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

[Interpreted] Good morning. Thank you very much for waiting. Welcome to the conference call for earnings for Q4 2022 for Tupy. [Operator Instructions] This conference call is being recorded. The company would like to remind you that this event is also being transmitted simultaneously through the Internet via webcast. It can be accessed at the address www.tupy.com.br/ri, where you will find the presentation. The slide selection will be controlled by the participants. Tupy clarifies that any declarations made during this conference call on business perspectives, projections or operational goals, financial goals, concerning the company's business or forecast based on the expectations of the management in relation to the future of the company. These expectations are highly dependent on market conditions, both domestic and international, the economic performance and are subject to change. With us, we have today Mr. Fernando Cestari de Rizzo, CEO; and Mr. Thiago Struminski, CFO. Mr. Fernando, you may proceed.

[Interpreted] Good morning. Thank you for your presence. We will begin talking about the results and the main achievements of 2022. 2022 was a year of transformation. We consolidated the operations of Teksid and we announced the acquisition of MWM. We're also able to have new businesses, which increased revenue and profitability of the company now for the next few years. This intensity of movements had a clear objective, make Tupy a larger, more efficient, more diversified company, generating more value. It was also a year of challenges, the impacts of the COVID-19, the conflict in Eastern Europe and lockdown in China had an impact on production change. These factors also cause plant production stops. This affected our revenue and margins and increase the need for working capital. This creates inefficiency. We prepared the company for a scenario, and we had a different one. For this, even with the high demand economic -- favorable economic indicators, volumes were low, even lower than before the pandemic. With this bad export scenario and also expenses to transform Tupy, in spite of all this, we had record results with a good cash generation and also comfortable financial situation. Net revenue reached BRL 10 billion, an increase of 44% due to price renegotiations. Our adjusted EBITDA reached BRL 1.3 billion, an increase of BRL 390 million in comparison with 2021. This result is very high if we consider the high materials and freight inflation and the production -- and production stops we concentrated on the search for efficiency. We're only in the beginning of obtaining the synergies foreseen with the acquisitions of Teksid. But we reduced costs and expenses in our lines, including our organizational structure and synergies in purchasing. We captured synergies upwards of BRL 130 million, which brought benefits to all the plants. If we compare the result of 2022 with the pro forma of the sale of Tupy and Teksid in the 12 months of 2021, reminding you that the acquisition had only in October, we went from a margin of 11% to 12.5% and EBITDA went up BRL 250 million. In spite of the progress made, still have margins that are lower than the other units of Tupy. In capital allocation, we observed in the first semester, the recovery of inventories in the operations of Since the inventory belongs to the previous owners and we're not part of the transaction. For this, we had a negative operational cash flow in the first semester worth BRL 254 million. We also made investments in safety environment and also the recovery of assets in Betim and also equipment that will increase the efficiency this year. In the second semester of 2022, we had an incident in an equipment in Mexico. The equipment had to be rebuilt and the production allocated to other plants. The cost of these stocks were considered as the result of Q4 with a negative impact of BRL 41 million. Since we have not concluded yet all the procedures to obtain reimbursement from the insurance company and since our focus was on monetization of working capital, we decided to have a longer stop to reduce inventory. This made us lose efficiency and margin, but it allowed us to monetize our inventory and reach an operational cash generation of BRL 650 million in the second semester, BRL 426 million in Q4, the highest in our history. The result of all of this was a ROIC of 13.5%. In spite of still having excess working capital, and the increase in assets due to the acquisition of MWM, we will talk about this at the end of the conference. Net profit reached BRL 502 million, a growth of 148% versus 2021 due mainly to a better operational result. Now I'd like to pass the floor to Thiago, our CFO, who will talk about the financial results of Q4 beginning on Slide 7.

[Interpreted] Thank you, Fernando. Good morning. Revenue had a growth of 26% in the quarter, reaching BRL 2.6 billion, and the main effect and this due to price increases and also 1 extra month of MWM worth BRL 246 million. In comparison with Q3, we had a drop of 4% due to seasonality since Q4 is the weakest the year. In relation to the mix in sales, the MWM helped us. LatAm reached 32%, especially Brazil, 32%, and also commercial vehicles and off-road, 85%. Going on to the next slide. The cost of products sold increased 26%, 23% in the annual comparison, especially due to materials and services and also the beginning of the operation of MWM in December 2022. Also, we also had nonrecurrent effects, a recovery in the Mexico, we had to rebuild the foundry system in one of the ovens. The cost was BRL 41 million in the quarter. And the report made by the company was specialized, assistance was sent to the insurance company and the process for reimbursement is being analyzed. During the quarter, we had a gross margin of 16.7% and a growth of 119 basis points versus Q4 '21. The increase of operational expenses happened due to higher freight prices, but also we had an increase in revenue and the beginning of MWM and labor negotiations. Adjusted EBITDA reached BRL 150 million in Q4 '22 and BRL 1.3 billion for the year, 44% higher than 2022. Q4 received some important effects such as focus on the reduction of working capital and cash generation, the stock and rebuilding of equipment in Mexico, an impact of BRL 41 million in EBITDA and BRL 27 million in net profit, the inclusion of MWM and seasonality in month of December, working with -- working with standard Euro 6 and had a margin of 3%. Apart from this, net profit was affected by expenses noncash of BRL 14 million and reached BRL 502 million with a net margin of 5%. On the next slide, we talk about financial results. Increase of financial expenses in Q4 '22 is due to gross debt. We had debentures worth BRL 1 billion to pay for the acquisition of MWM and higher interest rates that have a direct impact on the interest of loans in Brazilian currency. Financial revenues in the period, BRL 46 million; higher cash higher cash in reais and higher interest rates. Net monetary and exchange variations, an expense of BRL 5 million due to negative variations in our assets and also hedge operations, which corresponds to a revenue of BRL 14 million in the period with a positive cash effect of BRL 5 million in the operations that were liquidated. Here, the main working capital in Q3 -- using Q3 '22, reduction of 15 days in accounts receivable, an increase of inventory of 5 days in relation to the cost of products. Also, this increase is due to the inclusion of MWM and seasonality, of 3 days in accounts payable. And this, we had a cycle of cash conversion 7 days better than in Q3 2022. We have a net debt of BRL 1.9 billion, corresponding to 1.6x adjusted EBIT in the last 12 months. Here, we're not counting 11 months of MWM, which are not included in this result. Our obligations in foreign currency, which represented 57% of the total, in relation to cash, 62%, in local currency. In September, we issued debentures worth BRL 1 billion to acquire MWM and the cash balance coming from MWM Brazil is BRL 243 million. And we will return this totally or partially to the selling shareholder. And once again, we have 1.7x net debt over EBITDA without counting 11 months of the EBIT of MWM. We closed Q4 2022 with a comfortable cash position, BRL 1.5 billion. Now Fernando will talk about the Agenda 2023.

[Interpreted] Thank you. I believe that you followed the recent announcements that showed our plans for 2023. I will separate this into 2 parts. First, opportunities in current business and perspectives concerning sales. Second, the new fronts for growth and diversification. In the current business, considering this short-term synergies. We'll continue capturing value in new commercial contracts and in the operations, in efficiency gains in which were already mapped and are being executed as demonstrated on Slide 14. We made progress in Mexico in 2022, but we still see a lot of value in more efficiency and labor, use of assets and costs -- and fixed costs and expenses. We also see opportunities in purchasing. Our Mexican plants have available capacity and will be important in USMCA, which requires more local content and will attract products that are made in other regions. Following the global tend to increase outsourcing machining and assembly will have a more relevant role in these plans. Industry is going through a replanning of production chains with the migration of supply chains to countries that are closer. This movement is called near-shoring. And it's not only in Mexico and Brazil, we see a movement to produce locally engines that now are imported, and this represents a great opportunity for -- to be in Teksid Brazil. We see the potential to be a very competitive operation for to be due to costs, location and opportunities for gains in efficiency. Thus, we can direct volumes to the locations that are better. This is being captured in the second semester with new investments that are being made as products transferred are approved. Ensuring apart from concentrating the manufacturing of more complex products with important investments in digital transformation, we're growing with new structural components that are machined, not linked to engines and that have interesting profit margins. In Aveiro, we have a mature, efficient operation, and we're working now on sales. On Slide 15, I will talk about the scenario for markets where we are present. In the domestic market, we see many unfavorable factors that led to a drop in the market for trucks with Euro 6 engines that are more expensive with high interest rates, economic uncertainties and an expectation of more favorable conditions to invest. In the export market, we see better conditions as in the supply semiconductors. We have a good demand for trucks and nonresidential construction that were not impacted by high interest rates. In pickup trucks and light commercial vehicles, we see a stability in relation to other years. We still observe clients with great fluctuations in consumption levels due to oriental markets and difficulties in components. I reinforce that our great opportunity in 2023 is within Tupy. The graph on the previous slide shows how we can improve both in cost reduction -- in the reduction -- cost reduction of cash and gains in efficiency. We have a strategy to do this, and we are following this in the last few years with the benefits of consolidation. We will continue capturing them in the next periods. There is a lot of homework and internal activities to be done. When we talk about the new Tupy on Slide 16, this base -- the client base and products, which was expanded with Teksid allows us to add value with manufacturing contracts with machining and assembly, which will be leveraged with the abilities we have now with MWM. Apart from the projects we announced recently, we have a pipeline of discussions of other manufacturing contracts, which include machining and assembly. We will benefit from the strategy of OEMs to increase outsourcing of noncore activities. In this context, Tupy the only company in the world capable of offering complete solutions end-to-end in the production. Now including the expertise of MWM and complete machining, assembly of engines and other engineering services, we can increase our revenue and strengthen our export capacity to increase revenue, placing us new level. Now going on to Slide 17. Manufacturing contracts announced last week already bring many trends: Outsourcing, USMCA, near shoring and things that add value. The new contracts increase our participation in relevant markets. For example, Class 8 vehicles in the represent approximately 50% of sales of trucks in the country and where we have a low participation, a low share. We also announced new contracts for pickups in South America, a segment that's similar to agricultural and construction machines in most and including light, medium and heavy trucks still use imported engines. The trend to reverse this scenario represents a great commercial opportunity and we're having negotiations with clients for this. The beginning -- the contracts are for 8 years with an aggregate revenue of BRL 650 million. The acquisition of MWM leveraged these contracts, and the 2 companies together will be a decisive factor to obtain new contracts. Now talking about new business areas. I'd like to begin with energy and decarbonization. The highlight is in mobility, production of biofuels and energy generation. We are leaders in generating equipment generators in Brazil with growth with many applications, backup systems for energy and also energy and remote areas. We have benefited from the demand for companies that want to rent this equipment. Apart from selling the equipment, we also offer maintenance, leveraging the distribution. In road transportation, we're selling projects for the transportation -- transformation, sorry, of fleets of buses and trucks from diesel to natural gas or biomethane, thus reducing emissiencies and reducing the cost of transportation without the need for subsidies. The large markets are in -- the large markets are in fleets of urban trucks, for example, garbage collection and urban buses. Another market also is in fleets for rural environments with the production of biomethane and also for pumps irrigation systems and other movement mechanisms. In the last years, we developed knowledge in biotechnology, biofuels and generator equipment generators. All this together with our technical assistance in the whole country prepares us to offer complete solutions for biofuels based on surplus matter from agribusiness and urban also residues. These generate clean energy and biofuels. This alternative, apart from reducing the cost for producers, allows the production of biofertilizer, reduces emissions, guarantees credit -- carbon credits and also energy safety. Many initiatives are being studied. And recently, we announced a partnership with cooperative which has 9,000 farmers. This first phase is very interesting and has a great potential to grow. The investment was BRL 9 million with 13 farms, which will be covered by a biogas plant to be installed in the state of As you can see on the diagram on Slide 19, the system produces biofertilizers which substitute mineral fertilizers. For the farmers, this represents lower costs on imported products and also reduces the carbon footprint of the property which improves the price of protein produced and access to developed markets is one of the 5 cooperatives that are part of Together, they represent 55,000 producers or farmers. With the combination of MWM, we're also part in the aftermarket with many components for diesel engines that we can see on Slide 20. This is a sector that we knew the potential, but we haven't entered due to the network that was necessary to make this possible, which is anticyclic and is growing. We have 1,400 points of sale, 500 service companies authorized in Brazil and abroad. Right now, MWM distributes more than 16,000 products and is increasing the portfolio. The combination with Tupy will allow us to include blocks, and structural components for engines. These are -- these have a high added value component. The expansion of channels is another objective of our business units. With international expansion and more proximity with agro business. On Slide 21, I'd like to talk about the initiatives by 5 in our innovation and in our innovation arm. We have the evolution of shift our startup accelerator company. And in 2022, began a second cycle of acceleration we received. We received 85 start-ups from Brazil and thus, we expanded our acceleration cycle. The start-ups of these startups too are increasing scale, 1 focused on preventive maintenance and the other on economics and productivity. In the second cycle, we're selecting and approving the start-ups we will accelerate. The first already announced is with focus on the use of bacteria for the recovery of residues. And one of the objectives is to study the application of technology and how it can expand our current capacity of recycling sand used in foundries. In the next 2 slides, I will talk about progress of our projects in R&D and that new fuels and new opportunities from the green economy. Many discussions and the offer of products and services are happening. We're also advancing technically in accordance with the schedule and TRL in each product. My objective is to give you an update on the progress of the main initiatives. In the battery recycling project, the results until now are very promising. With the reuse of good materials such as lithium, cobalt, nickel and manganese, with rates superior to 90% recovery, a performance that is very high in relation to traditional techniques. We are also gaining scale, and we intend to build a demonstration plant at the end of 2023 to be launched in 2024, which will help in commercial opportunities. In a more advanced state, the ultralight iron technology also enables the use of aluminum. One of them is for engines with a weight similar to aluminum, with the reduction of manufacturing costs and carbon footprint. We're presenting this technology for 2 potential clients with a positive return, especially in the use of hybrid vehicles and ethanol vehicles. This technology is not only for engine blocks. We're discussing opportunities in products such as heads, also transmission cases and clutches for commercial vehicles. On the next slide, we talk about hydrogen, an important alternative, and we consider this essential for the decarbonization of transportation especially in heavy vehicles and machines in the future. Recently, the regulation of emissions of the European Union defined that vehicles with hydrogen engines are considered as 0 emission in the same category as electric battery vehicles and those that use fuel cells. We're also making progress with partners such as IPT in Brazil and AVL Westport in Austria, aimed at material resistance and hydrogen engines. Many companies have already announced engines with hydrogen for 2024, 2027, some of them and Hyundai. This knowledge is already being applied in new products. We already have projects with European OEMs to manufacture components dedicated to this market of hydrogen engines. We hope to be able to announce many things in 2023. Now Thiago will talk about our sustainability initiatives.

Thank you, Fernando. In 2020, we had our first report on sustainability in the GRI standard. 2022, our Sustainability Committee began. And this transparency with the search for adoption of better practices contributed for important upgrades in some of the main ESG global ratings. We went from high to low risk in the sustainalytics and CCC to be in MSCI and 4-31 in S&P. I thank you for your participation, and now we will begin the Q&A session. Thank you.

[Interpreted] [Operator Instructions] Our first question from Mr. Gabriel B, Itau BBA.

[Interpreted] Congratulations for the results. Two questions. First, I'd like to congratulate you for the contract that you closed, including foundry and also machining and assembly. How are the conversations to replicate this? And do you have an estimate of near-shoring and what can help the company in the regions where you are present, the percentage of OEMs depending on suppliers and that have distant suppliers in Asia. Is this relevant for the market where you are present? What is the potential for near-shoring? The second question, Fernando mentioned, hydrogen. So we saw recently Germany questioning the production of combustion engines in 2035 and including the use of static fuels. Can you talk about this and the movement of OEMs and regulators for more reasonable rules that could include other solutions.

[Interpreted] Gabriel, thank you for the question. Let's begin with nearshoring. There is dynamics in our industry and what happened in the last 20, 30 years. This was an industry that traditionally worked with OEMs, and in these conditions, they manufactured all the structural components of the vehicles. Tupy is focused on heads because they are the most complex products in the chain. So thus with the rules with emissions, these products were modified for efficiency to become more efficient, and to work with better resources, increase in density, power. When we look at this industry, one of the components that breaks the suspension and the gearbox, all the structural items of trucks, pickup trucks, construction, machines and agricultural machines in the U.S. and Europe, these products migrated. And I'd like to begin with this, then I'll talk about heads. So these products are going back to near-shoring. I talked about other components and these clients want near-shoring. This is very good because we have capacity available, both in South America and North America, especially the plant in Portugal, which has machine model that is very adequate for this. So that's the first element of near-shoring. I'd like to mention this. We have other foundries in Brazil that operate in this market in Brazil. And in this market -- Tupy is going back to this market in a strong way. Because Brazil, with Teksid, reallocation of products, we have excess capacity that can be used for these items. They are normally sold machined and preassembled. And in North America, there's a lot of interest from our clients because they suffered a lot during the pandemic. And now with local regulation, they are demanding more local content for these engines. So that's the first great opportunity. The second has to do with engines and engine blocks. The U.S. market always imported engine blocks and heads. The foundries in the U.S. closed during 2005, 2008. This volume was transferred. It was transferred to companies like Tupy in Brazil, German companies, a large foundry in Spain and some Chinese companies and another one in South Africa. Now with USMCA, which changes the rules, which demands local content, which has to get to 70% in 2027 and gradually is increasing. So the current demand, 50%. So by 2027, it will get to 70%, and then it will stabilize. So for all passenger vehicles, light commercial vehicles and also medium and heavy vehicles, we will see this rule in a market that is now near-shoring these items for 1 of the 3 countries part of USMCA. Of course, the foundries are located in Mexico. I remind you that the situation with Teksid was an example of this. But to be as the largest player, we have a local capacity of 320,000 tons in North America, and we have capacity available because the market is being supplied and we also have the Swedish truck companies that exported to the U.S. So this is what is happening. We announced some projects last week that were defined. We're beginning investments, and they will begin to be produced in 2024, 2025. On the other hand, with the acquisition of MWM, we have now a new model for the market. We believe these OEMs are discussing the allocation of capital. They are investing in electric vehicles, autonomous vehicles, their technologies. And we believe that is Tupy is ready. We may receive the outsourcing of these activities as long as we have technical capacity for this. It's not an issue of investing because these products are very complex. They have to have the trust. And now comes MWM that they have machining, assembly and engine testing, and they are supplying this to folks back in Brazil and also Navistar and also some projects for MWM Germany. So now we have a full model to add value. So looking at all this that is happening around the world and looking at the strategy we have, first, acquisition of Teksid that we connected, and now we're supplying small OEMs for transportation, machines, agricultural machines, constructural machines, and we believe we can add value to this product. And with this connection with MWM, we have technical conditions and this called the attention of our clients. There's a great opportunity to export because many products that we have in our foundries, they go -- they are exported and come back to Brazil as engines. We can manufacture basic auto parts like flywheels, pistons, valves, components that we have surplus capacity in this area. And we believe that with the right engineering and with the trust, we can add value with these products that we already export and have new projects. Another opportunity is that Brazil is also an importer of engines. Most of the engines that are in construction machines, agricultural machines, harvesters and also in many trucks in Brazil, our engines that are imported, these are medium-sized engines with the exception of Volkswagen, the largest competitors import medium engines from India, semi assembled, many import from China. And all of this, we believe, now we can have conditions to bring these products in Brazil and supply them. Also, pickup trucks. If you look, the main 7 pickup trucks in Brazil, 6 import engines for them. Some are assembled in South Africa, some in Germany, some in Spain, some are assembled in Hungary, but they are imported engines for pickups. And this pickup market is growing with agro business and more revenue for agro business. So the pickup market will grow a lot in Brazil. So we're getting ready for this. We're talking to clients. And I can tell you, clients are very alert to us. We have negotiations. We cannot give you details, these are projects that are being analyzed by OEMs. To the second question on hydrogen, 2 items here. Hydrogen combustion engines were considered as 0 emission. So there is a regulation in Europe. OEMs have to sell part of their vehicles. As of 2030, they have to be 0 emissions as of 2030 part, and we only had electric vehicles and battery vehicles. So as of 2030, hydrogen engines were included in this classification as 0 emissions, and they may be used. And we believe this is a spectacular solution because 70% of our traditional engine -- it is 70 -- it is easy to use and manufacture and you use the traditional structure of the vehicle. The challenge is availability of hydrogen, but there's a great advantage over fuel cell and hydrogen engines can use combined cycles or exclusively with hydrogen. And they don't need purified hydrogen. We believe that what will happen, we will introduce this in the next 4, 5 years. Companies already announced construction equipment, that this will be the solution, especially for off-road vehicles and -- this is -- this will happen in 2035. So it's a great alternative and we have worked on a project that we announced with the right materials and we have agreements to supply components for this market. These products are being launched and they're very good products. They have the right torque, the right power to be used in substitution to diesel vehicles. So these are important topics for the future of Tupy, outsourcing, USMCA, near-shoring.

[Interpreted] Our next question comes from Mr. Andre Mazini, Citibank.

[Interpreted] First question, in near-shoring. Fernando mentioned that you still have surplus capacity in Mexico, and you're investing BRL 340 million. This was said in the material fact. And you announced these points. How do you see CapEx in the future due to near-shoring. Near-shoring will take many -- so most of the $304 million will be in Mexico as you announced. And what -- how much will you reach in terms of capacity, 80%? And how much idleness will you have in Mexico. For this and the other question, what you announced BRL 40 million in the Mexican plant retrofit in the foundry and you said the insurance company. Will it cover all the expenses, the insurance company? And what is the probability of getting the money back, the expenses.

[Interpreted] Andre, Fernando. Considering the announcement of CapEx, most of it is in Mexico, yes. Although we have excess capacity in the foundry. Our projects include foundry, machining and a little assembly. In machining and assembly, we don't have surplus capacity. We have a plant in Mexico that is recent. It grew a lot in 2019. And now it will expansion and focusing on machining and assembly. There are investments in the foundry. We're making it flexible. When we talk about structural components, trucks and so forth, we're talking about another type of iron -- iron, but the greatest part is in machining and the smallest part in foundry. So when we look at the future of the company, gradually, we will have to make these investments. We have surplus capacity in MWM. The projects in Brazil, we will discuss where we will have expansion. There is surplus capacity in MWM. And we can produce more, use in a better way these resources. But as these projects happen, we will have more CapEx.

[Interpreted] Thiago speaking. Concerning the rebuilding of assets in Mexico, we have insurance. This impact, BRL 41 million. The expense was high. We are rebuilding the assets, and we are requesting the reimbursement by the insurance company. I can't talk to you about probability. There are many requirements for the reimbursement. We hope this will happen in the next quarters, the reimbursement.

[Interpreted] Our next question in English from Mr. Kamal [indiscernible] from [indiscernible]

My question is if you could give any guidance on your revenue predictions and margin predictions. And also if you think pent-up demand is going to hold in a weaker consumer environment?

[Interpreted] In terms of guidance -- concerning guidance for revenue and EBITDA, we don't have a formal guidance. We can say that we practically doubled revenue with new businesses. And this amount has nothing -- it does not include anything from MWM. It's entirely from new projects that we're announcing. Now in terms of margin, there is an effect of the mix, and now we will have to adjust with MWM When you have more manufacturing contracts at MWM, the margin drops. But every time the other segments like generators, afterparts and equipment for biogas go up, we have a higher profit margin. So initially, with the natural consolidation of MWM, it will drop. We will rebuild this with synergies and opportunities. Fernando will talk about pent-up demand in main markets in the Brazilian market and U.S. market.

[Interpreted] We have seen that sales are lower than our historical indicators. And we're seeing fleets getting older. This motivates us in some markets, the Brazilian fleet must be updated. When you look at heavy pickup trucks, we see that the inventories are low at OEMs. So we're looking at these dynamics, but these are low volumes in a market that is growing. I can tell you that our clients asked us, especially those who work with parts for heavy pickups to expand our capacity in the next few years. The manufacturers of trucks also requested us more capacity. The economy is growing in these markets and their fleet is getting older.

[Interpreted] Our next question from [indiscernible], XP Investments.

[Interpreted] Good morning. Based on the previous question, how do you see MWM at the beginning of 2023. Is it better or worse than December.

[Interpreted] December at MWM, it is a slow month at MWM, December. And this has also affected by Euro 6. In the first months of 2023, MWM has a challenge like other companies, inventory to sell to Euro 6. They sell a little less in the first 2 months of the year, and then they recover. The first quarter has these issues. What we're seeing with the new contracts at MWM will have a better margin unless we have more manufacturing contracts. When you have manufacturing contracts, the margin is a little lower. It depends on the type of contracts.

[Interpreted] Our next question comes from Mr. Rogério Araújo, Bank of America.

[Interpreted] I have a follow-up for new contracts. The first issue, can we interpret that there is a new policy because you told the market about new markets. When you sign new contracts for near-shoring or energy, will the company also -- will the company announce the new contract as you are doing now? In the new contracts, can you give us estimates for this contract that you announced for manufacturing, for machining, assembly, for pickups in Euro 8. And when this needs CapEx, can the company inform the amount of investments that will have to be made? And finally in new contracts in the contract with we see investments of $9 million, which will not be very relevant because of the size of Tupy. But I'd like to know the size of this market. What can -- how can it grow in the next few years? I believe that this first contract is symbolic. And will this increase in the next few years the contract with Primato.

[Interpreted] Thank you, Rogerio. These announcements have to do with machining contracts and assembly. They offer us a better return because it give us more profit than the foundry. And machining and assembly have better margins. We can't give you too many details, these projects are in progress with clients. But yes, we always -- every time we can do this, we announced the new contracts and we will continue to do this. Good morning. Concerning Primato, yes, Primato is beginning. It's a small project, but we will follow this type of model. We see a lot of scalability. This project represents only 13 farmers in a cooperative. It represents 31,000 heads of [indiscernible] Today, these projects already exist. This is important, our farms that have biodigesters and we rent or sell energy systems to these farms using biomethane. And the [indiscernible] is also used in vehicles to use biomethane in the farms. Now where is the opportunity to, first, these installations, great possibility of scaling in rural properties. This -- it's biomethane. It is a great problem for farmers because they deposit this material in lakes and this can cause many problems in the region. And we bring a solution to them converting this into fuel. We not only generate electricity, but we use this biomethane as fuel. We produce biofertilizers and the production of these farms of this protein, the pork has a higher value because they have a small carbon footprint. So that's one point. We are discussing with other companies. With the same model, we will also use the same model for urban solid waste to work with urban solid weights with organic residues, and the organic part can be converted into energy. This leverages also gas engines. This is important. Gas engines sometimes are not well seen because of the use in taxis and small garages. Now we have well-designed systems for engines with the same power and it's an excellent solution for urban vehicles because you decarbonize using also residues from protein and also you decarbonize for example, the emissions from garbage trucks because of the noise, they have limited work times. When you use a gas solution for urban buses, you reduce the noise produced by the engine, you reduce carbon emissions and operational cost. It didn't become popular because we depend on a network for gas distribution. It's limited, and it depends from the gas we import from Bolivia through a pipeline as it goes until we have this gas coming. Now with the gas from the oil wells, of course, this opportunity becomes stronger and these regions will use natural gas and biomethane for their fleets. So we see a lot of potential we're selling well sugarcane farms with the residue with the waste from ethanol, companies like that produce a lot of biomethane and they're using the waste from sugarcane to produce biomethane this just concluding some OEMs are bringing gas powered engines from abroad, and this solution is very good because you can convert your current fleet easily to gas engines. We have a very good project. It is ready and brings great benefits for the clients.

[Interpreted] An extra question on the shareholder agreement. The members of the council will have their term ended in 2023, can you tell us if there will be any change in practice for the members of the council. Will there be changes? Will we see a new shareholders agreement being made? And when will the members be reelected?

[Interpreted] we are preparing this documentation for our meeting and also this shareholder agreement can be renegotiated. For the time being, we continue this way. There is a good agreement between controllers and minority shareholders. And probably, we will have a situation similar to that of the past.

[Interpreted] Our next question comes from Mr. Victor Mizusaki, Bredesco BBI.

[Interpreted] Two questions. The first, in relation to capital allocation. You mentioned that you will begin building a plant for batteries, hydrogen engines. Can you give us details about CapEx in relation to these projects? I'm thinking of the new Tupy capital allocation. Do you believe there will be another M&A?

[Interpreted] We have many avenues of growth to building new Tupy. We can grow organically with these new projects. Capital allocation is important. So initially, we're close to 25% -- we're always close to 25% dividends -- in dividends. We may -- we make supplement.

[Interpreted] [Operator Instructions] Our next question comes from webcast.

[Interpreted] I'd like to ask 2 questions. The first -- while we have the growth in operational expenses in the quarter and the concerning the maintenance in the urban in Mexico, you said that the insurance company is analyzing. When you recover this amount from the insurance company? What is the probability of recovery.

[Interpreted] We already mentioned the recovery of the assets in Mexico. When we compare with Q3, we have low growth. But when we compare with Q4 2021, we have a large difference due to the cost of freight. We also here, we have the beginning of MWM. We have other effects related to wage negotiations, union wage negotiations that increased these costs.

[Interpreted] Our next question comes from Mr. [indiscernible]

[Interpreted] Congratulations for the results. I have a question. In Q4 2021, we saw low margins for the first quarter of Tupy. I'd like to go to talk about Betim and Aveiro. What is the margin at the plants of Betim and Aveiro in Portugal? I'd like to know about the synergies, and congratulations.

[Interpreted] We are evolving a lot. Betim and Aveiro are not individual businesses. We don't inform details per plant. And for example, if we can -- depending on the scale, we distribute the orders in the plant. It's important to look at the growth as a whole, which went to -- it is a project under construction. The combined margin is still lower than Tupy's margin. There's a lot of space for us to increase the margin in these plants you mentioned. Now concerning MWM, we hope to increase the margins, but we believe that the first semester for MWM will have challenges because of truck production.

[Interpreted] Second question, you mentioned a lot about nearshoring. We talk a lot about Brazil and Mexico because of USMCA. Talk about the plans for the plant in Aveiro, Portugal due to the new laws in Europe, which will prohibit combustion engines by 2035. So what is the outlook in Europe, the plant in Portugal.

[Interpreted] Fernando. Aveiro is a very competitive plant, well balanced, well designed. Aveiro is dedicated to the company that used to be the owner, but it's a very important plant for other structural components for trucks and agricultural machines. It's a very flexible plant. The way it was built, I can make many products there. So we're discussing, we brought new projects for Aveiro in the last year. We brought projects for truck components, energy engines, many items. And we know that it's a very competitive plant. It has a very good team and we will introduce new products there. We will rotate products. Today manufactures diesel engines. 60%, 70% of the production is diesel engine blocks for light commercial vehicles. But obviously, we're looking at changes in the market and product rotation, products that we export to Europe, we can build in Aveiro, also products to the U.S. It's -- it is close to the sea. It's very close to the sea, very easy to export. There are many opportunities. Aveiro will receive machining, we will introduce machining, and this is a natural process.

[Interpreted] We'd like to conclude the Q&A session of Tupy. I'd like to pass the floor to Mr. Fernando for his final comments.

[Interpreted] Well, thank you for participating. It was a long call. We tried to comment on all our businesses and what we will do in terms of new businesses, new fronts, the strategies and how they are becoming a reality. 2022 will be remembered in our history as a year of transformational acquisitions, allowing to Tupy to grow its traditional business and going into new segments. And we're adding value with 2 engine blocks, and we're going into new segments, as I said, always with a comfortable financial structure when we look at the period before the pandemic 2019. So we doubled the billing since the beginning of COVID-19 and we're maintaining a conservative leverage close to our historical levels, and we improved our ROIC. You have to see Tupy in 2 spaces. First, business opportunities in the traditional business, our presence in Brazil and Mexico with competitive edge will allow us to grow with these trends of outsourcing and near-shoring. The model we brought with MWM is also called the attention of our clients. We have high value services like machining and assembly. So our projects will have a lot of growth in the next few years as we announced last week, and they expand our presence in trucks, Class 8 U.S. trucks. The result of 2022 brought us synergies, but there's a lot to be captured still. We have different performance in plants, the difference in costs and purchases and opportunities that we still have in sales. This is happening and Tupy operates on a new scale, but there is a lot to be done still. Second, the building of this new Tupy dedicated to the low-carbon economy, working on opportunities that we call feasible decarbonization, the one that doesn't depend on subsidies. Here, we have France in energy, decarbonization with great potential of scalability like projects of generating clean energy biofertilizers and also engines and generators with biomethane or natural gas. this in aftermarket, we will be able to include many new products. It's an anti-cyclic sector that will give us more resilience to market fluctuations. To conclude, this month, Tupy became 85 years old. So I'd like to thank our clients, our shareholders, who always gave us support in our initiatives, our council, investors, suppliers, technology partners and especially our more than 19,000 employees, which are part of our history and have dedicated themselves to build a new Tupy, which is Brazil and export generating jobs and helping the country. More and more will be important in the low-carbon economy. Thank you. We wish you a good afternoon, and thank you for participating in the conference call.

[Interpreted] The conference call of Tupy is concluded. We thank you for participating. We wish you a good day, and please disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call]