(A free translation of the original in Portuguese)
Quartely Financial Report
March 31, 2024
Release
Quartely Financial Information
Selected Explanatory Notes
Independent auditors' report
Earnings Conference Call
Date: May 15, 2024
Portuguese/English
11:00 a.m. (BRT) / 10:00 a.m. (EST)
Link:Webinar TUPY3
Code: TUPY
Website:www.tupy.com.br/ir
Investor Relations
Fernando Cestari de Rizzo
CEO and IRO
Rodrigo Périco
CFO
Hugo Zierth
IR Manager
Renan Oliveira
IR Specialist
dri@tupy.com.br
Strong operating cash generation. Reduction of costs & expenses and efficiency gains.
- Revenues: R$2.6 billion in 1Q24 (-7% vs 1Q23). Impact of the 5% appreciation of the Brazilian real vs. the U.S. dollar on revenues in foreign currency (64% of the total) and the drop in physical sales volumes, mainly due to the stabilization of demand for commercial vehicle in the foreign market and the performance of off-roadapplications related to agribusiness and sectors with higher sensitivity to interest rates, mitigated by price adjustment initiatives.
- Operating cash generation: R$121 million (vs. a consumption of R$132 million in 1Q23), reaching the highest level in the Company's history in a first quarter. The performance was due to initiatives in working capital management, operational efficiency, and asset optimization.
- EBITDA Margin: 11.9%, vs. 11.2% in 1Q23. Increase from efficiency gains, cost reductions and reimbursement of claims regarding the accident that occurred in 2022.
- Adjusted EBITDA: R$308 million. Synergies captured and actions to reduce costs and expenses mitigated impacts from the drop in volumes and the appreciation of the Brazilian real and the Mexican peso, which, combined, impacted EBITDA by more than R$130 million. Decrease of 2% vs the previous year.
- Net Income: R$112 million (vs. R$145 million in 1Q23), with a net margin of 4.3%. The variation was due to the operating result and the currency variation effect on the tax bases in foreign currency (positive impact of R$49 million in 1Q23 and R$28 million in 1Q24, due to higher appreciation of the Mexican peso compared to the previous quarter).
TUPY S.A. | Release 1
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
MESSAGE FROM MANAGEMENT
We have made progress in executing our strategic agenda, building a more efficient and diversified Company. We made significant progress, with cost and expense reduction, and brought more synergies from acquisitions.
These results were obtained in a still challenging environment, with reduced sales volume and unfavorable exchange rates, with YoY appreciations of 5% in the Brazilian real and 9% in the Mexican peso vs. the U.S. dollar. Despite this scenario, we continued to focus on generating cash and, therefore, we adjusted production in response to market fluctuations, which led to a decrease in production volumes. These effects, when combined, impacted EBITDA by approximately R$130 million in 1Q24.
Tupy plays a significant role as a consolidator and driver of the industry. We have made significant acquisitions in the last few years, and still operate with idle capacity and overlapping areas. In a scenario of low volumes, this integration movement with associated costs and expenses has impacted our performance. Several management initiatives have been implemented in all areas. We expect additional results over the next few quarters, with structure adjustments and greater production flexibility, which will allow reallocation to lines with lower cash costs, reduced fixed and variable costs, and increased margins. The progress of these actions will also contribute to improved capital allocation by prioritizing the most efficient plants, which allows for rationalization and productivity in traditional business operations.
Regarding new businesses, we have many opportunities in the manufacturing contracts, bioplants, and distribution segments, with several ongoing discussions with potential customers. These markets offer high returns and will play a key role in our growth strategy.
Resilience and cash generation
Net revenue reached R$2.6 billion, a YoY decrease of 7%, as a result of the drop in sales volume and the appreciation of the Brazilian real against the U.S. dollar, mitigated by price recovery initiatives and increased revenues from MWM.
We observed the gradual recovery of applications for heavy vehicles in Brazil, with impacts in the Structural Components and Manufacturing Contracts segments. On the other hand, segments related to agribusiness in Brazil and abroad, or those more exposed to interest rates, reported lower performance than last year. Projections for truck production in North America have been revised, indicating a lower downward level for 2024.
Despite these factors and the appreciation of the Mexican peso, Adjusted EBITDA came to R$308 million, with a margin of 11.9%, compared to 11.2% in 1Q23.
We continue an important restructuring action, reflecting the business strategy and the scenario of the markets in which we operate, with a negative impact of R$16 million in expenses for the quarter.
Operating cash generation, a key indicator in our business, reached R$121 million in the period, the best ever achieved by the Company in a first quarter, due to operational results and working capital management initiatives, as well as the contribution from MWM. This performance is even more
TUPY S.A. | Release 2
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
significant if we take into consideration that, due to seasonal factors, the first quarter is characterized by cash consumption from operations. Similar to previous quarters, we made specific line shutdowns, which, on one hand, impacted margins due to lower fixed cost dilution, and on the other hand, contributed to better asset utilization.
The management of environmental, social, and governance factors are also part of our strategy and are fundamental to our growth. MSCI agency recently upgraded the Company's ESG rating to "BB". The upgrade reflects the recognition of the evolution of the practices adopted by Tupy over the years and its commitment. The company also holds a "Low Risk" classification by Sustainalytics.
In April, we released the 2023 Sustainability Report, prepared under the standards of the Global Reporting Initiative (GRI) and other relevant international frameworks. In this report, we present projects and processes linked to the R$170 million investment in Research & Development and in environmental and safety areas. We detail the initiatives related to the circular economy, which underpins recent initiatives focused on agribusiness, is also the basis of our traditional business. In 2023, 592 thousand tons of metallic material were recycled and turned into blocks, cylinder heads, and other structural components. In the social aspect, I highlight our first diversity census and social responsibility actions that impacted more than 18 thousand people in the communities where we operate.
I invite you to check out the documentthat also includes a vision of new businesses, detailing the services and products that contribute to the decarbonization of chains in which we operate. Enjoy your reading.
TUPY S.A. | Release 3
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
SUMMARIZED RESULTS
Consolidated (R$ thousand) | |||
SUMMARY | 1Q24 | 1Q23 | Var. [%] |
Revenues | 2,597,904 | 2,804,406 | -7.4% |
Cost of goods sold | (2,133,555) | (2,299,706) | -7.2% |
Gross Profit | 464,349 | 504,700 | -8.0% |
% on Revenues | 17.9% | 18.0% | |
Operating expenses | (243,766) | (278,921) | -12.6% |
Other operating expenses | (27,711) | (8,517) | 225.4% |
Earnings before Financial Result | 192,872 | 217,262 | -11.2% |
% on Revenues | 7.4% | 7.7% | |
Net financial result | (52,015) | (66,256) | -21.5% |
Earnings before Tax Effects | 140,857 | 151,006 | -6.7% |
% on Revenues | 5.4% | 5.4% | |
Income tax and social contribution | (29,112) | (5,730) | 408.1% |
Net Income | 111,745 | 145,276 | -23.1% |
% on Revenues | 4.3% | 5.2% | |
EBITDA (CVM Inst. 527/12) | 282,479 | 308,991 | -8.6% |
% on Revenues | 10.9% | 11.0% | |
Adjusted EBITDA | 308,061 | 315,353 | -2.3% |
% on Revenues | 11.9% | 11.2% | |
Average exchange rate (BRL/USD) | 4.95 | 5.20 | -4.7% |
Average exchange rate (BRL/€) | 5.38 | 5.58 | -3.6% |
TUPY S.A. | Release 4
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
REVENUES
In 1Q24, 44% of revenues originated in North America. The South and Central Americas accounted for 37%, and Europe for 17% of the total. The remaining 2% came from Asia, Africa, and Oceania, and the acquired plants contributed to higher exposure to the Brazilian and European markets.
It is worth noting that several customers in the U.S. export their goods to other countries. Therefore, a substantial portion of sales to that region meets the global demand for commercial vehicles, machinery, and off-road equipment.
Consolidated (R$ thousand) | |||
1Q24 | 1Q23 | Var. [%] | |
Revenues | 2,597,904 | 2,804,406 | -7.4% |
Domestic Market | 934,461 | 890,735 | 4.9% |
Structural Components & Manufacturing Contracts | 686,840 | 604,240 | 13.7% |
Commercial vehicles (and passenger cars) | 624,385 | 521,425 | 19.7% |
Off-road | 62,455 | 82,815 | -24.6% |
Energy & Decarbonization | 122,675 | 144,274 | -15.0% |
Distribution | 124,946 | 142,221 | -12.1% |
Export Market | 1,663,443 | 1,913,671 | -13.1% |
Structural Components & Manufacturing Contracts | 1,581,765 | 1,805,122 | -12.4% |
Commercial vehicles (and passenger cars) | 1,208,804 | 1,231,950 | -1.9% |
Off-road | 372,961 | 573,172 | -34.9% |
Energy & Decarbonization | 37,767 | 51,010 | -26.0% |
Distribution | 43,911 | 57,539 | -23.7% |
Note: the division among applications considers our best assumption for cases in which the same product is in two applications.
TUPY S.A. | Release 5
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
REVENUE BY BUSINESS UNIT
Structural Components & Manufacturing Contracts
Truck production in Brazil grew by 20% YoY versus previous year, impacting our operations in structural components and manufacturing contracts in the domestic market.
Approximately 44% of revenues come from products that contain machining or engine assembly services for third parties (Manufacturing Contracts), percentage that was 37% in 1Q23.
Price recovery initiatives mitigated the effects of the 5% appreciation of the Brazilian real against the U.S. dollar, a currency that accounts for 70% of sales in this segment, and the drop in sales volume, resulting from the stabilization of demand for commercial vehicles in the United States and Europe, the high interest rates, and the product phase out.
Demand from off-road applications was mainly impacted by the significant decrease in global prices of agricultural commodities and the performance of sales of machinery for the residential construction market.
Energy & Decarbonization
Revenues from the Energy & Decarbonization segment were impacted by the decrease in sales of engines, mainly used in agribusiness, lower export volume, and a mix of gensets with lower average prices, compared to the previous year.
The segment accounted for 13% of the Company's net revenues in the domestic market and 6% of total revenues.
TUPY S.A. | Release 6
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
Distribution
Revenue from the distribution segment fell by 15%. The aftermarket business was impacted by downtime resulting from the implementation of a new warehouse management software at the Distribution Center located in Jundiaí (São Paulo), by approximately R$20 million in revenue for the first months of the year, which will be offset throughout 2024.
The hydraulic product business, in turn, was impacted by lower industrial construction volume and a decrease in exports.
The segment accounted for 13% of the Company's net revenue in the domestic market and 7% of total revenue.
COST OF GOODS SOLD AND OPERATING EXPENSES
Cost of goods sold (COGS) totaled R$2.1 billion in 1Q24, down by 7% in the annual comparison.
Production volume fell in the quarter vs. 1Q23, due to the reduction in demand of some applications in the Brazilian and foreign markets, in addition to initiatives aimed at generating cash.
Similar to previous quarters, the Mexican peso appreciated in the annual comparison (9% vs. 1Q23), impacting costs in this currency, which account for approximately 20% of the Company's costs.
These effects were partially mitigated by several initiatives to reduce costs and expenses, in addition to productivity gains and synergies captured.
TUPY S.A. | Release 7
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
Consolidated (R$ thousand) | |||
1Q24 | 1Q23 | Var. [%] | |
Revenues | 2,597,904 | 2,804,406 | -7.4% |
Cost of goods sold | (2,133,555) | (2,299,706) | -7.2% |
Raw material | (1,297,975) | (1,436,331) | -9.6% |
Labor, profit sharing, and social benefits | (443,729) | (451,601) | -1.7% |
Maintenance supplies | (169,248) | (171,690) | -1.4% |
Energy | (115,078) | (110,180) | 4.4% |
Depreciation and amortization | (80,912) | (84,139) | -3.8% |
Others | (26,613) | (45,765) | -41.8% |
Gross profit | 464,349 | 504,700 | -8.0% |
% on Revenues | 17.9% | 18.0% | |
Operating expenses | (243,766) | (278,921) | -12.6% |
% on Revenues | 9.4% | 9.9% |
Costs for 1Q24 were also mainly affected by:
- Raw material: impact of the appreciation of the Mexican peso and product mix (higher share of machined and CGI parts) mitigated by volume reductions and material deflation;
- Labor: annual salary adjustments and appreciation in the Mexican peso, offset by reduced overtime and headcount;
- Maintenance and outsourced services: volume reductions, management initiatives, and efficiency gains, mitigating the effects of inflation on services and appreciation of the Mexican peso;
- Energy: 4% increase, mainly due to rising energy prices and currency appreciation of the Mexican peso;
- Decrease of R$19 million in the other operating costs line. The line includes costs with the handling of products and materials, engine engineering projects, leases, and health and safety, among other items. The result for the period was impacted by the receipt of amounts related to loss incurred from a casualty in an operation in Mexico in 2022, of R$26 million (refund of loss of profit).
Operating expenses, including selling and administrative expenses, reached R$237 million, down by 13% from 1Q23, mainly due to the drop in expenses with freight (reduction in volumes and contractual negotiations) and efficiency gains.
TUPY S.A. | Release 8
RELEASE | FINANCIAL INFORMATION | EXPLANATORY NOTES | AUDITORS REPORT
OTHER OPERATING INCOME (EXPENSES)
Other Net Operating Income/Expenses came in as an expense of R$28 million in 1Q24, compared to an expense of R$9 million in the previous year.
Consolidated (R$ thousand) | ||||
1Q24 | 1Q23 | Var. [%] | ||
Depreciation of non-operating assets | (2,129) | (2,155) | -1.2% | |
Others | (25,582) | (6,362) | 302.1% | |
Other operating expenses | (27,711) | (8,517) | 225.4% | |
The "Others" line consists of net expenses of R$26 million, resulting from (i) the creation/update of provisions, totaling R$16 million, (ii) the receipt of amounts related to losses incurred from a casualty in Mexico (reimbursement of expenses in the recovery of equipment), totaling R$20 million, net of asset write-offs and process expenses, (iii) expenses of R$16 million related to organizational restructuring, and (iv) expenses of R$14 million related to sales of PP&E and other expenses.
NET FINANCIAL RESULT
Net Financial Result came in as an expense of R$52 million in 1Q24, against R$66 million in 1Q23.
Consolidated (R$ thousand) | |||
1Q24 | 1Q23 | Var. [%] | |
Financial expenses | (78,080) | (83,332) | -6.3% |
Financial income | 31,186 | 29,087 | 7.2% |
Net monetary and currency variations | (5,121) | (12,011) | -57.4% |
Net Financial Result | (52,015) | (66,256) | -21.5% |
The reduction in financial expenses in 1Q24 compared to 1Q23 is mainly due to the decrease in the CDI rate and the appreciation of the Brazilian real against the U.S. dollar, impacting the payment of debenture and bond interest, respectively, and the positive result of swap operations on loans.
The financial revenues for the period reached R$31 million, resulting from the increase in cash position from fundraising and operational cash generation, offsetting the decline in interest income from financial investments.
Expenses from net monetary and currency variations totaled R$5 million, comprised of (i) negative variations in the balance sheet accounts in foreign currency, of R$4 million, due to the depreciation of the Brazilian real compared to the previous quarter (closing rate at the end of the quarter); and (ii) the result from hedge operations, corresponding to an expense of R$1 million in the period, with a positive cash effect of R$3 million in the settled operations.
TUPY S.A. | Release 9
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TUPY SA published this content on 14 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 May 2024 22:51:02 UTC.