Mahle Metal Leve SA

BOVESPA:LEVE3

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, ladies and gentlemen. Welcome to MAHLE Metal Leve's videoconference to discuss the Results for the Third Quarter of 2024. This videoconference is being recorded, and the replay can be accessed on the company's Investor Relations website. The presentation is also available for download. [Operator Instructions]

Before proceeding, I would like to emphasize that the forward-looking statements are based on the beliefs and assumptions of MAHLE Metal Leve's management and the current information available to the company. The statements may involve risks and uncertainties since they relate to future events and therefore, depend on circumstances that may or may not occur.

Investors, analysts and the general public should take into account that events related to the macroeconomic environment, the segment and other factors could cause results to differ materially from those expressed in the respective forward-looking statements.

Present at this videoconference, we have Mr. Claudio Cesar Braga, Financial Director; Daniel Brasil Alves, Marketing and Corporate Communications Manager; Mr. Fabio Lopes Peres, Executive Finance Manager; and Mr. Evandro Tozati, Aftermarket Director for South America.

I would now like to give the floor to Mr. Claudio, who is going to start the presentation. You may proceed.

[Claudio Braga, executive]

Thank you, Sophia. Thank you, everyone. Thank you for your time. We are here with you to talk a bit about the results of Q3 accumulated in the past 9 months of 2024. We have a slightly different agenda since we started 2 previous quarters with a guest bringing an interesting topic, not necessarily focused on financial reports that are interesting for the market overall and investors. The agenda is a bit long, but I think it's quite interesting.

We'll start with the earnings results presentations of Q3, main highlights. We had some interesting changes that we discussed in Q2 and over Q3, we're going to briefly comment on them and Q4 will bring more details since we're going to have things happening in October this year, late September. Then we're going to have Daniel Brasil talking about the market overview and the performance of our sales revenues.

I'll talk about financial results. And then we're going to have Fabio Peres, who's going to talk about our financial management and financial expenses. And then we'll turn over to our colleague, Evandro Tozati, responsible for the aftermarket division with some quite interesting comments to share with you.

The idea of having Evandro with us came mostly from the roadshow Sergio Sa and I did a few months ago, closing a project of acquisition of Compressores and Thermal, and we saw great interest of investors to know the aftermarket area, and we invited Evandro and he kindly accepted our invitation. So we open up for Q&A. Thank you.

Here, moving straight to the highlights. We closed the first 9 months with BRL 3.2 billion net sales revenue, a bit below what we saw in the months of 2023, about 20% below we see by Daniel Brasil, great part of exports. Daniel will explain the dynamics. Follow clockwise.

The EBIT 20.9%, EBIT of sales 1% point above of what the first 9 months of 2023 were. So we can go into details after that. This is because of heightened EBITDA at a high level. We had a bit at '18, '19, '20, best moments, 21% this year. We have the result EBITDA of 23%.

I should not share many details yet because everything was closed in Q4, but I'd like to thank in advance for the support and the trust of all of you, we were able to close quite successfully the projects we disclosed to the market. 2 of them would be the acquisition of Compressores unit in Jaguariuna in the State of Sao Paulo and Aftermarket Thermal. This part goes into the division that Evandro will explain to us.

And we were able to materialize the acquisition of 33% of Arco Climatizacao. Both projects were aimed at the roadshow comments, and we disclosed to the market, and we are very excited to close the Q4 with all in the Metal Leve universe and share with you everything we've managed to do.

Now I'd like to turn over to Daniel Brasil. Thank you.

[Daniel Alves, executive]

Thank you, Claudio. Good morning, everyone, and thank you for your participation of our earnings results videoconference of MAHLE Metal Leve. And I start with automotive industry. I have good news and bad news.

Starting with the local market sales and production of the Brazilian and Argentine market. On the first line, sales of light vehicles, we have Brazil with 1,752,000 units, a growth of 14.2% when compared to the first 9 months of last year. Q3 this year is 13% higher than Q3 last year. So we are on an ascending curve since the beginning of the year. It's quite a heated market. Quite interesting percentage.

October is not yet on these numbers. If we consider, it's been the best sales months since 2014, the market is quite bearish and bullish. Well, the projection of ANFAVEA is a growth of 10.9%.

Moving to Argentina. We have a drop of 10.7%. However, there is an improvement regarding Q2. Q2, this number was minus 21%. So we had 4 consecutive months of sales of Argentina above 40,000 units, including October. So the whole Q3 of '24 as well as October with sales above 40,000. The market is recovering after a pretty bad beginning. We've improved the outlook for closing the year in Argentina.

At the previous call, this projection was to close the year between minus 15% and 20%. And currently, we have an outlook of minus 5% to minus 10%. So the Argentine market contributing to this positive movement of production that we're going to talk about shortly.

Totally Brazil plus Argentina, growth of 10% to 2.30 million vehicles sold. So the projection for closing 2024 compared to '23 has also improved slightly. And now we're talking about 6% to 8% growth. So an important increase compared to 2023.

As to heavy vehicles, important to remind you that last year, we had the possibility of selling vehicles with emissions in the legislation Euro 5. So we still were allowed to make those sales. This distorted slightly the market. Now since we have 9 months gone, so this is more or less equalized. We have a growth of 12.7% with 107,000 units sold of buses and trucks.

We have a trade show Fenatran this week. It's very busy and the market of heavy-duty is resuming. The industrial GDP, there is a good recovery. The agribusiness also recovering, leveraging the sales of trucks and the part of buses. So Caminho da Escola, another program which is quite interesting. And an outlook for closing this year for heavy, EBIT of 10.9%. We may be surprised with a better number than this.

In Argentina, also, there has been an improvement in the past 9 months, a drop of 5.7% and an outlook of closing the year between 0 and minus 5%. Thirdly, Brazil and plus Argentina 117,400, the growth of 10.8%. Outlook of closing this year between 10% and 11% with both light and heavy, sales and market with growing demand is growing every quarter.

Moving to production of light vehicles in Brazil, a growth of 5.2%. Despite the interesting growth, we see a mismatch between sales and production. Sales growing 14% and production 5%. The 2 major reasons, I mentioned previously -- in the previous quarter, we have an increase of imported vehicles, especially from China in this number and also a drop in exports. So this is a double effect generating a mismatch.

Exports, we had an improvement in the past 4 months. There is a growing curve. ANFAVEA published recently the October numbers. There's been an improvement regarding what was happening before. And the outlook for closing production of 3.4%. This is the outlook of ANFAVEA for closing production for light vehicles.

In Argentina, despite the improvement in production, still suffering a bit with 22.1%, negative 362,000. Outlook of closing this year between minus 15% and minus 20%. October, there was a volume of production of 50,000 units, so it's an ascending curve, both in sales and production.

And closing, Brazil plus Argentina, in the past 9 months, a drop of 0.8%, and an outlook of closing this year 1%. Previous quarter, the outlook was 0. So we have an improvement of 1%. If we add October to the calculation, this number presents that -- year-to-date to October it's a positive number. And the outlook to close is 1%.

In heavy-duty vehicles, a growth of 42.1%, reminding you that last year we sold stock or products or vehicles in inventory. So Euro 5, the production was smaller this year because of inventory sales, and we had a growth of 42%. An outlook of 32% to close the year.

Even taking this effect of inventory, the market, as I've mentioned and sales that is quite heated, actually driving the heavy-duty vehicles. Argentina drop of 14%, an outlook of closing this year between minus 10% and 15%. Total in Brazil plus Argentina and the production of heavy-duty vehicles, a growth of 38.2%, outlook closing above 30%.

Moving on to the news that is not so positive in the part of exports. The automobile industry, Europe and North America, we had a drop both in light, heavy-duty and production. Europe, light vehicles, a drop of 3.7% and an outlook of closing this year at minus 4%. North America with a drop of 1.2% and projection to close this year minus 1%.

Adding Europe plus North America, minus 2.5% and an outlook of closing this year between minus 2%, minus 3%. Especially Europe suffering a bit more in the sales of vehicles -- well, here, I apologize in production of light vehicles.

And heavy-duty, the scenario is a bit worse. Production of heavy-duty in the European market with a drop of 12%. North America drop of 3%. Totaling America and Europe 7.5% with outlook of closing this year at minus 10%. Demand is weaker. Last year, we had a growth of 2 digits. This is also influencing these numbers, and we have a weaker 2024 for heavy-duty vehicles, especially.

Moving to Slide 6. We have the evolution of net revenues of Q3 2024 compared to Q3 '23 and the first 9 months of this year compared to last year. So numbers are quite similar. So we have a drop in original equipment. Especially in our exports and aftermarket, there is a growth with a drop in the domestic aftermarket. In Q3, you'll observe a growth that is stronger for the original domestic, offsetting the worsening in the export with 18.6%. So we have 8.4% compared to 18%.

So the effects are quite similar of the quarter and the year-to-date. Original equipment domestic, we see production of light vehicles with a drop of 0.8% and heavy with a growth of 38.2%. We here have an increase in revenues.

In the part of heavy-duty vehicles we have the engines delivered to agricultural machinery. So there is a drop in this market related to the MAHLE Metal Leve sales. This is considered. So we can have an increase in revenues of domestic original equipment. We had a negative effect of indirect exports. We provided to heavy vehicle clients here in Brazil and the OEM exports the engines to Europe, for example.

As we saw the European market dropping, the export of our customers has also been reduced. So this also impacted our sales in the domestic original equipment. This is why the growth is not so strong on this line.

Export original equipment, we saw the drop in market, especially diesel heavy where we have greater share in exports. And also an effect of the special valve that we provide to light vehicle. And this engine of this light vehicle has a ramp down impacting our revenues. That totals original equipment drop of 5.7%, drop with BRL 1.817 billion.

In the domestic aftermarket, a drop of 1%. We should remind you that our aftermarket sales in Argentina, we have our aftermarket unit in Argentina, Buenos Aires. What I sell there, the market goes into this line of domestic aftermarket. We had significant drop in Argentina aftermarket, especially due to the economic adjustment by the government. So our customers were keeping stock. We had a huge devaluation late last year, so this is impacting the market. And we see the growth of aftermarket in Brazil, almost offsetting the strong drop in the Argentinian market.

We have Evandro here, who will give further details to us on the aftermarket seen and related to revenues. This is the drop that happens -- that took place in Argentina, but Brazil almost matches the drop.

As to exports, significant growth of 20.9%. As mentioned in Q2, reminding you of this, we had last year that was weaker because of political and economic uncertainties in the countries we export here in Latin America.

In 2024, we had the implementation of a new commercial policy and a dedicated sales team for the Colombian, Peruvian and Chilean markets. This is mirrored in our numbers of export aftermarket and a total revenue growth of 2% and totaling the company with minus 2.5%, showing resilience despite drop in exports of original equipment and also the Argentinian market of aftermarket.

I turn back to Claudio, and I'll be available for questions and answers at the end.

[Claudio Braga, executive]

Thank you, Daniel. Talking about revenues -- talking sales, we noticed sales Q3 '24 vis-a-vis 2023, lost 1% point. Basically, this drop derives from raw material prices, and this is a factor on the first row net operating revenue. You see dynamics of recovery of prices of negotiation with clients is different depending on the market where we operate.

In 2024, we managed to get backdated credit in sales prices in one of our divisions, helping the first row. The cost did not occur this year. These 2 factors lead our gross profit to 30%. It's higher than Q3 of 2023. When we look at the past 9 months, it's quite stable along the year, about 30.5% on average.

Further down on overhead, sales and distribution expenses and G&A, we see basically a static number, BRL 75 million in Q3 and also '24 -- equal to '23 in terms of sales percentage, almost identically in the accrued, we have 10.5% on average without major changes further down.

When we look at research and development, we have a pleasant surprise. We noticed a drop in absolute value of BRL 3 million quarter-over-quarter. In the accumulated, it's quite similar. In Q3, we noticed a reduction.

Quite interesting part of this. If you remember, I believe it was in the Q2 or Q1 presentation, we called the person in charge of research and development, our colleague, Roberto, explained, he approached the transfer filter labs from North America to South America. This helped us to solve the fixed cost of the R&D center and generate additional revenue. This is a service we provide and sell with the margin.

This has helped us. And I believe in Q2, Everton came back with us to talk about the MOVER project. MAHLE has been quite active in the development of the MOVER project, one of the first auto parts companies to help, and we see some tax benefits helping us in R&D expenses. Quite interesting for you who have followed us. We posted on social media and some platforms.

We have signed the contract of the credit line of FINEP, BRL 110 million. We go with BRL 10 million in FINEP, almost BRL 100 million in 3 fronts, diluted in 3 years with an interest rate that is extremely attractive. The lowest FINEP has to offer. It's a long-term relationship with great [ grasp ] between MAHLE and FINEP. We are very grateful to all of them, and that helps us sustain the projects that we're trying to develop over this year in research and development.

Looking at our revenues and operational expense, we see that -- well, see a difference in Q3. We had a quarter that was quite smooth regarding that. We had the first quarter this year -- if you remember, in the results of Q2, we communicated an adaptation of provisioning for environment decontamination at some of MAHLE's units. We did not need to any correction of provisioning, and that was correct in our best understanding so far.

There's been a reversion of provisioning that offsets our tax credit in the aftermarket unit, the building. It's a process that was being discussed in court for a long time, and then it's been favorable to MAHLE. It's just a matter of the city hall to include it in the budget so that we can deal with certain regulators. And this explains the slight change in the line between '23 and '24.

Further down, I see -- believe that in line with what Daniel Brasil explained to us, the accommodation of the Argentinian market, we also noticed in the consumer audience and the government and Central Bank, we see a trend of stabilization, which is quite interesting. We see the Q3 2024 quite acceptable number, very much in line with our history.

There's not been a devaluation of the currency of the Argentinian peso against the dollar. And I think this is going to be diluted with time. But however, we noticed some movements of the Argentinian Central Bank that are quite interesting, making payment to suppliers easier. That was something that was quite stuck until December last year with the change of presidency of federal government.

Well, some flexibilization happened with the Central Bank. There has been a favorable movement recently, enabling payment of suppliers. This in line with the foreign exchange devaluation that did not take place. Gains in the monetary of controlled companies abroad, it has been very much in line with what was happening in Q3 2023. What draws our attention that was very much explained in the closing of March.

The accumulated is quite high, BRL 90.4 million, 2.8%. So we had 2, 3 years of hyperinflation in Argentina, but not at the levels that it reached 150% to 100% a year. This has been showing a trend of improvement. And when there is hyperinflation for a longer period than 3 consecutive years, we have to update all the profit and loss and liabilities and assets.

This impacts the net worth of the company. So you can see it in our IR website and other parts in revenues and expenses and then we -- or profit and losses and there's an offset and gain in the last row of our monetary positioning of our controlled company abroad. So our EBIT income before expenses is higher than what Q3 was last year and the accumulated still higher, not so strong as 2024. So thinking about Q3 2024.

Thinking about Q3, I believe the strongest point that drew our attention has been an improvement in cost of goods sold and research and development, the main factors that pulled Q3 2024 above average. But on average, it's quite consistent with the lower financial expenses.

And looking at that, well, Fabio Peres will explain that in more details. But we noticed basically -- we're going to spend this year explaining these changes. There's been a change in indebtedness of MAHLE Metal from '23 to '24.

In Q4 last year, there's been a movement. I believe most of you remember and have benefited from the payment of dividends and that led to the indebtedness of the company. It was not something that MAHLE Metal Leve was used to. And now we have these financial expenses.

So overall, it draws our attention when we compare year-over-year because the profile of the company has changed. Regarding indebtedness when we compare to market peers, we've been addressing that frequently in A1 with investors that are interested. Our level of leverage -- leveraging is well below our peers. But it's a number that draws our attention when we compare period-over-period.

Moving to income tax before taxes, EUR 221 million, again, EUR 19.3% compared to 23% last year. Its pulled by the the financial revenue I've mentioned. When you look at the accumulated year, it's very much in line with what the past quarter has been.

Income tax, we noticed an increase in income tax with the adaptation of Brazil to the OECD rulings regarding Pillar Two. And some of our entities abroad had a re-adaptation of their results. So the taxation level has increased. We ask for you to -- you can see more details in our financial reports. This is nothing atypical for MAHLE for any company that has activities abroad.

Net profit of 12.3%, very much in line with 13.3%, while we have a drop year-over-year, 18% to 12%. Basically, when we look at line of financial P&L, where we have a great explanation to it. So EBITDA, as we showed in the first slide, 23% of the accumulated, also 23%.

Well, if we look at this -- well, this is the second quarter. We include this page, although it's in our income statement and IR website have shown this for a long time. We have financial expenses against the financial revenue. Our point is to draw your attention to indebtedness because of a project and what's cash generation. This is the goal of this chart.

So we have moved from the 31st of December '23, we showed the main movements in the past 9 months. I just want to draw your attention to what we have acquired over this year. We need to remember that we made payout of dividends 2023. In May this year, there's been a new indebtedness of BRL 330 million, but we amortized other loans of BRL 310 million. This led to an expense with a cash effect of BRL 22 million.

And we see 2 columns ahead that our cash generation is extremely positive, BRL 500 million in 9 months and the excess of this cash is invested, which generates revenue on financial investments of BRL 26 million. So our neutral cash. So we pay of interest is what we get from what is being invested.

So somebody can ask why not prepay with the cash generation and pay the indebtedness? Indebtedness was made with foreign exchange float, and it's not appropriate to amortize it currently. And this debt has -- is going to actually expire '25-'26. So cash management is very well done.

We have a payment of dividends and [ interest ] of BRL 240 million. In taxes, investments made that are approved by the Board of Directors over these quarters generated a cash output of BRL 66 million and others of BRL 50 million.

Before turning over to Fabio to delve into the financial part, I'd like to draw your attention well that we haven't included a slide that happened at the same time. Yesterday, we called an Extraordinary Shareholders' Meeting. We had a Board Meeting on the 5th of September. We apologize 5th of November for the terms of results in Sao Paulo. And the same should happen in the first 10 days of December.

And basically, there are 2 topics that need to be submitted to the approval of shareholders. The main one is capitalization of the legal reserve. I believe that at a more timely moment, we can elaborate that. It's a common market move. We have to remind you the acquisition of Compressores and Thermal because they are related parties. Many of you have questioned that regarding the impact on dividends and we gave no guidelines.

So with the valuation data, the 2 valuations, well, actually, the cash generation results were positive for MAHLE Metal Leve. However, premium paid in the operation, the value of the transaction vis-a-vis the P&L book generated premium that would go for sudden changes.

As many of you questioned, the procedure on impact on dividends, I will explain, because it's not -- because it's a related party, it's not profit and loss. It goes to equity directly. And of that hyperinflation in the past 2, 3, 4 years in Argentina, as you see in the income statement, the evolution of net worth, we have an evolution. We count on your understanding on the General Shareholders' Meeting because the capitalization of the legal reserve. It's very important for NAHLE Metal Level. We'll elaborate on it next month.

Well, if you have any questions, I will close my participation, and I'll turn over to Fabio Peres. Thank you.

[Fábio Peres, executive]

Good afternoon, everyone. Thank you for your participation in our results call. We're going to talk a bit about financial management, focusing on the net financial results.

Claudio has mentioned the foreign exchange floating, and we can see here in the 9 months of 2024, where we see BRL 56.6 million, whilst last year, we only see BRL 6 million. As you put it quite well, this does not have an effect on the cash, but it's more an accounting thing. This will be amortized in '25-'26.

On the first line, we have net interest in the past 9 months. I'm going to focus following Daniel, who is following the 9 months because the explanations are quite similar. So in the past 9 months of 2024, we had an expense of BRL 5.9 million, whereas in '23, it was BRL 16.5 million. This is an effect of a depreciation or reclassification we made in the past regarding cash volume and the profits we had in Argentina.

You should remember that Argentina has been reducing interest rates month after month. And last year, we had about 30% and now it's 35%. So it's been greatly reduced. Well, 50% to 35% -- well, foreign exchange changes come from the foreign currency index loans. And monetary variation we had a revenue of BRL 4.7 million in the past 9 months this year. Last year, we had an expense of BRL 7.4 million. So the delta between the periods is BRL 151 million. BRL 22 million referring to interest, BRL 62.2 million (sic) [ BRL 62.6 million ] referring to foreign exchange changes, BRL 12.1 million due to monetary variation.

In the table below, we see net financial position of assets and liabilities. We have BRL 509 million against 31st of December of BRL 383 million. And the borrowings we have today, 86% in the position of September '24, long term and 14% in the short term.

We'll remind you that we have -- they are compound by -- and the FINEP loan that we have. In December '23, we had BRL 314 million in the short term of borrowings, accounting for 37% of the total and 63% in the long term. When we compare the period-over-period, it is quite stable. We have a variation between periods of only BRL 14 million and our leveraging, as Claudio mentioned previously, is quite healthy of about 0.51x EBITDA.

So we see that we have management of our debt, always keeping it in the long term and a quite healthy cash level for the company to have its borrowings and investments over time.

Now I turn over to Evandro, who's going to make an explanation and presentation on the aftermarket part. And at the end of the call, we'll be available to clarify possible questions that you may have. Thank you very much.

[Evandro Tozati, executive]

Mr. Fabio, good afternoon, and thank you for your invitation and participation. I'd like to talk about the spare part market and actually the initiatives that have been implemented, allowing sustainable growth of the aftermarket in the past few years.

On the next slide, we have -- aftermarket is directly related to the running fleet. This is the data of running fleet in South America, Central America, the countries we operate in the replacement area we are calling light, for passengers and cargo. And for 2024, this fleet should be 89.9 billion with an increased rate based on market projection from '23 to '29, 1.6% growth. 55% of this market is concentrated in Brazil, followed by Argentina.

We should highlight that the platform of vehicles, both in Brazil and Argentina were quite similar due to the local production, unlike the other countries, where the fleet predominantly are platforms from Asia and U.S. of the 25.7 million vehicles in the other countries, we have 12.2 million vehicles in the Chilean and Colombian market.

Something that is important to highlight is the age of the running fleet. Vehicles, usually, most of them have maintenance after -- in the interdependent market after the third year as datum in the region, the running fleet in Brazil has of a light line of 11 years, buses 17, trucks 12. The future projection is that the age of the fleet should increase in the light line, a bit in buses, a bit drop in trucks because of the large volume we had of vehicles coming in last year in the region. The fleet age is -- that there is no policy of renewing the fleet, it's quite favorable for the aftermarket business.

Well, it may impact the aftermarket business, the totally electric vehicles because of the maintenance features in some regions of the world. This impact happens in the short term. But based on the estimates of market, the fleet of totally electric vehicles will account less than 1% in 2029. The hybrid have slightly different behavior. The forecast is 1.9%. Overall, electrification does not bring any impact that is significant to the aftermarket business in the next 5 years.

The future of this fleet overall is that there is a current demand in the market. The fleet is more complex with new models in the fleet, more diversity, shorter terms for renewal platforms and that demands for launches of products, greater demand of product launches to maintain of figures and technical support to mechanics and also training in new technologies.

We can see on the next slide, the main trends that may impact the aftermarket business in the forthcoming years. Increase in demand of access to vehicle data, especially for maintenance, digitizing of channels with an increase of tools implemented, connecting B2B distributors and auto parts stores and the garages and also e-commerce.

E-commerce is important to highlight that main sellers of e-commerce are traditional auto parts that are exploring a new format of sales through e-commerce, exploring regions that they do not operate. So geopolitical tensions may impact foreign exchange changes, cost of transportation that impact imported products, companies that have strategy, sales of imported products in the region.

New influencers determining the place and when maintenance is performed. This point participation, increase of the fleet of rental companies and insurance companies. They define where and when maintenance will be performed. Actually, it's not the user that should decide. Actually, those that maintain the fleet. In South America, the estimate is that about 20% of maintenance of vehicles takes place within the dealerships and especially for vehicles under guarantees, different like the regions like Europe and the United States.

In the aftermarket, this is predominant. We see movement of the OEMs aiming at expanding their participation in the aftermarket in the region because of the future feature of the market in the region with acquisitions that have recently taken place in Brazil and Argentina of companies that act in the replacement market.

Private labels have small share in the South American market. And like the U.S. market, we see movement of distributors and retail chains developing their private label, especially for products that are commodities as a price strategy considering regarding imported products.

And the market consolidation, we have distribution channel. Most companies are family-owned companies. Most of them, the management is with the first generation, many of the companies do not have a succession plan that is clear, well-defined for the management of the company and the market is extremely fragmented. Probably the greatest distributor in the region that has less than 10% of market share.

There is a movement of acquisitions. The great distributors making or acquiring smaller companies. And private equity groups are making acquisitions. And retail chains opening new branches and points of sales in various regions of the country.

Next, we have indicators of MAHLE and aftermarket indicators. So you have access to the data 2023, the sales was BRL 1.8 billion, a growth of 100% compared to 2020. Great growth in the domestic market, as pointed out by Daniel. We have the Brazilian and Argentinian market and the export market also with a smaller growth regarding the national markets.

Sales mix is quite balanced and showing sustainable growth, 53% of sales for heavy-duty lines and 41% light and 6% of 2-wheel. And the sales mix is quite healthy. There is no concentration of sales in terms of customers. The largest one accounted for 7% of sales in '23.

The product portfolio that we're currently exploring in the sales, the leadership of engine components, filters and air conditioning, cooling. And also the electric components where we have the agricultural lines or equipment for tools for diagnostic and mechanical services. So this is a plant of the MAHLE Group in Parma in Italy, and we have products imported to sell in the region.

86% of the sales comes from products produced by MAHLE Metal Leve or companies of the MAHLE Group and MAHLE Metal Leve products accounts for 71% of the total sales of MAHLE Metal Leve in the aftermarket.

Here, we can share the strategic pillars, main initiatives that are enabling sustainable growth of MAHLE in the aftermarket. This strategy was defined a few years ago that basically is based on 5 pillars that increased MAHLE's participation of customers.

The great strength of MAHLE Metal Leve in the region is its distributor network, main clients and distributors. The companies that are making this consolidation of the market are MAHLE customers, and we have a standing out positioning with these customers.

We have a channel strategy focus and the market share growth, reinforcing the MAHLE's brand, a robust GTS, good to source and go-to-market structure focused on management of suppliers, product category and regionalized structure focused on the market to provide support, direct and indirect customers.

And last pillar is strong market presence with a generation of demand in the whole distribution chain in all the parts, stores and distributors. All of that supported on the pillars with a focus on the action of selling of our -- distributors sellout, providing to the market a broad and competitive product portfolio with an approach with data analytics and market knowledge.

Based on that, we'd like to highlight some initiatives on the next slide related to product portfolio. In '23, this has been strong work in our market, identifying demand by the market, considering the features of the fleet, use of vehicles, demand for product launches right after the launch of vehicles is necessary.

Last year, over 600 new SKUs were launched, generating over 570,000 parts sold. At the same time, we developed taking -- tapping into market opportunities. We had new product lines as coolants for radiators, strengthening the strategy and operations of the company in the thermic industry part.

In Argentina, we developed batteries for the vehicles. It's a partnership with the private label, and there's a growing trend of vehicles with automatic here. So we had a complete portfolio for transmission, oil filters and also air intake manifolds.

2024, our challenge continues. The plan this year is to launch 1,100 new SKUs that will generate about 1.3 million sales potential in units. The focus of the launches is expanding the existing portfolio, especially having solutions in the part of engines, camshafts, gaskets and guides, seats and rockers and cylinders and explore potential expand our portfolio in the agricultural sector and also for construction, benefiting from the region with good agricultural potential in Argentina, Brazil and Paraguay.

Another initiative has been extremely important in August '22. We launched a program of demand generation and communication called Together for Real. This program has been updated. Now we are MAHLE for Real. Actually, they are actions that generate demand in all the channel and distribution market. We can see some more details of these initiatives. They are relationship, actions of customers that are direct, indirect.

We are experiencing actions and promotional, connecting our distributors, our customers with experts and also providing unique experiences for these groups and also at the point of sales generating demand in addition to promoting our product line. Generating sales actions is a rich source of information for development and understanding of the market for demand generation. And we had a training program is the Blue Glove Program.

And to bring a bit of this scenario, we have a video that we're going to share with you to tell you a bit of the story that started in 2022, which has generated positive results up to now.

[Presentation]

[Evandro Tozati, executive]

In the next slide, you can see some data as to how much has been generated in the market. We trained more than 14,000 people in '23, over 6,000 visits in retails. Well, we have a program visit fleets and visit engine rebuilders. So we had plans every month. We promote with clients from all over Brazil from Latin America. They have opportunity of knowing the production processes.

You can see a bit of this effect of all this initiative. This is the result of the survey connected by SENAI, the Automotive Intelligence Center, in partnership with Oficina Brasil Group, they carry out a survey with [ CINAU ], with mechanics and garages in Brazil. MAHLE in 2019 was ranking sixth. In August '22 when the program was launched. The survey usually is communicated in December every year. And last year, we were happily surprised and we had the result of being in the fourth position. And the opinion of mechanics as the most remembered client by them.

This is the result of all the actions generated by the MAHLE Metal Leve team in the market. Another initiative that is extremely important launched in March this year is connected with the demand, especially of mechanics or garage. We are launching an action, which is the Blue Glove Mechanic, a program of training, the new generation of mechanics along with institutions, technical or vocational schools and initiatives of our own technical team in the market.

It connects both actions on in-person training and also the launch of a platform of distance learning with the certification for the program. It's an innovative program that strengthens the presence of the brand to mechanics. And in MAHLE's view, the heroes of aftermarkets are the mechanics, and they are professionals that need support of the plant.

We have a video about this program that we would like to share with you.

[Presentation]

[Evandro Tozati, executive]

And to close the presentation, we'd like to share what guides all the actions of the aftermarket team. It's a market that is extremely dynamic and competitive to be simple, easy. To do business with the first option for choice for our customers is the mantra in aftermarket that guides the activities of the internal team as well as the team in the field with our customers.

I close the participation of aftermarket. I believe we're going to move to the Q&A session.

[Operator]

[Operator Instructions] Our first question is from Jonathan Koutras from JPMorgan.

[Jonathan Koutras, analyst]

We have 2 questions on our side. The first in the segment of original equipment, there's been a decrease in exports. So Daniel mentioned the ramp down of products in this segment. I'd like to understand that you mentioned the valve that was exported in addition, which regions do you see more weakness of original equipment between U.S. and Europe? How this line will behave from now on? I'd like to understand.

Second question is related to cooling with the CADE. What do you see Arco positioning if you're opening up later when you make your presentations next year?

[Daniel Alves, executive]

Thank you, Jonathan, for the question. I'll start with the first, and then Claudio will talk about the second.

With regards to exports, this valve for the U.S. market is a specific project, an application of a V8 engine and the European market, that is weaker. You see on the year-to-date of 9 months, we have a drop, especially in heavy-duty market. The original equipment market in the region offsets a bit that drop and the aftermarket growth. We have been talking about the pillar of the company being the 3 markets, domestic, aftermarket and exports. This provides resilience when you have a market dropping and the others will offset it.

I don't know if I've answered your question or if you have any other questions.

[Jonathan Koutras, analyst]

No, it is clear. Thank you, Daniel. I think Claudio can comment on the second.

[Claudio Braga, executive]

Arco, both the Arco project and the Compressores and Thermal acquisition project we'll mention in more details in Q4. It will be in March. Well, it's been approved by CADE, as you've mentioned. There's a great difference that we won't see Arco being consolidated it's a minority stake of 33%. So we basically see if there is a payment when there will be payments of dividends coming in as assets as investments. So we do plan to come back with more details on the 2 operations all in Q4. We do not want to anticipate things because none of the 2 interfered in Q3. Thank you anyhow for the question.

[Operator]

Our next question comes from [ Pedro Chino ] from Itau BBA.

[Unknown Analyst]

I have a question more related to the dividend payout. I'd like to explore how we can think about the future cash generation flow talking about possible M&As and the possible payout of dividends. Very cool presentation on the aftermarket. I'd like to see whether you can talk a bit more about the growth that you expect for MAHLE within this segment.

[Claudio Braga, executive]

Thank you for the question. I'll start and then I'll turn over to Evandro. So we're talking a bit about the future. Well, Pedro, basically, there has not been any changes in the dividend policy. There has been as part of the process over the year, indebtedness last year over this year with these acquisitions and payments of dividends, quite strong ones if you look into the past.

We took all the reserves that we had in '23 and now '24, only the legal reserve that we're bringing for our next General Shareholders' Meeting for capitalization. And legal reserve, I don't see is uncommon market practice. But legal reserve is basically your accumulating 5% of the reserves of every fiscal year. It's not a great factor. We cannot give you any guidance or guideline on the dividends.

You made a comment that I wanted to add to without going too far. Mergers and acquisitions is a way of growing, one of the main ways and that for a company of our size in a market that is a market that we have and where we belong. All of this may generate some potential demand. But if there is something, that we'll discuss on a timely moment. Currently, as I can say, there has been no changes, and we are not making any changes to the policy of our dividend payout policy.

[Evandro Tozati, executive]

Thank you, Pedro, for your question. Actually, the demand generation actions have been important in the market being closer. Well, there's a movement, for example, that is generating lots of results to be close to the customers in exports, as has been mentioned. We had an action that was acting directly as it happens in Brazil and Argentina, eliminating commercial representatives and having locals structures in countries like Chile, Colombia, Peru, being close to our customers to understand market demands, time to market of products, competitiveness.

This actually has been very well accepted by customers. The pillars I've mentioned to you. They are actions focused mainly on increasing sales of our customers to the market and a policy to -- of sales closer to customers and supporting the market overall. This has been a strategy that continues. It has been yielding positive results to the market and also recognition, especially of the mechanics and auto parts.

They carry out a key role in the aftermarket scene influenced by the brand. So they disseminate the brand. They use and close work to garages and mechanics, providing support. And especially opportunities of new businesses is the strategy we've been adopting, and it continues to be applied, which is a positive strategy regarding the market.

[Operator]

[Operator Instructions] Since there are no more questions, we close the session. We'd like to turn over to Mr. Claudio Braga to make the final remarks of the company.

[Claudio Braga, executive]

Well, thank you once again for your time, for your trust. And you can give us some feedback through the IR department. Comment what you think about the initiative of the guests we have been bringing to our conference calls. Our idea is to bring experts on the topics that you think can be of interest to you. If there is anything else that you'd like to have us share with you, tell us. Yes, we can share as many details as possible.

As I've mentioned in the beginning, I'm quite excited about the closing of the year based on Daniel Brasil's comments. It's been Q4 that seems to be quite interesting up to now. And it is the first quarter in which we have the 2 companies acquired within Metal Leve, not fully. We will see that in 2025, but we'll be able to share more details more openly with everyone, the result of the transition that you have been following.

I'd like to say goodbye. I thank my colleagues who have made the presentations, and we are available through our IR website. Thank you very much. Good afternoon, and have a nice weekend.

[Operator]

The MAHLE Metal Leve videoconference is now closed. We thank you all for your participation and wish you all a very good day.

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