Good morning, and thank you for waiting. Welcome to the Conference Call for Earnings Q2 2023 for Tupy. All the participants are connected in the listen mode only, and later, we will have a Q&A session when further instructions will be supplied. If you need any help from an operator during the conference call, please dial asterisk zero. This conference call is being recorded. The company would like to remind you that this event is also being transmitted simultaneously through the internet via webcast. You can access at www.tupy.com.br/ri, where you will find available the slide presentation. The slide selection will be controlled by the participants. Tupy clarifies that any declarations made during this conference call concerning the business perspectives, projections, or operational and financial goals concerning the company's business are forecasts based on the expectations of the management in relation to the future of the company.
These expectations are highly dependent on the conditions of the domestic and international markets, the economic performance of the country and of the sector. Therefore, they are subject to change. We have with us Mr. Fernando Cestari de Rizzo, CEO, Mr. Rodrigo Cesar Périco, CFO, and Hugo Giuliano Zierth, Investor Relations Manager. Mr. Fernando, you may proceed.
Thank you and good morning. I thank you all for participating in our conference call. In this quarter, we are through with another part of the process to building new Tupy. We had also many unfavorable elements. A Brazilian market severely affected by the highest price of vehicles, Euro 6. This scenario had an impact on new and used vehicles. The export market, light commercial vehicles were affected by restrictions in the supply chain, and they will become normal in the next few months.
The drop in global sales volume of the company without MWM was 7%, especially in machining and assembly of engines for the South American market. This drop represents a drop superior to BRL 170 million in comparison with Q2 2022. We are also having, for example, the 12% higher price of the Mexican peso, which represents 20% of the total cost of the company. Also, we gave priority to cash generation and expenses to capture certain synergies to reduce fixed costs. While we have relatively slow sales, we produced even less than we sold, and this led to a lower dilution fixed cost, but we reached a strong cash generation in the period. All these elements affected the margins and the EBITDA of the quarter, with a negative impact of BRL 100 million in comparison with Q2 2022. Most of this value will be recovered in the next quarters.
On the other hand, we have our actions foreseen in our synergies plan, with many actions from the combination of the casting plans, expense reduction in fixed costs, renegotiation of contracts with suppliers and clients. These are initiatives that affect the company's business and have a positive impact on result and will have even greater results as of Q3. We still operate with a structure that is greater than the one the markets that we have, and it brings opportunities to have gains in efficiency. The resilience of our business model and the continued execution of our strategies brought benefits which attenuated these factors. Net revenue for the quarter reached BRL 3 billion, 17% higher in comparison with the previous year. The adjusted EBITDA in the period was BRL 322 million, with a margin of 11.2%, identical to that of Q1, which also included the operations of MWM.
We kept the profitability even in a scenario with an unfavorable exchange rate. When compared with Q1 2023, the Brazilian currency appreciated by 5%, and 68% of the billing was in dollars or euros . Net profit reached BRL 62 million, with an impact from financial expenses also related to the stronger domestic currency real versus the previous quarter. Also we had a tax contingency of BRL 66 million. This is a change due to a court process when we included Tupy Fundições in 2007. Excluding this non-recurring effect, net profit would be BRL 128 million. On the next slide, we show the results of the actions to reduce cash conversion that we mentioned in the last quarter. We adjusted purchasing volume and we suspended some operations, which helped with the inventory of raw materials due to clients' stops in previous current quarters.
With this, we reduced our inventory by 8% in relation to the previous quarter. A drop of five days in these stops, as expected, had an impact on the EBITDA of the period, and contributed for a strong operational cash generation, which reached BRL 159 million in the quarter versus BRL 132 million in Q1. We will continue with this strategy to reduce working capital, and we hope to have a good cash generation during the year based on efficiency gains and price increases. Now to talk about the main indicators of the process, I pass the floor to Mr. Rodrigo.
Thank you, Fernando. Good morning. The revenues in the quarter had an increase of 17% when compared to the same period in the previous year, reaching BRL 3 billion, including the results of MWM.
In relation to the distribution of revenue through geography, 45% had origin in USMCA, 34% in South American, Central America, especially Brazil, 19% in Europe, and the 2% remaining , Asia, Africa, Oceania. 88% of the revenue come from business in structural components and manufacturing contracts. These are cast iron products and value-added services such as machining and also assembly of components. 5% of the revenue come from energy and decarbonization. For example, generator sets, engines that are manufactured by us, ocean applications, lighting towers, and products linked to decarbonization. 7% from distribution, which includes aftermarket parts from MWM and hydraulic products.
The revenues coming from structural components and manufacturing contracts suffered an impact due to the drop in production in the Brazilian market, due to a change in technology in engines, Euro 6, and price increases in the first semester of 2023, and also macroeconomic factors such as high interest rates and restrictions to access to credit. Also, the revenues of the export market had a growth in all the applications, with a highlight to commercial vehicles. Now, the value-added products in revenues total 37% in this business unit. On the next slide, we see the performance of energy and decarbonization coming from the acquisition of MWM, and which includes generator sets, engines manufactured by MWM, also maritime products, ocean products, lighting towers, and products related to decarbonization. Generator sets have suffered an impact due to a drop in demand as a consequence of high interest rates and restrictions to credit.
Also, lighting towers and vehicle transformation, although they represent little, had an expressive growth in the comparison with the previous quarter. The revenues from this segment represented 12% of total sales for the domestic market and 2% of sales for export market. Now, distribution. On this slide, we will see the distribution unit, which includes aftermarket parts from MWM and hydraulic products. This segment represents 15% of the revenue in the domestic market and had a growth of 150% due to the inclusion of the results of MWM. The export sales increased 53%. On the next slide, we see the cost of products sold increased 22% in the annual comparison, with an impact by the operation of MWM, the appreciation of the Mexican peso, and smaller dilution of costs and expenses due to the lower volumes.
The operational expenses had an increase of 2% in relation to Q2 2022 period, which did not include the expenses of MWM. With the same comparison base including MWM, we see a drop of 8% in comparison with Q1 2023, due especially to commercial negotiations for lower freight prices. On slide 11, adjusted EBITDA reached BRL 332 million in Q2 2023, and the margins in relation to revenue reached 11.2%, similar to that presented in Q1. EBITDA was affected by factors that had relevant impacts, such as reduction in volumes due to the performance of the domestic market and initiatives to improve working capital, and also the appreciation of the Mexican peso as a result of production costs. These were mitigated by many initiatives to reduce costs and expenses, and also to gain efficiency gains due to synergies already made.
Net profit reached BRL 62 million, with an impact from the stronger real in relation to Q 2023 in foreign currency, generating financial expenses of BRL 40 million versus a revenue of BRL 36 million in Q2 2022. Due to the non-recurring effect of an accrual or provision for a tax contingency with an impact of BRL 66 million. Excluding these effects, the net profit would be BRL 128 million. On the next slide, I will comment on the financial results of the period. The increase in financial expenses is due especially to the greater gross debt due to debentures worth BRL 1 billion for the payment of the acquisition of MWM and also the higher CDI, which impacts the interest rates of the loans in reais. Financial revenues reached BRL 22 million due to the increase in the cash balance in reais and the interest rates that are paid for our investments.
The results with exchange variations in the expense were BRL 40 million. The effect of the appreciation of the real is BRL 59 million, mitigated by the gains in hedging operations worth BRL 19 million. Here, we see the main working capital accounts. Accounts receivable had an increase of two days due mainly to the higher volume in sales and commercial negotiations, which were partially mitigated by the stronger Brazilian currency and also accounts receivable in foreign currency, which represented 75% of the total. Inventory had a reduction of five days. This is due to the company. In accounts payable, we had a drop of BRL 190 million due to the higher volume produced and actions to reduce inventory, which contributed for the drop in the amount of purchases in the period. This line was also impacted by the exchange rate on accounts payable and foreign currency, representing 43% of the total.
Now going on to the next slide. Our indebtedness, our net debt on June 30th was BRL 2.2 billion, 1.8x the EBITDA, considering that we are considering only seven months of the EBITDA MWM. Our obligations in foreign currency represented 55% of the total in relation to cash, 54% were in local currency. We closed the first semester with a comfortable cash position of BRL 1.2 billion. I'd like to pass the floor to Fernando, who will make his final comments.
Thank you, Rodrigo. Going on to the next slide. In the domestic market, we see many unfavorable factors that led to a drop in the truck market. We hope to have a recovery gradually in the next quarters. In the export market, a strong demand for trucks and heavy machines. Also, we have bottlenecks in the production chain.
Now, our main source of value is inside Tupy, as we will see in the next slides. In the next slide, with the acquisitions made, we built a unique positioning in the market that allows us to capture opportunities from outsourcing and nearshoring. We announced in Q1 relevant contracts worth BRL 650 million. Yesterday, we highlighted new manufacturing contracts. The first two supply heads that are totally machined and erected, allowing a large OEM to acquire the parts locally in Brazil. The heads will be used in 13 l engines in extra heavy trucks. Another commercial agreement linking manufacturing contract and aftermarket has focused on the complete process of manufacturing short blocks, including casting, machining, the assembly of the flywheel, and also pistons, apart from the supplying components. This will be trucks for the U.S. market, Canadian market, Mexican market, and Colombian market.
These new contracts materialize a new positioning of the company and show the trust of our clients in this business model. In energy and decarbonization, we are advancing with large players in agribusiness to substitute diesel engines for biomethane engines, and also biogas plants and energy generation using urban wastes and agribusiness wastes. We announced an agreement with OXE Marine from Sweden, bringing the first diesel engines for the Brazilian market. On the next slide, we see our initiatives of synergies and a drop in costs and expenses in our operations, which brought us gains that on an annual basis are higher than BRL 150 million. In purchasing, the new scale has allowed significant gains. The improvement of indicators has happened in an adverse scenario.
We are ready to really sell a higher volume, which was affected by the lower demand for commercial vehicles in Brazil and other segments abroad, which are suffering pressure. This effect on fixed costs was higher than BRL 30 million and will be diluted when demand recovers or adjusts it. We are preparing the company to advance in optimization of manufacturing, reallocating products for the plants with better structure, and also giving priority to lower cash costs. We continue working on recycling of batteries, hydrogen, and new technologies for clean fuels and decarbonization in agribusiness. Inventory management will help us to have a better profitability and cash generation. Also, some recognition from our efforts in innovation and sustainability. For the second consecutive year, we were one of the highlights in the best ESG company of Exame, in the category Capital Goods.
Tupy is one of the most innovative companies, according to Valor Econômico, gaining 100 positions in the last years. I thank you all for your presence, and now we will begin the Q&A session.
Ladies and gentlemen, we would like to begin the Q&A session. To ask a question, please dial asterisk one. To remove your question from the queue, please dial asterisk two. This conference call is exclusive for investors and investment professionals. Our first question comes from Luiz Capistrano, Itaú. Sir, you may proceed.
Good morning. Congratulations for the results. Concerning heavy vehicles, we have been following the results. Do you believe there will be any visible improvement in Q3? We know that efforts are being made. We haven't heard from anyone, a sign that manufacturers have arrived at a price for Euro 6 engines.
Do you see any stronger evidence or will we have to wait more? Do you believe we will have anything new, a detailed view in Q3? From now onwards, you suffered this impact from OEM stops. What can we expect in Q3? Will you have more synergies? We want to know what kind of margins you expect in the future.
Thank you. Good morning, Luiz. Thank you for the question. First, concerning trucks, what we are seeing is a production level annually, 110,000- 120,000 trucks in the next few months, 9,000- 10,000 trucks per month, trucks and buses together. This is what we have heard from many of our clients, and it is lower than last year's numbers, but represents an improvement in relation to the first semester of this year. We try to monitor this. We have clients that work with inventory.
We have clients that work with orders from large truck OEMs. We're trying to monitor all of this. A part was sold. Some clients have high inventories, but we've seen a reaction. We need a reference. Brazil has to replace a certain number of trucks every year, 100,000- 110,000 trucks every year due to obsolescence of the old trucks. We always use this reference. When we begin to see higher freight prices, we see trucks being substituted. Agro, for example, production going up, higher production, so we should need more freight in the country. The economy is growing, so we should see more trucks being sold. We're using an older fleet. Transporters are being careful with their investments because of high interest rates, restrictions on credit. There is a relevant problem. To buy a new truck, you need a good price for freight and cargo. Cargo we have.
There is cargo in the market, but they have to sell the truck and the availability of credit for freelancers to buy these trucks, so the fleet owners can buy new ones, is small. For every new truck you sell, two or three older ones are sold in the chain. The market is reorganizing itself, and we should begin to see an improvement from now on. OEMs are reducing vacation. We see some announcements. There are some forecasts from Anfavea, Sindipeças, showing that things are better than in Q1. Now, concerning the margin curve, it's important we try to explain. We did a lot. These are things that are being built based on synergies of the acquisitions we made in the last 18 months, and they are now becoming a reality. Now, if we have a sudden exchange variation, the impact is very strong.
It is very difficult to make forecasts with such a sudden impact in exchange rate. We have some contracts that protect us, but it takes some time. For example, it takes time to increase prices in the short term, but it takes some quarters to recover. When you have a sudden change in the exchange rate, for example, the Brazilian real became 5% stronger, and in total, 12% difference in the exchange rate, and the revenue from Mexico is all in dollars. We felt an immediate impact on the operation due to the appraisal of the Brazilian currency. The company continues to be built. We have 35% of our sales from the acquisitions. We made acquisitions with attractive multiples, and we are now organizing this. It takes time.
It is being done, and it is important you can see these effects in the numbers and how the exchange rate affected our corporate results. We sold less, and we had an unfavorable exchange rate with a strong impact on immediate results of the company. Most of this was recovered with many activities, increasing efficiency, actions that helped to recover most of this. We still have things to do. We are restructuring, adjusting plans, contracts, purchasing. We try to show to you our perspectives in the medium term. We are now integrating different companies, and we were affected by this scenario, so much more than traditional Tupy. With all these factors, we are working to recover. If we maintain the same macroeconomic factors of the previous quarters, we would have had a much better result.
Thank you, Fernando.
Our next question, André Mazini, Citibank.
Hello, Fernando, Rodrigo. Thank you for the call. The first, a follow-up of this point, the effect of the Mexican peso, and in this quarter. You have a mismatch. I believe you have hedging for financial results. Could you talk more about the hedging and the correlation with the peso, and whether you will change the prices? The second, more color on the problems in the supply chain. Where did the problems happen? Engines or powertrain transmission? Will this continue in Q3?
Okay, André. I will begin, and Rodrigo can supplement. I will begin with the second, the supply chain problems. We had one very large client that made inventory adjustments. They reduced their operation.
Another large client of the company in the U.S. decided they had a problem with another component in the vehicle, and because of this, they had to restrict production for many weeks. One product from one client. They were relevant for us and caused this effect in the supply chain. Concerning the Mexican peso, for example, these operations in Mexico. We have our contracts. What happened? There was a strong inflation in Mexico. You have to raise salaries, everything, and apart from these 7%, as of one year, I used to receive MXN 20 for each dollar, now I receive MXN 17 for each dollar. This effect is very strong on our results and in the EBITDA. When you have a drop in sales, if I do not produce, I lose a relative EBITDA. I lose revenue and 7%.
When the effect is on the exchange rate, the impact is stronger. Our contracts are long-term contracts with the clients. We have mutual investments in tooling, and we have contracts where you recover these exchange variations, but this is not immediate. It happens gradually. It depends on many combinations between exchange variation and manufacturing. Rodrigo can also comment.
Hello, André. Supplementing, yes, we have protections. We have contract clauses. Concerning hedging, the company, yes, has hedging for all the currencies. In Mexico, as mentioned, we have most of our cost in Mexican pesos. U.S. dollar is the official currency, and we work through a hedge in cash flow. This is not recognized in the operational result. You see some benefits in the lines covering financial issues.
Thank you.
Our next question is from Andressa Varotto, UBS.
Good morning, Fernando, Rodrigo.
The new contracts that you announced, can you give us an idea of impact of these contracts? Also, distribution? With these new contracts, MWM, what are the opportunities that you see in distribution?
Excellent question, Andressa. The two contracts together represent BRL 50 million per year. They involve machining and assembly for demand in Brazil, heavy trucks. It has better margins because it has a lot of added value, and we will use existing capacity in [MWM and Tupy]. We will need investments, but we will be using existing CapEx. On the other hand, concerning distribution, another project we announced has to do with distribution and aftermarket. What does this mean? We will be sending to the U.S. machined engine blocks with flywheel pistons and rods. So it's a preassembled component. It's a contract for aftermarket. It's not for supply to production lines, but this is our objective.
For example, we have one container with $50,000- $60,000. If we export the blocks with machining and preassembly, we have very competent companies in Brazil supplying these things for us, like MAHLE Group and Bosch. Then we have a better competing capacity. We will deliver this product to the U.S. for dealerships that in Canada, Colombia, Mexico, and the U.S. The meaning of this is an important message concerning distribution. MWM adds value, and this was not well-recognized because we acquired a company that had a large service network in Brazil with trained employees. They have a strong capillarity in Brazil, and they also have the engines. They are very talented. They know the business.
We're expanding this chain of services for many other engines of other brands too, and using the existence of the distribution network that MWM has, with all the capillarity, and naturally, we want to migrate to higher value-added products. For example, in the U.S. market, you have remanufactured engines. You have an intermediate chain that produces these remanufactured engines. Clients need speed. Some components, it takes a long time to disassemble. So you can give them a ready engine, a remanufactured engine. So we're making progress. The idea is to build, offering more components. Our portfolio is limited. We want to include more components and work with higher priced products. This is a characteristic of the U.S. and European markets. Pre-assembled engines, pre-assembled components, and you have a faster turnaround for the fleet owners. So we're investigating alternatives to know who the partners are that we can use.
Sometimes you remanufacture engines and leave it on the shelf, and when the clients need, they gain speed. We can do this through the distribution chain that MWM has. We do not have forecasts when we will be able to do this, but these are our plans. This is our strategy.
Thank you.
O ur next question, André Ferreira, Bradesco BBI.
Good morning. Congratulations. Thank you for the question. We know your casting capacity, but how is the capacity at MWM to assemble engines? Do you need to increase the capacity at MWM? Also the plants in Portugal, Betim, Aveiro. What kind of EBITDA margin you expect from these plants in Portugal?
Well, first, concerning the assembly capacity, MWM has a lot of capacity. It was the largest producer of diesel engines in Brazil in the past. Part of this capacity was removed.
There is a plant in Canoas in the south that no longer exists. The capacity was reduced at MWM. There is capacity for some products with certain characteristics. There is some surplus capacity, for example, heads for Euro 6 in the Brazilian market, though these will use the existing capacity. This is gradual. It depends on the deals we close, because we are looking at all the alternatives. For example, most of the construction machinery in Brazil has imported engines. Most of the pickup trucks have imported engines. We are looking at this and the services we can render. Engines depend on many tests, emissions and so forth, to make these engines. We have this capacity. We have a strong engineering team, and they are focused on biofuels, biomethane, biogas, hydrogen, ethanol. We will have a Tupy Day when we will clarify all these points.
We are working in this direction. We are building the company in this direction with a country that will use multi fuels. We have to be prepared for this. The company has a strong expense to develop batteries, hydrogen, to preserve the engineering team because we have a strong position. We understand the needs in Brazil, and yes, we will benefit from many trends, for example, outsourcing new fuels. Concerning margins, we have a standard in the last few years. We believe that we will raise Teksid to this standard, and with this combination, we should be better than the previous standard. We are not there yet. This is the plan, the strategy. We already did 40% of what we have to do. The great value will come when we transfer products.
We made many investments during these 18 months, and from now on, as of Q2, we will begin to exchange products between the plants. Until now, they were independent. They did not exchange products among plants. Now we have all the teams, all the management integrated with Tupy. We believe that there is a journey for some quarters to reach the potential.
Thank you.
Our next question, Igor Araújo, Genial Investments .
Thank you. Congratulations for the results. Concerning the synergies of acquired companies, we now in Q3 and Q4, we see that even with an adverse scenario, we have an improvement in the EBITDA margin. Looking at commercial vehicles in Brazil, we see a strong growth. Is this due to the recovery of heavy vehicles?
Hi, Igor. Thank you for the question.
What you see in sales does not mean that we delivered those products to the clients in that period. When you look at the forecast we had on Anfavea, Sindipeças , our forecast, we were expecting a better market this year. The pre-purchase was much smaller than when we had the change to Euro 5 engines. Pre-purchases were smaller this time. The company was prepared for a higher volume. We had to stop the company, reduce production to favor cash generation. So in the comparison, the best comparison we are trying to give to you is truly to look at the exchange effects, exchange rate effects, variances in sales, and a much smaller production than we had in Q2 last year. When you have a lower production, you produce more for inventory. So I have to absorb the fixed cost of the company in this quarter.
I transferred part of the fixed cost to inventory, and with this, I maximize the margin of the period. So there are many combined effects. I was talking to the team. If you look at all these effects, our results would have been worse. There were other effects from synergies that helped us to reach the BRL 330 million. Once again, the exchange rate affects much more the results than the changes in sales. It was 7%. That is BRL 160 million to BRL 100 million that I did not sell. Now, when you have the exchange effect, the result is very, drop 5% appreciation of the local currency in Q1. 68% of our revenue in U.S. dollars. This has a great effect. So this is the challenge when you have sudden changes.
That is why we consider that we would like to do more, and the result is reasonable when we look at the difficulties we had in this quarter.
Thank you.
Our next question will be from the web, Alexandre, investor: "In spite of the scenario, congratulations for the result. With a more conservative management in working capital, will you be ready to avoid losing sales if the market recovers? What is your experience?"
Thank you, Alexandre. First, in the case of Primato, we received the licenses now. Yes, it is a project that should scale a lot in Brazil. I would like to highlight what this means. It is a project for 60,000 heads of pork that could produce 6,000 l of diesel per day. This is the energy Brazil is throwing away. We have 23 million heads of pigs, pork, and they can generate 6,000 l of diesel.
Not actually diesel, but biomethane, which can be used as energy. It can be converted to gas for industrial operations, equivalent to 6,000 l of diesel. This can also supply the trucks with engines designed by MWM using biomethane. Yes, this project should scale. We see an interesting economic return, and it generates benefits for all. So it is a solution for a serious problem because it contaminates rivers, it can contaminate underground waters. So we are transforming these residues from pork into biomethane with clean energy. Now, the recovery of the market, we are prepared. We had a higher inventory because last year we had many sudden drops, stops from clients due to lack of components. We do not receive this information sometimes on time, and it is difficult to decrease production. We have many workers, many employees. So we have been planning production.
We are prepared for a recovery in sales. We hope it will come and if God wills, we will be able to sell much more.
Thank you. Our next question is from Marcelo Motta, JP Morgan.
Good morning. First, a follow-up on margin. We know the main effect was the exchange rate. In Brazil, the exchange rate has its ups and downs. This margin recovery, prices and costs take time. The exchange rate was well below BRL 5 to a dollar, now it is back to BRL 5. What are your expectations for Q3, Q4 in terms of the exchange rate? Volumes we believe will improve. The second question, concerning cash generation. In transportation and generation, you did the work to preserve capital, and now do you believe we will have the same results in the Q3?
Hi, Marcelo. Thank you.
We have contracts that have clauses concerning exchange rates, exchange variation by quarter, by semester, or annually. It is not for 100% of the portfolio. If you look at this historically, we worked with an exchange rate of BRL 2 to a dollar in the past. Now it is BRL 5. Yes, contracts protect us. Concerning cash generation in Q3, it is important to say, in an ideal scenario, the next quarter will be stronger. With all these expectations of sales, if we do not obtain these sales, we will monetize our inventories. This was mentioned in other calls. We have an adjustment now to be paid according to negotiations for the payment of MWM, BRL 200 million. This cash came from the operation. Yes, we expect something better in Q3. We have a solid cash position.
Thank you.
Our next question, Lucas Laghi, XP Investimentos.
Good morning.
I would like to know about capital allocation. Do you believe you will go back to the previous situation? Also, after the acquisition of Teksid, what is the focus of the company? Are you thinking of new acquisitions to supplement your product line? Also, any points about dividends? Opportunities for capital allocation.
Hi, Lucas. Thank you for the question. When we look at the traditional company with Teksid in casting, yes, the project has the intention to reduce CapEx. We are reallocating products, and we should be increasing cash generation in the traditional business. We built new strategies that we call new Tupy. First, looking at adding value. Adding value has an effect on CapEx. We announced these projects in Mexico with investments worth BRL 300 million for large projects for machining and pre-assembly for the U.S. market.
These projects are in progress and they will become revenue as of 2025. The projects are approved. When we look at MWM, there is a demand for CapEx. For example, Primato project, we have great expectations in terms of scalability. We are talking about wastes from the production of protein. We have generators. We are building projects with wastes from animal protein. There are other wastes we are working on from cattle. We are also looking at carbon credits and other benefits that we can expect. Yes, because we are converting methane, we are reducing the effect of methane and producing energy for society with a lower carbon footprint for products. When we talk about distribution, we are also studying alternatives to grow. We may talk about small acquisitions, but to supplement our products, because an important focus is aftermarket parts. We have many opportunities with our distribution chain, with MWM brand.
Yes, we are looking at this business. Finally, we have the initiatives, hydrogen, battery recycling, where we should have an investment at the end of this year. A small investment, a small plant for battery recycling. This is a project that can have potential and scalability. These are businesses. It is even difficult for us to define the size of the market. Biomethane is a project for all of Brazil and maybe also the U.S. Battery recycling will be very important for Brazil. We are trying to obtain the patents, and they will also be important in the U.S. and Europe, because you recover minerals to build new batteries. What I am trying to say, we have a great portfolio of projects. The company used to have one business. Now we are spending money to develop these new fronts. All this energy transition, low carbon, there are many opportunities.
Of course, we are studying all the alternatives. Maybe with projects in the Inflation Reduction Act. We have seen also the Brazilian Development Bank giving support to these projects. Yes, we will take advantage of it. It is difficult to tell you now. We have some demands for CapEx. We are very cautious with CapEx. We penalize the EBITDA to preserve cash generation and also to manage our debt. We have a strong financial discipline. We are very cautious with finance. We are testing technologies, and when we are sure, we will announce new things. It is difficult to talk about capital allocation now because it depends on the success of these fronts. Fortunately, we are very happy with the performance we have had until now.
I am sorry I cannot give you a more objective answer, but there are many things on the table, and we are trying to see how we will allocate capital in the best possible way.
Very clear. Thank you.
We would like to conclude the Q&A session for Tupy. I would like to pass the floor to Mr. Fernando for his final comments.
Well, I would like to thank you all for participating, both in relation to Q2 2022 and this year. All these adverse events like the exchange rate, our decision to produce less, really brought a difference in EBITDA of BRL 100 million when you compare the quarters. This decision to monetize inventory, we are doing this since the beginning of the year, and this helped our operational cash generation. Some of these effects from the exchange rate will continue in the next quarters. The domestic market will recover.
In the last two years, we made acquisitions with interesting multiples, and right now they correspond to 35% of our earnings, our revenue. They are diluting, for the time being, our margins. Independent of these effects, we continue to go forward according to our business plan, and we will recover. We continue with synergies from acquisitions. Apart from these synergies, we announced new businesses with higher margins that are higher than our average margins, and these results will come in 2024. This is machining growth in aftermarket, biomethane, also plants and decarbonization. We continue investing in R&D and innovation with recycling of batteries, hydrogen, biofuels. All of this means that in the next few years, we will make progress in areas with higher profitability, diversifying the revenue and increasing cash generation. Thank you. We wish you a good day.
The conference call of Tupy is concluded.
We thank you for participating, and we wish you a good day.