Fras Le SA

BOVESPA:FRAS3

Earnings Call Transcript 2021-Q3

[Jessica Cantele, executive]

Good afternoon. Welcome to the Fras-le Universe 2021, this event, which is the joining of our Investor Day, and the results of the third quarter of 2021. You can see the full schedule of the event on the website on ri.fras-le.com.

Before we start, I'd like to share some information. [Operator Instructions] This event has simultaneous translation to English. To make the alteration, just select the upper right corner of your screen. The statements of the company are not a guarantee of performance. They involve risk and uncertainty and premises because they are regarding future events and, therefore, depend on circumstances that may or may not happen.

All the COVID-19 prevention protocols are being used during this transmission. All the people in this environment are vaccinated and tested.

I'd now like to invite our Director of Investor Relations, Hemerson de Souza to begin the presentations, and wish you all a great event.

[Hemerson de Souza, executive]

Hello, everyone. It's an enormous pleasure to be able to come back 1 year more or less from our previous Fras-le Universe and to share how our company has evolved over the last year. Very well.

I always start by introducing Fras-le. Fras-le is a company with several years of history and operations with a long story founded in the 1960s. We had our IPO in the 1970s. You can find shares of Fras-le. We only have 1 class of shares. We have a market value of BRL 3.1 billion, and the free float of the company is around 35%.

I'd like to say that we have a very defined control structure, Randon Asia controls Fras-le with almost 52% of the shares, then PREVI and Dramd, which is the huddle family with another 12%. Main shareholders in addition to TPE Gestora de Recursos Ltda was 6.5% of the shares with a total of 217,000 shares.

When I say we have a defined control group guided by the Randon Companies. This is very important for Fras-le. Because Randon not only is a control group, it's much more than that. Integrating Randon Companies allows Fras-le to access several synergies. It allows Fras-le to expand its market horizons and allows them to exploit advantages that are very different than any of our competitors.

And in general, this values our results and expands our operations, reinforcing all the value which we want to share with the entire stakeholder chain. So it's a source of pride for Fras-le to be part of Randon Companies.

Very well. Sometimes people ask me, what is Fras-le? In the last few years, Fras-le has changed, they bought other companies. And I would say that Fras-le is a very separate story for what we see in the stock market. It's not comparable to the peers that we have at least here in Brazil because its focus is very different in various other areas and not everyone can operate in, at least not in the same manner that Fras-le does.

We're focused on services and manufacturing of parts. We're an automotive company, yes, but we're also changing some of this for the future. We have trade and services, retail and services, we're a house of brands with several brands, we're a manufacturing industry for parts, et cetera.

But we don't sell capital goods, for example, where a quick consumption product, and the demand is much more connected with what we call circulating fleets in the average age of this fleet then, for example, the demand of the regular economy of the growth of the economy. So other of my colleagues will address this topic in greater detail.

We access the market with important iconic brands, desired brands, which we want to highlight here for you, especially brand Fras-le. We added Lona Flex in the 1980s, most recently, Controil, Fremax and Nakata, which are well recognized and respected brands in the market. It's hard for you to access any final sales point to buy auto parts that you don't see one of our brands. I would say it's almost impossible. We are present in several points of sale with these brands. And we will present this through a very large network that my colleague, Paulo, will address in greater detail.

With the acquisitions, with this movement, we built a very full portfolio of parts and solutions. They operate in various areas. We have things for light vehicles, for commercial vehicles, motor bikes, brakes, suspension, powertrain, steering, whatever you need, you can find a part for your car, if you need to repair your car or your truck.

In Brazil, we have over 12,000 SKUs. We're an important solution, a one-stop shop for all the different lines that we offer products in our brands and factories. Fras-le is also present in over 125 countries. We have operations in all continents, over 5,200 employees working. And in this quarter -- or excuse me, in these 9 months of the year, we finished with BRL 1.9 billion in net revenue, which is quite vigorous, and I'll go into more detail shortly.

We have 67 years of history, 10 factories, 13 operation -- international operations and 5 distribution centers, which cover the globe, so we can meet the needs of our customer in the best way possible. Placement parts have to be convenient, it had to be close to the customer and support their demand very quickly and efficiently. Therefore, this model built by Fras-le in the last years.

Here are some of the photos of our plants. We're very proud of this. Here's the real photo for you to see. And also I want to show you some of our recent performance. BRL 1.9 billion is very centered in a few markets. First of all, Fras-le is almost 90% replacement parts. Of over 100 parts that we sell, 88 are replacement parts. 40% of what we sell, we sell overseas or we generate value overseas. And something recent, up until 2012, we're 100% dedicated to friction material. Now we're about 50% friction and another 50% in the other lines, which we've added.

Another change is our focus is more in the light line, 60% of our revenue comes from this line. And another point is also very important with the acquisitions, we have learned to find sources which complement options in our sales chain.

Today, 30% or more or less are not manufactured by us. We have global partnerships, which support us for these products so that we can access the markets where we operate. In these 9 months, we reached BRL 328 million EBITDA, BRL 17.3 million of our revenue with net profits of BRL 188 million, almost 10% of the revenue. The following graphs will show you some of this.

This is significant growth when compared with the 9 months of the prior year. Even compared to the quarter, I remind you that it's been since September of last year that Nakata became part of Fras-le companies, but 1 month of Nakata comparison to last year. I have to be quite fair with this. But that doesn't remove the shine of our results and everything that we have done as a company to be more efficient and to address markets as best as possible. This is our EBITDA performance and our net profit, which went from BRL 3.6 million last year to almost BRL 190 million in these 9 months of 2021. Very well.

As I mentioned before, 40% of what we sell is to outside of Brazil and especially this is doing well in the Americas. Americas are about 90% of our sales. Brazil, obviously, with a significant share. This graph shows us very clear, very clearly that we have a lot of space to grow. And this is what we want to do. This is what we want to explore, and we want to discuss, especially in the speech that Sergio Carvalho will address. The world is large, and we have an opportunity to grow even though we have a significant participation -- a significant share of our revenue from the global sources.

We're also a company that's committed, along with the Randon companies. And along with them, we have several social responsibility programs. Some of them are represented here. The most iconic is the Florescer or Blossom program. If you want to learn more about this, you can go to our website, fras-le.com., or I will share our sustainability report which gives a lot of emphasis to all of these programs.

We also have a great commitment to the environment because taking care of our planet is an important part. And we do this not just to make parts to sell, but it means taking care of important pillars. Therefore, we took on an important commitment along with Randon Companies. And this was done at the beginning of this year, and I'll show you some of the main metrics.

If you like, there's a QR code here on the screen, and you can access all our sustainability initiatives. I mentioned, and I'll be very quick here to be able to read it. We want, as a commitment, along with Randon Companies, double the number of women and leadership positions by 2025. We want to -- may have 0 serious accidents. We want to expand consolidated net revenue annually, generated by new products. We want to reduce greenhouse gases by 40% by 2030 and 0 -- have 0 landfill waste by affluent launches by 2025. This is a commitment that we have. And we want to show you some of this development in the speech given by our President and CEO, Sergio Carvalho at the closing of this presentation.

Finally, I show you our performance is a capital market. In general, our initiatives, what we've been doing in our acquisitions, in our daily operations, and Anderson will present this to you in more detail, this has been rewarded by the market. We -- our value has increased significantly in recent times, especially in relation to the main indicator, Ibovespa, and we've been expanding our liquidity significantly, almost 8x above what we had in 2017.

It's still an opportunity for us, and we want to maintain this actively in the future, adding liquidity so that Fras-le can receive the value and the premium for the execution of its strategies in an appropriate manner. Having said all this, I'd like to thank you. I'll be back in the question-and-answer session at the end of the presentation.

And I'm pleased to give the floor to Paulo Gomes, he's my colleague, who will say a bit more about how Fras-le relates to the market. Thank you very much.

[Paulo Ivan Gomes, executive]

Hello. Thank you, Hemerson. It's a pleasure to be here again to continue the presentation. Let's talk a little bit about our relationship with the market.

Each little point on the map shows one of our sales points. This is our geo positioning of customers. How is this coverage? Each color represents the size of the city, all the cities above 50,000 inhabitants are mapped, and we have a point of a direct client. If not, that someone nearby who can cover this. So we have a structure of 16 regional offices, with over 1,100 commercial service instances, over 400 business groups were we deliver our products in over 1,300 direct sales points.

These replicate and distribute our products and an over 50,000 indirect point of sales in Brazil. Therefore, beyond sales, we have post-sales service, providing coverage, training, assistance, warranties for our customers, especially in direct customers such as garages and vehicle fleets.

What sustains and the way we created our strategy of growth and market coverage? We accompany through our circulating fleet. This graph shows the evolution of the fleet, which is growing and some important data that draws our attention, the average age of the fleet, which is growing. As a replacement parts company, the average age of the fleet increases the amount of parts as that vehicles get older, they require more maintenance. For commercial vehicles, we have this evolution. For light vehicles, we also did the same accompaniment with a bit more timid growth of the fleet and the aging of the fleet is growing. This helps us in the spare parts market.

We also did this with motorcycles. Our motorcycle market is a significant market. It's growing. The future curve shows linear production with stable growth, but the average age of the fleet is also growing significantly. This affects the businesses in which we are inserted. Another indicator that sustains our growth and volume and sales strategies is the flow of vehicles on the highways.

The graphs on the left, we have light vehicles and on the right, heavy vehicles. The yellow bars shows the flow of vehicles. You can see that it's stable. Obviously, in light vehicles, at the beginning of 2020, we had a reduction peak because of the pandemic. But shortly thereafter, we went back to the normal levels.

The graphic in line shows the fuel consumption of gasoline plus ethanol. The curve is constant. The vehicles continue to run, and this generates the consumption of our products. Our potential market in Brazil is a very significant and large market. We placed some of the potential markets for the main families in which we are inserted.

If we look at disks and pads, we have BRL 651 million. Friction material for the light line, we have around close to BRL 500 million. If we look at cylinders, shock absorbers, friction material for the heavy line, these are all very large markets.

Drawing special attention to shock absorbers, which is in our presentation for the first time because of the acquisition of Nakata, we're starting to have data in our reports, in our presentations. It's a market of BRL 1.8 billion. It's extremely large here in the Brazilian market. We also have -- this is our report card. What is our market share? We're a company with very significant representation in the spare parts market, and we're leaders in the families in which we work.

Let's look at Tarps. We have a very high percentage of the share, pads, master cylinders. We have 38% of master cylinders. We have 20% market share of brake discs. We're leaders in the families, which we sell to in the Brazilian market for spare parts.

How do we coordinate this effort? We're in the process since 2017 of digitalization of our processes. When it comes to sales. We recently launched our digital catalog, Auto Experts. We don't print catalogs. Everything is digital and updated regularly. Every time a new product is launched in the market, the new release immediately comes to our catalog. And recently, about 2 weeks ago, we improved this tool, and we launched our search by license plate. One of the difficulties which we had and then pain the mechanics had was discovering the right part. Now by putting in the license plate, you can identify the correct part, both for Fremax, Controil, Fras-le, and it will be this for Nakata as well. We have a short video showing how it will work.

[Presentation]

[Paulo Ivan Gomes, executive]

Very well. This catalog will facilitate the life of the users, mechanics, retailers and direct customers to identify the right part for the right car at the right time.

Also, we improved our order portal, which we call our e-commerce. Today, our orders are 100% automated. This generated as much as 80% in calls to customers to place orders. In other words, we provided more autonomy for customers. We also processed the orders in 3 clicks reducing the inclusion time for the orders by 30%. We also were able to trace all the orders. It is available in all the platforms whether on a tablet, a notebook, a laptop, computer, mobile phone, 24 hours a day, 7 days a week. In other words, it is a facility convenience for our business.

Our relationship with the market, our interaction with the market, we participate and sponsor the truck up, when it comes to heavy cars; stock car, the most relevant competition for Brazilian automobiles with Fras-le and Fremax. Fras-le, with the brake pads, Fremax with the brake discs. Also the Porsche Cup, Mercedes-Benz Challenge, Sprint Race and other modalities. In other words, this relationship with this public in this segment of business puts us in a leading position for the product development.

Our products are tested under extreme conditions of speed, of heat. This gives us or places us in the vanguard for products. All of our effort has been recognized both in Brazilian markets as well as export markets. For example, we received an award for export highlight. And we also received award from Haixing in China as the 10 best suppliers. Our products are fully recognized and awarded such as the Inova Group says we have the best brake pad for the ninth consecutive year. Fremax is recognized as the best brake disc by Inova magazine. And another significant award for us is done by Oficina Brasil. In other words, Fras-le parts were awarded this year.

[indiscernible], which is a very respected agency in the Southeast awarded several of our parts. Also our bar graph shows Nakata standing out as one of the most appreciated brands in our market.

Now continuing our process of approaching the market, we have various videos. We have 13 episodes on YouTube on the Fras-le channel, giving tips, training. We call it Fras-le eye on the road. These are short videos and the thousands of accesses. Also, we do activities with truckers throughout Brazil with test drives, giving health tips, training, workshops and fleets.

Also we're providing training. I want to highlight the [indiscernible] program, where we trained over 6,000 students of car mechanics, and we have videos and live streamings to solve problems with our products. Training courses, tips and our blog with over 350 weekly contents published for mechanics, retail, et cetera. That's it, folks.

Now to continue, I'd like to call my colleague, Anderson [indiscernible].

[Unknown Executive]

Good afternoon. I hope that you're all feeling well and healthy at home or at work, near your family. For me, it's a privilege and an honor to be here speaking with my colleagues, in the name of our over 5,000 employees at Fras-le. And while I say this, I want to thank them.

What Fras-le has been doing and winning in terms of results, innovation, trying to improve people's lives in the world and the environment is the result of the effort of people who are engaged and motivated. So thank you. I'd like to say what I can say about how we transform Fras-le in recent years.

Everything that we have done in the Fras-le history, the customer was at the center. But the strategic movements that we thought of in this last expansion cycle has everything to do with thinking about the customer. Paulo and Hemerson mentioned capillarity. In other words, placing the parts close to the customer and having a smart catalog so that our personnel can find the part with more convenience, having iconic brands, offering products that's a full solution for our customer.

It's at the center of the entire strategy that we thought of for today and for the future of the company. An important point, Hemerson mentioned, is that we have a consolidated robustness in the replacement our spare parts market in Brazil, we are considered a one-stop shop. When you go from the wheels, all the way to the steering, Fras-le has a full solution. Both in the original vehicle or replacement parts, we can provide solutions that are appropriate for the Brazilian automotive reality.

In the last recent years, we've had advances in our geography. Fras-le grew both organically and inorganically in various regions. For example, we had important advances in South America, Argentina, Uruguay. We expanded in Colombia with our presence in Cartagena. We expanded operations in China and India, all this was addressed in previous presentations, and Sergio will talk about it in a bit. All this is part of this transformation.

Our portfolio is extremely expanded. We have over 20,000 SKUs in Brazil and over 30,000 if you look outside of Brazil. And something that we have developed in the last several years is a quick releases. I'll give you an example. Fremax, who makes disc brakes or Fras-le, who does disc pads, a vehicle leaves the assemble line and goes to sale in 30 days, we already have the item, either the original for a part of the project or the replacement part.

Operational adjustments were important in this story. We had performance cycles for some operations. We also have the courage to face problems and resolved problems in Argentina. Problems in the United States resolved capacity problems, dependency of some manual processes that didn't provide the reliability that we needed. These were automated. And we have explored digitalization frequently even in this event.

The organizational architecture, you can see that this event in comparison to prior years, we have several directors who are already providing granularity and specific attention to the complexity and size that Fras-le now has.

This group of executives has over 150 years of experience in the automotive industry, all with broad national and international experience. We paved the future and did all this. We have not forgotten about the future. I won't go into this because I'll steal from what Sergio [indiscernible] have to say. But we launched this smart composites, and, [indiscernible] these are companies which prepare Fras-le for the future with the knowledge that we had in-house, and counterbalance to all the major trends in the automotive world, electrification, autonomous vehicles. So we are being prepared to be able to continue to add value at Fras-le.

Specifically, now dealing with the execution of our strategy, what did we do in the last several years? We became a replacement and powerhouse. Being present in the replacement and parts with the full solution and distribution capillarity, this guarantees robust cash generation. This robust cash generation allows us to perpetuate the company for a longer period of time knowing that several changes in technological novelties will require big investments. This cycle was completed, and it was completed so that we could go through the second moment. The second moment is to continue to go after what the future will require. To do this, we need to work today. We need to reinvent today.

Without cash, we would not have the ability to explore what will come in the future. So the powerhouse came to build and pave this future, which is disruptive, which is different and which is still uncertain to a certain extent.

We're also, as Hemerson said, with 60% of our revenue until 3 years ago from the foreign market. When we made the current acquisitions, our dependents or our domestic revenue expanded to 60%. So our cycle for future expansion should come from what the map shows in markets where we're not the leader, especially in North America, in certain areas in Asia and Europe in a more opportunistic manner.

There's still a lot of potential to replicate the Brazilian model in Latin America and Argentina. Argentina and Brazil are already consolidated powerhouses, but there's space in Colombia, there is space in Bolivia, Peru, Ecuador, Paraguay and Latin America as a whole, Mexico. That is where we are studying and building our ideas.

Now when it comes to the replacement or spare parts powerhouse, I want to go into the history. Controil purchased in 2012 was the first bold step in this direction. In 2012, we had a full dominance of our business in the friction business and centered in commercial vehicles. We didn't have a significant extension to the light line. And Controil is fully light line, 95% replacement and no friction. So it was a pleasant surprise. This acted as a lever for us to understand how to do an acquisition, how to integrate channels, how do you deliver people, purchasing areas. And so we follow that learning cycle.

We did a capital raising to have funding for making larger purchases. We went to Argentina. We found Fanacif in Uruguay, Farloc in Argentina, and this gave us significant robustness, which I can give details of later. In 2018, Fremax, which is a market leader. It has premium products in the disc market with a lot of resilience for exporting. It's a globally recognized product. And finally, Nakata, which we'll emphasize a bit more and my colleague will help me in this topic.

So when we analyze this and take it to present value, Fras-le had over BRL 1.2 billion revenue in M&A from M&A during this 8-year period. This is another platform. It's another company. It's a diverse company. It's a protected company. It's a company that's geopolitically interesting. When we compare to other companies in the stock exchange, we're compared to capital goods company. But here, we have several replacement items vehicles need to run and several of the elements and components which we produce are not optional. They need to be substituted. So we have a very armored model when we look at this. This, therefore, was the first cycle of expansion. We are obviously thinking about the future. And the second cycle is being built, is being thought about. And at the right time, we will talk to you once again providing more details.

Moving forward, providing more granularity, I'm not going to read all this material, but is a reference of some of the materials that we made available in the future. Controil taught us a lot in the M&A process, both for evaluation and integration and especially in daily commercial synergy, product and geography, we are able to do in-sourcing in 2 ways. Controil started to supply Fras-le and Randon also. And Fras-le and Randon started to supply components or parts to Controil, making it a company that performs very well.

When we look at Argentina, we had Fras-le Argentina before Armetal. When we bought Armetal, we brought with us a very experienced team from that region, which helped us leverage a lot of business, not just from the point of view of sales, but also in terms of performance. The commercial policies were adjusted and localized, and we learned a lot with this acquisition. It protects us geographically because it's a very solid presence in the south of South America. Fras-le is a leader in almost all its product lines in this market as well.

When we enter in Fremax -- when we entered in Fremax that you are familiar with, at the acquisition, they had revenue of BRL 180 million. We're talking about less than 3 years later, it's almost doubled -- has almost doubled its revenue, and we hope to double the revenue again. But it has a lot of adherence to the Fras-le portfolio. It brought features and characteristics of products that have a lot to do with our market. And the needs of mechanics and our customers.

So finally, I want to talk about Nakata. We completed 1 year of the acquisition. Hemerson remembered well. In September, we completed 1 year, and we're very pleased that this was a year of a lot of learning, a lot of experience. It was fun because this team is an experienced team that adds value and we continue this integration journey. This is Nakata. I'm going to let Marcelo Tonon to talk more specifically about Nakata numbers. But I'd like to say that we have already captured BRL 60 million in synergies. It was around BRL 75 million adjusted at the time of purchase. And after a year, the EBITDA is over BRL 100 million. We're already creating value by being together, 1 plus 1 equals 3. Sergio will talk about this here in a bit.

Just to show you my final slide, these are all the areas where we have integrated and captured synergies. Many of them have been completed. Some of them are yet to come. Some don't reflect upon our final results yet. That's interesting because it shows that there's a lot to capture. We're very pleased.

And so I'd now like to invite Marcelo Tonon to provide more granularity and a bit more of a vision about Nakata. Thank you. Have a great event.

[Unknown Executive]

Thank you. Good afternoon. First of all, I'm honored and thankful for being part of the Fras-le Group and for having the opportunity to speak about Nakata in the Fras-le universe.

For Nakata, this is an important moment. Nakata was already undergoing a growth cycle, but to enter this strategy and this replacement powerhouse and the growth strategy of the Fras-le Group and to be part of this house of brands is very important for Nakata. And I'm sure that Nakata in some way will be able to contribute to the strategy.

Nakata is a company that's close to completing its 70th Anniversary in Brazil with a broad portfolio of products., We have solutions for suspension, steering for both the light and heavy line. Nakata up until recently was a company that focused on the replacement or spare parts market. It's a company that, over time, has launched over 2 new products per day to maintain our market supply updated with the needs of the customers. We've come from years of revenue and income growth that is quite robust, meeting the promise to our customers, which is to integrate tranquility to those who have business with us.

When it comes to our product portfolio and how this portfolio is aligned to the strategy of the -- replacement powerhouse. In Nakata, we're under car solution in terms of suspension and steering, where our most simplimatic product is a shock absorber, but we're also a benchmark and market leader for suspension and steering components such as bars, pivots, terminals. And also in the commercial line for transmissions, we have what we normally call from end to end, all the powertrain elements from the transmission box to the differential box are all sold by Nakata.

And 5 years ago, we entered the motorcycle or motor bike market. This market is a market, which for a long time, was very marginal. There was no certifications. There were low-quality parts. And when we developed in metro certification, we entered this market 5 years ago. And then in the last 5 years, the revenue multiplied 13x, especially because we saw last year the role of motorcycles for transporting goods during the pandemic. It's a growing market, and Nakata is preparing new product lines to be a powerhouse in the spare parts market and to be a powerhouse for motorcycle group more specifically.

Now talking a bit about our products and the origin of our products. Nakata manufacturers shock absorbers, locally. 30% of our products sold are manufactured locally and 70% of our products -- 70% of our revenue are from products where we have commercial partners that are in competitive cost countries and the manufacturer upon Nakata specifications.

We have this business model implemented for over 20 years with an experienced team. We have a very strong relationship with the main manufacturers throughout the world for all of these commodities and products that we work with when we count on the technology and resources necessary to develop this and to transfer technology to our suppliers.

It's a pleasure to say that Nakata had this plan, this project for years. And once it was purchased by Fras-le, we were able to realize a long-term dream in only 9 months. We had a factory for shock absorbers in Diadema. It was an outdated factory technologically speaking. And once Fras-le became part of the group, we presented the project in a record time, the project was approved in a record time. We put this operation along with our distribution center. And this is transformational for Nakata.

This new factory of shock absorbers, which is our most well-known product, which was 100% produced in Diadema with the transfer to Extrema, not only was the factory updated and gained competitiveness, there are additional synergies. Because it is part of a complex that prepares Nakata for a new cycle of growth and prepares Nakata to have greater capacity and availability so that we can grow in this market -- in this product, which is so significant, which is so important for our portfolio.

And if you consider that 70% of the volume -- of the volume is outsourced and production, which we get from third parties that meet our specifications, supply chain and logistics is part of our core business. And in 2020, we had opportunity to expand our distribution center. Our distribution center today is over 24,000 square meters with potential for 40,000 pilot positions. Because what moves the spare parts market, what makes the spare parts market happen, as my colleague said, is the fleet, which is our vehicles that are running.

This makes our replacement business be an extremely viable business because we sell parts that we're out. We have parts that have a useful life. And once they reach the end of their useful life, they must be changed. As long as we have cars on the road, as Paulo Gomes mentioned, and these cars were running, our parts are wearing out. We're not talking about small parts of the break. We're talking about parts that have a natural wear. It's a core for us. It's core for replacement. The service our customer needs is to have the right part at the right time in the right place.

This is what makes logistics so important. This makes logistics so significant for our business. Very quickly, I'd like to present Nakata. And we thank you for the opportunity and we will return shortly to talk with you more during the questions-and-answer session. Thank you.

[Jessica Cantele, executive]

[Operator Instructions] I'd like to now invite Cesar Fajita to direct the panel future present now.

[Sergio Lisbão de Carvalho, executive]

Thank you, Jessica, once again. I'd like to congratulate you for your patience, watching us. We're here with you once again to share some of the strategies and the view of the future of Fras-le products.

I'd like to always start our conversation, remembering what we talked about. We talked with you in the past about some of the vision as to how Fras-le saw vehicle electrification, the importance of the use of new materials. We continue moving in that direction towards electrification and the understanding of what will be the impact to our business. And we've put in a lot of energy into a new line of solutions, which we believe is very aligned with the future of business and the future of the automotive business, which is basically the discussion regarding smart or intelligent materials.

As I said at the time, this is a reminder of our prior conversations. Regarding the understanding of how these materials can revolutionize the industry, especially the industry that we are in, which is the automotive industry, basing this on how this evolved in other industries. We see that the use of this type of material, seeking the best performance in terms of weight or other touristic is vital for all of our industries, but it is migrating more intensely into the automotive industry due to several reasons.

When we talk about electrical vehicle, we're talking about added weight. We're talking about several challenges that these materials could bring our solutions. So in general or from a simple perspective, we have certain characteristics, which I consider to be essential and typical of these materials, which has to do with an increase in efficiency. We're talking about a reduction in fuel consumption or granting more autonomy.

So when we talk about an electrical vehicle, we can make it not so heavy despite the fact that the technology requires batteries of a certain weight, a significant weight. It allows us -- allow these vehicles to be more efficient. If you have less weight, you use less fuel. It has a tolerance that traditional materials don't have allowing you to explore aerodynamic aspects. All of this made us believe that with all the synergy which we have in the industry and our knowledge of this type of material is something that we can explore more and this makes sense for Fras-le to dedicate to make deeper research into these smart materials.

This has been some of what we have done and worked on thinking about the future and the new business opportunities for Fras-le. I brought this graph from a conference that I participated in 2019, prior to the pandemic, we were able to have this discussion. And this information on the screen confirms what we believed in. You can notice that what we discussed in 2018, 2019, already signaled that there was a strong trend or the share of the use of metal, essentially steel and the composition of vehicles with a sensitive trend for the increase of composite and plastic materials.

It's not just a belief. It's not just a future trend that's far away. This is already happening. The image in the prior slide is a car that exists in the market and the company that manufactured. It's not a super sports car, it's a niche car, a small electrical vehicle that they sought to use smart materials that they hope it could resolve some of the problems that this material brings. So it's substituting steel or some other metal for another material? Is it that simple? No. And this is where we see the importance of research and understanding new scientists that allow us to properly use these materials.

We're essentially talking about a science that we're exploring in this project, which is biomimetics. It may not seem such, but it's completely vital for us to understand scientists such as this to properly use intelligent materials. This science is older than the use of these materials. I brought an example here, which is the Japanese bullet train. The engineer that designed it was inspired by the shape of the bird to try to improve the efficiency.

So we see several solutions where you start to bring experience from nature to improve your products. The smart materials or composite materials allow flexibility and control of regions where you can have greater resistance in one sense or another and you start to see a similarity with several things which we find in nature. And we have used it in such a manner and the results are fantastic.

This is one of the scientists, which has allowed us to leverage solutions and make them not just important, given the advantages that they bring, but more economically feasible, which -- because what we're seeking is new business opportunities. But we're not limited in talking or studying about biomimetics. We have also looked at nanotechnology. We know that it's a relatively little explored technologies in some areas more, in some areas less. In medicine, in pharmacy, it's used a bit more. But in the industry of materials, this has been used increasingly, learning about the power of these particles to transform existing materials.

Studying this, we understood that these particles have extreme transformation power. When we talk about mechanical properties, when we talk about resistance, alteration of metallic structures and resistance to UV or UVB rays and several other electrical properties, there's an interesting fact where given grain of metal can be a conductor. And when it becomes nanometric, it can be isolational, such as niobium, which we'll explore a bit more because Fras-le has been researching this and found solutions which are very interesting in this field.

When we look at all these benefits and start to see where we can apply them, we start to see several very synergistic opportunities in relation to our work at Fras-le, Fremax, Nakata, I can produce solutions that have more resistance to corrosion I can alter metallic alloys, which can allow me to revolutionize certain market niches. And this is some of what we have in our road map, some of what we're doing.

All this research, which is very intense, led to us finding a very interesting solution where we developed a method for obtaining and stabilizing mineral nanoparticles where we have been using and incorporating them in some of our products. And the major opportunity, which we saw as this method it was not patented. There was no exploration of its use. And so it brings scalability, which brings once again to the discussion aspects related to the economic feasibility.

At this time, we made a decision, and we created the company called [indiscernible]. [indiscernible] starts with this patent, where we're able to produce with advanced research stages for colloidal suspensions, which involve niobium nanoparticles and titanium nanoparticles. And all this is just a drop in the ocean we had a slight problem in the presentation. I want to apologize. The presentation will return shortly. But [indiscernible] is able to explore these niches related to materials, where we see several other opportunities, and they will be explored. So we will seek out lots of synergy in the solutions to our products, but [indiscernible] will start new fronts in new markets with new products and become an independent company.

I'm going to request for you to go on to the next slide because I don't think it's moving on the screen. Very well. Therefore, we're able to incorporate. Are you going to be able to return with the slides, gentlemen? We had a technical problem. Very quickly, this will get back. I think the slides help us guide some of our discussion. And we'll be back shortly -- already coming back. I apologize once again.

Very well. Just to retake this once again. We have all these potential in product lines related to agriculture, electronics, chemical, metals, civil construction, trying to use the properties of these nanoparticles and applying them to solutions which can leverage business for our companies.

Let me place all this together. We've just got a little problem here, but we are now on the slide. We put it all together, we create a whole set of solutions where we have a discussion of reducing mass with smart materials, using particles, using the science of biomimetics, seeking sustainable solutions, altering characteristics and having freedom of form, so that all of this together can bring transformative solutions for Fras-le for new product line that Fras-le is developing.

With this in mind, I'd like to invite Guil Adami, who is the Director responsible for the unit, and he will talk a little bit more about Fras-le smart composites., thank you.

[Unknown Executive]

Hello, everyone. Thank you, Sergio. It's a pleasure to be here with you today. The idea here is to continue the explanation that Sergio provided us sharing a bit about how all these innovation projects are connected to the business strategies.

Very briefly. We have some benefits in using these in the Fras-le universe. The number one is diversification of the portfolio as my colleagues already mentioned. We know that with the advance of technology, electric cars, and the wear in the car and the brakes tends to reduce over a medium or long term. And so -- if we enter this composite technology with new products and new applications in unexplored niches, this will give us an important strategic driver for the future.

As well as connecting with our strategies and ESG commitments, we're talking about lighter materials, less weight means more efficiency, more efficiency means less pollution. And all of this beyond the 2 levers that you mentioned, these relate to our raw materials and our supply chain and some products we already have mastery and know-how and our current universe.

What are we trying to share with all of you that are connected today? Everything that we've presented so far starts to take on its shape. It's no longer just a project or a dream is becoming a reality. So we'd like to share with everyone here the inauguration of our first production line of composite materials. This is located in [indiscernible] in our current production location. We have a specific factory for this. It's the first product that is born under this new strategy, and we opened this with great pride in July of this year.

What are we producing in this new unit? We are producing the first component. This is the business case which we want to share with you. This is a support for highway implements and some of the benefits which we want to share with you. We want you to see all the potential that this offers. I believe that this part weighs almost 2 kilos for -- we have tequila in steels. And our composite solution with a innovative design through the production process that's unique and that uses the potential of all the composites, we're able to reduce 65% the weight of this component, which is put in the trucks. This is the potential of this technology.

We don't have welding spots. We have no oxidation contamination points. It's lighter. It's easier to handle. This is a part which and the assembly line of our customers needed 2 or 3 people to assemble. In steel, we're able to assemble this with a single person. It's much more resistant. Our test show that the resistance offered for this solution is almost double the baseline of the client. And it has a innovative design based on its construction and the biomimetics, which Sergio mentioned.

You can also notice that in a single component, we have a market potential of almost BRL 30 million. This is a large universe. It's fast. To say that the sky is the limit is not enough when we consider all the potential in advancing with this material.

I'd like Jessica to physically bring the part here for us to make it clear that it's not just on the PowerPoint, it exists in real life. This is the support and the heavy version. It's working. It's being assembled. The, SOP, as I mentioned, was in July and we've been using it without any problems, without any lack of supply or disruption for our customer or our customer's customer. Jessica, thank you.

And just to wrap up now. This is the project pipeline, which we have ahead of us. This is the project which we just present to all of you. It's the first technology, which opens up paving. And this is some of the future chapters. We share the flags as a way to protect the secrecy of what we're developing, but we can share that we have another 6 projects in this world of composite materials, each of them are in a different development phase, a different R&D phase. And what we promised to deliver in 2022 are 3 new projects, which will allow other technologies and other composites beyond the ones we presented so far.

And not only will they enable these new technologies, we'll also work and the expansion of the Memphis project. Through the Memphis project, the technology opens several other components to be explored and used using this process and raw materials, which we developed specifically for this project.

[César Augusto Ferreira, executive]

Great. Taking advantage of the fact that you're here with us on stage, let me ask you a question. We didn't explored much, and I think a lot of people have the same question. What is the relationship with the environment? What can you tell us about the environmental impact of this solution?

[Unknown Executive]

Cesar, thank you for the question. This is a concern that we have that our customers have, regarding the destination of our products. Every product concept for all of these projects already considers the environment. The Memphis project specifically is created with a mapped-out usage process. And so all the waste generated through the production process for this component is discarded with this partner. This partner is certified by all the proper agencies, and they're able to use these material and other products. So our waste becomes reused, so it's environmentally friendly, and that's how we're going to continue.

[César Augusto Ferreira, executive]

I think your answer brings to light the importance of us thinking about the full life cycle of the product. Thank you. Thank you for your explanation. Of course, just talking about smart materials as a new business. We've researched the use of alternative materials in several of our businesses. And one of them is the use in the core of Fras-le friction. So I'd like to invite Eduardo Manenti. He is the Director responsible for the commercial line. He has a few things to share with us is to the deployment of some of the products that we developed. Eduardo, tell us what's been done with Fras-le materials?

[Eduardo Manenti Vargas, executive]

Thank you, Cesar. It's good to be here with the opportunity to update you regarding some of the main projects that we have in the friction area. The friction area represents today 50% of our net revenue. This project is based on a technology that's disruptive, developed within our innovation area and within the engineering area. Therefore, it was patented. Today, we have a patented product and a product already launched in the railway market, both in Brazil as well as South America.

Our first product is already running. Also, this technology brings us a level of competitiveness that's quite impressive. We're talking about a 20% reduction in the cost of our formulation associated with our process. This process increases the productivity of our assets by almost 3x. This is very important for a friction company.

As I mentioned, this product is running in our railways, and I want to share with you the project how we designed our projects and also showing you the photo in our factory, showing it implemented in producing these railway parts for our national or domestic and international market.

[César Augusto Ferreira, executive]

I want to ask a question actually two and say that we're talking about a new manufacturing concept. This has been applied in the railway line. And so I'm curious, what about the main product, we know that commercial vehicle friction is the main product. How are we, no doubt, railway parts was our first product already showing that this technology is capable of bringing us these gains?

[Eduardo Manenti Vargas, executive]

I didn't mention it, but an important gain is in the environment. We had a reduction of over 80% in the CO2 emissions using this process based on this new technology. We're launching this railway park and soon we'll be launching Tarps in the domestic market. It's being tested. And in the future, we'll have pads -- commercial pads.

[César Augusto Ferreira, executive]

Thank you for your explanation. When we talk about materials, we're not talking just about disruptive solutions related to new business. But also, we use this technology for current business. Eduardo just shared with us how the first research materials became a real solutions that are already on the field. This shows the consistency of our effort. I want to briefly say goodbye. I'll be with you once again during the questions and answers. I'm going to ask for someone to play a video about our technological center where a good portion of this technology is developed. And then Mr. Sergio will speak to us. Folks, you can play the video.

[Presentation]

[Sergio Lisbão de Carvalho, executive]

Hello, everyone. Thank you for your participation, as always. Thank you for the support of our event for 2021. I hope that it's been clear to everyone that Fras-le is undergoing an exceptional period of time in its history, a historical moment. We have already shown the financial results that are excellent.

We have invested in expansion capacity or our production capacity, improving our governance. We are fulfilling our strategic plan, a plan which we already communicated to you we are executing, I would even say, we have a very large, very significant level of competency. We're investing in new technology as was just shown to you. So lots of transformational movement for our company. All these projects that we're working on transform companies and are executing what we're doing. But in the heart of everything, there's lots of synergy.

When we talk about composite materials, we're basing this on knowledge of the chemical industry where we can give all the acquisitions that Anderson showed have synergy that is significant between all the units, whether it's regarding revenue, cost structure, launching new products and better customer service. Everything that we do has to have synergy. And something that we joke amongst us, we say that our name is synergy because that's the center of everything that we do, please.

As I already showed, we did several -- we had several transactions with lots of synergy. Anderson presented this in great detail, the movements of Controil, Armetal, Fanacif, Farloc, Fremax, Nakata, all contributing.

Please, next. But in 2021, we had several important accomplishments and we'd like to share some of them with you.

Next? We have record production volumes, whether in the production of pads, the production of blocks and lots of lines of master cylinders, brake discs, all the volumes or records.

Next, please? The results shown are quite good. We'd like to be an engine of several cylinders, 12 cylinders, where all the units, all the cylinders of this engine are performing well. Everything is contributing to the whole. There is an organization that's very large, a harmony between all the units in such a way that the results are being delivered beyond what we expected.

Please? We also talked about the integration of Nakata. The fact in Nakata is a company with incredibly important characteristics and competencies in various areas. Therefore, for us, it's fundamental that we did an integration in a way to maximize the results, trying to maintain an environment of collaboration and motivation with all the entire family. This work is being done and been done very well.

You've seen the inauguration of the new Nakata factory for shock absorbers. It's now reached its full production. It's very important for our future, giving us more competitiveness.

Next? We also were able to get our first OEM business in India. You'll remember that we went to India in 2018, and we were able to, through sales and exports, reach a breakeven of this operation fairly quickly. We've been for 6 to 9 months, contributing a lot, and we had our first OEM sale for Tata Motors, which is the largest manufacturer of trucks in India with approximately 50% of the market. So we have a share that's relatively -- it's significant. It's not the total volume for Tata, but it's the beginning of our operation. And with that, we can grow at a much more rapid pace, not just with Tata but with the rest of the Indian market, an important relationship that required the effort and collaboration of everyone.

Next? We invested a lot in expansion, industrial expansion for gaining capacity or for productivity, safety. We have several investments done at Controil at Fras-le, the new operation for Nakata with a level that's very modern when compared to what's available previously.

Next? Our ambition, our ESG ambition was already shown by Hemerson. But all of Randon companies find this to be very important. We have to do our part with our employees and the environment.

Please? These are public commitments. I'm not going to repeat them. Hemerson already mentioned them, but it's extremely important. You can go to the next one. There are several activities happening in the sense. We have a strategic plan regarding safety of our employees, identification of all the risk areas and heavy investments in safety, especially regarding environment, recycling programs, specific programs for reducing energy consumption and programs for us to acquire clean energy, the development of the products which you just heard about with smart materials, smart composites, nanotechnology. All of these have everything to do with the future and have everything to do with the environment and actions regarding the governance of the company. We adhere to the UN Global Compact. We have sustainability initiatives, several actions that are very solid in this regard.

Next one? We're now -- we've already presented the Smart Composites, and we have a lot of expectations for the future, as we already mentioned. Regardless of the energy source, whether it's a gasoline engine, diesel engine, it's a electric battery, it's hydrogen cell, what we know is that regardless of the energy source, the lighter the vehicle, the less energy they will consume. This is an irrefutable trend. This is good for the environment, and it's also irrefutable in this regard. We have a lot of hope that Smart Composites will grow significantly. And then in the long-term future, it will be a significant percentage in the composition of the revenue. Not just for Brazil, but in a global scenario. Thank you.

Next? You can see the growth of the revenue in the graph with 30% CAGR in the last few years. It's a great result. This is due to the market. It's due to the acquisitions which we've done and the growth of our product portfolio and growth in replacement parts. But it's not just the growth of the top line. We have growth the top line and we've grown our profitability of the company as well.

Next one? Anderson already explored our strategic plan. We had 3 important items, which he explained the PowerHouse and the replacement, the importance of innovation and technology and our global footprint. What we're doing now is preparing for our next round, so to speak, the stage in which we can expand and optimize our concept of PowerHouse -- replacement PowerHouse and the expansion of our global footprint.

Next? Everything that was already shown regarding our first expansion cycle regarding M&A, we've had other moments like a new operation in China. We have a new distribution center, which we launched in Colombia, which was not part of M&A, and we're now working on our second expansion cycle. It's currently being built.

Next? Within the second cycle at the right moment, we'll bring this to your knowledge, but we need to have a larger percentage and greater coverage and more granularity in the various markets globally. We are becoming a more global company.

Next? All the movements in terms of M&A is centered in one of these axises, whether for internationalization or globalizing the company or portfolio expansion or capacity expansion. You can see that all this was aligned thinking about this. And the next steps will be, as I mentioned, to reinforce our global footprint for our operations.

In the same time line, we started exporting in the 1970s. In the 1980s, we opened international offices. In the '90s, we opened international plants and operations. And as of 2000, we have a presence that's very solid in China, India, Europe, in North America, Latin America, especially in South America with a broad operation.

Next? We have innovated, innovating to grow is fundamental, following the trends, not just technology trends, but governance trends.

And next slide, please? When we talk about products, César or Guilherme and Eduardo have already addressed this very well with important projects. We have these that we can mention, and we have many more that we don't have permission to share. But we thought we'd do the same thing on the industrial side where we created RTS Industry. We also had the acquisition of Auttom, which seek to accelerate our transformation, our industrial transformation. The photos that you see are examples of cells that we developed at a very competitive cost internally to improve our productivity and our competitiveness and the security of all our employees and safety of all our employees.

We already mentioned or César mentioned our CTR. I think we can move on to the next slide. We have our main knowledge repository which is a Science and Technology Research Institute with several tax benefits.

Next? We have several projects within the 3 axis of mobility and electrification, embedded electronics and smart materials. 29 projects being developed this year. Next, César showed us Nione. It's a new company with a protected process. And we're still learning how to see all the potential, but the expectations are enormous. You work here with painting, increasing resistance of painting 3 to 4x. You can reduce the cure time, therefore, consuming less energy. And you can apply this in metallic materials, improving the mechanical properties. There are several applications that are very vast. It's a breakthrough. It's another breakthrough that we have with lots of expectation regarding the future. We're very happy. And we've already protected this with patents throughout the world.

Now before we talk about the trends for 2022, just to [ recapsulate ]. This is a very special moment, a historical moment for our company where several investments, several new things was created for the future, preparing the company for the future, while at the same time, we have a lot of attention and our employees with a very positive environment, delivering results. Very good.

We had a small technical problem with the audio. Had a small technical problem. If you allow me, I don't know if this part was audible, but we're going through a good moment, a historical moment with lots of investment for the future, capacity and new technology. And at the same time, as we've delivered excellent results, and I say that beyond all this, this was only possible due to the quality. So all of you had an opportunity to hear Hemerson, Anderson, Paulo, César, Guilherme, Eduardo. I hope that you agree with me that one of the strengths of our company is the quality of this group.

I'd like to talk about the trends for 2022, our short-term future and talk about the trends, if you allow me to. For 2022, the macro scenario. We see that we've passed the more critical part of the pandemic. The domestic economy is growing. We see a recovery in the global economy. We still have high global inflation. [ We just need ] 10% of inflation. United States has record inflation. In the last report, the impact of the Selic which needs to be done to contain inflation. We'll see uncertainties in an election year, exchange rate volatility and legal uncertainties that we face here in Brazil. The volatility of the exchange rate, which is a bit more stable. And we see the second half of 2022 with a bit more risk and uncertainty.

And the operational environment, we'll be able to count with more availability of labor. We hope the pandemic will be more under control and have more colleagues working during the pandemic. Each colleague, which had a positive test, our protocol moves out everyone who had contact with them. They stay at home 3, 4 days, take the test, and if they don't have anything then they're allowed to come back. So we've operated with a large deficit of labor.

We had a better supply of raw materials, but still problematic and perhaps not with the same intensity, which we experienced in 2021 and the global sea logistics are very problematic. It's very hard to balance. We saw a container that used to cost BRL 2,500 now costs BRL 16,000 for the container. There's no reliability to the delivery, sometimes things are delivered in the wrong ports. And this affects not just raw materials, but also exports. So we expect to still face this in the first half of the year.

Next? When we look at the markets, the replacement is and of itself represents a large part of our business. This was very positive for Fras-le companies, with the expectation of the market will remain strong, but less powerful than what we saw in the Light Line. With slightly higher operational costs and with purchasing power of the family is pressuring as people don't as much funds to buy replacement parts, they buy lower-end replacement parts instead of buying the higher quality parts.

The domestic markets are still very heated. China gaining strength. The trade war between U.S. and China opens opportunities for us. And the restrictions for productions in China with the energy crisis is also a concern for us.

When it comes to automobile manufacturers, OEM keeps driving production of trucks, and we expect a recovery of the production of automobiles and light vehicles in the near future with an improvement in supply, especially with the supply of chips. Not that the problem will disappear, but the scenario for 2022, it's a positive scenario with instability in 2022.

Please? In terms of challenges, I've addressed most of them. We will still have -- deal with the pandemic, but we already mentioned a flux of inflation. Inflation will continue to act, but not in the same magnitude which we experienced in 2021. The supply problems might continue in some areas. International logistics is something that we will still face with challenges. The expectation for improvement is for the second half of the year. The increase in the Selic rate, the interest rate is fundamental to contain inflation. It has a negative effect. It can compromise the economy. This can affect -- this, both individuals or legal entities, all this increase in raw materials experiences the impact of purchasing power of markets, and we saw this as a concern. This is more strong, connected to the light line.

Please, next slide? When we look at the long term, the next 5, 10 years, we see various radical transformations occurring simultaneously. We always say that radical transformation is not a novelty. This happened since the beginning of time. But what makes this unique is that a lot of things are happening simultaneously. We have mega technological and mobility trends. César already discussed this regarding electrification. We have autonomous vehicles, which is much more transformational than electrification of vehicles. We talk about lighter materials, more smart materials.

Please? Great uncertainties, geopolitically occurring where we have a lot of globalization. We had some setbacks, some countries started moving towards nationalism, abandoning international protocols. We have experienced situations with an increase in regulations. And whether it's the environment or regarding safety and security, we're facing the impact of disputes between the 2 largest economies in the world, the U.S.A. and China with repercussions, sometimes positive, sometimes negative. And we've experienced significant growth, although not geopolitical, but it is a major concern regarding cybersecurity, which is the greatest concern of all the large companies today.

Next? We also have changing in consumer habits, where younger generations aren't as connected to automobiles. It's not like my generation, where having an automobile was someone's dream. People aren't -- don't have the appeal to buy an automobile, they want to use Uber or something similar. This generation and the upcoming generation that's now entering the workforce, they're much more loyal to their purposes of the environment, a healthy diet and all this will bring more transformation to our future. This new generation is starting to take on management positions at companies and they'll be influenced -- with changes, others will remain true to their purposes. And I'm sure that they will want to buy companies that are more aligned with their own points of view.

Next slide, please Or next -- we're living in a period of hyperconnectivity where everything is connected, the automobiles are connected. We had a little technical problem. We're connected to cities, our iPhones are making commercial transactions. There's a new reality where connectivity is the name of the game and data becomes the main protagonist. And we have new players arriving.

When you talk about Tesla in automobiles today, there's a large amount of new manufacturers of vehicles, which, in a shorter period of time, can dislocate and take on a large market share compromising the traditional names, including the traditional names. And this is true for auto parts as well, many new companies creating wonderful solutions. In a short period of time you get a new competitor in the market.

So if you could please go forward, the question we all have is what do we need to do to win in this new environment with so much transformation? And the answer for this, please move forward, has a lot to do what Fras-le has already done. But we have some points here that we want to repeat. We're calling them critical factors of future success. Please? You can please click 4x. One is innovation on technology, all the main things which we already presented by César, by Guilherme, by Eduardo, which is vital. Some technologies aligning to trends in the environment and bringing more value to all our customers. But for you to be able to invest in all these new technologies at the same time, you have to invest in traditional technologies, and you have to have financial capacity.

Anderson showed our view -- our strategy of the PowerHouse -- replacement powerhouse. That's why we need to grow at an accelerated rate and have this financial capacity. We also need to cooperate a lot more. We have in Europe the largest truck manufacturer, Daimler; the second largest manufacturer, Volvo. These are the 2 largest competitors in any geography, and they united to create a company to make hydrogen cells. So we see Honda and General Motors cooperating and several other companies cooperating. There's lots of associations, which we would never be able to imagine could happen. And why? Once again, it has to do with the changes which occur very quickly and a capacity, a need for significant investments.

And finally, speed or agility? It's not necessary to say that the first person to enter a new technological space will have greater penetration, better margins. Everything that Americans do in 1 year, Chinese can do in 6 months, and we need to learn to do everything in 6 months as well or even 5 months. If China can do it in 6, we can -- need to learn to do it in 3. So within our companies we always ask, given the market situation and all the trends, the economy and the global scenario, is it time to continue to accelerate? Or is it better for us to take the foot off the accelerator? Or keep the same speed? Or is it time to start hitting the brakes, reducing our expenses or our impetus and our vision? Please click again.

And our point of view is that we're still in a moment to accelerate. We're going to continue to accelerate the company's growth is everything that we already showed. Folks, thank you once again. I will return when it's time for questions and answers.

[Jessica Cantele, executive]

As mentioned at the beginning of the transmission, this event is supported by Apimec, that Fras-le has been a member up for over 20 years. So now we'd like to deliver the participation seal.

[Lucy Sousa, executive]

Hello, everyone, Investors, Management led by its President Sergio Carvalho, the Investor Relations Team, Apimec would like to give Fras-le the participation -- platinum participation seal for 20 years of uninterrupted meetings with our association. This has been very important for our professionals. We'd like to thank you and may this partnership remain for many years. Thank you.

[Jessica Cantele, executive]

Thank you, Lucy. We are the ones who thank you for the partnership. Now we'd like to open the question-and-answer session, which will be conducted by our Investor Relations Director, Hemerson de Souza. If perhaps your question is not answered during the transmission time, the Investor Relations team will answer it by e-mail.

[Hemerson de Souza, executive]

Good afternoon, Jessica. Thank you very much. After a fun afternoon, reflecting and talking about the paths that we've taken with Fras-le and gathering the management team. As you could notice, I apologize for a few technical difficulties we had. Sergio is not in the country, he's in the United States with professional commitments. His participation was remote. He also is remotely here to participate in the questions during the session. And so I'd like to start by saying that we'll try to share this in the best way possible so that everyone can answer. But we already have a large number of questions and time won't allow us all to answer all of them.

So we'd like to start -- I'm going to start with a question by Lucas Laghi of XP Investimentos. And he says, thinking about this new expansion cycle, should we keep seeing friction materials as losing relevance to rate components, suspension, direction and powertrain? Or is the portfolio already balanced given the strategic positioning of the company?

For this question, I'd like to ask Anderson Pontalti, our Superintendent to be -- to answer this. And Sergio Carvalho also can add. Anderson, please.

[Anderson Pontalti, executive]

Thank you, Lucas, for your question. It's very relevant since we're undergoing an important friction movement reduction in our revenue portfolio or revenue share. It's true that during the presentation, we mentioned several things in this regard. We want to do the expansion cycle, very geared towards what we already have. In other words, similar products, complementary products, with maintenance that's resilient, with nonelective replacement. Obviously, when you evaluate specific projects to incorporate in your current portfolio, these are opportunities that may appear both for infriction and outside of friction. But we should replicate this in the same way in other geographies.

This is our intention and we expect to execute this in this manner. However, we made several explanations in development of materials, which will allow potential of the competitiveness of friction materials in our core materials. So the trend of us exploring new geographies and expanding our penetration in existing geographies where we're leaders is real. Once our innovation will bring, without a doubt, the possibility for us to navigate in calmer water, so to speak, with our current products.

But there's another point. Without talking about the expansion cycle, I'd like to mention Smart Composites in Nione. We have a conviction that they will be very relevant, each in their own business model and their own potential for making up company revenue. Let's look 5, 10 years ahead with significant relevance compared to current revenue.

[Hemerson de Souza, executive]

Thank you, Anderson. Sergio, would you like add?

[Sergio Lisbão de Carvalho, executive]

I think Anderson already stated this very well. Lucas, we are going to dilute the participation of friction material, not that we don't want to grow it in absolute numbers, we have total intention of growing it in absolute numbers, but the launching of new lines of products as a percentage will reduce the participation of friction materials in a company, as Anderson mentioned, naturally, all this will dilute the participation of friction material. But in absolute values, we have full intention of growing. We like friction materials quite a bit. It's our origin. It's our roots. It's highly profitable for each part that you sell to an assembler, we sell 5,6,7,8 more in replacement. So it's great.

[Hemerson de Souza, executive]

Thank you, Sergio. Thank you, Lucas, for your questions. I'll now follow -- we have another question from another Lucas, Lucas Marquiori from BTG. Lucas, thank you.

Regarding new material technologies. What are the perspectives in terms of adhesion? And would it make sense for the company to explore opportunities to sell these new materials beyond the automotive sector? I think we have 2 important blocks. I'd like to give this to César for him to answer if it would make sense for the company to explore sectors outside the automotive sector and prospectus for adhesion for Guilherme. César?

[César Augusto Ferreira, executive]

We started this research in materials with a focus on the automotive industry. And as Guilherme mentioned, perhaps we've only seen the tip of the iceberg. We can see that there's a world of opportunities in the industry that we're inserted in. Until we can cover all of this and offer this in a broad manner, this takes time. And perhaps in the future, we can think about other markets. I can assure you that there's lots of opportunity within the industry where we are inserted, the automotive industry, and this technology is within our comfort zone, within our knowledge zone for application, for market.

So we have a lot to explore in automotive before we start thinking going beyond it. But perhaps there will be -- certainly, there will be opportunities, but it's not our focus at this time.

[Guilherme Rigo Adami, executive]

And just to add to César's answer, we have found a very fertile environment regarding Smart Composites, with story that Sergio told us in the automotive world. This has caused us surprise and we're happy as to the opening we received from various plyers in the market. Their receptivity, both from the technological point of view as well as for materials that are normally used in the automotive industry. This has brought a very different charm, very cool in relation to the approaches that we've done with some market players. Their receptivity is great, both in Brazil and outside of Brazil. And we've seen an acceleration process that is not common for this type of development. This shows us that the land is fertile and that the windows are open.

[Hemerson de Souza, executive]

There's a lot of questions in this area, Guilherme and César. We'll try to answer some, trying to group together some of these questions, but I'm going to go with another one from Julia Copel. She is asking, is the concept of biomimetics -- is it or will it be applied to the -- what's being manufactured in Smart Composites? I think César can answer and Guilherme can complement.

[César Augusto Ferreira, executive]

Feel free to complement, but the clear objective answer is yes. That is the basis of our engineering and the revolution of our engineering. Without concepts such as this, it would be very difficult or it would not make sense to change material.

The part that Guilherme showed you, which is part with an application and supports other components, the team was inspired in tree limbs. That may seem like that doesn't make sense, but it does make sense because the fibers of a tree branch in the upper and lower portion, they guide the strength. And this concept was used in the part and brought its success in terms of reduction of weight and cost, which made this first product feasible. Guilherme, do you have anything to add?

[Guilherme Rigo Adami, executive]

No, it's well stated. Well stated.

[Hemerson de Souza, executive]

Thank you very much. Sergio, I think there's a question here which I'll share with you and with [ Bon ] because I'm going to group in another question which wasn't here in the pool, but I think it's important as well. Well, George is asking us today, an important part of what Fras-le sales in terms of percentage, around 30%, is manufactured by partners. Is the trend to increase this participation and change the style of the company?

And the other question which I have, Sergio, I'd like you to answer. The other question is also connected to this, but more in the realm of Nakata. Does Nakata want to internalize more production? Or will it maintain production just of shock absorbers? So Sergio, I'll share this with you and the second one with [ Hotenot ].

[Sergio Lisbão de Carvalho, executive]

George, first of all, thank you for the question. George, we monitor all the time what can give us the best financial return. In the spare parts market, you're not able to explore a new product line with few SKUs. You can't resolve needs in the market. You have to have a very full line of products. So what we do once we know this and knowing that reality of the global dynamics, we need to verify all the time what's worth making in-house and what's worth buying. And so the answer changes from time to time or may change.

At this current moment with all the logistical challenges, I would say that we're more inclined to having a domestic manufacturing level that's a bit greater. I'm not saying that we're going to abandon our partners. We've worked with them for several years, but we think it's interesting to have a local manufacturing percentage that's a bit greater.

[Unknown Executive]

And in relation to Nakata, Nakata has 30% of its revenue manufactured locally, and then we have other product lines. Some product lines will continue to be imported because there's no local manufacturing. The country went through some deindustrialization for some commodities. And there is no space for investments given the capacity that exists, especially in Asia, to make several commodities which are in our portfolio. But other commodities where the domestic environment is becoming more competitive, obviously, Nakata and within the Fras-le Group, it might make sense for us to have more localization and have a different balance between our own manufacturing and outsourced manufacturing.

As Sergio just mentioned, this depends on analysis because, the economic times change. There are specific situations which need to be considered. But our decision will always be to produce or to bring from outsources -- outside sources to provide the best solutions for our customers.

[Hemerson de Souza, executive]

Thank you, [ Tenon ]. In fact, there are many questions about Nakata in our pipeline. The next one is sort of in that direction, and it asks, we expanded the capacity -- which is Antonio's question. We expanded the capacity of Nakata, and he wants to know where are we going to put so many shock absorbers? And I wanted to divide this question in 2 ways. You can talk about the efficiency of production but they ask if we can -- are we going to sell this to automakers? So I want to start, is there a space to sell more shock absorbers in the countries where Fras-le sells? Have customers asked for shock absorbers?

[Unknown Executive]

It's a great question. Thank you, Antonio. The answer is yes. We have a great participation in the Brazilian market, and we have exporting -- export market to be explored, especially our neighboring countries. Brazil has a leading position in Latin America because of its size, because of its significant size and industry, and we have this market to be explored. Nakata has a significant role in Uruguay and Argentina, but other countries as well, especially Latin America, Mexico and other territories that can be explored. Being very objective. Using popular jargon, the sky is the limit for us to grow. Can we sell Nakata shock absorbers to the automakers? Yes, no doubt. I just wanted to add to the previous question about sourcing. We should never forget, it's important to remember that the control of the project, the specifications and the development is ours. We import products. We develop a partner, but always with our know-how, our knowledge, which we share with someone who's faithful to us and supplies us to provide the best solution for the customer.

[Hemerson de Souza, executive]

This -- Hemerson -- is one of our missions. We have synergies to capture Fras-le is a market leader in the sale of friction material for the heavy line. It's once again taking on its presence in the light line, trucks, buses, vehicles, all need shock absorbers and we have the channels, we have the path. And at the right time, we will increase our dialogue with automakers and use the strategy.

Does the factory have the capacity to produce this? Well, this new factory in [ Extrema ], which we inaugurated in August of last year, was a factory constructed with technology, it was a factory prepared to meet not just the requirements for replacement parts as the Diadema factory did, but also to meet the requirements of the foreign market and the requirements of OMS.

Let me, we want to participate in all of these markets. There will be no lack of shock absorbers. Nakata wants to grow not just with exports but also with OEMs as well.

Marcelo had a question here. I want to share it with Eduardo. We spend a year, Sergio mentioned this in his presentation. The year was hard. We had to try to be assertive, to be able to pass on the cost increases in raw materials. Eduardo, can you give us some context? You have operations in Asia, you perceive this globally. How are we today? Have the increases stopped? Are there going to be more increases? Tell us?

[Eduardo Manenti Vargas, executive]

The situation was very complicated, Hemerson, but we perceive that in the medium term, there will be a increase in metallics. But in the chemicals segment, there will also be increases on the horizon in the very short-term time frame. But Fras-le did very well considering that our results were just as good as what we showed today.

We anticipated raw material purchases. We passed on prices. We anticipated inventories. We did -- we made inventories of finished products in certain segments. And thus, we face this critical situation in a brilliant manner. Just to provide a comparison, the country most faced with inflation of all the countries where we have operations was Brazil. Brazil had the most, but we did a brilliant job to deal with this. And especially, we never stopped any of our assembly lines. That was positive gymnastics.

[Hemerson de Souza, executive]

So as I mentioned, we have several questions. Our Investor Relations team will answer all of them, so that no one will be without answers. Some of them, we already answered during the presentation. So we're now going to the last question. And this question is by Antonio Mazzali and he says, the automotive sector is transforming into electrical motors. He wants to understand how this impacts Fras-le.

And I wanted to give some dynamics to this question. César is perhaps the most prepared member of our team to answer the question, but we need to -- I want to complement this with other questions, if we have specific lines of products for electrical cars? If we've already talked to any original equipment manufacturers? I think César can talk about some of these impacts and Anderson can complement.

[César Augusto Ferreira, executive]

Thank you, Antonio, for the question. So we've been accompanying this for some years. Fras-le has been a company that's in trying to understand the impact. Remembering that we have to do this analysis almost by sector. We have companies like Nakata. They have a product line, which perhaps will be less impacted. Suspensions probably won't be altered. Fras-le perhaps has some impact in terms of friction. So we separate this analysis in a very broad manner.

The point being that even when we talk about friction, we have to divide that into other subgroups, talking about the impact of electrification on the light line. That's one point of view. Commercial has another point of view. And so all this is being very well analyzed. But to give you -- but more direct response, we see an impact. Yes. It's a medium to long-term impact. The growth of electrification in the light line will happen as it's happening throughout the world, and it should be more intense in the next decade, but our circulating fleet is huge and all driven by combustion engines.

Even these electric vehicles, even the more or less efficient ones, all reuse synetic (sic) [ kinetic ] energy to charge the battery and develop and create a more efficient cycle. And this obviously impacts the wear of friction material. But we have researched and gotten material ready to prepare our portfolio to meet these demands. This point of view is perhaps a bit accelerated in the Light Line, but the heavy lines, this should happen in a larger time frame. And when I say this, we're talking about maybe over 20 years, and we can see there for our predominance of this type of vehicle -- with this type of propulsion in the market. But we're ready, we've studied, we've researched. I don't want to anticipate Anderson's answer, but yes, Fras-le has responded and tried to understand through concrete approximations with certain partners what they expect for the friction of the future. But I'll let Anderson share a bit about that. There are some things happening in this area as well in the sales and business area.

[Anderson Pontalti, executive]

Thank you, Sergio -- César. In fact, this time that we have is the time to mature the park for electrical vehicles in the world in relation to counterbalance than what we have in combustion engine. When we look at the acquisitions of Fras-le, all of them seek to have products that suffer less with electrification. A vehicle need shock absorbers, a vehicle need suspensions, electrical platforms that are already sold in large-scale need various of the components that Fras-le incorporated recently in their portfolio.

So we have been managing this possibility of a reduction of friction consumption. And I say this possibility because of what César said, but in the heavy line, we see much more search for friction materials with less particular emissions, with less noise, our study about materials with OMEs -- OEMs. But when we look at nanoparticles and other elements, this is already something that we put in comparison to our [ rupture ] in the automotive chain in the future. These are all complementary revenue that will protect our business model post transformation of these megatrends, which are ahead of us.

We have a lot of time to sell friction material that way. As Sergio mentioned, we like friction, and I think we're going to continue to like it for many years.

[Hemerson de Souza, executive]

Very well. We close this moment of questions. And we like to reiterate that we will answer those which we weren't able to answer here by e-mail. And now I will give the floor to Jessica who will close.

[Jessica Cantele, executive]

Thank you, Hemerson. As was mentioned, due to our schedule, we can't answer all questions live, but they will be answered by e-mail at a later moment. We'd like to thank you all for your participation. This event was recorded. It will be made available on our Investor Relations website and on our YouTube channel, ri.fras-le.. I wish you all a good evening.