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

Good morning. Thank you for standing by. Welcome to the earnings call to discuss the results of the first quarter of 2023 of Tupy. [Operator Instructions] This conference call is being recorded. We would like to remind you that this event is also being broadcast simultaneously over the Internet via webcast and can be accessed at www.tupy.com.br/ri, where the respective presentation is available. The selection of slides will be controlled by you. Tupy clarifies that any forward-looking statements made during this conference call about the company's business prospects, projections for operating and financial estimates are mere forecast based on the management's expectations regarding the company's future. These expectations are highly dependent on domestic and international market conditions, the overall economic performance of the country and of the sector and, therefore, are subject to changes. With us here today are Mr. Fernando Cestari de Rizzo, CEO; Thiago Struminski, CFO; and Rodrigo César Périco, Director of Treasury, Finance and Management. Mr. Fernando Rizzo, you may proceed.

Thank you, and good morning. Thank you for attending our conference call. This quarter includes, for the first time, the full results of MWM. In this period, net revenue reached BRL 2.8 billion, which is the highest quarterly amount in the company's history. Although it reached a record, it was relatively low because the production of heavy vehicles in Brazil has been affected by the higher cost of vehicles in the Proconve P8 and Euro 6 standard. And together with that, there were restrictions on credit and high interest rates that impact the market for used and new vehicles. This scenario impacted our fiscal sales volume of structural components, which dropped by 7% year-on-year, largely driven by the domestic market, which dropped 60% and also adversely affected MWM. On the other hand, the resilience of our business model and the continued implementation of our strategies, social benefits that offset, although partially, these effects. We continue to capture synergies obtained from the acquisitions, which together with several cost reduction initiatives, contributed to the 23% growth in gross profit reaching BRL 505 million and margin of 18%, an increase of 70 basis points in the comparison with the previous year. Adjusted EBITDA reached BRL 315 million, margin of 11.2%, impacted by the inclusion of MWM's results, which has a lower margin than Tupy. We see important efficiency gains in the composition of this result; however, it was impacted by the following: the worst dilution of fixed costs since we were prepared for higher volumes; the appreciation of the Mexican currency; and the significant increase of freight-related expenses as from the second quarter of 2022, which has already been passed through to prices. Our acquisition strategy assumes a type of focus on efficiency gains in all the lines of our income statement. The In the first quarter, among the various actions carried out, we made changes in the structure of our operations in Brazil with a onetime impact of BRL 40 million in the quarter. The sum of the positive operating and financial results made the net profit reach BRL 145 million, a growth of 96% in the annual comparison. Now to present the main indicators for the quarter, I'll give the floor to Thiago, our CFO; and Rodrigo, the company's Treasury and Finance Director.

Thank you, Fernando. Good morning, everyone. Revenues grew by 19% over the first quarter of 2022 compared to the same period of the previous year, reaching BRL 2.8 billion. Regarding the distribution of those revenues by geography, 46% originated from USMCA; 33% in South America, mainly Brazil; 19% in Europe, and the remaining 2% from Asia, Africa, and Oceania. 86% of revenues come from the structural components and contract manufacturing business. Has high end products and value-added services such as machining and component assembly. 7% from energy and decarbonization including generation sets, engines making company, marine applications like ours, and products and services related to decarbonization, and 7% from the distribution business, which includes revenue from spare parts aftermarket from MWM and hydraulic product. Revenues from structural components and manufacturing contracts shown on the slides were impacted by the drop in commercial vehicle production in the Brazilian market, reflecting the replacement of engine emission technology Proconve P8, Euro 6, and the ensuing increased price of trucks sold in the first quarter of 2023 as well as macroeconomic factors such as high interest rates, credit crunch, and a drop in consumer confidence. Revenues accounted for 68% of the domestic market, 94% of the export market for this unit, while the share of products with the added value in revenues accounted for 37% of the total of this business unit. On the next slide, we present the performance of the energy and decarbonization segment, including generator sales, engine manufacturing company, marine applications, lighting towers, product and services related to decarbonization. Several product launches were carried out during the quarter and several projects related to decarbonization that are in testing and prospecting phase. Revenues from the segment accounted for 16% of sales in the domestic market and 3% of the total export market. On Slide 8, we present the distribution unit, which covers revenue from spare parts, the aftermarket, from MWM and hydraulic product. Sales in the Distribution segment grew by 185% in the domestic market, representing 60% of the Tupy's total domestic market revenues. The export market, on the other hand, showed an increase of 57% with 3% of Tupy's total sales in the export market. The main impact is the inclusion of revenue from the aftermarket business with emphasis on the launch of new products, line of options and multi-brand. Moving on to the next slide. The cost of goods sold increased 18% year-on-year, impacted by the start of operations of MWM revenue. Despite the lower dilution of costs and expenses reflecting the drop in volumes, the gross margin of 18% represented an increase of 70 basis points when compared to the first quarter of 2022, reflecting efficiency gains and synergies between operations. Reflected in the cost of this quarter, we see the following: 22% increase in the raw material costs as a result of the additional of MWM do Brasil. And on the other hand, the inflation of materials with an increase 29% in the account of maintenance materials and third parties mainly driven by inflation and depreciation of Mexican peso. Operating expenses posted an increase of 55% when compared to the first quarter of 2022. In addition to the impact of adding expenses to the new operation. The result represents a significant increase in freight prices observed since the second quarter of 2022 in addition to the base pay salary negotiation. Moving on with the presentation. Adjusted EBITDA reached BRL 315 million in the first quarter of '23, while margins in relation to the revenue reached 11.2%. The period reported some important effects such as the incorporation of the quarter of MWM, which have lower structural margins given its business model change in the engine technology to Euro 6 standard with an impact on volumes and lower dilution of fixed costs. Net income reached BRL 145 million with a net margin of 5% due to better operating and financial results in addition to foreign exchange effects from the Brazilian reais. I turn the floor over to Rodrigo who, as of June, will take their function of the financial and controllership at Tupy.

Thank you, Thiago. Good morning, everyone. On the next slide, I will comment on the financial results for the period. The increase of financial expenses is mainly due to the increase in gross debt arising from the issue of debentures in the amount of BRL 1 billion intended to pay for the acquisition of MWM and decrease in the CDI rate, which directly impacts interest on loans in reais. Financial income reached BRL 29 million due to the increase in the cash balance in real and the interest rate that compensates our financial investments. The result with exchange variations was an expense of BRL 12 million, mainly due to the effect on the balance sheet line in foreign country -- foreign currency. On Slide 12, we have the variations of the main accounts of the working capital used in the fourth quarter of '22 basis of comparisons. Accounts receivable had an increase equivalent to 4 days mainly due to the higher volumes of sales from MWM 3 months versus 1 month in the fourth quarter of 2022. Also accounts receivable in foreign currency, which corresponds to 71% of its total was also impacted by the exchange rate depreciation. This is due to the lower volumes posted in the previous quarter. In accounts payable, we had a reduction of BRL 174 million when compared to the previous quarter. In addition to the exchange effects on accounts payable in foreign currency, which represents 49% of the total, the drop in production and actions to reduce [indiscernible] also contributed to the lower level of purchases in the period. Going to the next slide, net debt on March 31 was BRL 2.2 billion, corresponding to 1.8x adjusted EBITDA for the last 12 months. Recalling that we are only considering the 4 months of EBITDA of MWM. Obligations in foreign currency accounted for 56% of the total. Regarding cash, 67% was denominated in local currency. We ended the quarter with a very comfortable cash position of around BRL 1.2 billion. I now turn the floor over to Fernando, who will make his final remarks.

Thank you, Rodrigo. Moving on to Slide 15. In the domestic market, we can see some of unfavorable factors that led to the drop in the market, such as credit crunch combined with interest rates and the higher price of Proconve 8 standard vehicles. In the export market, we have robust demand for heavy trucks and nonresidential construction, which have not yet been so impacted by increase in interest rate, which even shows prospects of growth. In the segment of light commercial vehicles and pickup, we see accommodation or stability in relation to the previous years. Despite that, I would like to point out that there are great opportunity in 2023 is within Tupy, which I will discuss on the next slide. I want to highlight the opportunities that we envision in Tupy's current businesses and how we are prepared to capture them, in the list on the right of Slide 16. On the commercial front, we recently announced contracts for the production of structural components and machining in Mexico. And we are in negotiations with several potential customers who are looking for greater local content and compliance with the new rules of USMCA. In our operation, we also had with safety and efficiency and 3 weeks ago, we announced adjustments to our organizational structure, strengthening, objective actions in factory for efficiency, product reallocation, process improvements, and increased attention to the cost of purchasing materials and services. Throughout the year, we also adopt initiatives in that reducing working capital, especially inventories, which will contribute to higher cash generation. On Slide 17, I'm going to talk about the new Tupy that we are building. Over the past 2 years, we have made important acquisitions. We consolidated our position in the West and advanced our customer supply chain by offering value-added services. This allowed us to win new contracts, more machines and preassembled components as well as decarbonization projects, which will be much more relevant into Tupy's future. This growth was accompanied by financial performance with cash generation and low leverage. We carried out 2 issues of that market -- in that market that recorded great demand. In addition, our ratings were raised by the agencies that monitor our credit. The combination of our competencies and initiatives with research and development with MWM knowledge in new fuels, engines, generator sets and by technology has allowed the progress of new businesses related to decarbonization. On this slide, our initiatives are in the prospecting phase and some have already been announced, such as the partnership with the agricultural cooperative Primato which has more than 9,000 members. This is the first phase of a project with high potential for scalability covering just 15 properties, which will transform pig manure into biofertilizers and electricity and fuel for our trucks. This way, we build the basis for a new Tupy, which advances in the current business value chain and which is well positioned to enter segments that may represent a significant part of the company's revenue in the coming years. On Slide 18, we further discuss this front as well as the opportunities for new businesses. These are business areas that depend on in-depth and qualified research and development work, mastery of knowledge and advances in sectors with high growth potential and that presents higher multiples. The biogas and biomethane chains will play an increasingly important role in decarbonization, especially in agribusiness through a complete solution covering waste management, energy generation, vehicle conversion and commercialization of byproducts such as biofertilizers and CO2. The same opportunities are present in the management of urban organic waste, and we will soon announce partnerships in this line of business. The replacement of gas biomethane in the manufacturing processes will also be an important topic in the coming years, given the industry decarbonization agenda and Tupy will be present in this market, where we will play an important role in the development of solutions for clean fuels such as ethanol and hydrogen. We recently announced a contract for the production of cylinder heads for internal combustion engine powered by hydrogen, a solution considered zero emission according to the European Union regulation. We have also made headway in researching the appropriate method for recycling lithium ion batteries with low energy consumption. We intend to launch a demonstration plant in early 2024, which will allow us to advance in the negotiation of commercial opportunities with the players in Brazil and abroad. With the acquisition of MWM, we also entered the engine component distribution segment. This is a sector of whose potential, we were already aware, but which we have not yet entered due to the network needed to make this business viable, which has counter cyclical characteristics and growth. The combination with Tupy will make it possible to incorporate blocks, heads, and structural components into this product portfolio. These are all items with very high added value. Finally, I want to talk about our 2022 sustainability report, which was published on April 27. This is our third report in compliance with the new GRI standards, covering important results and indicators in a more interactive version. We reduced the intensity of greenhouse gas emissions by 17% and 92% of the product delivered to customers are all recycled origin. In the social aspect, we added more than BRL 9.8 billion in the communities where we operate, and we impacted more than 19,000 people through our social activities. We also launched the Sustainability Committee linked to the Board of Directors and improved our code of ethics and anticorruption practices. These results, together with our innovation initiatives contributed to upgrade our ESG ratings in MSCI, S&P, and Sustainalytics. In addition to the -- cash generation, sustainability in all its pillars will be central to our agenda in 2023. We will make progress on important topics such as inclusion and diversity. I would now like to invite you to access our report and learn more about our practices and all the new Tupy. I would like to thank everyone for participating, and we are now going to open the Q&A session. Thank you all.

[Operator Instructions] Our first question comes from Lucas Marquiori with BTG bank.

There are 2 topics I would like you to address. You explained very well when you talked about energy and decarbonization and when we look at the revenue. What would be fair to assume in terms of relevance considering overall business of Tupy, so that we can understand what could be the expected growth? So could you give some drivers, some true projections? What are some topics that we could follow, so we could understand how the revenue is going to grow, down the road for modeling purposes? How can we model energy within the context? And you also talked about the transition of Euro 6. In your perception, we understand the worst has already gone. In terms of volume and price impact, and we are to expect a slight recovery, we would like to understand the margin trend. So these are the questions I had.

Lucas, thank you very much for the question. First, in relation to energy and decarbonization sector, we are opening this new way of reporting, obviously, because we see growth in the 3 pillars we mentioned. I think the design of the new Tupy [ than other ] Tupy created conditions for growth in all business areas. So we are going to grow in structural components, manufacturing contracts. As we execute new agreements, we add services and machining services. We have some major projects -- BRL 650 million of revenue in the future from the new contracts and part in Mexico and part in Brazil. And this business continued to make headway. As for energy and decarbonization specifically, we had some very important projects, generating groups in addition to physical transformation because we see a growing trend in Brazil for those areas. And we see the interest in the use of natural gas and biomethane in an increasing manner. Biomethane is the identic molecule of natural gas. So the systems that we are selling for vehicle transformation engines that we replaced trucks for transportation of the waste, the urban buses, operations with a limited perimeter where we have access to natural gas. So as well as our relationship with Comgás, which is providing support with our model, a new model that we can use, reducing the operating cost of those companies. So we have a growth potential, which is very significant in the segment because it makes sense. We are talking about engines that would reduce noise of the vehicle. These are engines that emit less carbon and also less particulated residues. So this is a very important topic, and we see an enormous growth in the segment in Brazil because it makes sense considering the availability of biomethane in Brazil. So we are discovering new opportunities at all times. The project that we announced that we have with Primato using pig manure has a production of biofertilizer, which is quite relevant. In the mineral, it has a production of biomethane clean electricity, and this biomethane can be sold to engines, and we can use them for the fleet of the farm. And this is something which is produced on the farm, and we can also sell the biomethane to companies, which are interested in replacing natural gas with biomethane. So there's a whole universe of new system of -- this ecosystem that is being created considering all those opportunities, and this is why we invested in biotechnology. We have partnerships with -- in-depth partnerships with the University of Sao Paulo and other state universities. Why? Because we are developing a coherent manner of processing all types of biomass that we are about to talk about the use of organic waste produced at the urban level so solid waste for fertilizer and biomethane, and helping the decarbonization of the state. So we are talking about different business fronts, which are being developed. I usually say that this new Tupy is under construction, we are adding knowledge. We are also including competencies that makes sense in the ecosystem. And in the next quarters, we are going to be announcing new opportunities and new businesses. And this is the reason we have very, very strong technical team working on those problems. Engineers, technologists, making adjustments to the engines, making adjustment to generators, working with biodigester, and we are so [Technical Difficulty], which is structural. Manure of animals is a problem to the farmers. I say, doing that this kind of waste cannot go to the whole network. It cannot contaminate the water table. So this is a problem that needs to be disposed off properly. But it's clean energy to the society. So we see that those product has a high level of scalability in Brazil and we're developing all the technologies that make up this change value of those systems. In relation to the market, you asked how we see it. You saw that April was a bad month. Truck production dropped by 28% in relation to April, this year, but we believe that worst part has already gone by and we're going to recover in this movement. But this is not going to be done at a quick pace. This is going to be recovered at a lower pace because we also have to consider that we have to have availability of credit because we need the fluidity of the -- use the vehicles for the new vehicle market to try. So we expect a gradual improvement down the road, but we are not going to go back to higher volumes immediately.

Our next question comes from Gabriel Rezende with Itau.

I have 2 questions on my side. If you could make a comment on the announced for the supply of -- for the hydrogen combustion engine. So if you could provide us with a prospect that for designing the partnership in relation to volumes and how we can think in terms of timeline, is there any exclusivity clause? So is this product going to demand the relevant CapEx from Tupy? And I would like to understand what would be the marketing behavior for the quarters to come? We were a bit frustrated especially with the volumes due to the transition to Euro 6. This is something that was already negative since last year, but may be materialized worse than we had imagined. But now that we have better view for the next months, what were the factors that adversely affected? Okay, what can we see in terms of positive results in the future? And how do you see the prospect for the next months, please?

Thank you for the questions. Now beginning with hydrogen. This is what I have to say. The development of products like this, we used 3D for the geometrical part. So we make prototypes using 3D printers. And the development is based on the material. What would be the chemical composition of the material and we start with advantage because we announced more than 2 years ago, we announced a project in Austria saying that we are testing this model, we are perfecting the material so that they can use hydrogen for combustion engines. So the point is that hydrogen combustion engine is the way out that we see for the industry for zero emission vehicles. There is a rule in Europe that there's a percentage that is growing until zero emission and hydrogen combustion engine was considered a zero emission vehicle. So it's much more economical than the other ones. What are the other solutions? Battery and hydrogen combustion cells, which is not ready yet. They are not fully developed yet. But all the other solutions are much more expensive than hydrogen combustion engine. The difference is that those engines are likely to have a conversion rate. I know it's a bit technical, but 80% of the hydrogen used in the engine can be converted in force. So we estimate that the engine is likely to spend at 50% -- or 52% and fuel cell would remain at 55% or 60% in the future. However, it's much more expensive. The big challenge we have had of us is the price of the net hydrogen. So price and availability. The project itself is likely to grow. And this is going to be our growth avenue because it's going to give autonomy to the vehicle, so you can charge larger amounts of hydrogen in the vehicle so that you can maintain the autonomy of the diesel or you can get to the diesel autonomy. And it has a great advantage. It doesn't need to have the pure hydrogen because the fuel cell needs hydrogen absolutely pure. Because it cannot have any impurities. Why are we saying this? Because we believe that in certain markets, wherever there is hydrogen available, there will -- today, it's very expensive. We would need subsidies. So it's going to be the best way to reach this zero emission target. So the potential is very high. This is just started with one of our clients. We are working with other clients in parallel. So of course, this is an industry trend. All car makers have already announced the engines using hydrogen. And we are talking about road truck use and for all the other applications, the vast applications off-road. For example, the other alternatives will also be hydrogen-based engines. We believe that however, it will depend on the green hydrogen price that will affect all the other solutions regardless if it cell battery or engine because all the options are expensive. We believe that this is a business that is going to get mature in 2030 or 2035, it's a long-term solution. We are likely to see those vehicles on the road for decades to come. In relation to the margin, we had 2 extraordinary effects in this period, which was a drop of more than 30% of production of trucks in Brazil. Now of course, this will impact not only the physical volume of sales of Tupy, but also MWM, which stood below the historical average and also the cooperation of MWM, whose margin was lower than traditionally we delivered. So those 2 effects would partially explain this drop. And we are going through a very similar moment to what we saw at the end of 2021. When we acquired Teksid, we had in our corporation, we had lower margins at the beginning and then we rebuilt those margins quarter-on-quarter after the acquisition. So it's a bit different what we see now because we have a new project being announced as part of the revenue that we are promoting a higher return to the shareholders.

Our next question comes from Marcelo Motta with JPMorgan.

I have a question on my side, I think, already mentioned. The new Tupy and all the initiatives that the company has been adopting in terms of energy and decarbonization. I'd love to understand how you see the CapEx for the future? We saw some contracts, we've seen the awards in terms of assembly and machining and this involves CapEx. And when we see new sources of revenues, my question is, do you see how the contracts are going to play and favor those revenues and all the changes you're making? And so we would like to understand how you are going to use the CapEx related to the project? So if the CapEx is going to be higher than historical CapEx?

Marcelo, we have opportunities in the 3 business pillars. When we look at distribution, this is a case when that involves launches of products, which is related to manufacturing contract and decarbonization. We have already announced some and they are going to get into the normal cycle of CapEx. And with the consumption close to depreciation, so we have this obligation of keeping the ROIC. And when we see energy and decarbonization, so we look at the car generation to finance this and the appetite of our shareholders to improve those projects. Of course, we are going to make a finance with our level of leverage, the expectation of return of the project so that we can move on with those new initiatives.

Our next question comes from Victor Mizusaki with Bradesco BBI.

Congratulations on the results. I have 2 questions. The first is a follow-up on Marcelo's question related to CapEx. When we look at the results of the first quarter, we see an increase of nearly 70% year-on-year, and there is a part where you mentioned as strategic investments, which is quite in line with what you discussed. But there's another point. What is the sustaining organization in a line? What we expect from this line and what can we expect for the next quarter? Is it something more related to Brazil or Mexico? And second question is an update in relation to the incorporation of MWM. Could you talk about synergy and also everything that can be in-sourced or internalized in terms of purchases and third parties? And what has already been verticalized to be?

Victor, in relation to the line that you mentioned, sustainability and organization of operational capacity to a greater degree, it has to do with the adjustments that we are making with Teksid. We are making actions to -- for the transition of products between plants. When I mentioned synergy, what I mean is that we have realized some sales contracts, some purchasing contracts; however, industry-related movements make realization between clients, and this is where this amount is being used. It has to do with the adjustment of the plants. And the actions will start as of the second half of this year. So we are going to make movements with products. We are going to launch new products in Betim. In the last conference call, I said that we are transferring many machine equipment that we had in my watch to Betim, and this is what we're going to continue to do. We are making adjustments to the equipment. In relation to MWM and synergies, it's focused on the announcement of new projects. So we made a lot of effort to develop business with the party [Technical Difficulty] launching new products on those trade fairs. And this shows the ambition that we had to do new businesses with MWM. So we are moving at a very good pace. So the question was, how is this going to represent in the future? So we see a lot of potential of growth, and we are developing all those areas. We have lots of new initiatives that have been implemented in the last few months, and we are going to continue for the next quarter.

Our next question comes Fernanda Urbano with XP.

So my question is about prices in export market and considering heavy duty vehicles. I would like to understand the demand and the negotiations with clients. So if you can pass through the prices, real and actual pass-through of prices to the market?

Fernanda, thank you for the question. Yes, it's a market that is still very robust, it's very heated. We have a growing share in this market. And we're going to continue growing the share as we take products to the operations in Mexico, products that are in the phase of development, some of the we products we announced suggest a revenue of BRL 650 million. And it accounts for a better -- a higher participation of shares in this -- and these were products that were provided by carmakers and some European carmakers that send their products for their plants in Europe, they need to make adjustments. And the origin of this crew of [ head foundering ] and machining and operations in Mexico in the next 2 months -- 3 years. So this is a segment that continues very strong. The age of the fleet has been used. The age of the fleet is not at the ideal point such as nonresidential items. All those machines have had a very strong demand, and we see a growing demand in this sector. and we are organizing ourselves so that we can better meet the needs of those clients. In terms of that cost pass-through, yes, we have been able to pass-through the prices as we saw the variation quarter-on-quarter, and we have improved the quality of our contracts. We have been considering the inflation in Europe and in the United States and the contracts that we executed in the past did not cover for those changes. That would cover only the commodities such as energy and other items, gas, and I can say that the contracts are ever better, including all the cost structure that we have now.

Our next question comes from Andressa Varotto with UBS.

I would like to make a follow-up in relation to margin. How do you see the dynamic of raw material prices? And how are you going to have this cost pass-through?

What we have observed since 2022, when we do this exercise of comparison, we see that all those materials enter the deflation curve and there was a stabilization in March and a deflation in January and February. And maybe we saw a little increase. And we see that the situation is favorable, considering most items, including freight. We see the relevant deflation since the second quarter of last year. Our expectation under the contract to have this cost pass-through on a quarterly basis. And this is going to be seen in the revenue. It can move up or down to balance the relationship that observe this long-term relationship with the clients.

Our next question comes from the webcast platform. It was asked by [indiscernible] with Citibank. In relation to the cash generation, could you give more information about the expectations of optimization of the operating generation? In addition to that, we expect to reverse the decrease of cash throughout the year.

In 2023, we have an expectation of higher volumes. We did not expect the drop to be so deep in Brazil, 7% in the total volume. This is quite a relevant drop. And in domestic market, above 16%. It's a lot considering the number of employees, the assets, the size of the [ pea. ] So you have to understand that this is distributed in different equipment, and we're generating efficiencies in all the process. And of course, we accumulated working capital in the period. We had higher working capital in the period. Yes, we are going to improve the cash generation along the years so that we can make adjustments to the production. We had some stoppages in March and all their stoppages in the beginning of April. And throughout the year, we are going to make the necessary adjustments to convert this working capital into cash for the next 2 quarters. I would like to say that in general, the first quarter consumes cash, and we are going to recover this along the next quarters as we did last year. This is what we expect. When we see the cash position as a whole, we see [ burn ] effects in the MWM contract. We have to return part of the amount that we used for the acquisition. So this has to do with price adjustments and that would make changes to the cash position. This is not going to be a cash burn that [indiscernible]. The work is going to be focused on the variations, not the working capital so that we can recover the basis for the next quarters.

[Operator Instructions] We now close this question-and-answer session. I would now like to turn the call back to Mr. Fernando Rizzo for his final remarks.

Thank you. Thanks to you all. We made two transformational acquisitions in the past 18 months. And this quarter, they accounted for 35% of the revenue for the company. Both companies came based on attractive multiples and lower margins of the [indiscernible] acquisition, something between 4% and 7% of the EBITDA. The results represented today reflect the initial gains that will be gained with integration of the plants we acquired from Teksid. Since we assumed the control, we are making headway, capturing synergies in the commercial front and in the industrial front and also purchasing front in line. With our business plan that we announced with results posted, we increased margins. But even so, I would like to make it clear that we're not happy with the performance. And we have improved our organization structure, strengthening different actions of productivity at the plant, relocation of products, process improvements, and a closer attention to cost of purchase, maturity, and services. And speaking of the future, we are building this new Tupy that we announced on Tupy Day last year, comprising 2 major parts: The first is focused on the traditional businesses capturing synergies, enhancing value addition using the services of a family and machining that has been accelerated with the position of MWM. The second front is the development of a company that is ever more dedicated to low-carbon economy, operating in segments with high potential of mobility that would comprehend in a single project and -- business opportunities by using organic waste or agri business waste. Some examples of the benefits is the generation of clean energy biofertilizers and biomethane that can be used in trucks, buses, machines and several industrial processes as a replacement of natural gas. We are also working to increase the relevance of the aftermarket, which is an area that we did not take part in the best. And we understand that considering the distribution network of MWM, we understand we can add new products, expand our channels and all the portfolio of offers we are presenting the market with. I would also like to congratulate the 70 years of existence of MWM, which is an important pillar of our strategy that has contributed with a lot of technology and especially with major talent in the construction of this new Tupy. And lastly, this is the last earnings conference call of Thiago Struminski. And I would like to [ thank ] for your hard work on behalf of everyone. And after all the dedication you have given to Tupy. You became a CFO In 2016, when we had revenues of BRL 3 billion and he was fundamental in the process of company. He made lots of operations in the capital market. And he has always operated -- focused on the results and he had this team spirit. All of us, your colleagues, would wish you the best success and happiness. Have a good day, everyone. Thank you.

This conference call has now closed. We would like to thank you all for your participation, and have a nice day, everyone.