Randon SA Implementos e Participacoes

BOVESPA:RAPT4

Earnings Call Transcript

[Caroline Colleto, executive]

Hello. Very welcome to this earnings call of Randoncorp regarding the Q3 of 2024. This addition is being recorded directly from FENATRAN, the biggest trade show of cargo transport in Latin America.

Besides the Q3 highlights of 2024, we will also present the biggest news in our business units in this trade show. Randoncorp has brought to this addition of FENATRAN with complete solutions in products and services to lead the global innovation in mobility.

Davi, can you show us the biggest news in the auto parts booth?

[Davi Bacichette, executive]

Of course, Carol. Here in the auto parts booth, the visitors of the trade show can check over 30 solutions of our business units. As the suspension springs of the brand Composs by our subsidiary, Frasle Mobility, that brings lots of benefits in comparison to the traditional model. But it's not only that. We have the auto-steering axle that is used in the 4 axle trailer and the EBS, braking system anti-rollover that is mandatory from 2025 on. And this is just the beginning of what we brought here in our booth.

Carol, how is it in the manufacturer booth?

[Caroline Colleto, executive]

Here, the highlight is the 75 years of Randon. We have a special line here to celebrate its journey and we brought products for sustainable transportation. Here, we have a double-tanker trailer that has the capacity of 63,000 liters of fuel, a relevant increase of 1,000 liters compared to the previous model. And it comes with EBS and Randon Smart. Besides the tanker, we have the Sider Modular EBGR and the semitrailer -- lighter semitrailer in the market.

But the biggest star is the AT4T. That means autonomous technology for transportation. The details for this innovative product is going to be told by our CEO, Sergio Carvalho, in a few minutes. But before that, let me show what we brought in Digital and Financial Services.

Davi, can you tell us rents?

[Davi Bacichette, executive]

Rands, our Digital and Financial Services vertical that is completing 1 year this month. We are in 4 spaces, 4 rooms in the trade show. We offered test drive in an exclusive circuit in the external area where the visitors can drive trucks and enjoy a racing and driver simulator. So Randoncorp is once more participating in the trade show with many news. It's great to see our verticals innovating continuously and consistently.

[Caroline Colleto, executive]

Now, let's talk about the quarter highlights. But before I pass the floor to Sergio, let me give you a few important notices. Our events has simultaneous translator to English and sign language. For you to put your audio in English, you should click on the interpretation button at the bottom of the screen. You can choose mute original audio to just listen to the interpreter's voice. This webinar is being recorded and the record will be available in our IR website, ri.randoncorp.com.

I'd like to remind you that, all the declarations and statements here are not a guarantee for future events, because it depends on circumstances that may or may not occur. So after the presentations, we're going to have a Q&A session. So you can indicate your participation at any moment through the platform.

So now I give the floor to Sergio for him to tell us a little more about AT4T and for his considerations.

[Sergio Lisbão de Carvalho, executive]

Thank you, Caroline. Good morning, everyone. I'm glad to be here at FENATRAN today with you to talk about, so many new information and for Q3 2024. But before, I'd like to thank the presence and the attendance of all the investors and stakeholders at FENATRAN. We are very glad to share what we're doing to build the future of Randoncorp.

And here, we can show in a concrete and solid way the way we are innovating in our market. So I'm here in our manufacturer booth, and I'd like to start talking about a technology that is very innovative, that was developed by our team in partnership with the Instituto HercÃlio Randon AT4T.

Some of you had the opportunity to get to know the prototype in the initial stages in 2023, the site visit that we had in Caxias do Sul. But from that moment on, we had many more researches and studies and we evolved the concept of the product. And it consolidates Randoncorp as a global technology developer for mobility. And this disruptive technology offers great advances in operational efficiency to the market efficiency, and it will be used for clients that use transport in controlled environments as in the agriculture, logistics, ports, airports and mining. So there are multiple possibilities in applications for AT4T.

So let's see some parts of the video that we used in the launch of this new technology.

Based on a proprietary algorithm patented, I'm part of a complex ecosystem, with high-performance hardware. Functions for recognizing the environment and AI-powered moving. So I'm capable of identifying and coupling to different implements and find the best route to reach my destination. So in a precise and automatic way, I can adjust my dynamic behavior according to the implement to be transported.

So with real-time information remotely and safely, you can monitor and follow up the status of your vehicle and all the logistic information. Navigation is controlled by a system that combines artificial intelligence, computational vision and dedicated unit controls with high processing power. Through high-definition images and combined with the dense cloud of points, I can identify any obstacles and make the best decisions.

I'm capable of realizing complex maneuvering, including reverse, finalizing all the processes in a secure and a safe and optimized way. So I am an agent for decarbonization of the mobility industry, contributing for a more sustainable future. I can be integrated with the great universe of Solutions Randoncorp that were well thought and developed for mobility.

I am a set of hardware of high performance. I'm an advanced perception system. I am a decision-making system. I am a prepared control system to guide you to the solution. I am AT4T, Autonomous Technology for Transportation.

That's it, everyone. So we are very excited with this new innovation. Talking about that, one of our solutions that was the most disruptive and innovative that we had a unique technology in the world, and it might be used in diverse applications.

Our e-Sys was incorporated in the first hybrid conceptual truck that was launched here by VW at FENATRAN. Participating in this is very significant for us, because we helped develop this sustainable mobility.

Back to the quarter, I'd like to highlight our revenue and EBITDA historic results that we got in this period. We've been executing our strategy based in the pillars of innovation, internationalization, aftermarket and expanding our portfolio. It's a positive reflection in our figures, and it strengthens and makes us stronger and more resilient.

In October, we announced a very important acquisition, the first in Europe that adds new geographies and products and revenue in strong currency. So to expand the representative of aftermarket in this auto parts vertical is one of our main goals. And we have been working a lot on that.

The EBS group brings this purpose to diversify the revenue and add results to this vertical that is very profitable and resilient. All the details of this transaction were approached in a call that was made at the day of the announcement and you can access this QR code on your screen.

So the conclusion of the EBS group depends on some conditions predicted in agreement, as well as the Kuo Refacciones that is being analyzed by the Mexican authorities. Another movement that we realized that we performed in October was the acquisition of Delta Global by hands our Digital and Financial Services vertical, expanding our portfolio in the ecosystem of transport and logistics.

Delta Global is an expert in management of fleets and technology, among other products. It's responsible for our Randon Smart. Besides M&A, we have been making relevant organic investments. That is the case of our industrial plants of Castertech and Suspensys in Mogi Guacu. The factory is having its beginning and the other is being commissioned for the first quarter of 2025.

The importance of this supply agreement for Mercedes-Benz was fantastic, because we were competing with global players in this segment. And this was only possible, because of the technology of products and the quality of our deliveries.

So I'm very happy to share with you today that thanks to that, it's the first time that Randoncorp had received at Worth Daimler Truck Supplier Award in Germany as one of the 7 best suppliers, vendors of Mercedes-Benz in the world and acknowledges our high performance for innovative solutions.

And we have been achieving all those milestones in a very complicated year to us, because of some factors as the update of our ERP, the floodings in Rio Grande do Sul, the complexity of the global sector, including the increased freight costs and the lack of availability for containers. But it was not capable of stopping us achieving those records.

And Paulo is going to mention later about the rating elevation that we achieved. And I have to talk about the importance. The AAA score is crowning what we have been developing over the last few years, a big expansion without always keeping our financial stability. That is one of our guidelines.

I'd like to end my participation talking about the changing the management that we had in the Q3 2024 for us to be even better prepared for the future.

Our foreign operations, international operation is growing. So we change the roles of our directors to enjoy better the synergies among our businesses and foster the internationalization process.

So now we have 2 executive VPs divided in South America, and international operations. Ricardo Escoboza is the new VP responsible for the operations in the manufacturer in the whole South America. And he's the CEO of Vertical Auto Parts -- the Auto Parts Vertical.

Pontalti is the Executive VP responsible for manufacture and auto parts in the external market in geographies that are not the South America. And he's the CEO of Vertical Controls and Movements.

And besides those changes, now we have CPCO, Chief People & Culture Officers. That is now with Marcos Baptistucci and he is a seasoned professional that's going to help us feel better with people and the environment. Then, we reached the end of this year with many achievements and challenges that were very positive for our next cycle.

So the market has shown signs of continuity. We have new businesses. We have made important changes in governance. So 2025 is going to be a great year for Randoncorp, guys.

So now, I'd like to pass the floor to Paulo for him to perform his presentation.

[Paulo Prignolato, executive]

Thank you, Sergio. Good morning, everyone. I'd like to thank all the investors and analysts that were with us at FENATRAN. It's very important to have you guys close to us. So now talking about the figures of the Q3 2024. So we had a business environment that was very favorable in Brazil, but we have some worrying parts. That is the increase of the interest rates, SELIC, in September that got to 11.75% per year. And the inflation is above the goal. The rate is appreciated and the expectations for next year is the record historic for the harvest and for the logistic chain.

Talking about the automotive sector, we had some expressive increases when we observe the truck segment that is going in an accelerated rhythm in comparison to the last year, especially because of the demand of the industrial sector. The highway implements had a slight decrease compared to the 2023 due to the reduction of the agribusiness products as the exporting scenario is challenging, even with the dollar being stronger in comparison to real. So this factor, the freight costs and the lack of availability for containers elevated the price of sea freight, causing many obstacles around the world.

Besides that, we have some problems in selling to some regions that had its demand impacted by a political and economic crisis or high interest rates, among other factors. So within this scenario, in our main markets, we had the biggest quarterly revenue of our history. Thanks to the great execution of our diversification strategy, in which we added important business over the last few years. And they allowed us to be more resilient facing the challenges in our pathway. So it reflected in our EBITDA that reached its biggest historic level.

Our focus on auto parts, especially the aftermarket and services segments that are highly profitable, allowed us to reach that margin. And this is what we want to keep doing, new acquisitions like with the Kuo Refacciones and EBS. We're following our goals and increasing our margins and strengthening our businesses.

Our net income has advanced compared to the last few quarters, especially because of the increase in our operation results. In relation to return on invested capital, we have a gradual decrease, because it was affected by non-recurring effects that we've faced, like the decommissioning of the factory of Fanacif on the second quarter of this year, and because of the taxes.

So talking about our debts, we could observe a slight increase when compared to Q2 this year, aligned with this necessity of operating capital in the period. So as you can observe in this graph on your screen, our leverage is still in control inside the goals we planned, keeping in mind our expansion and our accelerated expansion that demand more investments. Our focus is to diversify our sources of capitation and look for the best alternatives for us to keep expanding and growing without compromising our financial health.

Since we performed carried out our strategy, the elevation of our corporate rating and for the first time in our history, we got the AAA score in national scale. To us, this is a great milestone, a great achievement that makes us understand that we are going the right way.

Now talking about our stakeholders -- our stockholders, we have about 47,000 shareholders. We have individuals and institutional investors. And regarding the first half of the year, the daily average liquidity in our preferred stocks increased 33% comparing to the same period last year, with some advancements in relation to the previous quarter. Regarding the remuneration of our shareholders, we paid interest over capitals at without income tax, some BRL 43 million.

Now, I close my presentation and pass the floor to Esteban.

[Esteban Angeletti, executive]

Good morning. This earnings call is very special to us because we have been recording it directly from FENATRAN from which we are going to leave even more confident in relation to the demand of our markets for the following months. And now we can share with our investors the innovations and the strength of our brands and products that makes Randoncorp one of the biggest groups in the automobile sector in Brazil. We had records in revenue for the Q3 and I'm going to enter into further detail.

Here, we have the breakdown of our revenue. The sales distribution among the industrial verticals is very balanced, so the order sum up about 10%. So if you get the revenue per sector, we had some representativeness change in comparison to the last quarter and the same period in 2023, especially because of the reduction of the agribusiness sales as tippers semitrailers. You can see the causal graphic at the bottom of your screen. The sales to the agribusinesses decreased to almost BRL 156 million. And on the other hand, the industrial and the aftermarket segments advanced importantly because of the high demand from those markets.

Some other sectors that showed increase were mining and civil constructions and also services. I'd like to highlight also that we had a reduction for the external sales in dollars because of the conversation of the currency. The impact was practically nil. So the region that had the biggest reduction was USMCA due to the semi-trailers' decrease of sales to the United States. So we have orders for the following quarters. That's good news and it contributes to the performance of our operations in those geographies. The region that increased its participation was Mercosur and Chile, especially for the movement controls sales to Argentina and the increase of sales of semi-trailers to Chile and Uruguay in the quarter.

Now, moving on to the consolidated EBITDA in the quarter. The highlights besides the records were the Auto Parts and Financial and Digital Services verticals in the composition, in the formation of the EBITDA in comparison to 2023. And now we have relevant contracts that were signed in August and the negative impact regarding inflation in Argentina affected the EBITDA margin in almost 1 percentual point and the non-recurring expenses regarding the sale of the subsidiary Farloc and the restructuring of Fanacif, both in the movement control vertical.

I'd like to highlight the organic investments that we have been making, seeking to expand our productivity and efficiency. I'd like to highlight the construction works in our site in Mogi Guacu, machinery and equipment in Araraquara and the development of EasyMES, that's a manufacturing management system that was explained in details in our latest Randoncorp Day.

And now I conclude my words for this presentation and pass the floor to Carol to begin the Q&A session.

[Caroline Colleto, executive]

Thank you, Esteban. Now, we're going to begin our Q&A session. You can participate by following the instructions that you can see on your screen now. [Operator Instructions] So now we're going to start with the sell-side analyst at BTG, Lucas Marquiori.

[Lucas Marquiori, analyst]

Let me just ask 2 quick questions here. First, regarding the Implement's EBITDA margin, if you could give some color on the quarter. What happened for you guys to explain this performance in relation to Q2? What's in your mind for the following quarters? And a little technical question now. Can you explain the change, the decrease in the effective? What's your recommendation? The effective tax rates. Can you give some color on that?

[Davi Bacichette, executive]

Talking about the manufacturer margin, I'd like to share this answer with Sergio and Esteban. In short-term, I'd like to talk about the manufacturing margin. And then Sergio can explore a little what we can expect from the manufacturing margin. And Paulo, if you could comment on the effective tax rate.

[Esteban Angeletti, executive]

I'm going to talk about the market -- of the manufacturer with Esteban. Thank you, Lucas, for your question and for following up our latest earnings call.

So, first, you have to understand that the manufacturer is a third of our business in terms of revenue. In terms of EBITDA, it represents us. But what I mean with that is that our businesses have a figures representativeness regarding auto parts and control movements. But with that being said, another topic that is worth recalling is that the manufacturer specifically suffered a perfect storm in the first half of the year. Since the beginning of the year when we updated the RV, that brought us to a period of darkness. We could not operate for some days.

And when we resumed it, we could identify satellite systems that impacted the operation of the manufacturer. And in our perspective, it brought us a loss of at least a month of production in some units. And it had reflections in the revenue and in the market share. And besides that, another obstacle that we have in the manufacturer is the external market. You can remember really well. The external market last year was a big part of revenue for the manufacturer, both by exporting and units.

Both markets, the American market and exportation, had the first half very, very bad. And we are expecting some improvements in the second half, especially by the Hercules contract agreement for 3,000 units of port containers that have been produced in August. And Chassis is going to increase next year for complying with this agreement.

So it can help us positively, a positive impact in our revenue. And a third market fact is the change of mix, especially regarding the agribusiness, in which we have a decrease of 20%. And we had a 50% increase in the industrial segments, talking about sider and the van. We don't have the same representativeness compared to the other products, like the tippers and trucks that are our flagships. But looking at the future, we are improving our processes. And during the first half of the year, we changed the paint job so we can have more output with lower costs.

And we also see that the agribusiness coming back are going to -- so the harvest projection of [ Conagra ] indicates an increase in the harvest. So this increase in the market and the internal productivity with automation processes, we see that that's a gradual normality coming back. It's not going to change radically from a quarter to another, but this recovery is in our planning.

And I have to pass the floor to Sergio to comment on the long-term for us to recover those margins. So, Sergio, if you can comment on the long-term.

[Sergio Lisbão de Carvalho, executive]

Can you hear me well? It's Sergio. Thank you, Lucas, for your question for being here with us. So we are very optimistic regarding what it expects us in our manufacturing vertical ahead due to many reasons, and Esteban mentions most of them.

We keep seeing an increase in volumes, market volumes as a whole. And the expectation for growth for the crops for the years ahead is very relevant. The increase in corn production, so with manufacturers, factories that are being commissioned in Brazil for ethanol production from corn, it's going to lead to a bigger movement and necessity over the predictions that existed that have already been made by the authorities and experts in the Brazilian grain production.

Our perspective in market for the years ahead is very optimistic. This year was a little sensitive for the agro business in Brazil for -- due to a number of several reasons, the price of commodities, the Argentina issue, a big American production that raised the competitiveness, impacting the prices, some rains and the fires in Brazil.

But we can see a better mix for the years ahead. Agro is going to recover. It's sharing the total volume of production, just for you to understand. This year, agro decreased, the progress destined to the agribusiness fell about 15% in comparison to the same time -- the same period of last year.

And industrial cargo increased by 50%, so it's a big change for our mix this year. And we expect a more regular scenario for next year, like biggest numbers, but with a regular mix. So we had many layout changes and machinery and equipment modernization.

So we could identify and remove some bottlenecks in our active processes. And we are going to keep improving and investing for us to increase our productivity. We expect fewer changes that have an impact and are going to have an initial cost a little elevated in commissioning. But if I manufacture an equipment here and transport that to another site, it causes an issue inefficiency.

But next year, we expect to normalize that. So we're going to keep investing heavily in our productivity programs. And we have a restructured team with some important changes in our management and governance. Ricardo Escoboza is now responsible for this vertical. And we had a series of some realigning and restructuring measures and the results have been very, very positive.

So, Lucas, we are very optimistic for this improvement for the financial performance of our manufacturer. But I'd like to remind you, everything that we do in our manufacturer vertical brings results to our financial services that come from the manufacturer, the auto parts. They have results that come from the manufacturing vertical. So this holistic perspective, the big picture of Randoncorp must be seen as a whole, because the unit is not a standalone. It's connected to our business model.

[Davi Bacichette, executive]

Thank you, Sergio. Now, I pass the floor to you to talk about the tax rate that presented the reduction in comparison to the first and second quarter, please.

[Paulo Prignolato, executive]

Good morning. Can you hear me well? So, Lucas, thank you for your question. Thank you for your participation in our earnings release call. It's a very important topic, because this year we had some important events that impacted our effective tax rate. The first was the one that came to stay. At the end of last year, the government started taxing subventions for ICMS taxes that impacted at Nakata related to our CD in Extrema -- in our Extrema unit. And this is an effect that's definitive, permanent.

The others are non-recurring effects. First of them, the restructuring that we had with the decommissioning of our Uruguay plant, Fanacif, in which we didn't recognize that the tax deferred affected our results. And we had the effect of TBU to the universal basis tributation that impacted our third quarter. And that basically is regarding 2023, but has an impact the following fiscal year in Brazil, mainly in function of our excellent results achieved by Hercules last year. And besides that, even in function of this movement, this moment, this recovery moment of the margins of the manufacturer, we had also an impact in non-accounted deferred in this vertical. And it's not lost.

At the moment we have a recovery of our manufacturing margins due to the actions and the measures commented by Esteban and Sergio, we can bring them back to our results. So I'm not going to risk projecting a tax rate for the following quarters, but for sure, our Investor Relation team along the following years, as soon as we conclude our budget for next year, we can try and help you clarify the projections.

[Caroline Colleto, executive]

Okay. Now moving on to the second question of the day is from Gabriel Tinem, sell-side analyst at Santander.

[Gabriel Tinem, analyst]

Two questions here. One more connected to the manufacturer. You see this recovery to be the #1 in market share in Brazil. I'd like to understand a little better. How do you see the competitive market? We see some competitors losing share the third quarter. The second issue is flexibility regarding the product mix. How are you working to increase the speed of adaptation for the current mix being more formed by tankers and some other products in the market?

And the second issue is more connected to FENATRAN. If you can comment on the orders and the impact of the trade show for the company.

[Davi Bacichette, executive]

Sergio, I'm going to give you the floor to answer those questions, 3 topics. One about market share, our -- the recovery of the leadership of the manufacturer. Second, it's a good question regarding mix. How can we adjust to the variation of the mix? And a little about the outputs of FENATRAN, takeaways.

[Sergio Lisbão de Carvalho, executive]

Thank you, Gabriel, for your questions and your participation here with us. First, I'd like to start talking about market share. Esteban had mentioned -- had some problems, significant problems in the first quarter of this year. So this made our participation on market share to decrease a little. And one of our problems in the first quarter, agribusinesses was still moving forward. The market was buying. On the second quarter, when we had the production recover, so the market was not there. So it was a significant change this year. So this is another issue.

Besides our internal problems, the agribusiness that is very important for Randoncorp, this year had a decrease of 15% compared to the previous year. And industrial cargo increased 50%. And these segments are not segments in which we have big penetration. So we tend to focus where we have more aggregate value -- added value.

But with that being said, we see during the year -- it would come during the year recovering our market share. And we have recovered our leadership in October last month. And at the beginning of month of November, we are expanding and growing our market share in the market. So we had an anomaly, some anomalies that brought us to this temporary situation, losing the first place in the Brazilian market.

We had never lost it in South America or in the South Hemisphere of the land, because we export a lot and we produce way more than we supply in the domestic market. I hope everybody can see that our volumes are way bigger when you consider our expectations and all the other markets in which we have a participation.

But in the domestic market, this problem was overcome. So the mix in our segment is always variable. But this year, as I mentioned, a big variation in which agro decreased and the industrial cargo increased. So tankers have been expanding in a very significant way.

We multiplied it 4x our daily production of tankers and overall perspective. And we have some lines of products that have some flexibility that allow us up to a certain level to adjust. So segment increase in some lines and in some other lines, we don't have that flexibility.

So our executive team at the manufacturer has been working a lot in expanding our capacity of production. This project is ongoing, is being developed as we speak for us to increase our capacity -- our production capacity and this increasing flexibility for us to be able to serve all the market sectors in a more efficient way.

And to end FENATRAN, as Randoncorp first has been -- as FENATRAN is still happening today, it has been a big success, very positive for the first time, Gabriel, and I had 4 booths for different spaces there with manufacturer, our auto parts sector and we had also a booth for rents. And some of those verticals, like auto parts showed new technologies. We captured the attention -- we drew the attention of our clients in such a way that some ideas and the inclusion of new technologies in future platforms, platforms for '26, '27 are being discussed. And we've been making some networking and fostering new relationships.

And for sure, the biggest example of that, it was the launch of the hybrid truck of Volkswagen, trucks and buses, with a value proposition, very effective for the transporters. This technology is -- 100% of the technology was developed by Randoncorp electric traction and battery control software, and they come from our Suspensys. So some new businesses developed by rents and our manufacturer of semi-trailers in which we actually showed during the trade show.

And this trade show has been very positive to us. We're very happy with the businesses' volume that we could obtain so far. The trade show is still happening today, discussions are there. But those who had opportunity to be with us there and to even access our booth, it was almost nearly impossible because it was crowded and it was the most popular booth the whole trade show. We're very happy at opportunities to have a delivery of our semi-trailer number 600,000.

That's a milestone for the national industry. We received the VP, the Vice President of the Republic. We showed technologies for the future. Sorry about my long answer, Gabriel, but we are very glad and happy with the commercial perspective of the trade show and with all the new technology that we presented there. We could see the acknowledgement by the press, by the clients, the experts, it's even reasonably more they're surprised and impressed by seeing that this national company, Randoncorp, developed so many innovative and vanguard technologies preparing our company to a very, very positive future ahead.

[Caroline Colleto, executive]

Now, we're going to move to our next question by analyst, Andre Ferreira at Bradesco.

[Andre Ferreira, analyst]

I have 2 questions. Back to the manufacturer margin, I understand that it's a non-favorable mix in Brazil and it's an overall increase in every market that impacts the operating leverage. But I'd like to understand if there are any leverages for operating efficiency that can be worked internally. And if the modular platform, what it represents for implementing '25, '26, '27, and does it aggregate with a higher margin compared to the implements?

And the second question about M&A, the possibility in our radar, do you consider the acquisition of auto parts in the U.S. and thinking about a possible increase in tariffs and change of regulations for heavy vehicles in 2027?

[Davi Bacichette, executive]

So the first part of our first question, I'm going to start with Esteban, talking about the manufacturing margin. And Sergio, the second part of the first question regarding modulars, what do you expect for the following years? And the second part of Andre is regarding M&A, the M&A plan regarding auto parts in the U.S., as he mentioned. So, we have like 3 questions, starting by Esteban.

[Esteban Angeletti, executive]

Thank you, Andre, for your question and for participating here in our call. A fact here is that we want to prove and we will improve the equipment, the attachments parts and our implement -- our attachments plants are like big puzzles. You fix a bottleneck and you end up creating a different bottleneck in production.

So we have some investments in the paint job where we're increasing the capacity of outputs, or painting our units from 90 to 110 units, but you create another -- many other bottlenecks in the factories, but we have to fix them as they show up. So we have a plan for restructuring our factories for us to make them more efficient, working in different fronts, like the conception of the products, then we can talk about modular that we're going to -- it's going to allow us to be more efficient in the manufacturing vertical.

But in this manufacturing, before automating that process, we think about how can we improve that. We cannot automate an inefficient processes because we're going to speed up inefficiencies. So we have to reflect on that, analyze that process thoroughly and understand if there's any a more efficient way to do that before starting automation. But this plan of restructuring of the factories and increasing efficiency, it will lead to an improvement in our margins for sure, naturally. Combined with the change in our mix, it's going to help us build a better margin for the following quarters.

Sergio, I'll give the floor to you back to talk about expectations of modular, about the clients' acceptance and the costs related.

[Sergio Lisbão de Carvalho, executive]

Okay. Thank you, Andre, for your question. Esteban explored what we're expecting ahead. We have been realigning which product, where we produce, where it's better for us to maximize our mix. So we had many changes in our e-Sys space, but it had impacted in Chapeco, in Araraquara, in Erechim, to redistribute this segment mix for us to increase efficiency and capacity. There were many changes in this line. So besides new equipment, productivity increase, automation. So this is our plan.

In the modular platform, what we've been producing is more connected to a category of like craft production. And some equipment predicted for the industrial process are being commissioned at the end of this year. So, as they are commissioned, we will be able to increase the production rate for the products that have modular platforms, that represent not necessarily a cost reduction per part, but the advantage here is -- as a platform, is to reduce 700, 1,000 kilos of deadweight. So it's going to allow us and when you bring this additional value for the transporter, it will increase your margin in the line above, of course.

So there's a stable production with definitive processes. It's going to start in 2025. In 2024, our production was more manual, analog, if I can say it that way. So regarding M&A auto parts in the U.S., of course, we've been -- this is our plan and we announced it. So we want to do that for sure, not because of the elections results. It has always been our plan. There's a sequence in our moving -- moving meditation. So the priority for us, as we mentioned before in previous events, is sure to take our parts -- our auto parts to the American market or the European market in, for like, geographies, spaces of strong currency.

So a few hours ago, we concluded the acquisition of EBS. It was subject to pending approval by the authorities, the antitrust authorities. So this acquisition was completed today. So now we have a robust pipeline of opportunities that we've been exploring in the North American market now. Nothing connected to the election. We don't believe in any significant changes in tariffs, like favorable or not, in this aspect. We believe in our plans and we're going to keep on working to make them come true and make those opportunities pay.

[Caroline Colleto, executive]

Let's move to the next question by the sell-side analyst by XP, Lucas.

[Lucas Laghi, analyst]

I'd like to explore a little better the advanced technology part, looking at the value potential that you have in this segment. If you look at the third quarter, we could see an improvement in the EBITDA, taking off the equity equivalence, but we have a creation of value in the division. What do you see? And I believe you have a very vocal innovation culture. But thinking about the monetization for those initiatives, what is the speed of capturing for those initiatives in this advanced technology? What is bringing you up, being the biggest driver for the improvement in revenue? What's the speed in which you want to bring this operating profit -- this win ahead?

And moving to the services and digital services at Rands, you have an equity method that has improved and it's going to reflect ahead. Just for me to understand better, is it a recurring effect that we can expect in relation to equity income in looking on? Do you have room for improvement in your portfolio? Is there -- thinking about -- it's at the beginning, but it was like relevant in incremental profit at Randon. So I'd like to understand that a little better. What do you expect for this incremental profit, Addiante?

[Davi Bacichette, executive]

Nice that you brought advanced technology for our discussion, for our call. Sergio, I'd like to start with you to talk about advanced technology, as it has improved as a vertical, but it impacts all the other verticals, have a double benefit, having a vertical. So I'd like to pass the floor to you to give some color in this double benefit. And Paulo, if you could comment about a judge for this equity method for the third quarter. I'd like to start with you, Sergio. You're muted, Sergio.

[Sergio Lisbão de Carvalho, executive]

We mentioned that our vertical of advanced technology, it acts in 2 ways. We have a few products and services that are directed to the external market and take part of what it does is brought inside the other verticals. So we've been harvesting the initial benefits in the several internal verticals. Some examples, we developed some years ago an ABS system and it today represents 70% of our semi-trailer production using our ABS system. And the benefit is felt inside the vertical. We launched the ABS at FENATRAN. So we developed Randon Smart, developed many other technologies associated to nanoparticles. And what's more disruptive, the acceptance period and the scale the quantity increase for those technologies is a little slower than the incremental innovations, the evolution.

So everything that's more disruptive takes longer to become solid business models. A great example is the e-Sys system, we announced as a concept for the market in 2019. And it was so innovative that the vehicles could not be tested because the clients could not test the concept because the vehicle could not operate in Brazilian highways for lack of regulation or having a trailer with electric traction. So we had to overcome those obstacles for 2 years for us to be able to have the regulation. And then we started selling at the end of last year and this year. So we're going to sell 50 units this year, we believe. But it's gaining momentum, the green freight.

So many, many business people is -- you're talking. I'm like closing deals due to your traction system. And it's multiplying. So we are at the part of the exponential curve that's a little flat. But we believe that we're going to scale up those businesses for the years ahead. So everything that is disruptive takes a little longer. But we're going to get the results from that with great margins, but it's going to take a little longer.

Another example, we've been talking about the wheel hub, the different material based on NIONE, our nanoparticle niobium. So we presented that in Canada. So a wheel hub weighs 32 kilograms. The preceding hub is going to be reduced to 19 kilos and the American version is going to be almost as light as an aluminum hub. So the American was approved, was validated. We're going to test in the field, 2 years in the American market.

Then we have this big expectation in bringing incremental results and revenue. In the Brazilian case, we believe that we're going to start the conversion of that process at some moment of 2025 second half. So it's just an example. Everything that is cast in a vehicle and many other that are stamped and welded represent a big potential for us to convert in castings with this new test parts, with this new technology of material.

So it's a journey. The clients cannot attack the whole vehicle and say, oh, let's get all the parts and convert everything into this new material. But we're going to do that gradually, following their pace. But we are very optimistic because the technology will payout will bring dividends and assist us in increasing the margins. But the time scale, the more disruptive that it is, the more difficult for it to translate into results.

So Davi, I don't know if there were another part of the question, if it wasn't my part. If it has, can you repeat that?

[Davi Bacichette, executive]

It was basically that advanced technology, et cetera. I think you covered everything. Lucas, if you have a follow-up. So I'll give the floor back to Paulo. And now talking about Addiante in the third quarter.

[Paulo Prignolato, executive]

Perfect. Without any questions, the Ambipar agreement that was announced was relevant for Addiante. We have like over 1,600 assets. We doubled the size and now we have presented positive results, which impacted our equity method line. Of course, we are moving on solid. We are very happy with this investment. And the more it grows with newer operations and agreements, this equity method line is going to keep being important for the Rands vertical and for Randoncorp as a whole.

[Davi Bacichette, executive]

Thank you, Paulo. So I'd like to talk about -- [indiscernible] He asked the question about Addiante. And Lucas, if you have any follow-up regarding the answers, be free to ask them.

[Caroline Colleto, executive]

So moving on to the next question, it comes from the analyst, Luiza Mussi by Safra Bank.

[Luiza Mussi Tanus e Bastos, analyst]

Can you hear me?

[Caroline Colleto, executive]

Yes.

[Luiza Mussi Tanus e Bastos, analyst]

My question is about the auto parts vertical. If you could explore a little more about the margin expectation for that vertical, considering many moving parts, like the logistics that affected the quarter, the ramp-up of Castertech and the contract at Suspensys, more recently EBS. How can we think on that in a more structured way ahead?

[Davi Bacichette, executive]

Sergio, I call you up to talk about the auto parts and what we have in mind for this vertical, for the margins vertical ahead.

[Sergio Lisbão de Carvalho, executive]

So we have our traditional businesses. Obviously, they involve productive variations of like raw material costs, the prices. Part of what we do in the auto parts are related to supplying contracts for big manufacturers. So these basic dynamics, they continue and our team is making a great, great work in making the positive evolution in this productivity processes.

So we have bought many castings and our new operations in our Castertech in Mogi Guacu is still being ramped up. So we have a second shift operating now. We're considering a third shift and everything leads to an operating efficiency internally. Very, very relevant, as we can say.

So the first months of the operation, as you can imagine, it's not profitable, sure, but we showed the break-even line. But now we are in the positive side and we're going to expand this operation. And we have a big launch at Suspensys in the first quarter of 2025 with the front axles for Mercedes and the initial stage is a little delicate, of course. But on the other hand, we have a big increase in our mix and we want our auto parts to be more connected to the aftermarket.

So being Castertech, Suspensys and all the other brands, all the other units, they have been putting the effort to expand their role in the aftermarket segment because of rentability, profitability, stability of revenue. And as we commented before, we concluded the acquisition of EBS and their segment is aftermarket as well. So this business unit has its dynamics, so we can see the growth in our aftermarket segment inside our auto parts segment.

[Caroline Colleto, executive]

Next question, Gabriel Rezende, are you there?

[Gabriel Rezende, analyst]

Yes, Carol. Yes, I can ask you a question. Two quick follow-ups. Sergio commented at the beginning of the call about the changes in governance. I'd like to understand, Sergio, if like if this new division of the directories and VP can change the manufacturer's margins between the manufacturer vertical and the auto parts vertical. I understand that -- are we going to see a change -- a shift for the margins for attachments with this new change?

The second here is you commented on the expectation of increasing volumes in mix for 2025 due to the agribusiness. I understand it makes all the sense to move for agro increase in the latest month. But for interest rate, you're a little pessimistic. So how can we balance that? How agro can overlay this interest rate dynamics, especially when we're talking about auto parts being sold to truck manufacturers?

[Davi Bacichette, executive]

So, Sergio, can you comment on the first one? And Esteban, in sequence, if you can comment on market and interest in agro. So, let's begin with you, Sergio.

[Sergio Lisbão de Carvalho, executive]

Gabriel, thank you for your question. Gabriel, our primordial vision perspective here is to maximize synergy. And we tried to do that. We have been trying to do that forever. So we upgraded our structure because we judged we could do that to optimize our use in a series of areas. So all the possibilities are open.

And if we see the possibility of optimizing our operating efficiency or our tax efficiency, so to speak, we're going to consider that, sure. But the main reason for us to carry out those changes in governance is to allow us to improve production, realign investments in verticals in a way that we can maximize the return over Randoncorp as a whole. But if we could have a better tax efficiency through this rebalancing, we're going to consider, of course, sure.

[Davi Bacichette, executive]

Now, Esteban.

[Esteban Angeletti, executive]

Being very objective, we see that this improvement in the agri mood is going to overcome the perspective for interest rate increase. As we can see, as the market projects in 100, 150 bps increasing the interest rate, it's not going to be a barrier for the recovery of investment. What we observe with this new harvest projection is a recovery of the normal regular volume for sales to agro, potentially an increase for the demand because of the fleet that was not renovated this year.

So next year, maybe we can get back to the regular demand, but also probably higher demand, an additional demand for what was not completed this year. We're talking about volume not only in the domestic market, but also we see this recovery for the external market as well. In South America countries, Chile, Argentina, some clients, some Argentinian clients were at FENATRAN negotiating products and mainly the North American market.

[Sergio Lisbão de Carvalho, executive]

Gabriel, Esteban, if you allow me just to corroborate your answer -- Esteban's answer. What we can see this week at FENATRAN is very relevant because it's heated up, the mood is good, the agribusiness representatives are struggling, of course, but they have capital. Many people don't need funding for their transactions and we can see that.

[Caroline Colleto, executive]

So we're going to move on to our next question. It comes from JPMorgan analyst, sell-side in Marcelo. Marcelo Motta?

[Marcelo Motta, analyst]

It's a quick question about the tax benefit on MOVER. If we're not miscalculating, you have like BRL 50 billion as a benefit this quarter. Is it a line that we can consider recurring? It's a new one. I'd like to understand those benefits and how you're going to use that over the following quarters.

[Davi Bacichette, executive]

I'm going to give the floor to Paulo to address this MOVER issue. Can you reply? Can you answer, Marcelo Motta?

[Paulo Prignolato, executive]

Motta, thank you for your question. Thank you for your participation. Yes, this impact, this estimate that you calculated is aligned with what we registered this quarter. And this is a long-term program for the government. And since we have that in all the verticals, many projects that are aligned to innovation and greenfield sustainability, for sure, we will keep capturing those benefits.

Of course, the government has a system in which it approved this project. And it's, of course, our goal is for that to be long-term. Every year, the government has to approve the specific budget for that project. But we understand that, no doubt, it's going to bring important contributions for all the verticals for the following years.

[Caroline Colleto, executive]

So now, we're moving to our last question. It comes from the sell-side analyst of Citibank, Kiepher Kennedy.

[Kiepher Kennedy, analyst]

Two quick questions. You comment about logistic challenges, the increase in the sea freight. How do you see that? How can you mitigate those impacts? And related to the factory units at Castertech initiating operations to spend this -- concluding by the end of this year, given the challenging macro contexts due to all the factors that we saw, how do you imagine the use of the factories for 2025 and incremental revenue opportunities for next year? The agreement for front axles with stages has no impact, but potential new agreements and updates for this factory plant.

[Davi Bacichette, executive]

Regarding freights, I'm going to talk about that with Esteban. If you could, Sergio, talk about the Mogi plants. Besides the contracts that we have in our pipeline, it opens stores for us and with new clients and new projects. The Mogi site is very relevant to us. So first, we're going to comment on this first point and then Sergio will finish that.

[Esteban Angeletti, executive]

Kiepher, thank you for following our call and for your question regarding freight. Since Fras-le Mobility, our vertical that has more exposure to the international market, it felt a little more the pressure of the freight costs in the first half. So we saw that in the earnings release by Fras-le, but our role here is to manage that to able to run around that. And our models is we have to solve that internally for us to preserve our margins and eventually spend the opportunity that we can see.

So looking ahead, of course, it's going to normalize the availability of containers and, of course, it's like a demand and offer that the cost of the freight is going to be normalized as well.

So, Sergio, any comment on the second part of the question, please?

[Sergio Lisbão de Carvalho, executive]

Yes, perfect. Kiepher, thanks for your participation. Our perspective, Castertech, Caster Mogi, I mean, is in the ramp-up process, as I mentioned. You know, in the previous question, we are starting the second shift. We crossed the break-even line. So it has a positive impact on our results. But the businesses' volume that we have is significantly superior to our production capacity.

So we have all the variables aligned for having 2025 operating at full capacity in our unit in Caster Mogi. Even though we will need more capacity and we are going to buy, purchase material, and we have many opportunities that will demand the expanding of capacity for production for the future. So we have a trust level that is very significant, that is -- we are sure that the evolution is going to be positive and sufficient.

But in parallel, in the same -- this very same site, we have the front axle units for Mercedes, so it's going to be implemented. There are many stages. We are not going to have a full year at the beginning. It's the beginning of production. So it involves some processes that we are starting safely in Caxias do Sul in machining and some equipment are being transferred, some pieces of equipment of Mercedes are being transferred to the operation in Mogi Guacu. And once the equipment are there and installed, we start machining those components there. And then we are going to begin the assembly and different categories and segments.

At some point in 2025, we are going to supply 100% of Mercedes-Benz necessities. So it's a long project that involves many stages, different vehicle models, different levels of aggregated value that we are going to see along the year. And the purpose there is to perform a good job for us not to have any issues and any problems and compromise the success of this launch.

From there on, when we have the project well rounded and established, we can think of a new expansion. Possibly, we are going to have to assemble axles for our own operations, semitrailer axles that we produce, manufacture in the south. We are going to transfer that to Suspensys for them to improve logistics in our manufacturer vertical in Araraquara.

Many other products are going to be added. And we have some negotiations to expand the front axle activities to other clients, but we are still negotiating and they are pending. We cannot tell you when it's going to happen. But we have the intention to do that in the following years after 2025, having like bigger volumes of production at Suspensys, Mogi Guacu. So our perspective regarding auto parts in this industrial complex are very positive.

[Caroline Colleto, executive]

Well, so now we conclude our Q&A session. We thank you very much for your participation and our directors as well. Now, I pass the floor back to Sergio for his closing remarks.

[Sergio Lisbão de Carvalho, executive]

Thank you, Caroline. Thank you for your participation, for attending this earnings call. We have this material available on our website, available for download, and we have many content available about FENATRAN, the trade show that's happening this week and it's available for you. And if you have further questions and if you need to have in detail to break down any other issue, any other points here, please feel free to call us that we're going to reply to you at our earliest convenience. Thank you for your participation. Have a great weekend, too.

[Caroline Colleto, executive]

Thank you, everyone. Have a great weekend. Bye-bye. Thank you. Have a great weekend.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]