Good afternoon, ladies and gentlemen. Welcome to MAHLE Metal Leve's video conference to discuss the results for the first quarter of 2025. This video conference is being recorded, and the replay can be accessed on the company's website at the Investors Relations section. The presentation is also available for download. Please be advised that all participants will be only watching the video conference during the presentation, and then we'll begin the question and answer session when further instructions will be provided. Before proceeding, I take this opportunity to reinforce that the forward-looking statements are based on the beliefs and assumptions of the management of MAHLE Metal Leve and the current information available to the company. These statements may involve risks and uncertainties, given that they relate to future events and therefore depend on circumstances that may or may not occur.
Investors, analysts, and the public in general must take into account that events related to the macroeconomic environment, the segment, and other factors may cause the results to differ materially from those expressed in the respective forward-looking statements. Present in this video conference are Claudio Cesar Braga, CFO, and Daniel Brasil Alves, Marketing and Corporate Communications Director. I would now like to hand the floor to Claudio Braga, who will begin his presentation. Mr. Braga, you may proceed.
Thank you, Rodrigo. Good afternoon and welcome to another earnings call. We had a rather challenging quarter, and this is true for the industry and also for the analysts. We will try to be very transparent to clarify any questions that you may have after the presentation of the financial statements.
As usual, we will start our presentation by showing the results. We start with the highlights. There are some points we would like to highlight, and then Daniel Brasil is going to provide an overview of the market, talk about the net revenue performance. Then he will turn over back to me to cover the profit and loss, the P&L, the financial management issues, and aspects, and then we'll open for the Q&A session.
Overall, the highlights we had are listed here: BRL 1.3 billion in net operating revenue. Everything we're looking for as of the fourth quarter of 2025, and including the first quarter of 2025, involves the acquisition operation. When we compare quarter- over- quarter, you should be careful because the acquisition amounts are listed there as well. Including compressors and air valves, the acquisitions we made in September 2024, that total about BRL 1.3 billion, that has led to a gross margin of about 28%. The net margin is 12.5% and an EBIT of 16%. We will explain a lot of aspects, so I'll just give you an overview now, and I will explain in further detail when we talk about P&L. EBITDA is at 18.7%.
Dividends are the dividends that were approved in the ordinary shareholders' meeting in April: BRL 258 million, and now the cash out that is expected to be paid in May 2028: BRL 62 million in cash generation. The cash was partially impacted by gross profit that was lower and also by the lower results we had, as you can see here in the chart. Later on, we'll explain more about cash generation. Net indebtedness totaled BRL 640 million. This is in line with what we had been reporting as in the case of the Q4 of 2024. Leverage 0.69 times, this is healthy in our understanding, and also lower.
If you remember, in September, October last year, when we needed the approval for the acquisitions, in theory, we planned to take loans from banks for these acquisitions, and a significant part of the payments were made using our own cash, the cash that we had from our operations and also cash that we generated. When we compare what we expected to use in terms of indebtedness and what we have today, our current indebtedness level is lower than expected and consequently a lower leverage rate. Now I will turn over to Daniel Brasil.
Thank you, Claudio. Good morning, everyone. Thank you for participating in MAHLE Metal Leve's earnings call of the fourth quarter of 2025. It is important to say that the government has signed the MOVER program. It is a green mobility program.
It was signed in April 2025, and this is a significant landmark for the Brazilian industry. We have better predictability and visibility now that this program was approved, and MAHLE Metal Leve was one of the first companies to be approved and is receiving resources for innovation and localization projects. Of course, we need to see where this funding is going to be used, depending on the timeline of the payouts. Also, the American government announced a 25% tariff on vehicles and auto parts starting in May. That will be applicable for Brazil. Our sales to the United States in the first quarter of 2025 accounted for 8% of our total sales. Of these 8%, 4% relates to sales where the customer pays for the taxes. Sales to collocated companies of Metal Leve and also our valve company, a half-partner that has a different condition.
The net impact was about 4%, 3.9% to be exact, and we have some initiatives conducted with our customers to mitigate the impact of tariffs on our costs. Another highlight relates to new businesses that are aligned to our strategy. We have BTMS provided to two customers. These are the battery thermal management system to electric and hybrid buses. Another new business was a cooling module for a tractor and also an air conditioning filter for tractors. Those were three new businesses that are aligned with MAHLE Metal Leve's strategy for electrification and also for the agribusiness. This is very important for the diversification of our businesses. Another highlight is that we have acceleration of synergies with Arco Climatização, one of the acquisitions we made last year. Now we have teams of both companies working closer: sales, engineering, logistics, finance.
We are looking for synergies to gain efficiency in the company. Now let's talk about the market, sales and production of vehicles in Brazil and Argentina, and production of vehicles in North America and Europe. In the first quarter of 2025, vis-à-vis the first quarter of 2024, we see the sales of light vehicles in Brazil, a growth of 7.1%, 60.8% increase in sales in Argentina. A major pickup there with a good performance in the Argentinian market. The combination of Brazilian plus Argentinian market has led to the sales of 646,000 new vehicles, a 14.7% increase. We have more vehicles from China being sold, and Fabio presented this information in one of the latest conferences. Taxes for electric vehicles are at an 11% level, but in two months' time, that rate will increase to 25%.
Fabio is requesting this new tariff to be applicable faster, to reach 35%. That is just expected to be applicable in July 2035 because today a combustion engine car has a 35% import tax, while electric cars have 18% import tax. That is expected to increase in July to 25%. In the combination of Argentina plus Brazilian sales, for us to expect to have an 8% increase in the production of cars. We expect to sell more light vehicles. For heavy-duty vehicles, we had an 8.8% growth in Brazil, 33,000 buses and trucks. In Argentina, again a pickup. They had an increase of 119% in the sales of heavy-duty cars. The combination of both countries accounted for a 17.1% increase with the production of over 38,000 vehicles.
Brazil is the largest market, and the salic rate has increased, so we have very high levels of taxes at this point. This is an important factor for a purchasing decision of our customers to buy trucks or buses. Although we expect the crops to be very good in Brazil this year, we expect just to have an increase by 1%. These forecast values could be zero or minus one, depending on the evolution of heavy-duty vehicles. High levels in taxes will have a negative impact on the performance of sales of heavy-duty vehicles. Now, production. This is, of course, related to our sales, but in light vehicles, we had an 8.3% increase in the production of these vehicles, a 10.4% increase in the production of light vehicles in Argentina, and both countries combined had an increase of 8.7%.
658,000 vehicles produced, so higher than the number of vehicles we sold. So still, we have a positive trade balance. We produce more than we sold. It used to be higher, but now with the imports from Chinese companies, we still have a difference of 12,000 units. In terms of production, we expect to have a drop of 8% for light vehicles. For heavy-duty vehicles, we had an 8.6% increase in the production of those vehicles in Brazil, 55.1% in Argentina, and the combination of both countries, a 10.5% increase in the production of trucks and buses, 41,000 of them. We expect maybe this to be reduced to zero or minus 1%. This is an overview of this market for Brazil and Argentina. Now, let me talk about the markets in North America and Europe. These are the markets we export more parts to.
In Europe, light vehicles had a 7% drop in production. In Europe, in North America, a drop of 9.1%, combined a drop of 8.1%. For heavy-duty vehicles, a 16.5% drop in Europe, a drop of 12.1% in North America. The combination of both markets, a drop of 14%. Also, because of the tariff war that they're facing, we see that the performance in production is below what we expected. It's not as much as we could export to. Next slide. This slide shows the evolution of the net revenue. We have the first quarter of 2025 compared to the first quarter of 2024. Acquisitions are already accounted for here. They, of course, did not exist in the first quarter of 2024. For domestic original equipment, we had an 84%, almost 85% increase.
If you deduct the acquisitions, it would have been a 22% increase, yet very superior to the market benchmark. Production of vehicles in the market was about 9%. MAHLE Metal Leve's revenue performance was 22%, as I said. It's because we gained in market share, especially in the light vehicles market, especially for pistons and also canister. Canister is a filter in the fuel tank to capture the vapors that come out of the engine. That accounted for a superior revenue vis-à-vis the levels of the market. Now, let's talk about OEM exports. There was a drop in revenue of 7%. There was also a drop in the market of about 7% in the light vehicles market, 14% in the heavy-duty market. Most of our exports are for the heavy-duty market.
There's also some gain in the exchange rate, but still, we had a drop in revenue of 7%. For OEM in total, we had a 36.9% growth with a total of BRL 793 million. In the domestic aftermarket, we reached BRL 399 million, a 10% increase. If you deduct the acquisitions, it would have been a 5.4% increase. In this case, we report in this line both sales in Brazil and also sales of our aftermarket operations in Argentina selling to the Argentinian market. It is still accounted for in the same line of the domestic aftermarket. There was a drop in the Argentinian market, which is also explained by the opening of the market. We had a situation that was favorable to MAHLE Metal Leve because our operations in Rafaela, where we produce valves, this is a site that exports a lot.
We would have a lot of revenues in dollars there, which benefited MAHLE Metal Leve to import parts to be sold in the aftermarket there. We had some restrictions in the Argentinian market, so it was favorable to us. Now that the market is open, we are making some changes because there is more competition. Obviously, we are working on our pricing as well because we do not want to lose market share. It is important to highlight that there was not loss in market share. We are just adapting to this new market. There was a drop in Argentina, but a growth in Brazil that makes up for that. 5.4% if you do not take into account the acquisition, but a growth of 10% after the acquisition. In the exports aftermarket, it was a 5.2% drop.
This was also affected by the acceleration of OEM, so we prioritize the OEM sales. This has a negative impact on the aftermarket for exports. The good news is about the portfolios we have. We expect to recover the aftermarket export results over the year. In total, in aftermarket, there was a 7.3% growth with BRL 473 million. Overall, BRL 1.2 billion, a 24.1% growth with the acquisitions. Ex-acquisitions, we would have an increase of 5.5% in our net sales. Now, I turn over to Claudio, and at the end, I'll be available to entertain your questions.
Thank you, Daniel. We would like to explain the concept we are bringing here. The columns that you see highlighted, so the first quarter of 2025 and also the last column for the first quarter of 2024, are the official numbers reported.
We wanted to give you more transparency on the adjustments we made given the hyperinflation in Argentina because that was very strong in 2023 and also 2024, but we still have some effects of that in 2025. People sometimes are curious because what we see in cases of hyperinflation is when it affects just one line in terms of gain of monetary position of foreign subsidiaries. In other months, in other quarters, we said that that effect was partially positive because part of it was to offset for the hyperinflation of the lines above. I may make an invoice to the customer on the first, but then the accounting services close on the end of the month. You need to correct for that during the month, and the same corrections or adjustments are made for inventory, investments, and other sources of revenue.
I wanted to show you the quarter amounts as we reported. We specified on each line what was the effect of hyperinflation and the following line, the effect without the hyperinflation impact. In acquisitions, we saw in the previous slide BRL 190 million in sales in compressors and BRL 203 million on thermal effects. Arco is a minority stakeholder; it is just a part of the investments. Its results are not reflected everywhere here. We can provide transparency in the sales information, but not the rest. You had access to everything that was done in the two valuations when we acquired those companies. When we report it, it is a little bit more complicated because we depend a lot on very few customers. If we detail too much, more than is mandatory, our customers or people may challenge the margin or the results. It is not lack of transparency; it is our strategic positioning.
In the first quarter of 2025, it was BRL 1.2 billion. If you deduct the hyperinflation, in fact, it would be BRL 1.263 billion, so not very relevant for the first quarter of 2025. Last year, it was BRL 1.12 billion - BRL 20 million, will be BRL 1 billion. To reach 5% that Daniel mentioned in the previous slide, I needed to take from BRL 1.263 billion. I'd have to deduct the sales of thermal products and compressors. That is the rationale that will be applicable to all other lines. We are giving more transparency to some points in the comment on. In the Q&A, if you're interested in knowing more about that, if it is not confidential, if it is not a guidance, we can share that with you. We had a gross—.
Just one second to interrupt you. I would like to piggyback on what you said.
It's important to say that there is also an intercompany sale. So MAHLE Compressors also sells products to our aftermarket site. Here you see the total sales, but to reach the 5% amount, I need to exclude the intercompany sales between collocated companies.
Thank you, Daniel. Checking at gross profit, you see there was an adjustment for inflation. That would benefit my gross profit, which would be BRL 360 million that I can compare with last year's without a hyperinflation. In the line below the minus the last one, this 27.8% margin will be 28.5%, and last year we indicated 31%. It would be 35% without a hyperinflation because hyperinflation also inflates our figures. We are being very careful in reporting figures to show you this information, but we can discuss any questions you may have.
The impact of hyperinflation or gains in financial results that were BRL 65 million today, they are at 9% in gains on net monetary position of foreign subsidiary. This should be interpreted as a positive thing because Argentina was facing inflation levels that were extremely high in 2023 and over 100% in 2024. Banks expect inflation rate to be between 25%-30% this year. The country is moving towards a more normal situation. There were impacts that benefited us for some time, but they are not going to bring an extra benefit. Now things are accommodating. They are reaching some sort of equilibrium. Now, when you look at the net finance income, we had a positive revenue. There was an indebtedness in 2023 when we paid dividends and follow-on. We were indebted then, also supported by exports in EUR and also interest rates.
The exchange rate variation does not affect cash, but I need to report it. This year, the value difference with the real made something positive for the foreign exchange variation, and you can see what affected our cash. Overall, we also have our income tax, BRL 55 million. There is also here an adjustment of Pillar Two, something we already indicated before. Brazil is adapting to OECD rules, so when we have operations abroad, we need to make changes. This was done. MAHLE Metal Leve in Austria kept the same margin to the end customer, but the profit that stayed in Austria is the same. It is the same, but in Brazil, this is a higher tax. It is a legal operation. It is not illegal at all. It complies with all the rules.
Similarly to the hyperinflation, this was something that was beneficial for us for many years, but not necessarily forever. This has nothing to do with the operations itself. EBITDA. Total BRL 237 million in the first quarter of 2025, 18.7%. It was the margin. Last year, the EBITDA margin was 28%. If we deduct hyperinflation, it would be 18.6%, and last year would have been 25.6%. We are not bringing this in. If you need to know more details, we can also explain not just these impacts, but also the impacts of the acquisitions. The acquisitions we made last year have an aftermarket share much lower to what MAHLE had. The margins where we operate in this fair part market are higher than for OEM since it is a different mix. Acquisitions of battery thermal are lower in sales. There is not a deficit.
It's not that we're making less money, but when we look at percentage over sales, acquisitions may have its impact made different. You shouldn't interpret that as something negative. We are going to show you later that all of them are performing better than we expected in the valuation. These acquisitions were very positive to MAHLE Metal Leve. This has a relative impact in our gross profit of about 2 percentage points. The 6-point difference, it's 2% of market OE for thermal compressors. They're now part of MAHLE Metal Leve, as pure MAHLE Metal Leve that used to work with aftermarket in the past. The total effect of hyperinflation is shown here in this table. Last year, we had some inflated amounts, BRL 32 million, and in the first quarter, you will see that it becomes negative. The delta is about BRL 35 million in terms of hyperinflation.
That has a negative impact on our results, and this is shown in the middle column. In addition to the acquisitions and hyperinflation, we also had important events that took place. Argentina was the focus of our attentions in the company, and I think this is true for any company that has a subsidiary in Argentina. Although the inflation was reduced, the hyperinflation was not so much a problem. It went down from 130% to a forecast of about 25%. Despite that reduction, the Argentine administration controlled the dollar. Rafaela, that's our valve site in Argentina, exports 90% of our production. You purchase raw material, products, services, labor. Everything is being inflated. It has the impact of inflation at 130%. Although the price in dollars or euros is the same, once you convert that to BRL or ARS, it means less money in BRL or ARS.
That has a significant impact to the Rafaela site operations. We expect to have an impact of about 1.5 percentage points. How long will that situation persist? We do not know. We saw devaluation in the first quarter and in devaluation of the peso in the beginning of April. The Rafaela production becomes more interesting for exports. We can make more pesos. We need to see the macro conditions, see what the central bank says. The situation in Argentina should also be analyzed because the aftermarket operations there import a lot from Brazil, from MAHLE Metal Leve, and also import from other countries, but just sell in the domestic market. Rafaela, on the other side, exports 90% of the production. There are positive and negative impacts of the exchange rate.
Now, talking about aftermarket in Argentina, in the strategic discussions, Sergio Sá participated with us last year. That's the Chairman of Metal Leve. We mentioned that Argentina had its aftermarket prices that are practically double the price of Chile or in Brazil. With the Milei administration, now that imports are being held down, there are new players. We strategically decided to change our prices to reach levels similar to Brazil and Chile to be more competitive in Argentina. Yes, that affects us, and we see that this is something that we benefited from for some time, but this is related to macroeconomic conditions, not to our own operations or performance. I think that maybe this remains for some time. It will not be reduced, but it will remain. Levels we had in the past, we're not going to see during this year for the aftermarket.
We're still making money, but we're not going to make as much money as we did in the past because in the past, the market was more protected, which is different from what we have today. We also had some specific situations in Brazil for the aftermarket. There was a hit change. The OE demand was reduced in the last quarter of last year and the first quarter of this year. What we produce in our plants in Brazil for OE and aftermarket, and OE is always a priority for us, and the demand of aftermarket was imported because we did not want to lose orders. Because of that, you need to create inventory. In addition, you have clearance, custom clearance costs, and also import costs that will have an impact on the end price. There was also an increase in share. It's just a mix.
It's not related to operations. There was an increase in the market share for filters and thermal products whose value added is lower, and that is reflected in the negative impact here. In terms of absolute value, it's positive. We also had some expenses in freight because of this reduction in OE sales that I mentioned. Outbound freight, that's what I'm talking about. In aftermarket, we also increased our costs with air freight. That impact was not very relevant, but still, it is included and it accounts for this difference that we see, 18% versus 25%. If we were, part of that I cannot put values to except for what is already in our financial records, but I would have about 5- 6 percentage points that will be different.
Part of that has a time-limited effect, while others will probably be more permanent during the year, except for inflation, which, of course, we do not manage. Yes, now talking about the valuation, I am very concerned when we talk about the acquisitions we made last year. People were saying it has an impact of gross profit or EBITDA that it is decreasing those indicators. If you look at the material that was communicated by the companies responsible for valuation, you will find those figures. We use this comparison basis to be very clear with you. Again, I cannot give you a lot of details about these operations because of the reduced number of clients we had. We created like a speed meter. In the first one, you see revenue, net operating revenue, EBIT, and then EBITDA.
The line in red, you see, this is the sum of everything, all acquisitions, compressors, aftermarket, and also Arco Climatização as a minor shareholder. What was considered revenue in the valuation? We also reported that in the last quarter, but we did not put this in a chart like that. We performed in revenue more than we expected in the valuation. This means our operation is better than initially considered in the valuation. Consequently, when you look at EBIT and EBITDA, valuation as your reference, as your 100% reference, EBIT and EBITDA are better than initially expected. Although I mentioned in the P&L that profit over sales, these acquisitions pulled this rate down, if I consider what I purchased and what we had estimated during the valuation, we are performing better.
It's just a matter of share because, of course, in the past, these operations were not there, but a lower gross profit. Now let me talk about the financial results. In the P&L, you have the first subtotal with the BRL 12.1 million net finance income, BRL 11.8 million in the first quarter of 2024. We paid interest rates. There was a negative impact, and it was also an exchange rate impact. If you add up the interest rates we paid versus the variation in the exchange rate, we had positive results. Now moving to banks, you see that the results are very similar to last year. There were no major differences, just BRL 27 million. This depends on the day that you close the month, the inventory level you had, or the payroll. We are not concerned with this line at all.
We do not plan to have any concerns with cash, just to make myself very clear. As to borrowings or loans, we basically moved from BRL 1 billion last year, and now we are at BRL 995 million. We should again remember that we made acquisitions. Every acquisition we made last year, and if you add up all of them, you total about BRL 770 million + BRL 3-40 million of a smaller operation. Total BRL 800 million. Just recapping, with the independent committee, we negotiated with the seller of the operations to pay installments, and the first payment was made in October. In the earnings call of March, we reported that most of it was using our own money. We did not take a lot of loans, but the second installment is not here because this is until the end of March.
The second installment was paid in April, and we did not need to take a lot borrowed from the bank. When you take an operation comparing periods, sometimes you notice that you do not have a lot of changes in indebtedness. The mix between short-term and long-term loans has not changed much. Most of our loans for 2023 and the payment of dividends and follow-on have a maturity date in 2026 and 2027, almost half of it in each time. A total of BRL 640 million in net debt right now and BRL 654 million at the end of last year. The leverage is aligned with the closing of the year. This is a balance sheet. This is why we are not talking about March. We are just showing you a picture of the last report we made for the year. With acquisitions, it will be about 0.8.
As to leverage, we are performing better than we expected. In the next slide, you see a chart indicating cash movement. We included these slides some quarters ago to give you more transparency. You see in December, it starts in December 2024, and it ends in March 2025. We took new loans totaling BRL 14 million, and I prepaid loans in about BRL 9 million. Also a positive net result. When you see interest paid on loans and interest received, we paid about BRL 1.1 million that we paid in interest, and we received about BRL 6.5 million, so a positive net result. The BRL 63 million in cash generation, taxes BRL 52 million that come from the cash. We made CapEx investments or disbursements in the first quarter of about BRL 35 million and also my other minor effects.
When we compare loans that are coming in and out, interest that is coming in and out, the cash we generate, and the approvals that are made for CapEx and the taxes we need to pay, ultimately, we'll have nothing but positive results. I believe that this is the last slide that we had. Let's see. I think that now we can move to the Q&A session. I would like to start by thanking everyone. Regardless of the questions you're going to ask, I'd like to thank you for your participation until this point.
We'll now begin the Q&A session for investors and analysts. If you wish to ask a question, please press the raise your hand button. If your question is answered, you may exit the queue by clicking the lower your hand button. Our first question is from Gabriel Rezende with Itaú BBA.
Please go ahead, sir.
Hello, Claudio and Daniel. Good afternoon, and thank you for taking my question. I have two quick questions. First one relates to the information that you provided in the earnings release of the 60% payout of your net profit of 2024. These lower payouts vis-à-vis the historic payouts, is it different? Is it related to anticipated payment, or is it a lower payout because of the higher leverage of the company? What should we expect in terms of the 2025 payout? Anything closer to 100%? My second question, as to the tariff war we see abroad, could you comment on whether we would see more competition with Chinese aftermarket products? I would like to understand how you see the portfolio of the company exposed to this potential fierce competition we might expect.
Thank you, Gabriel, for your questions.
As to your first point related to payout, in the end of April, in the ordinary shareholders' meeting, it was approved that we will have a reserve that we will make. This is not related to the super dividend payment of 2023. It's not directly related to that. When the company made that payment in 2023, they paid dividends, and then we anticipated the payment of dividends, and all reserves were used, were settled. We started 2024 with practically no reserve other than the legally mandatory reserve. We were very close to this legal minimum level. If the management did not suggest that to the shareholders to be approved in the meeting, what if we had a global crisis or a pandemic? Anything that we saw? We recently saw that happening in 2013, for example, again in 2019, and again in 2020.
What if in 2024 or 2025 we had an event like that? MAHLE Metal Leve will have zero reserves to count on. Last year, it was proposed and approved in the extraordinary shareholders' meeting, if I'm not mistaken, the capitalization of the legal reserve and the creation of a new legal reserve at about 5% of our net income. It was approved in April's meeting, the creation of a new reserve. Yes, we want to preserve the company's health, not just considering the current scenario, but also unexpected conditions of the future. As to the profit, this still belongs to the investors. It's just a matter of time. We retained, with that, we take less loans, less interest rate. The leverage becomes more controlled and you create a reserve. The one that was approved was a reserve for CapEx specifically.
We took the budget of investments for 2025. That was approved by the board of directors and then in the ordinary shareholders' meeting. We will take that from profits to build this reserve. As to the second point related to the Chinese suppliers having more difficulty in selling to the U.S. and then sending that to our country. Daniel is going to answer that.
Your question was about the aftermarket, but I would say that in the aftermarket, Chinese parts are already here. For quite some time, we see companies that import 100% of the parts from China. We see this competition in the aftermarket already with the Chinese parts. Of course, this tariff war is generating not just challenges, but also opportunities. For OEMs, we see Chinese carmakers saying that they make investments to build factories in Brazil.
Except for North America and Europe, China will try to export to other countries. You see this impact on the Brazilian market and in Argentina as well. They will start exporting vehicles there. Yes, we need to have taxes applicable to hybrid vehicles and electric vehicles that are similar to combustion vehicles. The import tax should be the same. Of course, in the long term, we should have access to this market so that we could have this production here and sell our products here to these carmakers. Also, in case of a diversification of the market, one of the actions is to work with more resilient markets like the agribusiness market or the diesel vehicle market. We are working on new initiatives to offset this potential impact in the market.
Thank you.
Next question is from Kiepher Kennedy from Citibank.
Your microphone is open.
Hello everyone. Good afternoon. Thank you for taking my call. I have two questions. Still talking about North American tariffs, I noticed you have many negotiations ongoing with your customers. If you could comment on these negotiations with suppliers and customers. How are they taking it? What are the ideas the company has had to deal with this new business landscape? What kind of impacts do you expect to have based on the negotiations that you're having right now? I know that a lot of things still can change. My second question relates to the operations in Argentina. What does the company expect in terms of the recovery of the operations in Argentina? We see that results are increasingly better. I would like to understand the profitability of that operation. How is that going?
How do you expect it to be once we have more normal operations? Because Claudio said that prices have been changed to be more in line with the prices we see in Brazil and Chile. I would like to hear more about this recovery in volumes now with adjusted price values. One question about the tariffs, another question about the profitability of the Argentinian operations.
Let me start with the North American tariffs. It does have a limited impact on the company's revenue, 4% of that revenue. We are already negotiating with our customers so that we can offset this tariff impact. In some cases, we already have a definition, but no conclusions yet. In the next quarter, we'll be able to see that. Any changes related to tariffs, obviously, will increase these amounts.
In some cases, the percentage is lower, 25% for some products, maybe just 10%. We are also working on improving these results, minimizing this impact by negotiating with our customers. Kiefer, related to the profitability of the Argentinian operations, if you take the operations of the Rafaela site, 90% of what they produce there is for exports, not for long, because we saw that in the past. The Argentinian government sometimes has an inflation rate of 130% with fluctuations of about 40% in the exchange rate. That is not a long-lasting situation. The government cannot keep that for long. What we believe will happen in the future is a devaluation of the Argentinian peso. When you see the attractiveness of our sales from there, because of exporting dollars and we receive in pesos, it tends to improve.
We cannot promise anything because these are macro conditions that have to do with Central Bank, not with us. Not to put everything on the shoulders of the Argentinian administration or the Argentinian Central Bank, which I believe that they're doing a good job, but they're going through an adaptation period. However, internally, we're doing our homework. We are reducing the production levels. We had a significant reduction in the number of employees, a reduction of 100 people in this production site operator, essentially. We also made improvements in the production process. Part of the CapEx is used for modernization efforts, which improved. Regardless of the macro conditions, the sites are also doing their homework. At the Rafaela site, I think that it will take a little bit longer, maybe two quarters, to see these results, but it tends to get to normal levels.
As to the aftermarket site, I believe that will not change. What we noticed in the last quarter is probably the regular way things go. It's a profitable operation. When you look individually at the price that we use to sell in the aftermarket versus the cost, it is very similar to the levels in Brazil or to the levels that we export to Chile. In the Garinho site, it's something that will take some time, but we're not going to see major differences in Q2. Maybe after that, we'll reach more stable levels. I don't know if we answered your questions, did we?
Yes, thank you. It was clear.
Our next question comes from Jonathan Koutras from JP Morgan. Go ahead, sir.
Thank you and good afternoon, Claudio and Daniel. Thank you for taking my question. I have two of them.
First one, in the reclassification of revenues and margins in the segment where you have engine components, so probably the gross margins are going to be better than systems for the thermal. MAHLE market is now part of the thermal influence systems that used to be filters in the past. That will not change the margins so much in the midterm. That's the question. The second question has to asset Arco. I'm trying to understand about these BRL 2 million that we see in this quarter. Will that increase?
Wow, this is quite a complex question. We'll try to do our best here. As to the margin, your comment is correct. The margins that we make in engine components are higher than the margins we achieve in the thermal product line. It is correct. That's the strategy in August, September, October, during the acquisitions and the roadshow.
All of that was explained. This is a movement towards thermal products. It will have an application that is not exclusive to combustion engines. That is a step towards the future that we are taking. I see it happening just the way you're describing it, but I don't see it as a negative thing. When you look at the margin and absolute revenue, yes, it is growing. This is a business that is growing, and its margin is lower than for engine components. Could you repeat your second question, please?
As for assets, you said that Arco Climatização was at BRL 1.8 million in this quarter. What do you expect for the future? Do you expect results along those lines? Maybe BRL 8 million in the year? Does that make sense?
Maybe Daniel should answer that.
Hello, Jonathan, this is Daniel.
Of course, I cannot make any forecast for this future amount because it's a different market, different for OEM. You have different bids. Arco produces air conditioners that are installed on the roof of buses. Maybe this is a market that is more exposed to seasonality. Maybe they sell more in some quarters than in the others. I don't think you can simply extrapolate the results from one year to another. It could be some deviation. I cannot confirm that to you.
Okay, thank you. Have a great afternoon.
Let me remind you that to ask questions, just click on raise your hand. Please wait while we collect questions. The question and answer session is closed. We would like to turn over to Claudio Braga to make the company's closing remarks.
Once again, I would like to thank everyone for their participation.
In investor relations, we are trying to get closer to investors and analysts and banks. We are at your disposal for any additional feedback that you could have that could contribute even to the way that we communicate with the market. I think we have changed a lot when you compare from one year to another. A great part of this change was driven by the feedback we got from you. We are open to this feedback and also in the proper IR channels through which you can send your questions for clarifications. I wish everybody a good day and thank you for your attendance.
MAHLE' s video conference is now closed. We thank you for your participation and wish you a good day.