Fras Le SA

BOVESPA:FRAS3

Earnings Call Transcript 2024-Q3

[Operator]

Good morning. Welcome. This is the Q3 2024 Earnings Call for Frasle Mobility. So before we begin, we'd like to give you some important notices. This earnings call is being recorded and after conclusion, we'll make it available on our website, fraslemobility.com. We have simultaneous translation into English. For you to access that click the interpretation button represented by a globe icon at the bottom of your screen.

At the end of the presentation, we’re going to have a Q&A session. [Operator instructions]. So we'd like to tell you that any statement here presented during this video conference is not a guarantee because it refers to future events that are based on situations that may or may not occur.

Thank you for joining us. We have here the COO, Anderson Pontalti; the M&A and IR, Hemerson Fernando de Souza; and as our guest, the IR Financial Director, Esteban Angeletti. So now I give the floor to Anders to start the presentation.

[Anderson Pontalti, executive]

So some very important highlights here that we're very proud of in our journey for creating value and powering our environment commitment. I'd like to highlight first, our focus on the circular economy. We have a project called Safe disposal that collects to our factory in Maxville, -- we have a new brand. It's called RecycleMax.

So this program is made together with our clients. In this project in 2023 for you to understand -- we didn't look for raw materials, extracting that from the environment, almost 3,000 tons because of this project. So we have a partnership with some repair shops that use our parts, both in Santa Catarina, Rio Grande do Sul, Paran, part of Sao Paulo.

And we can, with that avoid the extraction reduce our carbon footprint, have more efficiency in that because when you have your product part in an oven, it has that chemical composition that's perfect. You don't have to be in the oven for so long. The cycle is reduced. We are more power efficient, so we can calibrate what is being done there. So it's -- we are proud of this project. And now there is a new brand because it's representative for our business in.

So we were also awarded by the vehicles repair union. So they awarded us for the eighth consecutive year, Fremax awarded as the Best of the Year for the best Break this brand. And we -- Frasle were awarded Silver category as the best Break brand. And I'd like to remind you that in Sao Paulo, we have many like major players that are local and Frasle is a national leader, but we have competition in Sao Paulo, but we have 2 brands there and with that, we have a market share and a penetration in that market. And because of that, the acknowledgment came.

In September, that is busy and full of things happening mostly in Europe, we have a fair, not mechanic Frankfurt. For the first time, we presented ourselves as Frasle Mobility and it's a portfolio company that offers solutions, not only a single product or a few products company. So we strengthened our brands, Frasle, Fremax, Juratek and Nakata for the first time, starting with the wheels and suspensions and steering market we're trying to enter the U.K. market, and we have some sales channels there.

Fremax is now expanding its portfolio of products with calipers and friction and brake discs, and Fras-le is very strong as it usually was, has been. So we are expanding in the U.K. with Juratex' sales workforce. So we just embarked in Europe as a solution company with a portfolio company, not only a parts provider in that geography.

Next slide, please. I'd like to invite everyone next month on December 4, we're going to have the Frasle Mobility Universe 2024 alongside Marco Polo that has an event in the same week. So it would be amazing to have you there to receive you there and show you a little the evolution of that site and Frasle Mobility as a whole.

There is the beginning in the HQ and all the plan and ideas developed there. And from there, we started executing from a single part company to a portfolio company. So it will be a pleasure to receive you there. So here, you have the QR code for you to sign up on your screen. So it would be amazing to receive you guys there.

Next slide. Now I will pass the floor to Hemerson. Hemerson, it's up to you.

[Hemerson de Souza, executive]

Thank you, Anderson. Good morning, everyone. It's a pleasure to be here with you about the performance of Frasle in this third quarter and they accumulated for the 9 months of 2024. So I'd like to give you the status of the acquisitions that we announced in July of KUO Refacciones in Mexico. It's a relevant acquisition for Frasle Mobility.

It puts us in the Mexican market, and I'd like to use the expression with the red carpet in that market as a leading company with supports that are relevant, access to relevant brands and a very professional team that is leading the process wonderfully in Mexico. So we're still awaiting approval of the regulatory agencies for the antitrust market, and in Mexico, we filed documents. We are talking to COFES that is the equivalent to CADE in Brazil.

So since July 29, we've been following this up and there's a chance, like a minor chance, but we could have the approval in the following days or months, still this year. We trust that's going to happen at the beginning of next year because it's an independent agency. We don't have access to their group dynamics, but considering other transactions, observing other transactions, and we are sure that there is a possibility for this year, but we are expecting that in reality for January and February next year.

So we also filed just in Colombia, and we received -- we obtained the approval and no further restriction requirements necessary. When we talk about economic defense agencies, just Mexico is pending. When we talk about funding, we have BRL 750 million issuances in the bearance that's waiting precedent conditions. That's the approval of COFES, that's the main.

And we have a loan agreement in Mexican currency equivalent to BRL 1 billion, and disimbursement will occur at closing within the acquired company, Tacoma that is the cool -- distribution brand in Mexico. So we also had, as you will see in the financial performance, we have a financial application as a hedge for exchange rate protection. We know that it's -- the U.S. elections create instability and the global interest rates, the Mexican currency is impact, but obviously, we've been following closely.

We are not playing a game here. We are trying to keep our commitment. So we have hedge, and we bought part of those funds in this investment hedge. So if you'd like further information, we have a video call specific about this acquisition. So this is the QR code that will lead to this call to have further information.

For the next one, we're going to talk about the performance of the company as we've been always making it explicit to the market, we are a company that has very room for organic growth because of our market positions. We are leaders in many markets, because we have in our revenue grid, we have markets that we have support for growth, different geography, new products entering in different geographies.

So we have the Nakata lines in the U.K. So it gives us room for growth in good levels organically. And we have been doing that lately. So if you are here since the beginning of the video call, you could see of our video celebrating the 50th anniversary of our research and development center that was named FTC. So it shows how we are pioneers as a business.

So I'd like to use an expression as a person that called me this morning about that we don't harvest apples if we don't plant apples. So the good results that we can show here for Frasle is it was built along the time. So growing at 16%, it depends on the construction for like capturing new markets, new geographies that allow this growth. We talk about the 9 months accumulated, we have 8% growth.

So it's amazing because we are facing a second half in Rio Grande do Sul. We had the floods and all the problems that we have here and all the logistical problem. We had over 200 containers that were stuck for expectations. We didn't receive almost the same amount for importation. So we were struggling to sell, especially in our Nakata units. We import a lot, even though we like that we grew like that.

So we are proud of talking about that, not only in Brazil, but for the external market. It's 40% of our revenue, and with the acquisition of KUO Refacciones is going to surpass the 50%. We're going to come back to later. But we have been growing. We have been growing in comparison to the third quarter of last year, 2.3%. We had a difference because of the logistical problems, but when you see the 9 months accumulated, we had 2.5% growth.

So we are exposed to the replacement parts market. So we are like selling the goods in the vehicle, the automobile market, different from our competitors that are connected to new manufacturing. So we sell for the replacement market connected to the vehicles that are still operating and needs maintenance because it's a characteristic of the product that we sell. It's not an aesthetic product. We don't choose. It's a mandatory product like brake system expansions and that's why we have a recurring sales our growth.

For the next slide, we talk a little bit about the segments. We have for the light vehicles, SUVs, and we sell for commercial vehicles as well like buses and trucks. Overall, we are almost 70% light vehicles line. But when we go back to our main line, that's a friction. For that segment, the commercial vehicles, they are very relevant, over 63%.

But we have had the level of support and sales really good. The replacement market is still growing. We have growing demand, especially for brake pads for light vehicles, we are growing our market share and you can access our releases later, but we have over 40% of market share in those lines, many brands.

And we have been building that over the -- and we can serve the market. And we have a lead almost 100% when we're talking about those products. And we're talking about heavy equipment, heavy parts for trucks, are leaders as well.

For the braking systems, we have a great quarter, especially for brake discs and now we have a hydraulic cylinder portfolio for the second half by control that was affected by the floodings in Rio Grande do Sul. So here mainly, we sell for light vehicles, 90% and we've been growing in a relevant way for suspensions and other parts. We have been evolving a lot and all the other lines connected to suspension. I was talking about shock absorbers.

And we have been struggling with some logistic problems because of the problems I mentioned before. But in this other segment, we have some other products that we cannot fit in the other lines, but we sell them for the light vehicles line. We have some composite lines here. And after that, Anderson is going to talk about that.

We are -- this week, we've been participating in -- and we are exposing those products there with a beautiful stand install. We received many stakeholders and investors there, but the fair ends tomorrow. So nice, it's interesting to go there and visit the fair as it shows the solid market we have for like heavy vehicles and that favorable moment for the market.

And now we're going to talk a little bit about our margins, and it's very important to emphasize. We had the problems for porting and importing, but the logistic costs are growing, and we have some limited capacity problems. So it's like a bottleneck. We've been suffering with costs that impacts the margins.

But in general, we can balance that quickly with our internal productivity and the reduction of raw material costs like changing the suppliers or optimizing our products, improving the factories processes. But we evaluate in our perspective that out of the BRL 120 million -- sorry, we're facing some technical problems here -- closing of our Uruguay factory M&A expenses.

So when we put that together, we are -- like we have superior performance, so we are very healthy. We are going back to the baseline it's a great year for Frasle. So I'd like to emphasize also that we sold an asset in Argentina that brought a deflator. It was a unit that was like hosted far lock. We sold everything, so we had to register a loss of 5.7% because of the exchange rate in Argentina, the effective price.

And talking about restructuration of -- we had --. Moving on to the next slide. We had some investments in this quarter, the figures of BRL 85 million and a relevant part of those investments was in creating value productivity and sustainability. So we are about to commission and due to the dynamic of our business and because of Argentina's impact, it's important to say that in this quarter, in the accumulated of the year, we had...

Due to the closing of -- so our business is -- they're coming back to regular dynamics.

[Anderson Pontalti, executive]

I'm sorry, we're facing some technical issues.

[Operator]

Lost Hemerson, he crashed. So I'd like to turn to...

[Hemerson de Souza, executive]

I'm sorry, my connection. So talking about... There's a fine line between good performance and availability of products. We are not happy with that during a long time, we had shortages here. So if we didn't replace that, we missed the opportunity of selling.

So nobody lets the car waiting because we don't have the parts to replace. So we know we are aware of that and although we are trying to recover in advance, so we'd like to be clear because it shows the service levels, and it's very relevant when it comes to access to replacement parts.

So now we show the divisions of CapEx between and the controlled brands. Let me show you that for you to be aware. So on the next slide, we talk a little about net profit, net income. And we have like BRL 89 million, what's like 8.6%. It's lower than last year, but especially Argentina. But when you look at the accumulated in the year, we had a decrease of 18%, but it's growing when you compare quarter-by-quarter because of the recomposition and the operating margins.

We are a company that we don't have any debt. We have a cash BRL 140 million in cash, and we paid lots of dividends for the following quarters. So that's for you to see that we are generating cash very well. We have some cash -- almost a lot of money, almost BRL 700 million.

So the next slide, just for you to see our position, our guidance. So we have -- the guidance is BRL 3.7 billion to BRL 4 billion, we have BRL 2.9 billion. So we are waiting to repeat the revenue and the results for the third to the fourth quarter, the bias is very, very positive. We've been growing 8% in relation to last year.

For the external market, our guidance at BRL 250 million, we are at BRL 214 million. So it's likely that we reach the top of the guidance. So as a business perspective for investments, we have a very important support of hired stuff, and we get closer to the guidance.

So I get back to Anderson to talk about some perspectives, and I'll be back at the Q&A.

[Anderson Pontalti, executive]

Thank you, Emerson. So just reminding you of our latest quarter when we talked about some accounting adjustments that we mentioned that we had a good future. So it happened, we have a very solid quarter within the guidance, within the expectations affected by Argentina and the inflation reflecting December last year. So we are reaching a limit, and we are flying high now and in a stable way.

So we have the international logistics was affected in a relevant way volumes and costs. But our business model is solid and geopolitically affected. We are in different geographies in different segments and businesses. So sometimes part of that is suffering due to some external impact, but the other is growing.

So we are solid, we are robust. So we ahead are favorable. I'll repeat the sentence I used. The market remains warm. Our portfolio is robust. The external market is very solid. In dollars we are reaching the top of the guidance. If we look at the average, we have favorable orders coming from Latin America, the United States, Asia, in Europe, we have businesses that we closed that we will harvest next year.

In Argentina, with this economic opening and with suppliers building trust with a commercial scale a little favorable. So the country is at minimum starting to fix its economy, it's far from the optimum scenario, but it represents a big opportunity for us to expand our portfolio, increase our offers being more aggressive in volumes, even if the margins are not protected. The risk of the country is being reduced, but still big.

So in the future, we're going to have compatible margins that are comparable to the benchmark of the international market. So the worldwide logistics is still relevant and worrisome point. The worst problem in Brazil today and balance that we have here is not ships or containers, alternative routes. Frasle had made very clear decisions like changing ports and shippers and to put more products due to the shipping.

But the problem is the state of our ports in Brazil, they are not being fixed and maintained. So big ships cannot -- more high-capacity ships cannot approach. So we have an infrastructure national problem, and we try to mitigate by having some different actions like diversifying our ships.

So we approved the shift 6x2 in our brake pads line in Caxias Do Sul. We're going to improve 20% capacity in the plant. So with the closing of FANACIF, we have some brands that can be allocated in Brazil. So we are importing them, we're going to start commissioning them in Caxias through and in Sorocaba.

So we could gain market share in the light commercial -- light line and friction, and we're going to gain even more. That's what we are doing, and we are getting prepared for that and our substation in March next year, we're going to increase the 20% more for brake disc. And we are very happy expansion for -- of Compass.

We like embarking technology of VW and we are putting that in the hybrid vehicles, that's the flagship with them now. And we have some EVEC2 matic suspensions. And we are bringing different solutions with new technology of intelligent composite of basalt fibre, laminated parts with springs for buses and trucks, if you had the opportunity to see at the fair, but you can go to the fair and see that in person.

So the outlooks are extremely promising. As I said 3 months ago, we are not going to have closing of a factory, but the legacy of the decommissioning is still here. So we can harvest fruits ahead. So we are optimistic with our moments, and we expect a bright future ahead.

Thank you so much. Jessica, I have to go.

[Operator]

Thank you, Anderson, Hemerson.

So we're going to start the Q&A session. At the beginning of the video call, I said that Esteban would be with us, the Director of Randoncorp. But unfortunately, he couldn't be here, but Tavi, the Financial Manager of Randoncorp is with us here at the Q&A.

So let's start with the first question. It's for Gabriel Tinem. He's a sell-side Santander analyst.

[Gabriel Tinem, analyst]

I have only 2 questions here. First is connected to the logistic impacts, created shortages and struggles for exporting. But you mentioned that some of the measures to fix the situation. But if you could put some color on how it's been impacting or if the situation was normalized, how much would you grow revenue, the cost. Did you have any problem with raw material? If you could comment on that, it would be amazing.

And the second question is connected to new businesses. You mentioned this new line for commercial vehicles. I'd like to understand inside the scope, medium and long term, you are focused on light vehicles, but talk a little more about the brake linings for the commercial lines.

[Operator]

Thank you very much. I think Emerson can start answering. He can mention logistics and all the financial impacts and then Anderson can complement talking about cost of materials. And Anderson, if you could talk about the long-term perspective in relation to the light lines and the heavy lines of the company.

[Hemerson de Souza, executive]

Thank you for your questions. Yes, in fact, we have been living since the end of the latest quarter, a very complicated moment regarding international logistics, impacts in struggling for importing, we have some logistic operation operators. So they are avoiding Egypt and the Suez channel because of the conflicts in the Middle East.

So it's rerouting its fleet to different places. So a very important part through Panama channel, but it takes time. So we have a limited capacity when it comes to availability of ships and Brazil has limitations, infrastructure limitations. We cannot receive like the new biggest ship. So it's a factor that creates some problems.

Here in Brazil, Santos reached its maximum capacity. The port was out of concession for many months, the floodings in the south of the country. So it created an enormous problem for receiving ships and infrastructure for receiving the ships that were directed to Brazil and all those problems internationally like the drop, Panama. So everything brought problems to us.

So getting straight to the point, we had almost 300 containers waiting. So last month, we sent for our major client in the United States, we sent 130 containers in a single ship. It happened only in October, no, but it could have impacted the other months, August, September. So -- figures millions.

When we talk about availability of products, our manufacturing process via Nakata and the manufacturing with control of Frase and Fremax. If we put everything together, we left almost BRL 40 billion in revenue. And of course, it would have impacted significantly the performance of the quarter.

It was the first time in history that we got over BRL 1 billion revenue in a single quarter. So it would performance even better. And when we're talking about exporting, it's going to happen. So that's the reason we have a good predictions for the fourth quarter.

In the domestic market, we have a great portfolio, but the problems didn't affect only Frasle mobility, the competitors as well. Everybody is facing some shortages. So we think we can get around that. We have like -- we are replenishing our stocks and purchasing more. What we bought in May, June, July faced problems, but what we bought in September is arriving. So we are replenishing the shelves to be able to serve the clients.

So stocks is not necessarily good. We make more money with EBITDA, with new businesses in comparison to saving the operating capital. So we have to balance that well, trying to tune the guitar as we say. We faced many, many problems because of stocking or shortages.

[Anderson Pontalti, executive]

Let me complement regarding the cost of raw material. Thanks for the question. We have to take into consideration 2 or 3 factors, additional costs. We had to bring flight to provide some suspension factories, so it reflects on the cost have a mix.

Since Nakata and Argentina because of the inflationary effects that reduced rentability when we consolidate that, and Nakata because it has like big margins and is the company that struggled more with those potential BRL 40 million that we didn't make.

So Fras-le would have a big exposure to materials. The other factories have a mix that freight cost. So we have a raw material cost that's a little higher in the latest quarter, and those are the main factors that I mentioned.

But regarding the second question regarding the heavy lines. So we are living our best moment in the history of our company because we got all the markets for drums and discs. We have a great relation with our main clients that increased market share. We have a recurring revenue that's relevant, and it's expanding in the last 3, 4 years.

So looking at the drums and brakes we are dominating. So we have to hedge, we have to protect, we have competitions like we're delivering more than the market expects, and we are like signing out relation to the competitors. And now we have to replace new technology and the disc brakes are replacing the drums brakes -- so it's almost 50% of the American market.

For the OEMs, they are putting 50 drums, 50% discs, but all the circulating fleet will reflect that in the future the share Trailers is another reality. The drums are a reality. So they are going to keep at 80%, but we can sell disks and pads with a better aggregated value.

We've been investing, and we are gaining market share that were dominated by European competitors mainly. We were the first company to launch the copper-free products, first company to launch in the United States market. So we have the winning material in relation to this technology that is well accepted. We have many projects to be validated.

So the heavy line and friction, we have a very clear strategy. So we started to plan and we've been preparing ourselves to have more offer for the steering systems, powertrain and for us to see the channels to get the channels that are closely built, we have a more expressive presence of Nakata in the heavy line.

We understand that we have room for growth and especially because of our new acquisition in Mexico. They have the channels, but they have a low offering of products in that market. So this line is gaining room is expanding inside of the mobility. But the light vehicles line is very strong. It's not going to allow the share to change so much. So we have many strategies for the light line. We want to keep the mix at 60-40 in a healthy way from now on.

[Gabriel Tinem, analyst]

Thank you guys. It’s very clear.

[Operator]

Our next question is from Lucas Macquiori, sell-side analyst of BTG Pactual.

[Lucas Macquiori, analyst]

Going to explore 2 topics here. First, Emerson give some color on the results of the elections in the United States. I'd like to foresee some risks regarding tariffs and your basis in Mexico. Maybe it's going to increase cost for like selling in the United States, compensated by the exchange rate. But I'd like to understand what do you think about that in this geopolitical world.

And I'd like to see the overall perspective capacity and what we -- what's the overall capacity of yours in different lines? You're just transferring capacity from a region to another or you are increasing the production capacity? Just for us to track the expansion of revenue with the expansion of the last 12 months. Just for us to see the average capacity growth in the factory lines.

[Operator]

Thank you Lucas. I think you could share the answers. Can you start, Anderson?

[Anderson Pontalti, executive]

Very relevant questions. Thank you for your question. We’ve been calibrating our conception, but we've been talk about it for a long time because of the possibility of the Republican Party elections. In our perspective, the effect is low because 95% of the market in Mexico.

So 5% of the business is going to the U.S. So I think it's a lot of campaigns speech cannot increase the tariffs in China and other countries like Brazil and Mexico without having a very expensive and painful penalty because they have been losing purchasing power of like of 20% and the inflation is big there.

So the purchasing power of American is pushing the government -- so if the government implements what they said in the campaign, the people will suffer a lot, it's a weak speech, very hard to be implemented. So many things Trump said he would do, but just a few actually happen. But we are not waiting for that to happen. So we protect ourselves the best way we can.

So we know that the American market cannot in the short term, allow massive infrastructure investments in industry for them to provide everything that this industry demands, especially the replacement product and trucks.

So Frasle will not suffer from the election. And if this increase of tariffs are laid on China and other geographies, I think it's a unanimous opinion and I've been talking to some American companies that are -- as well.

[Operator]

What was the second question?

[Anderson Pontalti, executive]

I remember, it was capacity. To answer capacity, who could absorb that? We haven’t invested in capacity because the factory had a third shift to expand. But now we are running on the weekend as well. We have a maintenance team, technology, safety prediction and prevention that allows us to operate 24/7 without deteriorating the assets and have some ruptures in production. So we're very strong on that.

And we understand that we have room at the 20% to expand. In 2025, 2026, we're going to open our pockets and expand our production capacity we have a favorable source. So we're always looking at possibilities to make or buy, but we understand that for the next fiscal years, we're going to increase the production capacity of friction for both light vehicles and heavy vehicles, like brake discs is well solved with substation, shock absorbers we have a second shift and a third shift to initiate and we have a manufacturing that's almost like infinite with China that's going to be consolidated.

So the risks of not growing organically, we cannot see in the short term. We have room for gaining market share, and I'd like to remind you that in friction, we nominate, we have 40% to 50%. So a little more than that, we would per the margins, it's not healthy. So we have a different portfolio steering truck absorbers, brake disc.

I'm talking about 25%, 30%. And we think we can go up to 45% this question was asked of the analysts, and I repeat my answer. I think we addressed that really well when we are not looked at the moment.

[Hemerson de Souza, executive]

If you allow me, Anderson, just to add a little sense on the United States issue. We have an advantage in the U.S. We have a factory in Alabama, USA. So we will profit from that because we are close to the production base.

So, even as Anderson said, Mexico is a prominent player when we see the manufacturing, the automobile manufacturing system, manufacturers supply the U.S. like new vehicles and systems. So we are neutral to optimistic with what is happening in the U.S.

[Operator]

Our next question comes from Andre Ferreira, sell-side analyst of Bradesco. Congratulations on the results.

[Andre Ferreira, analyst]

Congratulations on the results. I have 2 questions. First is about EBITDA margin. It's coming back to the high levels, 19% in the adjusted. I'd like to confirm 2 topics with you guys. First is, what is the improvement point like comparing quarter-to-quarter, 3 percentage points? Was it rate -- exchange rate impact? And what's the dynamic of margin from now on?

And second macro topic is, I believe that in, it was clear the potential of Compass for a weight reduction for some parts. In the release, you talk about a contract of Compass beginning in August. If you could comment a little more about this contract and some of the contracts that are being signed up, which parts, which clients, if you could comment on that and the size of the contract.

[Hemerson de Souza, executive]

So I'm going to start answering first 2. Well, thank you, Andre, for your question and for participating in our video conference for the earnings call. So I'd like Anderson to talk more about Compass. But the contract we signed was the Phase 2 of Iveco, and it's a big client for us to use the lines here, but there are many good things happening and Anderson can expound that better.

Talking about EBITDA, we talked about the struggling problems at logistics. We could not see and enjoy the exchange rate because we had problems for exporting. We had 260 containers stock. So we had this material to be shipped the wait in the ports. So we could not enjoy that so much. So we have a level of implementation that balances our commercial scale.

And when we talk about cost of products and support of our margins, of course, it increases. It's a little neutral our EBITDA margin for the quarter has little effect on the exchange factor. What enters this situation is the recovering of the levels we had. So we don't have many nonrecurring effects this quarter. Argentina was not that big as it were in the latest quarters. So we are starting to go back to regular levels of operation.

So let me get your question. One thing is the accounting translate of what happened, and it's reflected in our results. And the other part is the guidance of business of the company. The guiding of this year was never unfavorable.

But if we evaluate with Argentina influence, we understand that Argentina is part of our business. I cannot hear you and say, okay. But all the effects, dieselization, inflation that is falling, now the economics -- the economy is establishing, I think Fras-le is in the time of its life in terms of profitability, ROI. So of course, all the effects, nonrecurring effects, they're going to bring us to a different level.

I think if you evaluate closely -- you understand that very easy for them to understand the company for investing and our quality. So we are very optimistic I think, our business guiding is optimistic, our clients they are still buying replacement sales are very favorable. And now with the acquisition of BRL 1.5 billion of additional revenue, just for you to see the size of the growth that we are presenting. So our perspective is really good for this.

Of course, we are optimistic. You have to discount a little because we are passionate here in the company. But the moment was never that favorable. We've been planting apple trees to harvest apple. So all the actions are converging for us to deliver better results in the future.

And of course, when everything is favorable in the logistics, maybe we will get favorable results from exchange rate because 40% of our business are out of the country. So building products to be exported and building strong currency in different geographies. But thank you for your question.

Now Anderson, I'll give you the floor to talk about Compass.

[Anderson Pontalti, executive]

Thank you, Hemerson. I don't have to complement. First, each year that goes by, every time we have this earnings call, you start to see different opportunities. Compass, this new business, the expansion inside Iveco has different variation going to expand 50% to 60% of the revenue. And Iveco, as I said, I'm talking about 20 million business per year. But Iveco is a small player compared to Mercedes and Volkswagen.

So for the VW, we had the first launch we are exposing at the fair here, exhibiting at the fair here. We intend to expand the dialogue. And we've been talking to Volvo, Mercedes, Scania. All the conversations are still here. We are looking at new geographies, but we're also looking at new technologies for supplying different components.

So we have the fibers that we've been assessing. We're also looking at high-pressure molding materials that are going to replace maybe as a second generation of composites and reducing the costs, bringing more financial benefit for Frasle and for the client.

The pipeline has 40 to 50 projects only for Compass. When I look at 91, Frasle has 46% runoff -- so we have the royal 5% of the revenue as we hold a patent born inside -- 91 is very advanced, establishing stabilizing the metallic alloys -- the hub which is an expressive reduction almost with the weight of the cost. We have the approval of the clients in the market have an important time for running the tests.

Technology is really promising. It's worth mentioning that Fras-le through Fremax -- is exporting in a regular way ,000 disks with a protection paint that helps avoiding corrosion countries that have snow and salt, highways that are very aggressive for many parts of the cars, and we've been having an acceptance of the market in a premium position.

So the technology brings better performance with protection inhibitor, the corrosion inhibitors that are available in the market. So those are practical examples, but we have many projects here. We don't have the domestic for Dialog. We are entering into cosmetics, electronics, paint.

But our main focus is to look at how we boost the products that we are still -- that we are learning now. So Fras-le has a research and development center looking at the regulatory framework of the UE that is entering force in 2027. We are very happy with the preliminary results. And we know that those technologies, they mature slow because it's hard to convince that a breakthrough innovation will replace established technology.

As an exponential curve, you start to expand slowly and then there is a boom and you capture many different problems on the size of the acceptance that we can see for 91 and Compass.

[Andre Ferreira, analyst]

Very clear thank you.

[Operator]

And our final question is for Gabriel Rezende, sell-side analyst, Itau de Valores.

[Gabriel Rezende, analyst]

Just one question from our side. If you could give some more detail on the dynamics, mix/price, but we could see friction, brake systems, suspension steering powertrain. Obviously, it oscillates every quarter, but if you could comment eventually what we have to keep on what are the most challenging or positive dynamics in terms of specification?

[Anderson Pontalti, executive]

The mix is coming back to the regular scenario in the first quarter. We had the countermeasures for bringing Nakata at the same level of revenue end or even surpass that because of a higher back order. We have some effects of control flooding, they're getting behind.

So we had a month without production. We empty our stocks, and we have a big demand. We are expanding the revenue in the fourth quarter and the beginning of next year. So we are coming very strong at the beginning of next year.

In Argentina, although we have reduced margins due to the market dynamics, we're going to have a higher offer in product. And we've been preparing that, amplifying the purchasing the orders and expanding the portfolio. So we will bring to the natural balance that we had, Nakata performing as $100 million, Fras-le $110 million, $120 million, $130 million. That's what we've been doing, $6 million in Argentina back to what's regular.

So the mix will come back to the standard to the benchmark we are prepared because of our market share. So medium, long term, we're going to expand the sales at Nakata, Remax and Contro. Remax and Nakata because of expanding of the market share that they offer and we have, we're going to have distributors, BPK recently, that's a very important client in shock absorbers segment.

We have some other projects, but at Control, we have a very significant backlog -- and there are a few players that have this complete offer. So at Control, we have this potential of growth for us to expand the offers. Fras-le with the mix and lead the market with our current share because we could gain any market share, much market share for the last years. So those are the beliefs for your modeling.

[Operator]

Thank you. We close the Q&A session, and I invite Anderson for his closing remarks.

[Anderson Pontalti, executive]

Thank you so much for the time you dedicated. It was a very positive quarter for us. Some wins counter us, but we have a historic revenue, and we want that to be benchmark for our next quarters. Our internal model is over BRL 1 billion and Nakata is performing better the following quarter because it's a healthy company.

And there's no other company that contracted revenue of like 30, 40 for the next year of growth for the next year. And we have plenty of synergy to be captured, the market is favorable, the business model is solid. We are strong and that we're going to deliver results for strategy. Thank you so much, all the presence. Have a great week and weekend. Thank you so much.