Randon SA Implementos e Participacoes

BOVESPA:RAPT4

Earnings Call Transcript

[Unknown Executive]

[Foreign Language]

[Unknown Attendee]

[Interpreted] Good morning. Thank you for being with us for the presentation of the results of Randon for Q2 2021. This will be our first video conference, and this model was used to be closer to you and more connected to the new trends.

The presentation will be made by our CEO, Mr. Daniel Randon; our CFO and DRI, Mr. Paulo Prignolato; and our [ CFO ] and Investor Relations Director, Esteban Angeletti. We have also the Director for Investor Relations and M&A from Fras-le, Hemerson De Souza; and also the Investor Relations of Randon, myself, Carolyn and Gustavo. After the presentation, we will have a Q&A session. [Operator Instructions] We would like to remind you that this event is being translated simultaneously into English and also in sign language. [Operator Instructions] This event is being recorded. It will be available in our IR site after the end of the presentation.

Now we see important message, the declaration and projections of the company are not guarantees of performance. They involve risks, uncertainties and assumptions. They refer to future events depending on circumstances that may or may not occur.

Before passing the floor to Mr. Daniel, let us take a look at our agenda. We will talk about highlights of the quarter, general view of the business and consolidated performance. Next, we will also show information about Randon in capital markets, performance of the segment and we will close with ESG and innovation.

Now we would like to begin the presentation. Mr. Daniel, you have the floor.

[Daniel Randon, executive]

[Interpreted] Thank you, David. Good morning. Today, I begin my presentation celebrating the recent achievements apart from the results of the quarter, which had a good performance and will be explored by Paulo.

I would like to share with you an important recognition that Randon received from capital markets. We are in the first place in the ranking 2021 Latin America Executive Team from Institutional Investor within the sector of capital goods in the category, Small Caps. Randon led 7 of the 8 categories in which it participated. It was among the 3 best in all the categories, including general classification. We're very happy and we feel very honored with this award.

For the third consecutive year leading this ranking, this motivates us to continue evolving. I thank the trust in our work and also the dedication of the IR team, which is always improving our processes and also in spreading the information, taking care of our investors on a day-to-day basis.

I would also like to thank the more than 13,000 employees of Randon companies that are together with us on a daily basis. We know that this recognition is the result of teamwork in search of our objective to connect people and riches, generating prosperity.

So talking about the highlights of Q2 scenarios, how we are living with a high demand for products, both in the domestic market and in other markets. Our portfolio is excellent, our portfolio of sales, and we have a good visibility of sales for the next few months. Although this helps us to manage the business, every day we have new challenges related to production capacity, inflation and scarcity of raw materials, without forgetting COVID-19, which still requires great care on the part of everybody, even with the progress in vaccination.

But to overcome adversity is something that is part of the business environment, especially when we have so many positive factors in front of the negative. In Q2, we have record revenues once again and the margins maintained on a good level, the result of a lot of work from all the areas and units that are part of Randon companies. We know that the results of the company are built with measures that aim not only to take care of the short-term needs, but also for the next few years. And that is why we continue with relevant actions related to automation, expansion of our capacity and especially motivating also the good work of the people, which are the basis of everything we do.

As a result of this effort, we are seeing the important fruits to perpetuate the business of our companies. And I would like to highlight greater diversification of the business model, access to new revenue -- sources of revenue in new geographies, the capture of synergies among our business units and the adoption of best practices for corporate governance.

In this quarter, we had a little of each one of these factors, amongst many others. Some that I would like to mention to you are: the expansion of our casting and machining capacity with the acquisition of the isolated productive unit of the Menegotti Group; access to the market of fintechs, together with our [ foundation ] in partnership with 4all; and also our -- the spreading of our corporate ESG ambition and the global pact of the United Nations. Any new -- and in terms of innovation, new positioning of the CTR and [ IHR ] charge, and I will explain this soon.

Another highlight, I will give more details concerning the review of our guidance for 2021. This is the first time in the last 5 years that we adjust expanding our projections, increasing our projection. This makes us very happy not only as a company, but for knowing the positive impact that the growth of our business will generate wherever Randon companies are present.

Now I'd like to pass the floor to Mr. Paulo to give us details about the numbers of the quarter. Paulo, you have the floor.

[Paulo Prignolato, executive]

[Interpreted]

Thank you. Good morning. Thank you, Daniel. I would like to thank you for participating in our video conference. This is our first video conference of results.

Talking a little about our business model and showing the revenue per division, we observed on the first graph, the predominance of revenue coming from the auto parts division. One of the important factors for this performance is related to the markets in which the company is. For example, the growth of the production of trucks in the country, which is on the best level since 2014. We can also highlight the recovery of exports, very important for -- especially for Fras-le, and which benefit from the favorable exchange rate.

Another relevant factor are the M&A movements of the auto parts division, of which we can mention Nakata purchased by Fras-le, and CNCS and Fundituba by Castertech, which added to the revenues of this division and have contributed to expand our diversification, adding different types of products to the portfolio and expanding our presence in sectors such as aftermarket parts.

In spite of the auto parts division being the most important in revenue, we cannot forget the importance of the OEM division, where for which we produce and sell road equipment and railway cars. This is the division that is most exposed to the resilience of agro business. And the main one, semitrailers, represented 35% of the consolidated net revenue. In other words, the category of product that had the -- that was the most representative in revenue for the company as a whole.

And the sale of each semitrailer strengthens the demand of products for our auto parts division. Since we use the axles and suspensions made by Suspensys, the brake systems of Master, the pins and the raising equipment by Jost, among others. These synergy and the interconnection in between the business together with our greater diversification is what creates the strength of the group that we have in Randon companies.

Talking a little about the market in general, we see on the table important numbers, expressive numbers. The number of semitrailers sold in the quarter, for example, is the highest, the greatest in this segment for a single period of 3 months. If we go back to the worst year of the crisis in 2016, the volume of Q2 '21 is higher than what was sold in all of 2016. The truck market also had a significant growth in the comparison with Q2 '20 and even with Q1 '21. And OEMs are saying that this strong rhythm should continue during the second semester.

The main factor that has contributed for the strong demand for these products is the booming business in Brazilian agro business, but we must highlight the improvement in the projections of the GDP, showing that all the sectors of the economy have reacted in a positive way after the vaccination in the country. If the GDP grows, more riches are generated, we have greater need for transport. But if in demand, we see favorable results, we have to highlight the strong inflation, especially production raw materials, which should continue in the next few months, apart from the higher interest rates, increasing the cost of financing.

Now we will talk a little more about the performance of the company in the quarter. We begin with a consolidated net revenue, which reached BRL 1 billion. I would like to highlight that this is our fourth quarter with record revenues, and the first time in our history that we surpassed BRL 2 billion in a single quarter. All the divisions showed growth in the quarterly comparison.

And the main factors for this increase were: the growth in the sale of semitrailers and railway cars; the strong demand of truck OEMs; also, the price increases in some product lines; more exports, higher exports in our industrial divisions; the inclusion of the revenues of the acquisitions such as Nakata, Fundituba, CNCS and Auttom; the good performance of the aftermarket, aftermarket parts and the good performance of the financial and digital services market.

Now going on to the revenue from other markets, which represented $71 million in the quarter, we highlight the recovery of the volumes in the different companies where the company is present, apart from new clients due to the progress in vaccination, greater trust. The regions where exports had greatest relevance were Mercosur and Chile, especially in the sale of semitrailers and the U.S. market, main destination for Fras-le products. Another factor that contributed for the progress of Brazilian exports is related to the increase in global logistics costs, making Brazil a more attractive option for clients abroad.

Now talking about the EBITDA, we observed that Randon continues having a strong operational cash generation, reaching BRL 322 million in consolidated EBITDA and a margin of 15.3%. As I highlighted before, the market is booming, both in Brazil and abroad, and this enabled an excellent usage of the production capacity of the plants, allowing greater dilution of fixed costs with an increase in the volumes reduced. On the other hand, we are having successive price increases in raw materials, especially steel. We made price increases in many product lines, and we're working internally to mitigate the effects of inflation. But during the second quarter, we observed a greater impact on margins.

And this pressure should continue for the next few months, remaining as a point to be looked at and with attention together with lack of inputs, raw materials.

Now going on to the net consolidated revenue, net consolidated results. We had BRL 122 million profit in the quarter with a margin of 5.8%. I reinforce that the net profit is a combination of factors, such as: the good situation in the market and the company's capacity to execute; the growth of the company's business doing more with less; the positive performance of all the business units in our 3 divisions; the investments in productivity, focused on innovation and automation; and the acquisitions of companies with a capture of synergies between all the units.

In all this operation with an accelerated rhythm and the dynamics of the market with higher prices of raw materials has demanded a greater amount of working capital. In the first semester of 2021, it went up by BRL 752 million. As can be seen on the graph of NCG, most of this amount refers to inventory, both ready products and also raw materials.

The client account also went up, especially due to the increase in sales. With this, we observe a growth of our net debt, which went from BRL 859 million in 2020 to EUR 1.7 billion in debt at the end of June 2021. In this same comparison, the leverage went from 0.72x the EBITDA in the last 12 months to 1.05% in the first semester of 2021.

We consider this as a healthy level for this indicator. We also observed in the period, an increase in the average cost of the debt in domestic currency, especially with the rise of the SELIC Index in the last few months. Investments are also necessary to continue this good period of the company, to maintain the assets, increase our production capacity or to access new businesses.

In this quarter, we spent BRL 102 million in investments, dividends in organic, nonorganic and integralization of the capital. I'll highlight some of them. The conclusion of the expansion of Randon Araraquara to increase capacity, transfer of the Nakata plant to the city of Extrema in Minas Gerais, and the amounts paid for the acquisitions of companies with the details are available in the blue chart.

Now talking about the performance of Randon and capital markets. We had a devaluation of 13.5% in our share RAPT4 in comparison with the closing of 2020. But in the comparison with the same period last year, there it went up by 47%. Also, we continue to observe an increase -- continuous increase in the liquidity of the preferential shares of the company, close to 50 million negotiated daily. Our shareholder base at the end of June was made up of 39,000 shareholders, well distributed among institutional foreigners and individuals. There was no change in the percentage of the controlling group in relation to the previous quarter.

In the graph at the bottom of the slide, we see the distribution of dividends and JCP in the last 5 years. You can notice that the curve shows growth. Concerning the results of the first semester '21, the management council decided on July 20, the payment of interest on owned capital to begin on August 19, 2021. It will be credited the gross amount of BRL 0.13 per share to the shareholders that have the company's shares on July 23.

Now I'd like to pass the floor to Esteban to talk more about the performance by segment.

[Esteban Angeletti, executive]

[Interpreted]

Thank you, Paulo. Good morning to all who are with us in our video conference. [Operator Instructions] Now we'd like to begin with the OEMs, high demand for the market of semitrailers with historical record of production. The increase in sales for the aftermarket parts, this quarter reached BRL 100 million. The recovery of exports, especially to Mercosur and Chile, had a benefit due to the higher price of commodities. Also, exports to Africa, which won a reinforcement with a new partner in Kenya and the sale of railway cars, which in this quarter was higher than the whole year of 2020 for Randon.

Talking about our order portfolio, it remains robust with delivery terms higher than 120 days in the main product lines. Nevertheless, the growth of the market in record numbers has also brought great challenges, among them production capacity. Even having records of production in the quarter, our market share continues under pressure. But we will continue working on alternatives to expand our production and take advantage of this good moment.

Going to the auto parts division, we also have a booming market, a strong market. OEMs are working strongly due to the growth in our auto parts operations, the volumes in brake systems, coupling system axles and suspensions and also drums and have a strong increase. In some cases, like Castertech, we are working intensely to expand the capacity to take care of the growing demand.

That is why we made another acquisition, the units the casting unit and machining unit of the Menegotti Group. This operation was approved by the authorities and should be included in the company's numbers in Q3 after other points are taken care of.

Now talking about the aftermarket for parts. Although there are good volumes, we had a small drop in comparison with Q1 '21, especially in Brazil. Higher inflation has had a direct impact on the purchasing power of the consumer, especially in the segment of light vehicles. Apart from this, the restriction on mobility due to the second wave of COVID-19 also interfered in this market.

Concerning sales of this division to the export market, they continue growing and have contributed in an important way for the positive performance of the business. To close the details, I would like to comment on our financial services and digital services division.

Talking about Randon pool sales, Consórcios, we had an increase in the number of active quotas and also agro business, helping to increase business for agricultural machines, trucks and equipment. Randon Bank also had a good performance with a booming market and we maintained delinquency under control, an important factor for a financial institution, shows the quality of our strategy.

In these 2 business, our focus now is to digitalization with -- also with channels connected with technology. We have a lot of -- a long journey ahead of us, but we see many opportunities also. One of them is the connection with Randon Ventures. In this quarter, we devote to the market, the company R4 Digital in a partnership with 4all. The new company is the fintech aimed at the logistics chain and transportation chain. Among the several services offered by R4 Digital are: The issuance of payment slips and collection; digital accounts; balances, transfers and others. And this is the first fintech presented by Randon and reinforces and accelerate movements of innovation, transportation -- transformation presented by the company in the last 3 years.

Today, Randon Ventures has 5 start-ups with investments and 12 with co-investments, and BRL 17 million in investment.

With this, I would like to conclude my presentation, and I pass the floor back to Mr. Daniel Randon.

[Daniel Randon, executive]

[Interpreted] Thank you, Esteban. Now I will talk about a topic that has been very important, not only in capital markets, but in the world, which is sustainability. We know the urgency of some points such as climate change, reduction in social inequalities, diversity and inclusion. And companies have a fundamental role together with the government and society in the search for a better world for the next generations.

Randon has, since its beginning, principles and values that are intimately linked to sustainability as, for example, to respect and value people and have an ethical and responsible behavior. I know we can do more. We build our ESG ambition, which was aired on June 1 to the market, where we took on public commitments. For us to generate a positive impact has to be present in the strategy of the companies that want to prosper because only this way, will it be possible to guarantee the sustainability of the business and returns for shareholders in a correct and a fair and adequate way.

And the expansion of reinforcement in governance, this is fundamental for this process. In our information about corporate governance proposed by the CBM, our SEC, you can see that we have evolved a lot in the last 3 years. We implemented new policies and we adopted recommended practices because we believe that this generates value, even more in a company like ours that has grown so much.

If you want to know more about these topics I just mentioned, I invite you to access the QR code on your screen and to go to our Investor Relations site to see our sustainability report in 2020 in the event ESG Ambition. It is a complete book to know our business, how we work and what we believe in.

Together with ESG is innovation, which is one of our priorities. We invest a lot in this. Recently, we showed the new positioning of the Randon Technological Center, which wants to become a great development center for disruptive technologies, focused on electromobility and safety, which is fundamental in transportation. For this, we need to have a team that is focused and dedicated outside day-to-day operations, thinking and following these changes. And in this context, we have the Hercílio Randon Institute, the IHR, which we call the Institute. It is a nonprofit organization and has the name of one of our founders, a tribute to his capacity to innovate and invent. The IHR has its own team of researchers and technicians dedicated to studying complex topics and the execution of research projects. We're also establishing important alliances, strategic alliances with other institutes, universities and companies of the sector.

The Institute announced recently a change in positioning, focusing their work in science and technology and concentrating the activities on the development of 35 projects of -- with new technologies and solutions. And before going on to the Q&A session, I would like to talk about the -- a relevant, the material fact that we heard yesterday, the review of our guidance for 2021.

In the semester -- in the review, we identified that the projections shown in the material fact of February 11, were not in line with the reality of the company and the market. That is why we understand we should have a new guidance more in line with our business and vision until the end of the year. The growth of revenues is very connected to the dynamics of volumes and prices in the commercial vehicles market, which is booming and stronger than we expected initially. The market abroad also had an expansion with our first estimates on this, but in a more moderate way.

In imports, we observed a strong increase, especially due to the higher level of activity of the company and expansion of our controlled company, Nakata. In CapEx, we have greater expectation of investments to support the increase in production, expand our productivity and defend our market leadership.

Before closing, I would like to highlight another important fact in the last few days, which was the elevation of the rating of the company, Standard & Poor's elevated from AA- to AA+, with the stable -- this shows that not only the company has a good moment, but -- and also has good prospects for the future, but reinforces the consistency of the work that is being done, in financial management and in our operations.

Now I would like to pass the floor to David to begin our Q&A.

[Unknown Executive]

Thank you, Daniel, Paulo and Esteban for the presentations. Now we'd like to begin our Q&A sessions. We have some people waiting. [Operator Instructions] The first question, we will -- comes from Bradesco BBI, Victor.

[Victor Mizusaki, analyst]

[Interpreted] Good morning. Congratulations for the results. Two questions. The first, the new guidance, apart from revenue, there is also CapEx. Can you give us more details about the increase in CapEx, the projects with investments in 2021?

The second question, Randon Ventures. What can we expect for investments or in the Randon Bank?

[Esteban Angeletti, executive]

[Interpreted] Thank you, Victor, for participating in our video conference. Thank you for the question. I will begin answering the issue of CapEx, the guidance and then Paulo and Daniel can also mention what we expect.

Concerning CapEx, similar to revenue, it rose, and we had to reduce the schedule of some investments to be made in 2022, 2023. We are anticipating some of these investments due to the good situation of the market. We made a CapEx -- the CapEx was raised by BRL 70 million. And we distributed the additional amount, 35% will be used by the OEM division, another 57%, 60% by the auto parts division and the rest by services.

And the main motivation is to respond with production capacity, increasing production capacity. Our market share is under pressure. We saw 32%, which is less than what we would like due to the limits in capacity. And we'd like to reinforce that in spite of this review of the guidance, we continue with our financial discipline and the leverage is proof of this. And all the investments before being approved and executed go through return on investment analysis in order -- so we can reach our ROIC -- expected ROIC.

Paulo, Daniel, if you wish to supplement?

[Daniel Randon, executive]

[Interpreted] I can talk about Randon Ventures, and Paulo will talk about the bank. Thank you, Victor, for participating in our video conference. Randon Ventures services has focused historically in purchase pools -- pool purchases with the digital transformation, Randon Ventures, The project R4, these are opportunities of investments with start-ups that render services in our sector, transportation, especially giving more support to our end client, those that have trucks and truck fleets.

This creates new opportunities, increasing business and improving with services to our clients in a sustainable way. And in terms of Randon Bank, Paulo can comment. The bank continues contributing with financing for our clients, so they can buy our products and also -- even also being an option as a fintech for truck drivers and fleet owners.

[Paulo Prignolato, executive]

[Interpreted] Perfect, Victor. In fact, this year, we announced at the beginning of the year, an increase in the capital of the bank in order to handle the growth of industrial operations. So our idea is to continue with this growth rhythm of the Randon Bank, giving support to the growth of industrial business. So this should be the trend during the next few years.

Apart from this, the idea to include the initiatives of digital businesses for the Randon Bank, so it will continue being very important to give us support in financing, industrial business and also this front that we hope to expand with digital business, especially when we talk about banking as a service. Through partnerships, we intend to continue growing in this line.

[Unknown Executive]

[Interpreted] Going on to the next question from Catherine Kiselar from Bank of Brazil. Catherine, you can ask your question.

[Catherine Kiselar, analyst]

[Interpreted] I'd like to say good morning. Congratulations. The company's perception and clients' perception about the operations in the future.

[Daniel Randon, executive]

[Interpreted] Thank you, Catherine for participating. The question, it's important to cover this topic since it's a frequent question in all our meetings.

First, -- it's important to say Randon hasn't been affected directly by the lack of components. We hear a lot about semiconductors. What we have seen is that this is affecting more the light vehicle market, and Randon has greater exposure to heavy vehicles. So we haven't had drops in demand or production stops as we see in other industries due to the lack of semiconductors.

To the first point, we are monitoring the risks, but semiconductors is not something that impacts Randon companies.

Concerning the market as a whole, the chain is under pressure. We have many components that our purchasing department has worked on to guarantee the supply and avoid stopping our production lines. We have had a lot of success in guaranteeing the supply of our lines by negotiations and advanced purchases. And as Paulo said, yes, this requires more working capital, but we prefer this trade-off to invest more in working capital and to have material available to continue working and selling during times when we have a booming market.

Many clients talk about lack of inputs in the aftermarket parts. Tires -- tires have had problems recently. We have worked to supply not only our operations, but also our distributors and the aftermarket, too.

[Unknown Executive]

[Interpreted] Our next question, Marcelo Motta, JPMorgan.

[Marcelo Motta, analyst]

[Interpreted] Two questions. Can you comment on the guidance, this increase in revenue? How much is price? How much is volume? And thinking of margins, you mentioned that there, we have price increases. When we look at average price of inventory made up of everything you bought before the increases. When you look at the price of sale, especially in trailers and semitrailers, how much would you have to increase the price to close the gap with raw materials?

[Daniel Randon, executive]

Thank you, Motta for following us. Thank you for the questions, 2 difficult questions to answer.

Concerning volume, concerning the review of the guidance with higher revenue, it's difficult to answer because there are different dynamics in each business line. Some are increasing, especially in volumes. Others due to the combination of volume and price. None of them is only price. Because what we had to increase in price or most of what we had to increase happened in Q1, now the dynamics for Q2 is stabilization of price with a small space for increases in some lines. So most of this review of guidance revenue, 25% that we see in relation to the previous guidance, comes from volume. A smaller part comes from price.

Concerning pressure from inflation and how much we would have to increase because of inflation, this is difficult to answer because those who follow us, those who know Randon, know that may be one of the positive effects since 2016 is that we learned the deal with all the -- first with the problems inside the company. All the inflation we're receiving -- and we're receiving from suppliers, we try to offset via gains in scale and by using new raw materials and negotiations.

And we leave, as a last alternative, the price increase to maintain the margins we have in the last few years. So what I can say, we should note is, yes, greater pressure on margin in the second semester since, in the first semester, we had a positive mismatch between the raw materials that we anticipated, the purchases versus prices that we obtained.

So second semester, we don't have that much space to increase price. And the inventory that we're consuming are more expensive, which should put pressure on margin. And reminding you, Randon doesn't give a guidance about margin, but we have the sensitivity in relation to the next few months and quarters.

[Unknown Executive]

[Operator Instructions] Our next question is from Lucas Barbosa, Santander Bank.

[Lucas Barbosa, analyst]

Good morning, Daniel, Paulo, Esteban. Congratulations for the results. My question is on the impact the problems with the corn harvest in the south of Brazil and Mato Grosso, the smaller harvest can affect the price of trade, especially in Q4, and then freight may drop even more.

I'd like to know, do you believe this can have an impact on new orders? Or other segments can compensate this?

[Esteban Angeletti, executive]

Thank you, Lucas, for following us. Yes, it's important to talk about the harvest problems. In general, we've seen that agro business has had a robust demand. And in Q2, 67% of equipment was for agro business.

The first point, in spite of the problems with a harvest in the South, in agro business there is still space to absorb a drop in demand due to this harvest. And we still see favorable conditions for agriculture, a harvest that is very positive, positive numbers, favorable exchange rate and a robust demand from the markets abroad. This will compensate.

Concerning other sectors, we've seen since June last year, an important evolution in the segment of capital goods, retail, represented by semitrailers. And one of the facts that prove this segment since June, semitrailers are the third type with highest sales in Randon, behind only the grain type and dump-truck type. We believe that it is a trend that is here to stay due to the change in behavior during the pandemic.

Apart from retail capital goods, we've seen many orders for tanks linked to fuel transportation and civil construction, with a recovery and infrastructure demanding more dump trucks that began being the best in sales. So I believe that in spite of this isolated fact, both within agro and other sectors, we see products compensating this, Lucas.

[Lucas Barbosa, analyst]

[Interpreted] Thank you. Very clear.

[Esteban Angeletti, executive]

[Interpreted] Also another point, exports, there are good situations for Brazil.

[Lucas Barbosa, analyst]

[Interpreted] Esteban, second question, transition from Euro 5 to Euro 6. Will it be similar to 7 years ago? Do you believe there will be an anticipation, -- Any difference in the change in technology, the impact on you and to industry?

[Esteban Angeletti, executive]

[Interpreted] Thank you, Lucas. At least the information we have about Euro 5 and 6, this transition, it does not add additional cost to the product. In the past, we went from Euro 3 to Euro 5, an important leap, and this added cost to the truck. And we saw this important change in 2011.

Now this year, the technology leap is not significant and the price difference is not significant. We believe that, yes, but it won't be as important. It won't make such a difference as in the past.

[Unknown Executive]

[Interpreted] One of our next question comes from Thais Cascello, Itau BBA.

[Thais Cascello, analyst]

I have 2 questions. You already answered most of the questions I had. I have 2 additional questions. The first, you detailed the change in CapEx, 1/3 to OEMs, products. How will you increase capacity in road equipment?

And the second question, railway cars. We saw more deliveries in Q2. We believe this can continue in the second semester and also the cost of inputs that should be higher you made this clear in the release, a better mix with more railway cars. Can this mitigate these effects?

[Paulo Prignolato, executive]

Thank you, Thais, for the questions. Concerning CapEx, from -- for OEMs, the third that we mentioned is to expand the modular system, with -- is one of -- which is one of the bottlenecks that we have. Those who follow us know that 2 years ago, we made an investment in 3 phases. We have 2 concluded, and we're going to go to a third phase.

This doesn't imply in civil construction we will use more updated equipment, more automation to increase our capacity without expanding the plant. What we can expect, our nominal capacity is 150 products a day. We could increase this capacity with this investment by 20%, 30%, depending also on the rhythm of the investment. We will follow the market. We will invest but also monitor the market.

Another important point. This investment, since it is lighter, also helps us to really improve things. And this would help us if we have instability in the future. Railway cars in Q2, as mentioned in the video conference, we delivered more than 130 railway cars, more than all of last year. And we believe that in the next 2 quarters, we may surpass this number, especially in Q3, since we have a portfolio of products.

In terms of mix, last year, railway cars had a higher margin in relation to semitrailers. This year, it's more balanced in terms of margins, although we have -- we'll have more billing, it shouldn't affect the margins.

[Unknown Executive]

[Interpreted] Our next question comes from [ Igor Araullo ], [indiscernible] investments. Igor, you may continue.

[Unknown Analyst]

[Interpreted] First of all, congratulations. It's good to talk to you.

I'd like to ask concerning what Esteban said, automation. I remember that you said that in the first semester, you would place in operations automation, new automation. What are the plans for the second semester in relation to automation? I'd like to know how much extra capacity can you place through automation without expanding the plant?

Another question, SG&A is a little higher. I'd like to know the impact of this increase, apart from the growth in revenue.

[Daniel Randon, executive]

[Interpreted] Thank you, Igor. First point, in relation to automation, this gained speed with the acquisition of 254 robots from the Ford plants. This was in our plan, for -- from Randon Tech Solutions. And this -- we have this opportunity to acquire Alton, which is a company that has important know-how in automation of manufacturing services. The acquisition of Alton accelerated even more the usage of robots in our production lines. And here, we have active automation in the group.

Looking at our operations, there's an agenda in the next few years. In the next 3 years, to do the equivalent of 30 years, 30 years in 3. And we continue this crusade, looking at all our operations and finding the best usage for these robots we acquired.

Alton helps us to do this work internally and adds billing. It does this work for third parties, too. They sell services. So we have 2 benefits: accelerating our automation program; and also adding more revenue from third parties.

It's difficult to answer the part on the increase in capacity. I would say that we want to increase capacity via automation without expanding the plants. As I mentioned, this increase of 20%, 30% in OEM division should also be replicated in other divisions, other companies, too.

The only exception would be Castertech. We did this through acquisitions, CNCS, Fundituba and now Menegotti. And the rest we still see a lot of space for automation.

Concerning SG&A, a first point that we can mention in the answer. When we compare to Q2 last year, we need to remember that there were some nonrecurring facts that had a positive impact on SG&A last year, BRL 60 million, BRL 70 million. So in the comparison, you will see this year -- we did not have any nonrecurring factor to contribute significantly with SG&A.

But it also goes through by adding more structure to do the integration. Of course, we're always careful in doing this. We look at this line every month, operation by operation. But we also understand that it's necessary to do this to support the sustainable growth. We don't want to grow in a disorganized way.

[Unknown Executive]

[Interpreted] Our next question from Catherine, Bank of Brazil.

[Catherine Kiselar, analyst]

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[Unknown Executive]

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[Portions of this transcript that are marked

[Interpreted] were spoken by an interpreter present on the live call.]