Good morning, ladies and gentlemen. Welcome to the conference call of Tupy S.A. for the Earnings for Q2 2024. This conference call is being recorded, and the replay can be accessed at the site of the company at ri.tupy.com.br. The presentation is available for download on the platform in the investor relations site. We inform that all the participants will be in the listen mode only during the presentation, and next, we will begin the Q&A session, when further instructions will be supplied. The presentation is being recorded and translated simultaneously. The translation is available clicking on the button Interpretation. For those hearing the conference call in English, there is the option to silence the original audio in Portuguese, clicking on Mute Original Audio.
Before proceeding, I would like to reinforce that the declarations are based on assumptions and beliefs of the company's management and information currently available to the company. These declarations may involve risks and uncertainties. They relate 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 environment, the segment, and other factors may make results materially different from those expressed in the declarations made here. We have with us in this conference call Mr. Fernando Cestari de Rizzo, CEO, Mr. Rodrigo Périco, CFO, Mr. Cristian Malevic, Engineering Director, and also for the Unit for Energy and Decarbonization, and the investor relations team of Tupy. Now, I would like to pass the floor to Mr. Fernando, who will begin the presentation. Please, sir, you may proceed.
Thank you and good morning. I thank you for your presence in our conference call. We are making progress in the execution of our strategic agenda. We made acquisitions with favorable multiples, we had synergies in four years, and we invested in research for new business. Tupy is more efficient and still has the opportunity to reduce further the costs. We have attracted new contracts with added value and growing in markets in Brazilian agriculture and also aftermarket. These are solid movements, well-planned movements with financial discipline and that bring structural and permanent gains. Tupy is larger and stronger. The indicators of this quarter show progress in these actions. We reached the highest adjusted EBIT in the company's history, growth of margins, and strong operational cash generation. The net revenue reached BRL 2.8 billion, a drop of 5% in comparison with Q2 2023.
This performance is due to the lower demand for commercial and off-road vehicles in the U.S. and Europe, without loss of market share. The adjusted EBIT in the period reached BRL 395 million, a growth of 19% in relation to last year. The margin reached 14.1%, an increase of 290 basis points. The performance we reach comes from the discipline of the team in executing the plan, even in a challenging scenario. We implemented cost reduction actions with gains upwards of BRL 250 million per year. We made the decision to reduce production, which helped with cash generation in spite of the lower dilution of fixed costs, which affected the margins in a negative way. These effects impacted a bit by BRL 80 million.
The devaluation of 5% of the Brazilian real to the dollar, which represented 62% of the revenue, affected only partially the results of the period. The Mexican peso appreciated by 2% in comparison with the previous year, with a negative impact on the result. Net profit was BRL 18 million. We decided to increase the exchange rate protection during Q1 due to uncertainties in the global market. The recent devaluation of the real really brought marking to market, with a negative effect of BRL 168 million in the financial results of Q2 2024. Look, the preservation of the exchange rate in the current levels will have a positive result in the company's profit. In the next slide, we see operational cash generation, which reached BRL 413 million in Q2 2024, the best performance of the company for a second quarter.
These are actions in the supply chain, management of inventory and a flexible production, and also intense work to reduce accounts receivable. Also, the business in MWM has given us a healthy cash generation. Capital allocation is fundamental. We invested BRL 200 million in the first semester, 40% for expansion and 60% to sustain the business. Thus, we are building the future of Tupy. In July, we issued debentures worth BRL 1.5 billion. The resources will be used mainly to lengthen the cost of debt. The great demand for our debentures shows that the market trusts our company. We increased the payout by 30% to the net profit of the year. Now, I'd like to pass the floor to Rodrigo, who will talk about the indicators in Q2.
Thank you, Fernando. Good morning. The revenue had a drop of 5% in comparison with the same period last year, totaling BRL 2.8 billion, and were distributed in the following way: 43% from North America, 40% from South America, Central America, 15% from Europe, and the remaining 2% from Asia, Africa, and Oceania. In the revenue, 86% came from structural components and manufacturing contracts with cast iron products and high value-added services, such as machining and also assembly of components. Energy and decarbonization, which includes generators and also engines manufactured by us, and also lighting towers and services linked to decarbonization, brought 7% of the revenue. The remaining 7% come from distribution, which includes revenue from spare parts of MWM and hydraulic products.
In the next slide, in the domestic market, the revenue from structural components and manufacturing contracts had a positive impact due to the production of commercial vehicles. But the revenue from the export market suffered a drop due to lower demand of off-road machines. This is related to the drop in agricultural commodities and also less sales to the civil construction market due to high interest rates. The production of trucks, especially heavy trucks, have showed signs of comparable to 2023. Finally, products with higher added value represented 45% of this unit. On the next slide, we have the performance of the energy and decarbonization unit, which includes generators, our own engines manufactured by us, marine engines, lighting towers, and services for decarbonization.
This segment registered an increase of 33% in Brazil due to the expressive growth of sale of generators, also marine engines, and ramp-up of new products. In the export market, there was a drop of 14% due to less demand for our engines, especially in agriculture. In terms of participation, this unit represented 14% of the revenue in the domestic market and 2% in the export market. On the next slide, we see the distribution unit, which includes spare parts and hydraulic products. In Brazil, the sales of this unit represented 15% of the revenue in the domestic market, with an increase of 13%, especially due to the expansion of the portfolio of aftermarket parts, spare parts. In the exports, there was less economic activity in some markets.
Going to the next slide, we see that the cost of products sold had a drop of 8%, resulting in an increase of 280 basis points in gross margin. This was reached in spite of the negative impact in the reduction of volumes, the appreciation of the Mexican peso, and inflation of, in labor. This was offset by gains in productivity and costs. Operational expenses also had a drop of 4% in comparison with Q2 2023. This is due to renegotiation of contracts, reduction of volumes and capture of synergies, and gains in efficiency in the last few months. Continuing with the presentation, at the top of the slide, Adjusted EBITDA reached BRL 395 million in Q2 2024, with the margin on revenue reaching 14.1% in comparison with 11.2% last year in the same period.
We continue capturing synergies from acquisitions and also with initiatives already mentioned, such as reduction, cost reduction, and expenses, apart from negotiations with suppliers, compensated negative factors, especially reduction in volumes, which affected EBITDA by BRL 80 million in the period. At the bottom of the slide, we have net profit of BRL 18 million in the quarter. The comparison was made due to more financial expenses, due to marking to market, and also instruments for hedging, and also foreign currency. On the next slide, we present the financial result of the period. The increase of financial expenses came from new loans, which resulted in an increase in expenses with interest. This was partially mitigated by swaps on loans. Apart from this, the depreciation, devaluation of the real, also in relation to the dollar, also had an effect. The revenues totaled BRL 35 million financial revenue, higher than last year.
This is due to the larger cash position, due to loans, apart from strong operational cash generation. In the results with exchange variations, we had an expense of BRL 115 million, due to hedge operations totaling BRL 168 million, of which 25 million had an impact on cash. Variations in the accounts in foreign currency, due to devaluation of our currency in relation to the dollar, had a positive impact of 53 million. Our hedge policy also helps to mitigate exchange factors. In Q1 2024, when we saw that the real was becoming stronger, we increased our level of protection. With the current exchange rate position, we realigned our protection strategy. Now, in the next slide, we see the main accounts of working capital using Q1 2024.
We had an increase in accounts receivable, we had an increase of BRL 144 million, which had an impact on average payment period. This increase was due to appreciation of the exchange rate. In inventory, the increase was BRL 56 million, especially due to exchange variation. This was partially mitigated by actions focused on inventory reduction, with emphasis on finished products. In accounts payable, we highlight the many initiatives in management with suppliers. And finally, net debt at the end of the second quarter was BRL 2.4 billion, representing 1.84x the Adjusted EBITDA in the last twelve months. The obligations in foreign currency corresponded to 67% of the total, while 33% of the cash was in local currency. We closed the first semester of 2024 with a cash position of BRL 2.4 billion. Now, I'd like to pass the floor to Fernando.
Thank you, Rodrigo. In the next slides, I will share our vision on the main markets where we are present. In the domestic market, the projections of recovery for heavy vehicles are being confirmed. Production of trucks increased 41% from January to July, an expressive growth, but still lower than in 2021, 2022. Investments in infrastructure, together with better conditions in credit, should help to strengthen sales in the next few years. Off-road applications were affected, especially by the performance of agriculture. Climate factors and the drop in commodity prices had an impact on farms and therefore affected the renewal of fleets. In the foreign market, 2024 will be a year of drop in production, especially in the U.S. and Europe. Nevertheless, some signs shows an improvement in the segments in the second semester.
ACT Research has reviewed their projections and now has higher numbers for 2024. In 2025, our clients are expecting a recovery in the market due to pre-buy in the U.S. market. This recovery, especially in Class 8, should benefit with relevant contracts and an increase in our share. In off-road machines, they have been affected by adjustments in inventory in the chain and the global performance of agribusiness, a lower volume of investments and segments, and also residential construction and lower interest rates. Many clients have talked about the growth in the sector of energy. The growth of artificial intelligence in cloud computing should bring the construction of new data centers with large generations. In the next slides, we see the new projects that we announced recently.
And to talk about bioplants with Seara, I invite Cristian, Engineering Director and responsible for the business units of energy and decarbonization of MWM.
Thank you, Fernando. In bioplants, we use state-of-the-art technology for the production of biomethane and organomineral organic fertilizer. This production inside the farms, together with processing industry, going to waste in distribution. So this is by using waste products from supermarkets. This is important in our trade balance and the projections of growth over the next few years, resulting from the nutritional benefits. The three projects we have until now are connected with the growth strategy in the number of animals, especially confined animals, and with an increase in wastes inside the farms. We have a bioplant in Ouro Verde do Oeste, in Toledo, Paraná, together with Cooperativa Primato, using also wastes from pork.
Also, a bioplant in Divinópolis, Granja Rancho da Lua, using poultry wastes, and bioplant in Seara, Santa Catarina, a company from the group JBS, with wastes from pork. On the next slide, you can see the bioplant of Seara, reminding you that Santa Catarina is the state with the highest production of pork in the country, with an important production also of poultry, with integration through family-owned producers close to the processing industry. In this first project in the region, more than 80 producers will be involved. We will collect waste from 200,000 pork in different cycles, and also poultry, too, with 1.7 million birds for a period of 15 years. The beginning of operation is foreseen for the last quarter of 2025, depending on the, on the construction.
The hybrid solution for pork and birds, we have many producers that can benefit by improving the quality of protein in their properties. On the next slide, we describe the production in two modules. The upper block is responsible for biodigestion of the wastes from pork, generating electricity to feed the bioplant through the production of biogas. And after the purification of this biogas, generating biomethane and CO₂, renewable CO₂. Biomethane is used for the substitution of diesel oil, reducing costs and a smaller carbon footprint, and also for sale in the region for transportation and industrial use in the meat packing plants. This will substitute fossil fuels, and thus, the processing of protein. The block below includes the production module of organomineral fertilizers for agriculture in the region, substituting mineral fertilizer to increase productivity.
The fertilizer plant receives wastes from birds and also from pork before the biodigestion module. They use composting before being subject to industrial processes for production and mixture with the mineral part. Going on to the next slide, we see that the bioplant in Seara will have a capacity to produce 8,046 cubic meters of biomethane per day, substituting 7,300 liters of diesel. Also, a daily capacity of 160 tons of organomineral fertilizer, and also 10 tons of CO₂. Total of 305 MW per month should be consumed from the generator. The total produced by biodigestion would be sufficient to substitute diesel, worth 52 trucks working and more than 1,100 gigawatts per month in electricity.
This solution, biogas and biomethane, would neutralize more than 84,000 tons of carbon equivalent per year, and also would be equivalent to planting 675,000 trees. Now, I would like to pass the floor to Fernando. Thank you, Cristian. Continuing with the agenda of new business, we announced a contract with Volkswagen Trucks and Buses for machining of heads, and this, in the past, was done in Germany. We also announced the expansion on supply of machined engines, machined blocks, and engines for the largest global producers of pickup trucks. This will begin in 2025 and will contribute with BRL 200 million per year. This is the agenda we have been showing to the market for years, involving acquisitions and the adoption of new technologies.
There are many opportunities being discussed to nationalize the production of our clients and to export with higher value added, added value. Finally, I'd like to talk about the value levers that represent our strategy. In the traditional business, we will benefit from the recovery of important markets and the growth of the Brazilian economy. Cargo transportation should grow on average 2% a year in the next decades. So new technologies, also delay in new technologies, will also bring additional growth and volume. We will continue capturing the synergies from acquisitions, and we will concentrate the production in plants that have lower costs. We will reduce assets in operation, fixed costs, and CapEx of maintenance. This will bring better margins and an increase in efficiency.
Stabilization of the exchange rate on a new level, which compensates inflation in the last few years, together with prices of new contracts and more complex products, will help. We also announced new business in foundries, in casting and machining, contributing in the increase in margins as of 2025. These programs have added value services with machining and assembly. Agribusiness is very important in our strategy. The projects announced for bioplants bring many opportunities in biomethane and organomineral fertilizers. We are using also our knowledge in engines to develop and expand solutions for decarbonization, using vehicle in, with vehicle transformation and pumps, too. So aftermarket will become more important in the next few years. We're expanding our portfolio, including distribution of parts from other engine manufacturers in our channels, offering also products and services with higher value added.
The demand for generator groups has really been benefited by the expansion of renewable energy, such as wind and solar energy, which are growing. The growth in artificial intelligence and cloud computing will demand new data centers with more generators. The riches that we are building don't stop. Our research and recycling of battery projects, and also new materials for hydrogen and ethanol engines. Also, the knowledge of other biofuels continues to make progress, and we're sure they will bring us good business in the future. I thank you all for your attention, and we will begin the Q&A session. Thank you.
We would like to begin the Q&A session. To ask a question, please click on Raise Hand. If your question is answered, you can leave the queue by lowering hand. Our first question comes from Mr. André Ferreira, Bradesco. André, you can proceed.
Good morning. Thank you. Congratulations for the results. I have two. The first, concerning new contracts, two points. These new manufacturing contracts, how will they impact margin from now on? And also biomethane, what is the level of revenue, ROIC, and margin? And the second, talking about generators for data centers, the greatest market, the greatest growth, I imagine, will be in the U.S. So how will you take the generators from MWM to the U.S.?
André, good morning. Thank you for the questions. Well, the issue of new contracts, these are contracts, in most of the new businesses. These are new businesses for casting and assembly. Some are small assemblies and some are complex assemblies. So when we announced the acquisition of MWM, we have this connection. MWM used to assemble engines for Volkswagen trucks. Tupy built with our acquisitions in foundries, we became the largest producer of these products, which are the basis of the engines. So today, we have partnerships with all the manufacturers of trucks, agricultural machinery, construction machinery, and to them, we're offering this solution to outsource their activities.
So we have given you this information, and these are contracts that have better margins, because the average of, better than the average profit of the company, because these are more sophisticated products and metallurgy, and together with machining. Machining is important because with MWM, we also acquired some surplus capacity in machining, and we're using this CapEx, which was ready, to absorb these new contracts.
Apart from this, I must remember what we announced at the beginning of last year: large projects, a plant in Mexico that is now ready for Class 8 engines in the US, with machining of heads and pre-machining of some blocks for Class 8 engines in the US. So we have been very selective in these agreements. We have been selective, and the company grew a lot in the last few years. Reminding you, Tupy is 2.5 x, 3 x larger than it was five, six years ago. We made this decision to make these acquisitions. We acquired companies that had margins equivalent to 3%-6%. And when we deliver this type of margin with a market that is dropping as it is today, it's important to analyze this. So there's also the selectivity of agreements. We're selecting agreements. This will continue in the future.
We're negotiating to see how we can use this CapEx instead of building a new CapEx. All of this is being discussed, it's on the table, and we continue making progress. Concerning bioplants, these are projects that are becoming larger and larger. There is, we have the large producers of pork meat. We made an agreement with JBS, we're talking to all the others. We, we were able to amass many technologies, and the combination of these technologies with a lot of research, we brought people from Embrapa, professors from, from research organizations, for all these steps, and we will sell, we will have revenue by selling fertilizers, and with the sale of biomethane and using them in fleets. We have products that use biomethane that we sell in these regions where we will be producing them.
So it's a new value chain we are, we are making that generates value. We have expectations of much higher margins than we have today. Finally, you asked about generators in the U.S. Data center generators, it's important to talk about two points. One of them, we are suppliers of cast components and pre-machined components for large engines. Typical engines of these generators for large data centers like Microsoft, these are engines of 50 - 90 liter engines. These are not generators we manufacture, but they are large, and we supply to the manufacturers of these engines, we supply parts to them. In the global market, the great impact will be this: we're studying, we already sell our generators in Mexico, so we're studying how we can combine a possible assembly in Mexico.
We are partners with WEG. They have a strong presence in Mexico, so we're studying this, and we participate in smaller data centers, important data centers from, for example, government data, data centers, processing for large companies. They need backup energy, emergency electricity, and our products can be used. But in large generators, we are not present. We're talking about 50- 90 liter engines that we don't manufacture. But we will supply, we will participate as suppliers to these manufacturers.
Our next question comes from Mr. Gabriel Rezende, Itaú.
Good morning, Fernando, Rodrigo, the investor relations team. Congratulations for the results. If you could comment more about the hedging activity, we're observing, we have a volatile exchange rate. So I'd like to understand in general, for example, thinking of the four currencies, real, Mexican peso, dollar, and euro, euro, how should this affect in terms of financial expenses? So what is the hedge activity of the company? And when we look at the, how does the devaluation of the real affect your results? And also, Fernando, you had a good performance in profitability in spite of trends that are not very good in terms of volumes. When should we see better volumes, especially in the export market? Thank you.
Hi, Gabriel. Good morning. Thank you for the question. So talking about our hedge structure, we have, we have exposure in these currencies. We operate in a phased way. When we have greater visibility in terms of exchange rate exposure, requires more hedging in adverse scenarios. Having said this, what happened in the beginning of the year, we had a vision, signs from the market where there was potential for the real to become stronger in relation to the dollar, and we made these hedge activities.
Others also did this, other companies also did this. So as the dollar began to appreciate, we are seeing this result now in June, but this was a simple passage. We don't expect to have great fluctuations in the future. Adjustments are made according to the exchange rate. So, we began to have additional hedge in March, when the exchange rate showed that the dollar was getting stronger in relation to the real. We are no longer making additional hedging.
Yes, we will see these effects of strengthening of the dollar currency, not only the dollar currency, but also in peso, Mexican peso, both in revenue and less expenses. Well, concerning recovery of volumes, Brazil should continue to improve. We have favorable orders. Volumes are growing in Brazil. Abroad, we believe recovery will come in the first semester of 2025. There are some signs. Expectations are better in relation to the beginning of the year. They used to say a drop of 20%, now it's a drop of 10%. Sometimes this has an effect, that when we look at the quarter, we depend a lot on the inventory policy of our clients. And this can affect Tupy. Tupy is linked to the client's production, not sale.
So in the year, one thing compensates the other, but when we look at the quarter, you may have fluctuations. We don't accept great fluctuations until the end of the year. Maybe a small improvement until the end of the year, but we believe that a structural change will come next year. This is important. It's important to evaluate how we're building all of this, and of course, we continue operating with excess number of assets. We're running with many machines working at low production. We are correcting this. This is part of the design of the acquisitions. I always like to stress this.
Sometimes I see expectations and projections because we said, "Look, it'll take 4 years to reallocate the products in the company after acquisitions, priority assets." But today, we're working with a higher cost than we should have, and a CapEx and maintenance that is higher than it should be for the level of revenue we are generating. And even looking at the growth to recover these markets, we always see a stable market in the future. It's important for you to bear in mind, cargo transportation will grow on average 2% a year. So when we talk about other technologies, cargo transportation will grow. The way we will deal with this growth, type of equipment, type of engine, type of fuel, this will vary, but it depends on the adoption and also on the readiness of new technologies.
That's why we believe that Tupy will continue growing until 2030, 2032 in these sectors. These sectors are essential. The U.S. economy is consuming the fleet. They're not selling trucks like they sold in the past. The fleet is getting older, but it's being used. There will be a new cycle, we believe, 2025, of recovery and renewal of the fleets in the U.S. When we look at Tupy, we believe we have capacity to take care of this future cycle. And when we look at the current situation, we're operating with more assets than we have, more fixed cost than we should. And this market situation even helps us to accelerate the capture of the synergies. This is what we have done.
Here we see the difference between Adjusted EBITDA and CVM EBITDA in our actions to correct some issues of production and capture of synergies. The market is not very happy, or the market is anxious, but today we have 35%-40% of the revenue coming from companies we acquired that had margins of 3%, 6%, 7%. We're delivering 13% in the first semester. When you look at 13%, we made a choice in the past. We could continue the way we were improving, and this Tupy from the past improved, became more efficient. Our work was done, aggregating these new activities, eliminating duplication of activities, and this is what we're doing. That's why we see when in the future a company that will be much larger and much better... then it could have more than that the previous company could have been.
So the exchange rate is back, compensating inflation. This wasn't happening, and now we have volumes to recover. So this is the company's direction in the next few years.
Very clear. Thank you, Fernando, Rodrigo. Just a follow-up. Your comment on volumes. Volumes and the operational improvements, if everything continues in Q3, Rodrigo's comment on the decrease in hedge and exchange rates, we believe we can have a better margin, more revenue in local currency without the effect of hedge.
In principle, yes, you're right. We are cautious. We don't give you a guidance. We also see revenue that came from the previous quarter, recognized now in Q2, after negotiations and renegotiations, adjustments in plans. So there is a lot of work being done, which has a cost to obtain synergies. We believe that in the current situation, in the first semester, we can continue this way. It'll be roughly what we have seen. Then, structural gain changes later on.
Thank you.
Our next question comes from Mrs. Fernanda Urbano from XP.
Good morning. Thank you for the space. Congratulations for the results yesterday. It's a follow-up question in terms of energy and decarbonization. It became clear that there is a favorable scenario for generators, and you mentioned on positive demand for marine engines and also for agro business. Could you give us more details about the main drivers for these products, and also how much each product represents in the sale, sales of these segments?
Cristian, feel free.
Fernando. Well, thank you for the question, Fernanda. Concerning the main businesses in energy and decarbonization. In marine engines, we have many projects where the installation of our engines allows a better performance for ships, older ships. With repowering, recently, we announced our entry in substituting old marine engines on the coast of São Paulo, and our trend is to work with boats and service boats, so we can continue substituting engines and growing in volume and applications. We're working in the north of the country to guarantee cargo, transportation and passenger transportation through our marine solutions and new solutions for this portfolio.
We should have a growth due to this strategy. In terms of bioplants, bioplants, we announced at least in three different regions in Brazil, Minas Gerais, Paraná, and Santa Catarina states. In reality, three different segments with poultry and also pork. Their wastes, so they have a great potential for scalability. When we look at the material we presented, 200,000 pork in Seara. We know that the total amount of these animals is 20 million, so we have a great potential for scalability in these cultures. This is very relevant. We continue working with technology to involve other segments in this production chain for food in t his journey that we began some time ago.
I'd like to add, Fernanda, MWM marine engines is for work applications. Brazil has the largest coast in the world, so our engines are very resistant, very important for this, and we have expanded in these applications. Ferries and transportation systems in the Amazon, using our engines from MWM. We have worked with entities to expand. We have a great opportunity in Brazil, due to our service network and the services we can render. In terms of aftermarket, we have the largest network in Brazil for spare parts for these engines. We have the cost of maintenance is much lower than imported alternatives. So all of this is favorable.
Very clear. Thank you.
Our next question comes from Mrs. Andressa Barreto from UBS.
G ood morning. Thank you. I have two questions. The first, please give more details about renegotiation of contracts. Is this related to price increases due to higher costs, inflation in the last few years? And also, can we say that you will continue having positive effects with contract renegotiation? And the second question, linked to volumes in U.S. currency, how do you see the recovery of off-road vehicles? And also, in terms of pre-buy of heavy vehicles in the U.S., due to changes in emissions for 2027, do you expect a stronger pre-buy in 2025, 2026? So do you believe these effects can be anticipated, the pre-buy can be anticipated? Thank you.
Andressa, good morning. Thank you for the questions. Yes. Concerning the first question, yes, that's it. We have agreements due to the acquisitions that did not have price increases due to inflation. For example, operations in Mexico, we had inflation. We mentioned in the last call in Q1 on Mexican inflation, which was very strong. The Mexican peso went up 15% in the last 3-4 years after the pandemic. So a lot of demand for labor, higher prices for labor. In Mexico, we have contracts that are very similar to U.S. contracts. The idea that, for example, in relation to Brazil and Mexico, we had depreciation, so we produce in Brazil and Mexico to deliver in the U.S. So for certain periods, we had some problems. These renegotiations have to do with these needs for price increases. Contracts are renewed, and now they have this protection for price increases.
Now, concerning the volume in the U.S., you asked about off-road. Off-road has two parts. One is agriculture. This has to do with the earnings of the farmers, increase in commodity prices. For the time being, we don't see a recovery in this area. Now, construction is more positive. It has to do with interest rates. Everything that is linked to interest rates, we believe there is a recovery. There's another part, large projects in the U.S. for the renewal of the infrastructure in the U.S. This will help us a lot with off-road machines and trucks. And this, this process was delayed. It has not made much progress, but it's a need. For example, railways that are more than 100 years old, ports, also, the roads on the East Coast have suffered a lot. They need investment in roads. This will require machines, investments.
We believe that there are solid. This has to do also with elections. So we do, but we believe that the two alternatives for elections should really continue with these projects, because it will help the U.S. Now, concerning pre-buy, you have to bear in mind, transportation grows together with the growth of the country. So transportation grows 2% a year in the world. So if it's not growing, transportation companies are using older trucks with higher maintenance costs, and the average age of the fleet is going up. It had reached an ideal point two years ago, and now, since there is pre-buy and new vehicles are more expensive, we know that large transportation fleets, we believe, will renew their fleets in the next two years. This also has to do with interest rates. It will depend on interest rates.
But our vision is very positive for the future. We're getting ready for this as of 2025, and during 2026, certainly this will happen.
Our next question comes from Mr. Jonathan Koutras from J.P. Morgan.
Thank you. Good morning, Fernando, Rodrigo, and the team. I have a question. You mentioned yesterday. When do you imagine you will have this potential in billing that you announced yesterday, 2026? And where, what are the challenges, credits or only volume? Thank you.
Thank you for the question, Jonathan. Good morning. Yes, in 2026, at the end of 2025, we, we are on this level. One of the cases is substitution of a product that is already selling and is growing. This is the D26 engines in Meteor and Constellation lines. This sector is growing. In Brazil, it grows a lot.
Heavy trucks, this vehicle from Volkswagen has been very successful. There is demand already, and it is being supplied by Germany, so we will substitute this existing demand. In the case of pickup trucks, these are pickup trucks for South American market, a growth of a project that we already had and that has been very successful in South America. It is linked to agro business. This is important for you to see. The sale of pickups in Brazil will grow a lot in the next few years because when agriculture, agro business gets richer, these pickup trucks are used for leisure and for work in agro business. So the fleet was renewed, it will grow. This product is very popular all over the world.
We supply this product all over the world, but for South America, we offer complete machining and assembly for engines, for pickup trucks. So they're not selling more because there is a lack of product, and one of the restriction is engines, and we supply engines. So we have a positive vision for this sector. We're operating at full capacity for pickup engines, so in this case, we are very positive. In the case of projects we announced last year, Mexico Class 8 engines, we are positive. We're supplying two. It's because of USMCA. We are substituting two suppliers from Europe. CapEx is ready. The CapEx in 2023 and the first semester of 2024, we allocated capital for this, so we spent BRL 230 million a year to maintain the plants, and the difference was allocated to expansion projects.
We're investing in machining and assembly. We have the bioplants. So this is the new structure that we call U2P, which impacts us in CapEx, not in revenue. But as of next year, we have a favorable vision of an impact on revenue, too.
Thank you.
Our next question comes from Mr. André Mazini, from Citibank.
Good morning, Fernando, Rodrigo. Thank you. One question, operational cash generation. We'd like to know, how much of this is recurring? How much is resulting from less working capital due to lower volumes?
Good morning. Thank you. Typically, the third quarter generates more cash. The operational part was the largest in the company's history. We had an efficiency in working capital. This continues. We had some more revenues, also from Mexico. Also tooling, MWM, also helped with an important part of this. So I can conclude that with the same volumes and the exchange rate helping us, we will have a good recovery in Q3, too.
Thank you.
Our next question comes from Sheila, from Trígono Capital.
Hello? Can you hear me?
Yes.
Congratulations for the results. I'd like to understand the sustainability of the margins in the future. What do you expect in terms of sustainable margins in the next quarters and years?
We, we say, and we have done exactly what we have said. Some investors said we made acquisitions, we have an internal agenda that has a cost, and at the end, in the end, we place this new company much larger and with higher margins. We believe that the company will stabilize it by 14%-15% profit in the future. When we look at the levers, we have expectations to have even higher margins. We will select good businesses. When we look at the company as a whole, with all the assets we have, it is worthwhile to continue with assets for higher volumes. We're studying this to continue making progress, to have a lighter company with better results, and then I believe that the company will be... This quarter, we see some of this. The highlight is cost control.
We have given a lot of attention to cost control. In purchasing, we're seeing expressive results coming from our purchasing team. We have a good control of expenses, so we look at these results every week to understand and make decisions for the next week. So we're building all of this in Tupy to be able to manage this larger Tupy, the larger company. We have more assets than we need. We have more fixed costs than we need for this revenue. And of course, we made investments in projects that have better margins than our traditional business. Because machining is capital intensive, but we've done this. We have already done this CapEx. So there are good expectations for margins, ROIC. And here, the last slide of the presentation, we placed some levers that we see in the future for better value.
We're still suffering with volumes. It's a relevant topic, it's difficult to. There are some conflicts happening in Europe. All of this has created some restrictions on demand. Some countries in Europe with a recession. It's difficult to talk about the short term, but the company is well-positioned with new contracts, very efficient, a solid engineering team inside the company. Within these results, there are expenses that are financing the future of Tupy, new businesses, research. Most of this is expense, so we have a positive, we have a positive view of the future we're building, and we are doing what we said four years ago. I said in the last few calls that we were, we penalize our margin to generate cash. We have good projects, and these good projects will finance a better future. So, there have been questions.
We bought back shares. We bought back 1 million shares this year. We understand that the shares are very, are with a low price. So if things continue with cash generation, we can even improve our distribution. We closed the quarter with a cash of BRL 2.4 billion. So we're building things, but we're very cautious. We- the market is not good, the company is well. The company is doing well. When we see that the market will improve, then we will make other decisions with a better market. But this is what we see since 2021, 2022, and it's being delivered according to our assumptions, even before what we expected.
Thank you.
The Q&A session is concluded. We'd like to pass the floor to Mr. Fernando for his final comments.
Well, thank you very much for the questions, for participating. During this quarter, we made progress in all the fronts of our strategy. All of this has an impact in the long term. As I said, we're in the middle of this journey. The traditional businesses, we increased efficiency, we captured synergies, we reduced cost, and we generated cash. We got new contracts showing the trust that investors have in Tupy with unique assets that generate value. We continue investing in new business, which will bring more diversity in revenue, with high margins and promising business, as Cristian showed with decarbonization. We had the arrival of a vice president dedicated to new technologies, and we will accelerate the development of new business models, making working more in agribusiness, the reuse of wastes in bioplants, organomineral fertilizers, use of biomethane in trucks and tractors.
We will also intensify partnerships for R&D, especially in technologies that are not still much mature, but they will have great value in the future. Recycling of batteries and hydrogen. All of this in open innovation with clients, universities, startups, our accelerator ShiftT, and also agencies that have given us a lot of support, like EMBRAPII and FINEP. Those who follow us can see that the strategy announced is being followed. All of this work is being done in a disciplined way to contribute with results and to perpetuate the company. The company is better, but we're not satisfied. We know the size of our potential. We have solid strategies, and they are connected to the competencies, assets, and people that make up Tupy.
I'd like to thank all our 20,000 employees, our shareholders, your participation as investors, and all the work we have done and support we have received. Thank you very much. We wish you a good day.
The conference call of Tupy is concluded. We thank you all for participating. We wish you a good day.