Fras Le SA

BOVESPA:FRAS3

Earnings Call Transcript 2022-Q4

[Monica Rech, executive]

Good morning. Welcome to the conference call of Fras-le. I would like to make some announcements. This video conference is being recorded and after the end will be available in our website. [Operator Instructions]

At the end of the presentation, there will be a Q&A session [Operator Instructions] Apart from this, we would like to clarify that everything contained in this presentation concerning projections and potential of growth of the company are based on forecast and were based on the current management's expectations in relation to the future of the company. These expectations are highly dependent on changes in the market, general economic performance of the country and the sector and international markets. Thus, they may suffer changes.

We'd like to thank you for being with us in this conference call. My name is Monica. I am from Investor Relations of Fras-le. And we have with us today Chairman, CEO, Sergio de Carvalho; Director Superintendent, Anderson Pontalti; and Business RI and M&A Director, Hemerson de Souza; also, as an invited Director, [ Steven Angeletti ], Director of Investor Relations.

We wish you a good conference. And now I would like to pass the floor to Sergio, who will begin the presentation.

[Sergio Lisbão de Carvalho, executive]

Thank you, Monica. Good morning. Thank you for joining us in this meeting for the earnings of the last quarter, Q4 2022, and full year 2022, talking about the highlights, the markets, especially the domestic market, where we had a growth in the number of vehicles in garages much greater than 2021, 20%. And in this segment, this is important, we were able to grow at an even higher rate than the increase of flow in the garages. We grew more than the market. This is very important for us.

We are in new markets, new businesses, both in the domestic market and the export market. In the case of the export market, especially in the U.S., where we have a booming market, we won important businesses with Meritor and [ Aqua ], which is very important for us. You should remember the migration. From brake lining to disc brakes, we received -- we won business from WABCO. For disc brakes, this is very important for us, and this opened the doors in Europe for our company and -- including Asia. We have very good portfolios in many segments like discs, suspension components and many other components. And we have a concern in relation to sensitivity to price. Not in general. This is not for all our lines, not for all our segments, but especially in Brazil, the light line, and some specific lines where we noticed a great sensitivity to price during 2022.

So in terms of markets, we had an important progress in India, where we had already reported in the past that we are now qualified. We began to supply to Tata Motors, the largest truck manufacturer, and we also made progress with other manufacturers, VOLVO [ Asian ] are also buying from us. Many new businesses coming in the future.

In terms of results, a record net revenue BRL 3.1 billion in 2022, so 18.4% growth in comparison with 2021, and this becomes even more relevant. If we remember that 2021, we had many anomalies. We had many supply problems, which these -- which made people also have more inventory. Inventory was better for clients than the interest rates offered from banks. So this increase in an artificial way, the inventories. But we grew 18.4% when compared to 2021.

So in the last quarter, in Q4, BRL 746 million, 9% higher than in Q4 2021. Gross margin, 29.3%, representing our great effort in sales, our internal people from operations, cost control, productivity and also the purchasing area for raw materials to have such a good gross margin as this one, 29.3%. Our consolidated EBITDA, 11.3%; adjusted, 14.3%. Certainly, later on, Hemerson will give us detail showing what helped us to make these nonrecurring adjustments. But we ended the year with an EBITDA -- an adjusted EBITDA 15.6% in the year with a gross amount of BRL 476 million, so getting close to BRL 500 million in EBITDA for Fras-le.

Now looking at our operations. The conflict in the Ukraine continues to make us concerned because it is bringing a deacceleration of activities in Europe, also devaluation of currencies. We have to check these points in our accounting, the recoverability of assets, and this brings new issues because of the war. Economic instability in Argentina, we're also concerned. The macroeconomic scenario is very challenging. The restrictions in Argentina for imports are getting more and more strict. And as we said in previous calls, we have a great expertise in Argentina to allow us to do the best and overcome the situation. But we are concerned with the situation in Argentina, especially we had a recovery in volumes. In the first semester 2022, we had a lockdown in China. So in the second semester, we had a better situation.

And also stabilization of our new plant in Extrema. You remember that we produced shock absorbers in Extrema. We used to have the plant in São Paulo, and we transferred this operation to a new plant to Extrema in the state of Minas Gerais, a much more modern plant. And we have already overcome the initial phase, the start-up, hiring labor, new processes. And now we already have a normal situation in the plant in Extrema for shock absorbers. We also had an increase in capacity in 2022 in our operations in Caxias do Sul in the south friction material with 6x2 shifts. Thus, we increased our production capacity in a substantial way without adding more fixed assets. So this is something very important, the increase in capacity in the plant in Caxias do Sul in the south of the country.

Now talking about our guidance, you can see on the screen what we informed. Net revenue -- consolidated net revenue, we got to BRL 3.1 billion, surpassing the guidance we had given. Our revenue in the market, $228 million, surpassing our guidance, which was BRL 210 million. And our EBITDA margin without adjustments, we got to 14.8%. And investments to BRL 106 million, closer to BRL 90 million, as we had informed in the guide. These investments are organic investments. They don't include investments linked to M&A. And we did not have any M&A transactions during this year.

This year, we are delaying the announcement of our guidance. We have delayed the guidance this year. We are working on it with Randon. We want to absorb important impacts, political impacts and market impacts in the international arena, so we can give you a more detailed guidance. So we will have a small delay to inform our guidance for 2023. But this guidance is being prepared.

Hemerson, just to confirm, Anderson who was not able to join us.

[Hemerson de Souza, executive]

Yes, he is in a flight.

[Sergio Lisbão de Carvalho, executive]

Okay. Continuing with our highlights. Many good things happened during 2022. As you know, we had our strategy to increase our revenue outside Brazil. We had an ambition. In the past, we had international revenues that represented 55% of Fras-le with the last acquisitions, especially in Nakata shock absorbers, this dropped to 40% of revenue in dollars. And now we want to have a greater revenue outside Brazil.

The acquisition of Juratek, as you know, is very important and brings us a lot of synergy in a market in England, in the U.K., especially for light line. The fleet in this country in the U.K. is almost as large as the fleet in Brazil. We have -- we trust strongly that this purchase will help us to become a powerhouse in aftermarket. We look at this transaction as a small Nakata, a company that has a very good reputation in the U.K. So we purchased this fast pass so we can develop our strategic plan, add more products to Juratek and also obtain synergies to grow in a very large market, the U.K., that has a giant potential for us.

Now we also had the follow-on of Fras-le. We were able to capitalize the company with BRL 630 million, and this at a very critical time because a few days before, we had an increase in interest rates, and this has a negative impact on international markets. But even with this, we were able to continue with the follow-on. And thus, we will be able to guarantee things. And the transaction of Juratek was the first step in our strategy. We made an important investment in renewable energies. There are more details that can be seen in our website.

We began in China in June 2022, adding 1,300 solar panels in our technology center. This project will be inaugurated this year, a very important project. We launched also Smart Composites 1.5 years ago. We have more than 200,000 components supplied. And we announced in the Fenatran Expo a contract with a large truck manufacturer, Iveco. We have already begun to supply parts to Iveco in January with a new production line dedicated to the Iveco project. Great possibilities to expand to Iveco Argentina and in the future to Europe, Iveco Europe. We have many possibilities, many projects with other truck manufacturers being developed, and the future is very promising for the supply of parts from Smart Composites, integrated logistics project.

Some of you had the opportunity to visit during Fras-le Day, but we closed the year with our distribution center in Extrema distributing apart from Nakata, also all Fras-le products, Fremax, Controil from this distribution center. So with the exception of the [ south ], the distribution to Midwest is now being done from our warehouse in Extrema. We won awards for aftermarket, top-of-mind brand with good results for Nakata, Fras-le. We had a recognition for many brands in 2022, and we won the Sinderepa Award. We're very proud of these awards.

Now continuing with our highlights. We have the inauguration of our operations center in Argentina. In the past, we had done some consolidation of warehouses, but the offices remain separate. And today, we have an operations center that is very modern in [indiscernible]. It was inaugurated in October, centralizing all our operations with -- allowing us to have more synergies in Argentina. And this structure is now ready for us to grow much more in Argentina.

Our reverse logistics center for Fremax is a pillar of sustainability, very important. We collect used disc brakes from the market. We bring back to our operations. And thus, we help the environment. And the safe operation, we collect disc brakes from 1,600 garages -- used disc brakes. And this material is then transformed into new products. We send them to the foundry, and they are transformed into new products.

We also have a product that allows us to search -- that helps the search of parts. So for example, to identify part numbers in Brazil is very difficult. Sometimes there are 3 brake systems for the same vehicle. When you try to see the right components and parts, the parts you have to buy many times, you buy the wrong parts because -- and it's very difficult to send back because you did not know the right component. And now we have this new functionality to help the search of the right parts for garages, truck owners. It's a pioneer project that is having a great success in the market, our auto experts software.

Also here, we had Fras-le Day and for safety, security, this is the value of our company. So we're working with all our employees showing that our concern with them is a great concern, a genuine of safety. And hereto, we won many awards, export award in Rio Grande do Sul.

Just to conclude this part before passing the floor to -- I understand you can see a summary of our main indicators where we continue this journey, consolidating our strategic vision. In other words, we developed a vision of the future strategic plan to get to our vision in the future. And we have had a very consistent execution, and the results that Hemerson will detail -- are here to show you.

Record revenue here, 87% in aftermarket, 38% export market. Today, we have also exports representing less than 50%. We have brands that are desired one-stop shop. So also recurrent aftermarket products, growing fleet, and we're here growing in OEMs in aftermarket and continuing in -- with a lot of success.

Hemerson now will continue the presentation.

[Hemerson de Souza, executive]

Thank you, Sergio. We mentioned Anderson Pontalti, our superintendent, is traveling, and he is working on the conclusion of the purchase of Juratek, as Sergio mentioned. And we have many -- we have very few things to do. And soon, we will announce the conclusion of the purchase of Juratek. So he will not be here.

Well, Sergio covered very well in the previous slide the profile of Fras-le. We have always said the value of our business model that we have in Fras-le, especially in the last 5 years, we're offering more and more solutions, including services, and becoming a one-stop shop for our clients. So it's very difficult to operate auto parts in aftermarket in Latin America without having the brands that Fras-le has on the shelves.

So this positions us maybe as the most important aftermarket parts company in Latin America. Obviously, this can be seen in our performance. And in our conference calls and one-to-one meetings, although it's not a formal guidance, I always say that we have great possibilities, we have diversification, and we can have double-digit growth, double digits between 10%, 15% growth in an organic way in a sustainable way. And this excludes any M&A in 2022 shows this. We grew almost 20%. We had a revenue of BRL 3 billion in revenue. 90% is from aftermarket. And in the quarter, Q4, we also had a growth when we evaluate the growth in Q4 2021 and '22. We have some seasonality in comparison with Q1 and Q4, but a robust growth in relation to 2021.

Going now to the next slide. We show this and looking at the markets, domestic markets where we concentrate aftermarket, we grew 18.3%, international markets, 18.6%. And we are a company that is even more focused on parts for light vehicles, 60%, 65%. And in the annual closing, 62% light line and 38% heavy vehicles. So we can see the transformation that we made in the company in the last 5 years. Today, friction, brake pads, friction materials represent 49% of our revenue. If we look at 2018, they represented 92% -- 90%, 92% of our revenue. So we transformed the company. It went through a transformation. It is more diversified in products. And this can be seen in the sales.

It's important to highlight this balance between domestic market and export market. Sergio mentioned we had 55% of our products dedicated to exports. And with the acquisition of Nakata and Fremax, this dropped. With the acquisition of Juratek, as it is concluded, we will gain 2, 3 additional points in exports, thus going back to have 60% of our revenue in dollars in foreign currency.

Another important point, even though we had difficulties in some markets like Argentina, we had a good performance in exports. The data from the quarter, the drop from one quarter to another doesn't -- we had difficulties in exports to Argentina. But on an annual basis, when we compare seasonality, we had a growth -- a small drop in relation Q4 2021, 24%. But it's not relevant, nothing relevant and a great success in terms of strategy with the exposure that we have to the export market.

In the next chart, we -- the synergies of Nakata. In fact, the plant, we concluded the integration of Nakata, the purchase with logistics in the same building, the new distribution center, and therefore, we have everything working well. In 2021, we accounted for BRL 17 million in synergies. Then in '22, we have this year BRL 74 million expected this year due to the expansion of revenue and margins due to the synergies in Nakata, not only in Brazil but in export markets to purchases and supplies are important. We won many synergies in purchasing with the acquisition of Nakata and also the footprint. Everything concluded during 2022, the integration of Nakata.

Of course, there are some other things like synergies of -- in taxes, which depend on any integration. We don't have a date or the decision is not -- has not been taken, but we want to be as efficient as we can as we did in other acquisitions and also the introduction of new lines in Nakata in other markets. Especially in Juratek, we're evaluating the possibility of selling Nakata products in Juratek in the U.K.

Here, we show the adjustments we made in Q4. I remind you our EBITDA of Q4 always suffers due to some nonrecurring items, especially the combination of the business. We -- every year, in December, we have to calculate tax credits. We always have this at the end of the year. This year, this represented BRL 16.2 million in December. We also had a reversal of gains due to a decision linked to PIS, COFINS taxes in Jurid, EUR 5.6 million. Some impairments of assets, Sergio mentioned in Europe, the drop in volume conflict in Ukraine and Russia and even inflation in Europe. Another BRL 700,000 and other expenses that are not here that we adjusted BRL 1.5 million in M&A expenses in December with the acquisition of Juratek, which shows us that we have an adjusted EBITDA of BRL 465 million. EBITDA in the year, 15.6% or 15%, as you can see here.

On the next chart, we show our financial performance. The company, due to the follow-on last year, we have very few debts, almost 0, a good cash position. As we use this cash, this should change. Cost of debt, there was an impact due to higher interest rates. We're paying higher interest rates. Our balance in terms of debt, most of it is in local currency, 20% from exports. And we invested last year BRL 106 million, and this helps us to do the maintenance of assets. But no, we didn't have high investments in acquisitions, as Sergio mentioned, only investments for maintenance.

On the next chart, we show our cash flow, free cash flow. When we look -- it's not so favorable because it includes acquisitions that we made. So we have relevant payments due to purchases, M&A, but we have a good return on capital invested. We will show this later on, especially in 2022 and investments BRL 106 million, also payments, higher interest rates, and we paid dividends, and we can see here also working capital. When we exclude these resources, net BRL 600 million. Still, we have a positive cash situation in 2022.

On the next chart, we show the performance of net profit and the drop in working capital use of resources, BRL 44 million less. The profit is in line with 2021, and as I mentioned, affected by additional costs due to higher interest rates.

On the next chart, we show our ROI and ROIC. The drop in ROI, especially due to our availability in cash as this should adjust itself. And on the other hand, we show our ROIC, return on invested capital, close to 14%. If we evaluate the history, we will see that this was an important point for us.

And on the next chart, we show capital markets. Our shares suffered similar to other assets in Brazil. Our -- so we can see here the auto parts market. And Fras-le is a consumption company, and we're in the automotive sector. We sell 90% of what we do for aftermarket parts. So this makes us resilient. We just reported the revenue of January as we do every month. And in January, we showed how resilient this market is, aftermarket parts.

So we understand that we suffered a little, but we are recovering in January. But the most important thing I'd like to highlight, since we built a better situation with the market, we increased our liquidity from BRL 200,000 a day to more than BRL 5 million per day. Especially in the last year, we had peaks close to BRL 10 million per day. And we have made an effort to maintain this in an efficient way, even if we have our controlling group with 2/3 of the shares. But the company has great potential to improve its market cap using the strategy we have and also due to the appreciation and value of our shares and the liquidity that has increased in the...

Now Sergio will talk about our perspectives for 2023, and then we will have our Q&A session.

[Sergio Lisbão de Carvalho, executive]

Thank you, Hemerson. Our vision of the future, it's very positive. That's the best way to summarize how we see the future. Hemerson mentioned revenue in January. We began the year very well. We believe that this process of internationalization of our business with a new acquisition in the U.K. will allow us to work more in mature markets to have more and more growth, but growth linked to a resilient revenue. We have more stability now in supply with normalization of logistics and price of raw materials. And this will allow us to operate in a more normal way.

Also the positioning of the brand and portfolio, all this management has allowed us to make progress in all the possible fronts. And we see here, we mentioned for 2023, a continuity in sensitivity to price. In 2023, we will continue with sensitivity to price, especially in the light line. In some segments, we will have more sensitivity to price when we compare with 2021. The continuity of this sensitivity to price that we detected for -- in 2022 also.

In a summary, we have a very positive vision of the future. We know we will have a positive year ahead of us. Now I'd like to pass the floor to Monica to beginning our Q&A session.

[Monica Rech, executive]

Thank you, Sergio. Now we will begin the Q&A session. We already have a question from Pedro Fontana.

[Unknown Analyst]

Congratulations for the results. Two questions. The first, the prices for 2023, how do you see the cost of raw materials? Do you still have to increase prices? And can you -- do you believe you can increase margin in 2023? Also, the second question, M&A, I'd like to understand, is this the market situation? Would you make new acquisitions? Can we expect more acquisitions in 2023?

[Hemerson de Souza, executive]

Sergio, I would like to begin talking about prices. Pedro, thank you for the questions. Thank you for joining us in our conference call. Well, since last year, we have been seeing pressure from clients, especially in exports and the light line, asking for discounts. In exports, with a recovery and a balance in logistics, we see a more adequate offer of Chinese products in some markets, more competitive. The cost of the container dropped from $6,000 to less than $2,000 per container today. Cost of containers has dropped by 1/3, by 2/3. So Chinese products are more available.

We were not giving discounts in all the cases. We have made some concessions in markets where we are less competitive, important clients where we have a long-term relationship. But this doesn't affect our margin. It doesn't -- it hasn't reduced the margin. While on the other hand, we have noticed also some deflation drop in prices in raw materials and especially in metals, lower price in raw materials and also chemicals. We had some reductions in purchase price.

So we're not seeing inflation. So for us, the price scenario for 2023, we don't see anything that will hurt margins. And also, we don't see also possibilities of increasing margins. We're conscious that our discipline in exploring synergies, efficiency, exploring productivity to improve margins. We are sure that this route, which doesn't happen overnight, we are doing this for years, for instance, important results and will bring us important results in 2023.

Some exceptions. Fremax continues selling more than they can deliver. So we are choosing the most profitable markets for Fremax, robust clients. But we also sell in the domestic market in a growing way, gaining market share, and thus, competing with local companies and some markets where we can increase prices on an annual basis like Meritor in the U.S., they will have some price increases this year, and we try to balance the drops in costs with some discounts for some clients. Sergio will talk about the M&A strategy, the pipeline and how we see the market.

[Sergio Lisbão de Carvalho, executive]

Thank you, Pedro, for the question. We are now concluding this transaction, Juratek. And we -- when we conclude this purchase, we have a plan for integration of the new company, Juratek, during 100 days. And some of these synergies have already been mapped. And we believe we want to conclude this purchase. It will be a good initiative for our company, for our growth. But it's important to have a good integration. So our priority right now is to conclude the purchase of Juratek.

So -- but we have a robust pipeline in terms of potential acquisitions. We have many cases being discussed, many projects in the pipeline. So what I can tell you, there are many good things happening, yes, and we are working on these cases. And sometimes we have to step back, then we have more progress in M&A. We have total control over these processes. We're analyzing many cases. It's -- so there are many steps in this process.

But we can tell you many good things in the pipeline in terms of M&A, and we will continue in this journey. We will capitalize ourselves then to continue. And in the following months, we want to finish the integration of Juratek with Fras-le.

[Monica Rech, executive]

Thank you, Pedro. Our next question comes from Luis [indiscernible].

[Unknown Analyst]

Here, I would like to explore in a better way sensitivity to price. You made clear that there are some segments that are more affected, others less. These that are not suffering. I'd like to understand, what are the ones that are not sensitive to price? You said that Chinese products are putting pressure on some products. So how subject are you to additional fragility in 2023? Is there a trend for markets to have more sensitivity to price like in Brazil? Or do you see stability in 2023?

[Hemerson de Souza, executive]

Luis, Hemerson. Thank you for the question. In fact, what we see this pressure for cheaper products in some markets. We saw this during the year of 2022, especially when we had higher fuel prices, you always have pressure for the whole chain, automotive chain. But we had many opportunities to check this in times of crisis, consumers, substitute products, in maintenance. And they use -- they also have a trend to use better products. Why? Because it will take longer for them to buy a new car. So they choose better products, better quality products. So in times of crisis, we increased our revenue.

Now going back to your question, the light line always has more competition. But in this specific case, we suffer also in heavy lines, for example, lining for semitrailers. We have noticed since June last year greater pressure. We have more difficulty because margins are tighter in terms of competitiveness, even for linings for heavy trucks. In the rest, there is nothing that we made good progress. We were able to raise prices in suspension items, disc brakes, actuators. We always look at the market, and we have margins, some margin -- higher margins where we have space and more competitive in others.

This always happened. In a structural way, we don't see any fragility that could bring us difficulties in terms of margin this year. Of course, there are spot problems. In exports, we make some concessions. For example, in payment terms or in one container, this is natural. And in Brazil, where we have 60% of sales and most of them aftermarket, we're not suffering with a great amount of products from competitors. In friction, imports of Chinese products are stable. We have local competitors that are in suspension and steering. They all buy imported products. So this sometimes hurts or helps all the participants in the market.

So we see clearly a stability. And this is the beauty also of the aftermarket. We have 2 balance things and use our brands and our reputation. So nothing that could concern us more than the current situation. Thank you.

[Monica Rech, executive]

Our next question came in writing Luiza Mussi, Safra Bank. We see a significant drop in the international markets in the quarter. Could you give us more color about Argentina and other markets? And what will happen from now on?

[Hemerson de Souza, executive]

Thank you, Luiza, for the question. In the quarters, Q3 was stronger. Q2 was stronger. It's not fair to compare directly the evolution of sales in the export market. We have a greater concentration in Q2 and Q3. In Q4, sales were stable, but the main point is Argentina. Since November, we have had giant difficulties to obtain authorization to import parts from Brazil to Argentina. We had higher inventories than necessary in Argentina.

So it's interesting because in an economy with hyperinflation like in Argentina, the inventory, the products are safer in terms of protection of capital than money in the bank. So our clients buy more than we can supply. So we had to really adjust sales. Thus, we had higher inventories. So we're okay in this quarter and part of next quarter and the continuity of the sales in Argentina. But the fact is that right now, it's almost impossible to get authorizations to export to Argentina.

But the country is now lacking automotive products. They are running out of parts. Hence, this will have to be solved. So Argentina is paying in 180 days payment terms. So we're being very cautious, but this hasn't had an impact on Fras-le. And with the exception of small difficulties, things are going well. We have expanded our activity in Mexico and other markets that are new markets. We won new markets in heavy brake pads. This is important for Fras-le.

So Monica, we have 3 questions from Antonio Ritzo sent through the channel. Antonio, thank you for the questions. And I will answer these questions together with Sergio. He asks us, how can we see the increases in productivity? And Sergio will answer. But the other questions from Mr. Antonio Ritzo, he asks us to detail whether we will increase exports, and after the acquisition of Nakata, if we will have an increase to OEMs.

Sergio, can you answer about productivity and higher greater sales to OEMs, and then I will answer about exports?

[Sergio Lisbão de Carvalho, executive]

Thank you, Antonio, for the questions. Talking about productivity, Hemerson joked, this is a point that we discuss a lot internally. The speed with which we will organize all our operations, we want to improve in all the lines, not only productivity, our -- all our operations. We have other initiatives. Everything we do, we want to increase productivity year-after-year, even in legal departments, in all the departments. This is part of our effort.

We have worked on modernization projects in our plants. We had the introduction of the shift 6x2. We have tried for many years to get an agreement. And now with the same assets, we're working 24/7 in our plants. This is very relevant for productivity. Optimization of our global footprint, we export from Brazil, certain products. But in the future, it may be cheaper to export from China or India.

So we have this flexibility. We have the same product with the same quality from many plants. And our people from operations say, right now, it makes more sense to export from China or from Brazil, and this helps us. This is very relevant. We have invested in new technologies, Smart Composites, also products for railways. We changed the composition, not only thinking of the environment, but we reduced production time processing cycle. All these gains in productivity. There's no silver bullet, there's no single area for these results in productivity. It's a composition of product -- projects in all the areas of the company. And we have this discipline. We have this mindset in all the units to increase productivity.

Now talking about our share. We mentioned in some events, we like OEMs, but we want them to be part of our business model, sales to OEMs. We like components that suffer wear -- we like components that suffer wear. Hemerson mentions, if you have an accident with your car and the bumpers were damaged, you can continue driving the car for 6 months, a year until you fix it. But the components that we sell, you cannot drive your car without them. You can delay maybe for a week or a month, but you have to substitute the products.

For example, your brake lining, your steering, you have to fix it. And these components for each one that you sell to an OEM, you sell many more times to aftermarket. So if you look at this brake pads, for example, for every brake pad you sell to OEM, you sell 7x, 8x more in aftermarket. This naturally makes the product good for aftermarket. This is what we like. Not that we don't like OEMs. We like OEMs, but we want to sell products that suffer wear. So there are projects in some lines.

Nakata, with the exception of one type of shock absorber, we don't sell to OEMs, and we have projects to sell to OEMs in the future. Fremax is working at full capacity. We're working on important projects to expand the capacity of Fremax. Hemerson always says that if he had another Fremax, he would have sold everything to the U.S. So we have expansion projects to OEMs. But first, we have to expand the capacity so we can continue.

So for us, it's important to obey this business structure that brings revenue but also is a resilient market. This is what we want. I hope I was able to explain to you.

[Hemerson de Souza, executive]

Sergio, a question from Mr. Antonio. Where do you hope to export to? So for example, Fremax, once we can increase the capacity, we focus a lot on North America. We have great opportunities in the North America. And now with the acquisition of Juratek, we want to expand our product mix in the U.K. Europe. Europe is 3%, 4% of our revenue. So there's a lot of space to grow in Europe and Asia and also closer markets in Latin America, especially Mexico. So these are destinations that we're looking at, and they can be combined with acquisitions.

So right now, we'd like to close the Q&A session. We tried to answer all the questions. If you have more questions, please get in touch with us through our Investor Relations department.

[Monica Rech, executive]

Thank you, Hemerson. So the Q&A session is concluded. I'd like to say that our team is available for clarifications and I'd like to pass the floor to Sergio for his final comments.

[Sergio Lisbão de Carvalho, executive]

Thank you, Monica. Thank you for joining us. As I said, we're very optimistic with the future and following our strategic plans with a good execution, as shown in the last few years. If you need any clarification, as Monica said, please get in touch with the Investor Relations department. I am available for any further clarification or any material you may need. Please get in touch with us, and we are available. We will do our best to clarify any points. Once again, thank you for joining us. Thank you for your support, and good afternoon.