He developed this committee. And that is where we build all this design of this new architecture to be. There, management proposes ideas. We receive ideas from outside consultants, outside members that help to build the company. And we have changed a lot. Tupy went through a transformation. The numbers that Thiago showed show this, but there is more with the evolution of the projects we mentioned in the beginning. This is important. The progress in corporate governance, led by the committee for corporate governance, preservation of towns. We have attracted new talents. The company has new fronts, new disciplines that we need inside the company. And also, we have a committee for people and compensation, too. They help us with these policies. A company that has many transactions, we have also a committee for finance and transactions. And finally, auditing and risk, statutory risk, guaranteeing the strengthening of numbers, the auditing of numbers. Risk management goes through this committee that has a meeting every month. A highlight. 2021, we formed the ESG work group, and it will become a committee forces. We're very proud 1/3 of our councils are independent members. So this governance looks at the decisions made inside the company, people with experience, helping the management so we can also be cautious and make progress at the same time. An important topic, we are -- we have recognition from WOB. Of the 9 members, 3 are women. And in the Governance Committee, we defined that ESG should be included in the evaluation process. All the managers have ESG indicators for their compensation. In terms of ethics and integrity, we reviewed our code. We have an interesting characteristics. Our first code of conduct was written in the '80s, during -- when the family will -- when it was family-owned. Last year, this code evolved. We reviewed the code to give more stress into sexual harassment and also anticorruption. Also a lot of progress in transparency. As the system gets mature, we're bringing new indicators for our model. In 2020, we had 41 indicators. In the report in 2021, we had 53 indicators. For example, we included the greenhouse effect gases, water consumption, anticorruption, risks and practices. Fortunately, we improved things. And last year, we had a great evolution. We have a lot to do still. In the social area, an essential topic, training, the company -- we have tried to be more efficient in our production. And for this, we need more training. So growth in relation to 2019, we had a growth of 60% in the number of hours for training for each employee in the company. Diversity, a very relevant topic. We have great challenges. We see here new programs for interns with more women. And to improve these indicators, we launched a program for women in Tupy with 2 topics: to create diversity, attracting and retention, and more inclusion to prepare our team to create better conditions so we can have more women working in the company. Health and work safety. We are in the transformation industry. We deal with a lot of types of energy. Everything I'm mentioning here is in our sustainability report. This is the most important topic in the company. For the company, health and safety is critical for our company. In our staff meetings, I, with my team, we review all the accidents that we have with absenteeism. Every week, we have a specific session with the Board meeting. We always evaluate. We bring in the people involved, and we define investments and improvements to reduce accidents. We have made some progress, but our numbers have a lot to improve. We will continue investing in this. In terms of vendors, Tupy is a sector that depends a lot on small and medium companies. Our vendors are not large companies. Traditionally, they are local companies, Mexican and Brazilian companies. So we activate a big network of suppliers, small companies. We bring a lot of richness, and we take good practices to our vendors. And our social environmental clauses are in 100% of our contracts. And we inject many resources. We are a great exporting company in Brazil and Mexico. We bring resources, and we inject resources in these small companies. Also, our relationship with the community is strong. Some statistics, especially in health, here, we see during the pandemic, our actions, most of them with screening centers in many areas. In terms of the environment, here, too, Tupy has an inventory of emissions since 2013, Scope 1, Scope 2, Scope 3. This is a very important area. You can see this in our metrics of materiality. And it's an area that we follow, and we have many projects to improve our emissions in the 3 scopes. A relevant piece of data, we are a large recycling company. Every ton of product that we manufactured with recycled material, scrap, recycled materials we use, we save 1.2 tons of greenhouse gas effect, greenhouse gases. This is important for us. Also on the circular economy, 97% of what we deliver to our client has -- is done with recycled material. We use many wastes from society materials, from old refrigerators to aluminum chairs, that we separate, that we organize, and these are part of our products. So this is a sector that is very, very relevant for us. We have done important work with water. All our water is recycled. We need to replenish the water that evaporates, but all the water is treated and recycled and used again. You can see this in our sustainability report. Coal products, many coal products. And we have -- we invest in research. We have people working to reuse these coal products. In 2021, we generated BRL 25 million in revenue from coal products. So main, for example, powders, residual -- we have wastes from the furnaces. We have systems that collect this to separate them, and we sell them to industries that are interested in these chemicals. Here, zinc, most of the scrap from vehicles contain zinc for anticorrosion. And in the furnace, it evaporates. We collect this zinc, and we sell it to companies who work with zinc. Also waste, granular wastes, these are used in cement. So all our waste from the furnaces, they are wastes, they are rich in silicon. They are treated. They are mold and sold to cement companies. We have other opportunities too, but it's an important area where we do research. And here to conclude, our metrics for materiality, always important, these are the main topics for Tupy. And they were defined as priorities because we interviewed 735 stakeholders, clients, suppliers, community, employees, counsel, shareholders to define what is material for the company and where we should focus. It got to 30 items. And here, we have the 11 main items where we will focus our investments and actions. And these are the important parts in sustainability. While I invite you to read our sustainability report, we're transforming our business going to sustainability -- in the direction of sustainability. And here, we saw the main points of the operation. So finally, the last slide, talking about the new Tupy that we built, a company that is relevant in a low-carbon economy, participates in agribusiness and also in the market in the U.S. with similar characteristics, where we can explore our products, with a single positioning, a unique company taking care of all the needs in terms of services of our clients. We believe there is no company capable of offering all of this. We offer this with competency, with technical credibility, with financial discipline in business. We understand that we will have a greater volume of business receiving outsourcing projects from OEMs. Also diversified revenues, exposure to new sectors and a growth with profitability and sustainability. And above all, this is the silent movement in the company, attracting new talent and this new talent together with the experience of professionals in Tupy. And we're managing this combination to generate the results that our investors expect from the company. Thank you. Now we will have a Q&A session.

Well, now we will have a Q&A session. You may send questions through the platform. Here in the auditorium, to ask questions, please raise your hand, and we will take you a microphone. So questions concerning MWM will be sent so the company may answer them after the event. Well, we'd like to invite Daniel Moraes responsible for Tupy [Foreign Language], Tupy Tech.

Marcelo from JPMorgan. Question for Fernando. How do you see the CapEx cycle for the new Tupy, a CapEx that is not very efficient? But when we look at all these initiatives, how do you see the evolution of this number, CapEx, in relation to the new acquisitions and excess capacity you have?

Okay. I will begin. Well, evidently, we will have an important discussion due to allocation of capital, new opportunities, new sectors. We don't have a full knowledge of MWM. We still don't have all the information. But for example, energy and agro has important opportunities. We will have to understand how we can take advantage of them. And depending on the format, it may require investments, but we will never give up our financial discipline. We always had financial discipline because this helps us to find new businesses. So we will take the correct actions we have taken like we have done in the previous years, including the acquisitions. We were very cautious. We understand that we should follow some principles. Well, when we look at the plants in Betim and Aveiro in Portugal, our priority is to maximize the synergies that don't demand investments. When we look at the assets, there is a gain in performance that we can capture before we invest. So there is space to continue. We -- our CapEx is below depreciation. MWM may offer with all the opportunities that Luzzi mentioned, depending on the rhythm and our appetite for risk, we can examine how much we will invest in these new businesses. There are many. It's up to us to evaluate and look at priorities, establish priorities.

Lucas Marquiori from Pactual. I will say the following. We learned here that the world is going towards hybridization with regional solutions. Based on your experience, what is the shelf life of the current technologies with carbonization and internal combustion engine? How long will it take to migrate to hybrid engines? Ethanol, tell us about the speed of change.

Well, basically, as Fernando mentioned well about, it depends how we will treat the cycle as a whole. There is a great presence still with combustion engines. The acceleration of the use of biofuels is the best way to decrease the carbon footprint. That's why you see we've seen this type of usage, which is to mix ethanol and gasoline as a way to decarbonize combustion vehicles. Europe is strong in this. In Sweden, they use E85. Number of amount of ethanol has increased in Europe, apart from increasing the percentage of ethanol to gasoline, which goes from 5% to 10%. For us, we have 27% ethanol in our gasoline, and they are working with 5% to 10%. In the U.S., they are going to 15% ethanol in gasoline. It's optional. And there were many states using 15% ethanol in gasoline. China also wants to increase this number. Now it's 10% mandatory, and they want to go 20% in China, the addition of ethanol and gasoline. Now they are waiting for the pandemic. This is one way to decrease the carbon footprint. So internal combustion engines have an over life with these new fuels. So I believe this is an important way that blends gasoline with ethanol. Hybrid engines are now increasing efficiency, bringing 2 cities the same mileage they get in roads. That's why you have hybrid cars, to have the same mileage that they have on the road to cities. This has an interesting time line. It's difficult to make a forecast. It depends on the availability. In Brazil, it's very difficult to imagine this growing in percentage-wise to become dominant mainstream in the next 2 decades, unless we have subsidies. If you have subsidies, then you can increase. And this was done in India using ethanol with a growing ramp-up. They're growing a lot the consumption of ethanol in India. This, in cooperation with Brazilian companies. So this should happen in Thailand. So it's difficult to say -- to give you a time line. But it's difficult to imagine that in 2050 that hybrids will be dominant.

Itau BBA. Fernando mentioned in his first speech on the trend on the part of OEMs outsourcing some steps of production to the machining and the assembly of engines. I have 2 questions. How can we think with the acquisition of MWM? So what are the main challenges to convince OEMs to outsource the assembly of engines? Can you give us details? And the second question of OEMs outsourcing some steps, new M&As. We saw 2 important actions, mergers. We believe Tupy has a controlled leverage. We talked about CapEx. You are controlling CapEx. So do you believe we can have more acquisitions?

Let's begin with the second question. We arrived at the strategic architecture that we designed in the last few years. We understand that this was the trend in the industry. Since the beginning of emissions, there was proliferation of engines. This was important. In comparison with competitors in Europe, we had more different products. Thus, we grew. We saw that there is great opportunity because industry OEMs want to outsource, but they didn't have candidates. So this is what we're trying to build. And we didn't have many opportunities. Everything we're capturing in terms of knowledge, technologies from MWM, we would not be able to develop ourselves organically. So this format makes sense. It gives credibility to clients. 20% of trucks in Brazil have an MWM engine, and this is a great business card for the company to use here and abroad. Also, we put together the company's architecture. We have many avenues of growth now. So if you look at the final value of an engine, it's 20x to 25x higher than engine block and head. So Tupy sends containers that are worth $40,000, $50,000 in value with engine blocks. If we do everything, if we machine and assemble, we have vendors of components that could allow us to -- we don't have to offer a complete engine, but there are many steps that we could offer here more complete engines. And our clients have challenges such as their business, the business model is changing, whether it's allocation, sale, leasing, autonomous vehicles, also new propulsion types. They don't know the winner, and we will probably have different winners in terms of propulsion depending on the place around the globe. So it makes sense for them to outsource. That's why we have to be careful with CapEx. We believe that gradually, we will be the heirs of these outsourcing contracts. When you look at the casting of engine blocks and heads, 70%, 75% of these products were done inside the OEMs. All our clients had their casting operations. When they found companies outside and because of the emissions rules, we had to improve alloys and geometry. Tupy could deliver much more than the OEM. And naturally, this process happened and why? Because we're more efficient, we're more competitive. So the same thing will continue upstream. This is a chain that naturally will be outsourced. One more point. When we talk about multi-fuel, it means that a certain application. Imagine a loader sold in Brazil needs an engine with biomethane in Japan hydrogen. So the volumes will be divided. This creates a lot of confusion, all these different types of fuels. So once again, we can add a lot of value to our OEMs. Today, in Brazil, most of the engines for pickup trucks are imported. They're not assembled in Brazil. We believe also we can explore this and work with our clients to supply these engines.

[ Diether ] from the Portal SmallCaps. Congratulations for the event. Thank you for the attention to the small investors. I have 2 questions. The first, understanding better the verticalization of the product with MWM. What kind of gross margin do you believe you will have if you deliver an engine that is almost complete? You are working with 16% to 8% gross margin. The revenue will go up. So what kind of gross margin do you believe you will have for these products?

Well, what happens with these processes, you have a high component, which is assembly and more protected contracts with better price increases. So on average, the margin is lower but the return on invested capital is higher. And as we make progress for relevant contracts, there will be a great upside in terms of -- so we have a higher ROIC with the dilution of margin because you have an added value. You assemble components that are supplied by other companies.

In terms of Tupy Tech, I'd like to understand the recycling of batteries. What is the size of the market that you are imagining for this new application that you want to work with in a competitive way? What is the competitive edge that Tupy has to lead this process?

Well, beginning with automobiles. In reality, this can expand to electronics to lithium batteries. For example, there is no lithium recycling in Brazil. If we talk about lithium recycling, there is the technology that we mentioned of burning the batteries. This process is at 1,500 degrees Celsius. It demands a lot of energy. Hydrometallurgy, chemical system operates at lower temperatures, 120, 150 degrees Celsius, demanding less energy and with great potential in reducing the CO2 footprint. This makes the process of recycling that exists in the world, and that has a deficit, opens space for the opportunity for the presence of Tupy, not only in Brazil but in other countries, too. So today, we estimate that in 2021, 400 tons of material to be recycled were produced. For example, in 300 kilograms, you have 80 kilograms of recycled, but 1/3 of the battery can be recycled. The rest is aluminum, plastic, other types of recycling already known when you disassemble the batteries. So with more and more electric vehicles around the world, we will have more batteries to be recycled after 6 or 8 years of use. Apart from the applications that batteries also can be reused, as we said, a second life, there is also the scrap from the construction of the batteries -- the manufacturing of the batteries. So in many discussions, we have had many partnerships with OEMs. There are cases of batteries -- assembly of batteries. For example, there is an accident and the battery cannot be used. It has to be recycled during production, or disassembly for the second life. So there are many avenues of growth opportunities, business opportunities. For this, we have technology for recycling hydrometallurgy. We have worked with the University of Sao Paulo, and this process can be a competitive edge in all the world, a flexible process. In the same batch of recycling, you can recycle up to 6 types of chemicals when usually, when you find these processes, they are dedicated to one type of chemical. That's why there are patents that are being sought, apart from this certification to know if the battery can be reused. These are avenues of growth and how we intend to explore these avenues, from Brazil to the world, not only positioned in Brazil, but if necessary in plants closer to clients around the world. So we have to discuss this with clients. In the beginning of June, I was in Europe discussing with some clients these possibilities. Because you have the disassembly, it can generate black mass. The amount to be recycled can be known. And then you can have disassembly near the client and the black mass in another location. Many options that we're studying for our next steps to define the process.

Congratulations for the event. Werner Roger from Trigono. We've been investing in the company for 14 years. We are investors. Congratulations. Congratulations for these 2 acquisitions, the best possible. So 2 questions. One is for MWM. We see in the cities like Sao Paulo, 16,000 buses and the use of electricity. There is the law to exchange diesel vehicles. A bus -- an electric bus costs 3x to 4x more than a conventional bus. Then we have biomethane in landfills due to lack of knowledge. And the garbage trucks, too, that go to the landfills, they could collect gas from the landfills. No one talks about methane, and everyone says that electric buses are very heavy, will break up the roads. And we saw inflation of cost in the last 2 years with the price of scrap iron and volumes dropping. Now it's the opposite. Volumes are being recovered. Europe announcing infrastructure projects, Biden, too. This will require heavy trucks. And the price of iron dropped. So what can you tell us about the cost? Has it stabilized? Or are you -- has cost dropped? We see -- we believe the cost is dropping. So are you trying to retain these favorable costs?

Werner, thank you for the question and for coming to our meeting. Well, this is a line where we're very active talking to governments, state municipal and federal. We had a change in the law of gas to include biomethane that will expand the use of biomethane. You talked about landfills. Landfills can generate biomethane, but they have lower capacity. Also, waste treatment plants can also generate methane. Public transportation is subsidized by the city hall. And when they buy the vehicle, it's important, the resale. So the government subsidizes transportation, but they request the company to buy new buses after some years. And then they are used in other areas. Electrical buses, you cannot transfer. You have to substitute the batteries. So this operational cost is much more complex. The reality, if this happens, it's very expensive for the city. We believe that the city halls will be serious about this. We are talking to some authorities from the cities where we operate concerning this transition. And this is an important topic. Electric buses cost 3 to 5x more than a diesel bus. And a bus with biomethane is the same price as a diesel bus, and the operational cost is lower than the diesel bus. Apart from this, if you have biomethane sources in your region, the fuel will have an even lower cost. So this biomethane is a gas that's going to the atmosphere, and we're not using it. It can be used to produce electricity or in terms of from an economic point of view, there is no doubt, we've had new attempts with electric buses and gas-powered buses. But the problem was there was no one to sell these -- the old buses. Now biomethane and gas, there's a lot of interest in them. I believe this will be the winning technology. So especially in large cities, they have to buy new buses every 5 years. MWM has developed a biomethane engine, and the fleet owner will buy the new engine. This is -- will cost BRL 150,000. It's delivered totally ready. It lowers operational costs so they would exchange the engine for biomethane engine. And then when they sell the vehicle, they can put the diesel engine back in the vehicle and sell it. This is what is being developed. We believe it will be the winning model from an economic point of view, subsidies and carbon footprint because electrical buses have a lot of batteries, and the carbon footprint is very large in the production and removes methane from the atmosphere. So we have worked for the legislation to advance and include the whole carbon footprint. This is important. There are scenarios where it makes sense to have electric buses. If you have clean energy available, then you can -- then it can make sense. Others, no. Sao Paulo, probably not. Supplementing the second question, when we have inflationary -- when we have inflationary pressure, we are running after margin to recover margin. And the projection in the second semester is for commodities -- is a drop in price for commodities. So we believe there will be the opposite effect. So there is this effect. So price of commodities will drop in the second semester, different from September -- the period as of September 2020 when inflation was higher and volume, too. The fact that industry has not been able to give us what we wanted helps us to supply these markets that have low inventories. So volume will grow due to the lack of components in the past, semiconductors and so forth.

Renata Cabral from Citibank. My question concerning your comments, the supply chain. So there is a growing movement on the part of large economies in terms of onshoring. You are present in the U.S. and you have these new avenues of growth. You mentioned that there are opportunities in relation to biogas in agro in Brazil, but also in the U.S. So I'd like to know, how do you see this opportunity with onshoring, near-shoring? I know you have a plant in Mexico. Even Portugal can be a door in Europe.

Excellent question. We -- this is an industry that is globalized. Many of our clients bought products in Asia, delivering in Europe and even in Brazil. Brazil imports blocks and heads from Asia. They have had a lot of difficulties. Our industry, you can't have modular plants. You need large centers. Its freight is important because the value is low in relation to price. So freight is important, too. Certainly, Tupy, our projection of leadership in the West will be strengthened with this movement. We're very well positioned in North America, not only near-shoring, but also USMCA, they will require that by 2027, gradually 70% of the content be local for these products. This will strengthen our position in Mexico. We send a lot of products to North America. We're very competitive for North America for some regions and Europe. And in Europe, certainly due to the issue of energy, we will have a benefit for the European markets from Brazil and Mexico. So the plants in Brazil will supply more in South America looking at Brazil, which will need more trucks in the future, with numbers equivalent to the U.S. because of the size of our country and the growth of the economy. Brazil will need more pickup trucks. Agro needs this type of vehicle, more tractors, harvesters and a good part of this volume, which is relatively small in relation to the potential uses. Even the engines are imported. The leaders in Brazilian pickup trucks, construction material and agricultural machines import their engines. So this combination with MWM makes sense. USMCA and Europe, we see a more difficult scenario. We consume a lot of energy. They will use regions that have abundant energy and available energy. That's why we will supply also Europe. But -- so there is competition from Asia. The clients that decided for this option suffered a lot in the last few years.

Victor from Bradesco BBI. I have 2 questions. The first, Fernando, can you comment on Portugal and Mexico plants and considering the operation in Q4? Second question, Tupy Tech. What is the market for the 3 products you're working on?

Okay. Tupy Tech, if I understood, you want to know if it makes sense to make investments to supply from Mexico and Portugal with machining? Yes, the main item, we acquired some available capacity for machining, assembly, testing. So this will be important for the Brazilian market. The main value we're bringing is technical credibility and engineering knowledge. The Director is sitting right in front of you. And this is the main value that we see here to make progress, to add value to the product it has to be close to the foundry. It doesn't make sense to send an engine block to begin to be machined in the U.S. We send 15% more weight. This affects logistics. This affects the use of -- the occupation of the container. So it doesn't make sense. So an industry that wants more efficiency will understand this. And we are capable of generating efficiencies. Every product we manufacture should be machined close to the foundry. I would have more quality, more efficiency. And this -- we have a long chain, 4, 5 weeks and 2 to 4 weeks inside until they get to the clients. So in an industry that wants more efficiency, it makes sense to outsource more of these operations. We believe that the Mexico -- Mexican operation will grow a lot. So the assembly should happen close to the foundry, and MWM has the knowledge to do this.

In terms of Tupy Tech, the second question, the objective is to be the vehicle that builds a portfolio with an end-to-end production, so like batteries. So our objective is to have solutions independent of where the technology goes. So when we talk about the market, every technology has a maturity. Ultra-light iron is already a large market. It can capture high volumes. We talk about hydrogen. It will depend on infrastructure and the quality of the fuel. So if the route is in the direction of hydrogen, and we believe in this, there will be a great potential, but in the long term. And everything that involves battery will grow. But the problem is that if it doesn't go at the speed that the market expects, our core business will continue intact. So we -- there is a hedge.

A question from the Internet. [ Finato May ] asks, so the relationship of the start-ups with Industry 4.0?

So this question is very good to show the new synergies we have in the new Tupy innovation created this day. We are after 4 groups: start-ups that have synergies with Tupy, decarbonization is their energy; second group, ESG; third, new business models and the fourth, digital 4.0. So start-ups are coming through the fourth group. When we have start-ups, Thiago showed 2 of them. We have Hedro and Pix Force. The team is participating in the proofs of concept so we can understand the benefits. Hedro supports our -- the management of assets and maintenance allows us to foresee [indiscernible] before it happens. Pix Force supports quality. We analyze the scrap we receive. We understand the effect in the process and avoid contaminated scrap to go to the process. So as we have new cycles of acceleration in start-ups, the trend is to have more and more of them.

Good afternoon. Congratulations for the event. [ Egor ] from [ Chenial ]. I'd like to ask a question. What can we expect from now on in terms of capture synergies with the acquisition of Teksid? You said you can exchange margin for return on ROIC. So also, we will need more investments. Thank you.

What we can say is that the curve that we designed in the past to equalize the margins of Teksid. Today, they are more advanced than we had imagined. In the past, we had an operation to be 13%, 14% EBIT, while the plants in Betim and Aveiro had 3% to 4%. So we're recovering margins. We highlight the fourth -- Q4 2021. The acquisition involved the sale of subsidiaries, but as of Q1, we're observing an evolution, an increase in margins in Teksid and Tupy. We're talking about synergies that are not only the margins of Aveiro and Betim that improved all of Tupy's. We buy everything together. So that's why we always talk about the combination of these margins. In Q1, we had a combined margin above 13%, and we will gradually evolve until we get to this combination. This will happen well before the 4 years we imagined.

You mentioned that the complete blocks have 15% more weight. I'd like to understand how much added value you have in a complete block?

It's the opposite. When we export a cast product, I send 15% more weight when I send only the rough block. If I machine the product, if I remove 15%, I will sell it for twice the price when it's machined. And I use this material, which goes back to the furnace. It's ready material. There are many benefits.

[ Jose Albspent ] from the Internet. He wants to know the substitution of aluminum by iron, what is the potential of growth since the electric motor is dominant instead of the hybrid?

Well it's important to say -- this is a vision that many people have on electric being superior to hybrid. This is not what the main projections show. In Brazil, the projections show 7% in 2035 of electric engines and 12% hybrid. So hybrid with a higher percentage in Europe. Electric vehicles show 50% for hybrid, 50% for electric. In the U.S. electric with hybrids will be 3:1 in relation to electric. So more use of hybrid vehicles and not pure electric vehicles. So because hybrids were called electric vehicles. So this is important to know. That's why the projections with -- show that in 2040, 70% of the vehicles will have -- will be hybrid with an internal combustion engine. And so that's why there's an interesting -- there's an interesting opportunity to see the decarbonization substituting aluminum for iron. So we have a worldwide production of 80 million light vehicles in 2040. 70% Will be hybrid. Today, totally electric vehicles are 3 million. In Brazil, we have 2.3 million vehicles produced and most of them are with internal combustion engines. So there's an interesting potential. The carbon market should be another source to avoid carbonization.

Thus with projects, this movement of using aluminum has arching in an industry that is more organized. So the companies could influence aluminum reduces weight. So all the applications where you could use aluminum. Aluminum has less resistance than iron and aluminum bar with the same diameter has less resistance than iron. So in terms of resistance, it is inferior, aluminum. Industry migrated to reduce the weight of the vehicles and save on fuel but the weight of the vehicles went up in the last few years. It did not go down. Even using aluminum because of other safety equipment and comfort equipment. The weight of the vehicles went up. So what will happen from now? Why did we invest in ultralight iron? Because if we can have a production process to control the walls of the product with high production, I can make a product that is more thin than aluminum and with equivalent weight with the weight equivalent to aluminum. And we're taking this to OEMs. When we look at this from the point of view of cost, it's much cheaper, 25% cheaper, but the trend due to the price of energy is for aluminum to be more expensive because to produce a product in aluminum, since the mine I use at least 2x more energy than the process with iron. And if we could get to the same weight, I would neutralize this advantage that aluminum has. So that's the objective of this process. What we have learned is that this caught the attention of the OEMs because there are many other components in aluminum. If I could produce them to have the -- if I could have the same weight, gearbox expansion, make a product that has the same weight and the same resistance or higher resistance, it's much cheaper and it decreases the carbon footprint of the car. So when OEMs look at this, they see what legislation shows. So 1 way to improve their performance in Scope 2 and 3 would be to use a product like this or this technology for other components of the vehicle. And that's another line whereafter to see the opportunities. Can we make a gearbox with ultra-light iron, suspension, where they use aluminum? And I would use iron as long as I have a controlled process to make thin walls, and thus, I can balance things. So the nature of this project, it may open new opportunities for the company. We're not saying this will happen. It will depend on new generations of products in the long term. If I can inject this product, I can make it cheaper than aluminum with a better quality in terms of mechanical resistance with a lower carbon footprint and a lower cost.

Andrea Smith, Thank you for the event. You answered most of my questions. So considering that we see companies announcing goals to reduce the carbon footprint, so for example, the migration, how many companies are migrating from aluminum to iron?

So that's why we mentioned in the presentation, the connection with ethanol. There are 2 important things. The fuels, alternative fuels and ethanol is the leader is an important combination. If you look at the longevity of the internal combustion engine, and we showed that even with clean energy, biofuels are equivalent in terms of carbon footprint. The engine, it makes sense to make a transformation. You have a gain in cost but also in the chain. This has called the attention of OEMs to win this benefit in cost and decarbonize their structures. That's why we have made presentations at OEMs, and they noticed that the next decades will involve a lot of work for passenger cars. And that's why we have this focus on hybrid cars. Hybrid cars will require more power in a smaller size, and this goes into the direction of more resistant materials. So once again, a benefit from iron. So this has called their attention as an interesting avenue for financial gains because of the lower cost and at the same time, decarbonizing production.

Good afternoon. Thank you for the presentation. Lucas Barbosa, Santander. Question for Fernando and Thiago. With the acquisitions, you diversified, but you also increased complexity? How do you expect to lead with this greater complexity that you have now, management, the decision-making process from now on?

Well, thank you, Lucas. An important question. First, when we look at Teksid, Teksid is a horizontal acquisition. We believe there are many opportunities to combine structures. We did that already when I talked about restructuring. We don't need 2 engineering departments, for example. We're not losing talent, but we have to organize, redistribute this talent. All of this was done, services. So when we looked at MWM, they have a strong entrepreneurial history. Luzzi -- they are the largest manufacturer of engines. MWM use contract manufacturing, generators, marine engines, also aftermarket is growing. Two, we will preserve this. All this team, all this talent will work with Tupy's team. So at Tupy, we can expand the opportunities. Now they have restrictions and now they can work with new clients. So it's -- so -- it's for growth. So we will be preserving the business structures of MWM so they can grow and maybe in the future, when these businesses become mature, we may create new units because they will be different businesses. So you can see here these units will probably be leaders in the future. They're in a growth phase now.

Well, we have another question from the web. What results have been obtained in the acceleration program for start-ups?

I'd like to talk about the business model of shifting. It has a model linked to Tupy. When the start-up is accelerated, we have a safe location, intellectual property. We respect talent. Proof of concept is paid at market prices. So we make investments based on valuation so we accelerate the start-up so we can bring start-ups that have products but haven't validated the product yet. So since -- so there's a fertile ground to validate the startups. Now talking about the benefits of the 4 accelerates. Proof of concept comes at different times. So we -- for example, we avoided stopping the production lines with the work done by the start-ups and we see the benefits. So for example, corrective maintenance became preventive maintenance, which is simpler and more -- and also at a lower cost. In terms of the quality of scrap, the -- for example, 1 of them avoid car wheels because they have materials that we have to avoid. And they get it right. They are able to detect car wheels. The exoskeleton we're testing in Betim to help ergonomics. We have a certification plan. We have 2 points where and -- it's the operator that tell us if their work is now better with the exoskeleton. And the last green fuel, there are tests. It's a low-capacity hydrogen system. We have 2 trucks are testing with their system with a third-party certifying to see if what the startup says a reduction of 5% to 10% in consumption is real or not. We don't have the result, the tests are being carried out. So for us at Tupy, there are many synergies. So we have the start-up with our team working together. Our team learned a lot. They began to use the data. From Hedro, we have a database with 30,000 lines of information from these sensors in the 7 machines. So now they have a lot of data to study. So this helps the company and give support judicial transformation.

Well, we'd like to close the Q&A session. And if you need anything else, our Investor Relations department is available to help you. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]