Good morning, ladies and gentlemen. Welcome to Tupy SA's earnings call for the third quarter of 2024. We'd like to inform you that this conference call is being recorded. You may watch a recording of it at the company's website, ri.tupy.com.br. The PowerPoint presentation is also available for download on this platform in the Investor Relations website. We'd like to inform you that all participants will be in listen-only mode during the presentation. After that, we will begin the questions and answers session when further instructions will be given. This presentation is being recorded and translated simultaneously. You may listen to the interpretation by clicking on the interpretation button. If you are listening to the conference call in English, there is also an option to silence the original audio in Portuguese by clicking on Mute Original Audio.
Before proceeding, I'd like to reinforce that the statements made during this call are based on assumptions and beliefs of the company's management and on information currently available to the company. These statements may involve risks and uncertainties. They refer to the future and therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should bear in mind that events related to the macroeconomic scenario, this industry, and other factors may make results materially different from those expressed in the forward-looking statements made here. We have with us in this conference call Mr. Fernando Cestari de Rizzo, CEO, and Mr. Rodrigo Perico, CFO. The Investor Relations team is also available. I would now like to give the floor to Mr. Fernando Cestari de Rizzo, who will begin the presentation. Please go ahead, sir.
Thank you. This was a challenging quarter because of reduced volumes in the foreign market, and there were significant reductions of up to 30% in some industries. Even in Brazil, we saw some reductions. The company is more efficient. We're operating at low volumes with idle capacity, but we have still been able to improve our gross margin because of our favorable exchange rate, but also because of efficiency gains and cost optimization initiatives that saved us 140 million BRL this quarter, certainly above the tax exchange or, excuse me, the exchange rate benefit. EBITDA margins were stable despite some non-recurring debottlenecking initiatives. We've also had price reductions and costs that were not passed forward. As we've explained in other calls, we're gradually capturing synergies from a combination of the assets we acquired that will be implemented by 2026.
That includes a revision of structures and processes to reduce waste, especially with increased flexibility in our plants. We had about 11 million BRL in costs for the restructuring we've been making, and we are redirecting our production to lower-cost units. On the commercial front, besides what we have already announced for 2025, we have a good pipeline for new projects, and we're passing on costs that have been kept. All of this will be essential to increase our margins structurally in the next years. We're also growing in new markets. For example, revenues in the replacement and aftermarket segments have reached their highest historical level in the third quarter. We're still launching new products. We increased this rate by 120%, and we're expanding distribution channels.
This strategy, combined with the strength of the MWM brand, supports our double-digit growth aim, which will have higher margins than the traditional business. On the next slide, we see the performance of the markets we're working in. Our clients have been affected by lower demand, especially in the U.S. and Europe, in some cases drops of over 20%. We have high interest rates for acquiring vehicles, and a relatively young fleet with reduction in shipping prices have reduced profits for transportation companies, which has inhibited their renewal of their equipment. But there have also been double-digit drops in agricultural commodity prices. So companies are reducing their inventories, and this impacts us significantly as suppliers working in the starting stages of the production process. This drop is often expanded considering how extensive the production chain is, and this affects suppliers like Tupy significantly.
All of the chains in the off-road products are longer than automotive products, and this has been offset by the appreciation of the dollar, so this affects our revenue with a major highlight for manufacturing contracts, which are benefiting from the uptick of the domestic market, so with all of this, with ramping up new contracts and for positive perspectives for the American market, which I'll go into detail soon, may have a positive impact to our results starting next year. I'll now pass it over to Rodrigo Perico, CFO, who's going to talk about our main financial indicators.
Thank you, Fernando, and good morning, everyone. Revenues have dropped by 7% in the comparative period to BRL 2.8 billion, 43% have been sourced in Latin America, 41% in North America, 12% in Europe, and 3% in Asia, Africa, and Oceania.
According to segments, 87% of our revenue came from structural components and manufacturing contracts, cast iron, and high-added value products such as component milling. 5% of our revenue is from the energy and decarbonization segments, so generators, engines, maritime applications, towers, products and services related to decarbonization, and the remaining 8% came from the distribution segment, which considers replacement parts with MWM and hydraulic products. The next slide shows our domestic market. We can see that our revenues have been impacted by an increase in lower commercial vehicle sales. The foreign market has also contracted as we have had fewer off-road applications impacted by the lower price in agricultural commodities, civil construction, higher interest rates, and macro and microeconomic implications of the U.S. elections. Trucks have been negatively impacted as 2023 was an above-average year, and finally, added value products represented 47% of our manufacturing contracts.
The next slide shows energy and decarbonization, which includes generators, engines, maritime applications, lighting towers, and products related to decarbonization. This segment had an increase of 2% in the domestic Brazilian market, a slight growth because of commodity prices, credit restrictions, and climate conditions. In the foreign market, we saw a reduction of 54% impacted by lower sales of engines, especially used in agriculture, and in the next slide, we see the distribution unit, which includes replacement parts and hydraulic products. In Brazil, sales for this unit represented 14% of our revenues, an increase of 7% mainly boosted by an extension of our replacement parts portfolio. In the foreign market, we saw a 6% increase. The next slide shows our operating costs. Cost of goods sold reduced 7%, and gross margin dropped by 0.3 percentage points. This was impacted by exchange rates and inflation in labor and products.
Operational expenses have had a 5% increase versus the third quarter of 2023, and this is due to an increase in shipping expenses impacted by logistical bottlenecks. In the first nine months of 2024, we had a reduction of 4% versus the comparative period, and this reflects how successful our contract renegotiations have been. We've also seen reduced volumes, and we're capturing efficiency and gains from the last months. On the next slide, we see our adjusted EBITDA, which reached BRL 338 million in the third quarter of 2024. Our adjusted EBITDA margin reached 12.2%, and we are still capturing synergies and cost reduction initiatives. As we mentioned, we've had expenses being passed on to the market and contract renegotiations, which have offset some factors that impacted this quarter, such as reduced volumes, inflation in services, and labor.
At the bottom part of this slide, we see our net income, BRL 50 million for this quarter. The comparison was impacted by increased financial expenses. There was an impact from the tax bases in foreign currency. And on the next slide, we see our financial results. This increase is due to new capture operations and expenses with interest rates as a consequence. There's also a depreciation of the Brazilian real, which impacted our corporate bond debts. And there was also the effect of the anticipated debenture liquidation. Financial income was BRL 42 million, higher than the same period last year, especially due to our cash position due to funding and generation of operating cash. Looking at our foreign exchange variation, there was a BRL 15 million expense due to our hedging instruments, and BRL 89 million have had a cash impact.
There were also variations in the balance sheet lines in foreign currency due to the depreciation of the Brazilian real, and it had a positive impact of BRL 35 million. The next slide shows our variations in the main working capital accounts. The first quarter of 2024 is the comparative basis here. In receivables, there was an increase of BRL 19 million in impact to our average receivable dates, and this represents 72% of our total. In inventories, we had an increase of BRL 24 million due to market performance and logistical issues that we mentioned before. However, this impact was partially offset by initiatives related to reducing inventories, especially in raw materials. In accounts payable, there were several management initiatives with our suppliers. The next slide shows our operating cash flow.
On a quarterly basis, there was a reduction of 37%, especially explained by reduced volumes, which impacted our revenue and working capital. Moreover, there was an impact due to adjustments to derivatives carried out during this quarter. However, we continue with a strong operating cash generation, a total of BRL 762 million in the first nine months of 2024, which represents a growth of 97% versus the same nine months in 2023. This reflects the efforts of our management in optimizing working capital, a favorable foreign exchange, and positive operation from MWM. Finally, we have our indebtedness, which was BRL 2.3 billion this quarter, corresponding to 1.81 times our adjusted EBITDA for the last 12 months. Financial operations represented 64%, and in cash, 60% of it was in local currency. Our cash position is at BRL 2.6 billion. Now I'll pass it over to Fernando for his closing remarks.
Thank you, Rodrigo.
On the next slides, I'm sharing our vision on the main markets that we are working in, but I'd like to start by speaking about the U.S. elections. With the election of the Republicans, our main clients in the U.S. will be positively impacted. This has already been reflected in share prices and reports that list them as the ones that are the most benefited by this new administration. This political current has reduced regulations to stimulate economic growth in the transportation industry. This means that we will be more flexible and will have reduced operational costs. Moreover, there is a tendency toward adopting an energy policy that will maintain fuel prices at competitive levels, and with Congress, it will be easier to pass investment packages for infrastructure. Tax cuts and other pro-business initiatives should boost the economy.
A recent survey by an investment bank after the U.S. election shows that the likelihood of people acquiring new cars has gone up again. Seeing a stronger U.S. dollar is also favorable for our business. About any tariffs, since our chains are integrated, we don't believe that any measures will be taken to harm American companies that have strategic partners in Mexico. Our impact in Mexico, as we've been seeing, are higher operating costs there, especially with reduced volumes. In the foreign market, 2024 will see a reduced production in the U.S. and Europe. The scenario for 2025 still depends on many factors. Shipping prices and using the fleet remain pressured. Reduced interest rates and other effects in the second half of the year might boost sales for heavy-duty vehicles.
This recovery should benefit Tupy, which has won contracts and will have a higher share of this segment in the next years. With off-road vehicles, they have been affected by inventory adjustments in the supply chain and by commodity prices that correlate to and other areas that correlate to interest rates such as construction. Non-residential construction has also shown signs of stability. Just like with heavy-duty vehicles, investments in infrastructure and lower interest rates should boost sales. For the domestic market, after a weak year, we are seeing projections for a rebound. According to Anfavea , there's a forecast of 32% growth in heavy-duty production, which is expressive but still lower than 2022 and 2021, which shows that we still have a lot of growth opportunities. Off-road applications in Brazil have been mainly affected by agricultural performance.
Climate factors and international commodity prices impacted farmer incomes, which have led to a non-renewal of their fleet. There's an expectation of an 8% growth in 2024 and 2025 in its harvest, and that should contribute towards our sales. Finally, the next slide shows an update of our new businesses. Our main business is connected to car manufacturers, and they are sensitive, especially in the off-road sector, but we are diversifying into adjacent industries. We're working with segments that have different business characteristics with recurring revenues, different market cycles, and even anti-cyclical markets, which are less exposed to the local market. There are several initiatives that will play an essential role in diversifying and expanding revenues and our profitability, which will gradually gain a higher share. Excuse me. They have a different ROIC. We've advanced significantly in aftermarket.
It had 16% revenue growth in vehicle transformation, which includes replacing diesel engines with ethanol and biomethane engines. We are at the end stage of testing with many companies in the sugarcane industry to replace some of their equipment with engines that use fuel produced regionally, and we expect to see a favorable trend there starting in 2025. With bioplants, we started operating this one with Primato in the state of Paraná. This project will contribute to validate and improve our business model, and there is a high scalability potential for this. What I can see here is that we're very happy with how this has been evolving, and we're starting to speak to major animal protein companies in generators. MWM is a leader in Brazil. In the year to date, we had 15% revenue growth despite having more restricted credit.
Volumes are concentrated in Brazil, especially in data centers, healthcare, and retail. In the maritime industry, which includes engines and energy onboard systems, we have finalized great contracts with workboats connected to agribusiness and offshore platforms. We also sold for the first time an onboard generation system to an offshore platform, and this represents 15% of our volume. In projects with a lower TRL, we also announced a battery recycling plant in IPT in the University of São Paulo, and since we're generating new hybrid engine platforms, we understand that this will be an opportunity to apply our Ultralight Iron technology to replace aluminum structural components with the same weight at a lower cost and lower CO2 emissions. The current moment in our industry with weaker volumes has allowed us to have significant internal movements, reviewing our structures and assets, which will provide efficiency gains for the next years.
Even in this scenario, we have maintained our investments in new businesses with a lot of scalability potential, but without letting go of our traditional business opportunities. Once again, thank you for your attention, and now we will begin the questions and answers session. Thank you.
Thank you. We will now begin the questions and answers session. If you'd like to ask a question, please click on the raise hand button. If your question has been answered, you may lower your hand by clicking on the lower hand button. Please wait while we pull for questions. The first question will be asked by Mr. André Ferreira. Go ahead, Mr. Ferreira. You may turn on your microphone.
Good morning, everyone. Thank you for taking my question. I have a couple of points. First, I'd like to understand your efficiency gains a bit better.
You mentioned there was a positive impact of BRL 40 million, but if you can tell us exactly where these gains arde coming from, if this is just a part of your Tupy-MWM synergies or if there's anything related to MWM, and also how much of it is coming from your production reorganization. My second question is on your battery recycling program. If you can give us some color on what you expect in terms of revenue generation. I know that you're starting. I know that this is still an ongoing process, but I'd just like to understand what your long-term vision is. Thank you.
Hi, André. Good morning. Thank you for your question. So it's been a while since we've been talking about how we are redesigning how Tupy works with acquisitions. We will essentially allocate products to where it's cheaper to produce.
So imagine this: we have plants and products in them that are based on the companies we acquired, but the best map for us is to concentrate similar products in the same plant where you have a lower cash cost. So this is an ongoing movement. We've started capturing some value represented by that BRL 40 million, and that starts generating efficiency in equipment use. And parallel to that, we also reduce duplicate activities, and we're gradually creating service centers in the company. So this is an overall movement, and this number excludes the foreign exchange. So we don't have any foreign exchange effects to this value, and the company's fixed cost is being reduced. And this is reflected in accounts that originate in the plant and also in higher production efficiency by concentrating production. So we're gaining on productivity, on labor use. We're gaining productivity in equipment.
We're gaining energy efficiency. But, and we've been saying this for a while, this is something that is ongoing. We still have many idle plants in the company. And this is an essential message for you. We need to concentrate because we did not expect this drop in volume earlier this year. The market in general, if you look at what our clients had been saying, none of them had been expecting this reduction, but it happened. And we found ourselves with a bigger structure prepared to absorb a higher volume, but this volume didn't come. And our option was not to operate, but rather to generate cash for the company. So we adjusted our operation, and this adjustment is not always economic if you do it very short term. It needs to be a planned action because you have associated services. You have to buy services, energy.
For example, we have some energy reserved that we're not using. So all of it affects us. But despite all of these things, we have been able to protect and generate this BRL 40 million benefit this quarter, which will remain, which will continue from now on. About our battery plant, our vision is this essentially. Electric vehicles are an important trend, but their full cycle is inefficient from the CO2 emission perspective because you are generating a lot of CO2 in mining the components for the batteries. They're made with aluminum, and that generates a lot of CO2. When you have enough volume, you can recover these minerals in a cleaner way and using less energy than we use in mining. But this process needs to be economic.
It needs to run on a number of different batteries with different chemical compositions because each manufacturer is selecting a type of battery, and we can recover, especially lithium, cobalt, and nickel, which are the most valuable minerals there. So this project is advancing. We've filed for three patents. This is important. We're now starting a pilot plant with smaller volumes, but right now we can have potential clients and understand exactly where this can be taken. We believe that on the long term, these batteries will need to be treated. There are already some regulations in Europe and in the U.S. that after 2028 or 2030, a percentage of new batteries or the minerals used in new batteries will need to have recycled materials. And of course, this encourages a competition for technologies that will allow us to recover these minerals by using less energy.
So this is our plan. We've been going well. Our recovery rates are very high, 92%-95% of the main minerals with low energy consumption, which makes the process more economic and, of course, with a higher yield. Out of 100 units, you need to recover a high percentage of that to put into a new battery. Thank you.
The next question will be asked by Ms. Fernanda Urbano. Go ahead, ma'am. Your microphone may be turned on.
Good morning. Thank you for taking our questions. We have two on our side. First, I'd like to ask you about the more traditional segment, heavy-duty vehicles in international markets. You've talked about reduced volumes with your clients this year and better perspectives for North America next year after the elections. So what do you expect for this recovery in terms of a timeline?
Should we expect a recovery in the first half of 2025, or should it take place more gradually for North America? Secondly, I'd like to understand your vision for Europe. I know that this represents a smaller share of your business, but we hear other companies talking about difficult perspectives for heavy-duty vehicles. So that's my first question. And the second question is if you can tell us a little bit more about battery recycling and the other initiatives you've been investing in, such as bioplants. If you can make this a little bit more tangible, what is the company's long-term strategy? I'm trying to understand which of these initiatives have the biggest long-term potential. So which initiatives do you believe will be most significant on a five-year horizon? Thank you.
Hi, Fernanda. Good morning. Thank you for your questions. These are very broad questions.
So let's start by talking about the market. Regarding the market, what has happened is that there is excess capacity for trucks in our industry. And this excess capacity has reduced the price of shipping. It has also reduced fleet occupation rates. And at the current moment, we have a very young fleet. It is fully renewed, we can say. So since transportation companies are having less revenue, as I mentioned, 60% on average, and since interest rates have been less favorable, they stopped renewing their fleets. They backed down. So this is a current scenario, and we are adjusting to it. The effect on Tupy is not necessarily connected to this because we are in long chains. Our business model in Tupy is to produce in Brazil and Mexico and export to other regions. And this means that we have higher inventory levels across the system.
In some businesses, such as off-road vehicles, we have bigger inventories throughout the chain, and when sales drop at the end, this volume that was appropriate in number of days is multiplied, and it creates a bullwhip effect, so in the beginning of the chain, there's an interruption in purchases, and this is what has been affecting us right now, so we're seeing a drop in the company that's even higher in some specific industries than what we see in the market. Returns are also very fast when they do happen, or rebounds, excuse me, so our belief is this. With the changes that we've seen, and of course, with early signs for the new administration, show that when we compare to our prior history, we had a very similar year in 2016 because of a reduction in volumes.
And then in 2017 and 2018, our revenue went up by 40% from 2016 to 2018. This was gradual, right? So 14% in 2017 and 30% in 2018 because there were new policies that reduced taxes, that reduced acquisition costs. There was deregulation, and that created incentives for this entire volume. So we do believe that there will be a change to the system, but for now, we're keeping track of it. Of course, we're looking at the data. As you know, you also analyze these things. And we're seeing some factors that do show that there's no need for it right now. But with a new administration, we should see different volumes. So we're monitoring this. We're not acting on it yet. And we are preserving the company's cash. We're not producing in advance.
We've been very cautious because of our cash generation policy, and that ends up penalizing our margins. And I can tell you a bit about that later. But first, let me answer your other question. What do we see today? The hydrogen project, the battery project, and the ultralight iron project should start having results soon. They have a lower TRL right now. So we believe that we'll start seeing results within three or four years. But there are other projects that are close to being ready. So with bioplants, we're investing in them. We've had great CapEx in 2024 in bioplants. We started with the Primato plant. And we've been cautious because this industry has had some challenges recently. As a reminder, our bioplant project collects waste. So you generate revenue by collecting waste. You generate revenue by selling biomethane and fertilizers.
There's also CO2 and other potential, such as electric power. But let's focus on biomethane and fertilizers, which are the main revenue lines. These projects can stand without requiring subsidies, according to our model. We've been talking about decarbonization and our challenges to foster the organo-mineral fertilizer market. We've been pleased with how this is advancing, and we've been talking about what is the best model through which to sell these goods. As soon as that's ready, we hope to give you this information very soon, as we have clear information on how this will be modeled. But I can assure you that there is a lot of interest in it. The model we developed is very solid structurally. Technically, it's very well-made. And we hope to bring news soon about this industry. As a reminder, we announced a project with JBS.
And of course, we're talking to the other players in the protein industry to find the model that will give us stability. We're not a fertilizer company, so we've been very careful about creating a high-quality product. So the same model that Tupy uses with good engineers and good technical people designing it, we're trying to do something similar, a high-quality, outstanding product. But of course, we have to understand the distribution chain, how it's going to work, and how we can create a model that is safer for our shareholders to trust us so that we can continue growing. Personally, what I've been seeing is that there's a lot of potential in this business. As soon as the model is clear, it will scale up very quickly. Another point that's very important and advanced are our ethanol and biomethane engines, vehicle transformation.
This is a project that has been under development for a number of years. We've been talking to agricultural companies and transportation companies to replace their engines for ethanol and biomethane engines and tractors, trucks, and we see a lot of potential for this next year in the maritime industry as well. We've been studying how to do this. We're focusing on the workboat industry rather than leisure vessels, so this is a strong industry in the Brazilian north, so we have tugboats. We have transportation ships in the Amazon River and in other river basins, the barges in Santos, in São Sebastião. There are piloting boats that are using our engines. We're adjusting this to Brazil to make it more economic, and the good news is that this market basically uses imported goods, so we're going to invade this market. We have a lot of potential.
We have a strong brand, a distribution network, and this should advance significantly. Another highlight is our replacement business, which is already mature. It has a revenue of about BRL 500 million a year or thereabouts. And this is a business that we believe can grow significantly. We have the second biggest part distribution network in Brazil. And we're focused on truck replacement parts, but also agricultural engines and construction engines. Brazil is a very big country, and this network was built over 70 years. And we're exploring this now with products for other brands of engines. So we've been growing by double-digit rates because we are including new products in this portfolio. And we believe that this growth will continue for the next years and quarters because it's an industry that we really believe has a lot to grow still.
Our business is still relatively small, and our distribution network is very mature, not only with stores but also with service quality that's being provided to our representatives, our distributors. So these are the main industries where we see growth. Oh, and I forgot to talk about generators. Generators are also mature. They have been growing. There's also a discussion there on machines being imported. We have to understand this industry carefully because we're very competitive. We have very good products, and this network also services it very well. So these are things that we're learning. Even the team from MWM, which is very well-trained, very able, they've been making great work, but they're connected to a manufacturing company. So they had restrictions in their activity. We're all very engaged, and we have been advancing in this industry. MWM has had great growth within Tupy, double-digit growth rates.
We believe that this will continue because even with our proposal to assemble third-party engines and everything else, these are very technically sound solutions. You can check with the market. Our brand and our products are high quality, and that's how we're going to be able to expand our business.
Great. Thank you. As a reminder, if you'd like to ask a question, please click on the raise hand button. If your question has been answered, you may click on the lower hand button. The next question will be asked by Mr. Gabriel Rezende. Go ahead, sir. Your microphone may be turned on.
Hi everyone. Good morning. Thank you for taking my question. I have an additional follow-up to what you mentioned about volumes. I'd just like to understand if you're seeing any effects from China here.
I know that you are mostly looking at the U.S. and Europe, but since China is exporting deflation, are end products being impacted by Chinese products? We've been seeing this with pile-driver-like vehicles in Latin America. So I'd like to understand if some of your reduced volume can also be explained by that.
Yes, Gabriel, you're correct. And thank you for reminding me about that. So first, looking at the American market, we supply American companies, which should benefit from this. So yes, Chinese products have been invading the market: construction equipment, agricultural machinery, small trucks, generators. And all of this has been affecting our clients' business. You know who they are. You can imagine what's happening. This is also happening to the domestic market. We're looking at that and trying to understand it because without a doubt, this is true. And this seems to be unfair competition.
We're still checking, but that is potentially true. So I mentioned this during my opening statements because it's true that we should see our clients gaining market share, our products in Brazil. And if Brazil starts taking some protection measures, this should also happen. This is something that we've been defending. And we should grow along with our clients in the US, in North America, and potentially in Europe as well.
Great. Thank you, Fernando.
The next question will be asked by Ms. Andressa Varotto. Go ahead, ma'am. Your microphone may be turned on.
I can't hear Andressa, so if she's asking a question, we can't hear her.
Okay. The next question will be asked by Mr. Minute, please. Mr. Gabriel Frazão. Go ahead, sir. Your microphone may be turned on.
Hi. Good morning, everyone. Thank you for giving me a question.
I have a question about the heavy-duty vehicle market in the U.S. Do you believe that this younger fleet and lower shipping prices will reduce your pre-buy for 2025 or at least postpone it for the second half of the year?
Hi, Gabriel. Thank you for your question. Just referring back to Gabriel Rezende's question, I'd like to add something. As soon as these policies have been announced, as soon as there was a change in administration, we saw that share prices for our clients went up by 8%-12% because they were seen as the winners in this process and everything that should come as a consequence of the new policies. This is not connected to Tupy. No one connected this to our business, but we are directly connected to this trend.
So this refers to the new products that these clients are going to make. So now to answer Gabriel's question about fleet age. So of course, we're listening to our clients, and that's how we get prepared for this new movement. This movement in 2027 will have a high cost. So replacements will have a high cost. The American economy is growing, and we have to keep something in mind. Trucks are being used. The fleet is being used right now. It's having wear. And these companies are very organized when it comes to maintenance, when to replace their fleet, and when to get ready for the next cycle, considering that vehicles will be more expensive. They've also learned that discounts in buying new vehicles in the last year are smaller. So the actual cost of a vehicle is higher.
It's very likely, and this is what we've been hearing from OEMs, is that they have clear indications that this cycle will start in the second half of 2025 and will continue throughout 2026. But of course, this full calculation is important, but we have to look at the economy that will be growing. Machine use rate is still high, and this all, of course, will affect the entire process. So we're getting prepared for the second half of 2025 for the markets to recover.
Great. That was very clear. Thank you.
As a reminder, if you'd like to ask a question, please click on the raise hand button. If your question has been answered, you may lower your hand. The next question will be asked by Mr. Kaiky Halley. Go ahead, sir.
Hi, everyone. This is Kaiky from Citibank. I have a couple of questions.
First, continuing Fernanda's question, you mentioned that you would give us more details about your margin impacts, considering that you're focusing on generating cash and the traditional market, so the international market for heavy-duty vehicles. If you could tell us a little bit more about your margins. And my second question is, in Brazil, considering predictions for agribusiness in 2025, if you're seeing any demand from farmers that may point towards an improved situation in this segment. Thank you.
Okay, Kaiky. So about margins, what I wanted to say is this: our operation is very big. It involves a lot of energy, a lot of people. There are many assets. So whenever you have a major change to the volumes, whether it is up or down, when it's down, it's hard to hold your operation. You end up using working capital.
You generate inventories, which improves margins because costs are being diluted in your inventory, but you have lower cash generation for the company overall. We've been very assertive in focusing cash generation despite margins, despite their effects on margins. Another point that I'd like to highlight is this: we've had restructuring costs of BRL 11 million this quarter. We spend to develop new businesses. Everything I mentioned now that don't generate revenue yet, especially bio plants that have a high cost, it's a big team developing this, and they're doing extraordinary work. But when we look at a quarter's snapshot, it's simply an expense. This cost us BRL 20 million this quarter. We also had logistics challenges that led to an expense of BRL 10 million above what we had scheduled because of this variation.
Some prices are outdated because we had high inflation rates after the COVID pandemic in Mexico. Now there's been a change to foreign exchange, and there's still something that we have to make up for. But if we consider only these three things I mentioned, our margins would be very close to 14%, which is an actual margin when you look at the company's historical basis. We didn't have new expenses, new investments, operational costs so concentrated in the past. So I'm asking you to look at the quarter's margins carefully, understanding these effects. This has been the company's decision to use BRL 20 million to develop new businesses because we believe that the Tupy model, well, Tupy is too big, and its business is 100% connected to car manufacturers. So that's why we work with long-term contracts. We don't have a lot of space to change.
We have a lot of obligations in these contracts, and when the market is affected, we absorb a lot of these issues, and that's what creates situations like the one we're in right now. What we're designing for the future of the company is to diversify our revenue into anti-cyclical industries, so that's why we're allocating capital to this, even if it impacts the company's margins. If I had a 13.5% or 14% margin, we would see much more positive headlines, and I believe they should be more positive because we're investing our capital to something that's transforming the company.
And I hope that over 2025, you'll see a lot of news about the businesses that we're making in these new industries, which demonstrate our long-term investments for the company to make it stronger and more resilient, of course, and also to make use of the opportunities that we are seeing right now. So your question is very important because these decisions are very important. We have to learn in the company to be more agile when we see these new trends. How do you reduce costs? How do you adapt faster? This has been an ongoing exercise because, of course, right now, we're a combination of three major companies. We have cultural issues to adapt to. The company grew a lot recently.
But I would really like to thank my team for their dedication and for doing what they've been doing because even despite such a difficult moment in the market right now, we have a lot of employees. We have 11, excuse me, 19,000 employees in the company, but we have been able to adapt. The company will be restructured. We're not going to let go of the decisions that are important for the long term to favor a single quarter. We're going to continue to make decisions on new businesses and on restructuring the company's business overall. And this is due to the acquisition, to the products that we're moving, and of course, by shutting off some assets. We have overlapping assets, so we will need to shut off some of the less efficient ones. So this is what we're doing every day when we come to work.
As a reminder, if you'd like to ask a question, you can click on the raise hand button. If your question has been answered, you may lower your hand. Go ahead, Mr. Kaiky Halley.
Thank you for answering my first question, and I have a second question about agribusiness in 2025. If you can tell us a little bit more about that.
Oh, yes. We apologize, Kaifer. So we do believe that the harvest will be 8%-10% higher next year, so agribusiness should grow. We haven't been receiving any orders for products for farming equipment right now, but the company is moving in the direction of agribusiness with our bio plant, with motor pumps, with generators. We're all looking at the agribusiness industry. We're talking about biomethane, ethanol engines. This market will use fuels that they can produce themselves.
So our sales for agribusiness will grow significantly next year. And it's not going to be just a traditional business. It will be these new specific products that are being demanded by agribusiness that are not available in Brazil. I'm sorry for taking some of your time, but we have to reflect on this. We've been drilling for oil offshore. We're refining oil onshore, and we're using a lot of diesel to take one liter of diesel to the Brazilian Midwest or to the Amazon River Basin. It doesn't make sense. We have to produce our fuels there, whether it's biodiesel, ethanol, or biomethane. We have biomass, and it's going to waste, and it can be productive. We've been running tests. We've been investing a lot in developing engines. This can be done in a better way than by using diesel.
So that's why we're focusing a lot of the company's efforts in bringing solutions for Brazilian agribusiness, which are not available yet. They use machinery from international companies that bring their engine solutions from other countries to Brazil, and we want to give our clients an option to replace their engines and their equipment with equipment that uses fuels that can be produced here. So we believe that the sugar cane industry stands to win from this. The protein industry, waste is being wasted, and it can produce biomethane. Ethanol can be used, and you can use it very efficiently in comparison to diesel. You can produce biodiesel from soybeans. You can have biodiesel-fueled ships. So we're going to gain on selling equipment and also in the parts and services industry to supply these clients.
So I think we can close our call. This concludes the questions and answers session.
We will now give the floor to Mr. Fernando for his closing remarks.
Well, thank you for your attention once again, everyone. I'd just like to mention that the company produced these results in an environment with low volumes and with excessive assets and duplicate actions in the company. Many of the expenses that we've been accumulated are making this company a lot more efficient. We're using a lot of money moving products within the company in order to make the company run with fewer assets, with better volumes because volumes will bounce back, they're cyclical, and when I look at the long-term margins, we see the same ones that we are seeing this year. We believe that we'll go back to the traditional margins that we had by 2018 or 2019 before the acquisitions, which is about 14%-15%.
So that's the first thing I'd like to mention in closing. But above all, I want to highlight how much our discipline has made a difference in executing our strategy and has helped us to overcome smaller volumes, logistical challenges, and others. So this drive remains unchanged in building the projects that we envision for the company. We're going to reach the efficiencies we want, and our efforts will become more intensive in 2025. Although we have a poor scenario for now, we believe that we have a lot of potential for this to change with the new business perspectives that have appeared recently. So all of these cost reduction initiatives have permanent effects. And as soon as demand bounces back, we're going to see even better consequences to our gross margins, and we will be able to expand it as we have been able to do it this quarter.
Our cash generation in the last 12 months, as I said, was the highest in our history. Even when we compare to 2023, which had already been a record, we basically doubled the amount we reached in the first nine months, a 97% increase. So this all goes to show how disciplined we are in controlling costs, in how fast we are in making decisions in challenging scenarios, and in how we allocate our capital. The same rigor will be the basis for our future growth. Our new businesses have been developed based on a lot of research. This is our history. This is what Tupy and MWM does. We don't do anything if it's not a technically well-developed solution.
So our traditional business is exclusively anchored on OEMs, and our new business initiatives are seeking recurring revenue lines in anti-cyclical markets where we have more freedom to set our prices. So the results so far have been very motivating. We've seen initial results from bio plants, the maritime industry, and the application of biofuel engines in transportation and agribusiness companies in Brazil. So we remain firm in our intention to offer higher added value products and services to diversify our revenue sources and to enable the company for a multi-fuel future. Thank you very much, and have a good day.
This concludes the company's conference call. Thank you for listening, and have a good day.