Good morning, ladies and gentlemen, and thank you for holding. Welcome to the conference call to release the results for the second quarter of 2020 for Tupy. All participants are connected in listen-only mode. Ensuing this, we will go on to the question- and- answer session when further instructions will be given for you to participate. Should any participant require the assistance of the operator during the conference call, please press star zero. This conference call is being recorded. The company would like to remind you that this event is also being broadcast simultaneously through internet via webcast and can be accessed at the address www.tupy.com.br/ri, where the respective presentation is available. You can flip through the slides at your own convenience.
The company would like to clarify that forward-looking statements made during this conference call on the outlook projections, operational and financial goals referring to the business of Tupy are forecasts that are based on the management expectation regarding the company's future. These expectations are highly dependent on the conditions of the domestic and international markets, on the general economic performance of the country and the sector, and are therefore subject to changes. With us, we have Mr. Fernando Cestari de Rizzo, the company's CEO, and Thiago Struminski, the CFO. You may proceed, Mr. Cestari.
Thank you, Fernanda. Good morning, and thank you all for your presence. I hope that both you and your families are in good health. In the last months, we have intensified the strategy adopted since the first quarter, mitigating the effects of the crisis and preparing the company for a resumption.
We are now on slide number two. The plan that we adopted to face the crisis generated by the COVID-19 pandemic had the goal of preserving the health of people and the business and maintaining our clients supplied. Our actions preserved the favorable financial situation of Tupy. The cash was strengthened, and we undertook several initiatives to reduce costs that will benefit the company in the coming quarters. We resized the entire cost structure of Tupy, making strides in efficiency projects, shutting down assets with lower efficiency, and preserving our production capacity with costs that are structurally lower for the coming quarters. We continue to reinforcing the awareness of our associates and their family members in terms of the contagion of the new coronavirus.
Home office is still being adopted for our administrative teams. W e have expanded the risk group. We contemplate employees of all ages, especially those that have a risk factor, and they have to remain at home, as well as mothers with children with less than 10 years of age. Without a doubt, these actions have had an impact on our operation, because of the time devoted to the health protocols upon entering the plants and because of absenteeism. Additionally, the need to adjust to the rules of social distancing had an impact on the pace of our production processes. Although these decisions affect the costs and the results of the quarter, we understand that preserving our employees in all aspects is our commitment and allows us a cutting edge so that we can have a vigorous resumption, maintaining the team united and with good knowledge.
We understand communities where we are active. We have 7,000 people that were helped at our triage and testing center in the Tupy headquarters and managed by the health secretariat. In slide number three, main priorities. I would like to highlight the renewal of our teams and the hopes that we have. We did this to be able to take fast and objective decisions, to be able to navigate through the different scenarios, and the total or partial shutdown of our clients. To balance our operations and inventories, we activated the transfer of production among clients to guarantee the best cost equation, quality, and availability for delivery to clients who have plants located in the country that are going through different stages of the pandemic.
Still referring to cost, the manufacturing, engineering, and procurement teams work jointly in control towers to find solutions that could make the most of the material available in stock. Another important initiative was postponing the measures of flexibilization for working days on salary in Brazil. This allowed us to preserve the employment in the region. In Mexico, unfortunately, this did not happen. All of our actions help towards preserving the company cash and mitigating the impact of the shutdown of our clients in terms of volumes, especially in the months of April and May, as we mentioned in the last results call, where we had a drop of 69% vis-à-vis the same period 2019. We believe that the second quarter was the most acute point of the crisis, with the product mix concentrated on lower value products.
Although in June, we began to observe a resumption, and we have been preparing for this in the last months. I will be presenting more information on this in the presentation. Now, to present the main quarter indicators, I would like to give the floor to Thiago, our CFO.
Thank you, Fernando. We continue on in slide four. This was a highly atypical quarter. Our revenues had a drop of 54%. April and May, of course, were the most acute months of the crisis. Even in June, not all of our clients were operating. Our mix was quite compromised. The CGI products that use machines with higher operational costs had a larger share this quarter. Adjusted EBITDA was BRL -2.3 million, 0.4%, due to the lower dilution of fixed costs and expenses at the plant. The plants were closed down for some weeks.
Now, we had restrictions in terms of operating. Even this way, we were able to structurally reduce our costs. Our margins have returned to the margins pre-pandemic. The net loss was of BRL 83 million, mostly due to the operational results. The combination of mark-to-market for derivatives and the Eletrobrás credits that had a significant impact on the results in the first quarter, this time had a minor effect of BRL 2 million. We also closed the semester with a very sound cash position above BRL 1.2 billion, with a consumption in the quarter of BRL 83 million. But we do have a cash position very similar to that of last semester. In slide number five, we see a drop in sales of 61%. The volume of transportation, infrastructure, and agriculture, 17% were totally or partially machined, and 17% produced in CGI were using products of lower quality.
In slide number six, revenues had a drop of 54%, and the revenue per kilo had an increase of 17%. 66% came from NAFTA. 14% from South America and Central America, mainly Brazil. 13% from Europe. 7% from Asia, Africa, and Oceania. From the viewpoint of application, 92% are commercial vehicles and off-road, 3% passenger cars, and 5% in the hydraulic segment. In slide number seven, we see a drop in revenues in all segments. In the domestic market, there was a reduction of 66% in all the categories, and the more intense effect was in light vehicles. There were practically no sales in the quarter. Slide number eight sh ows the same effects of the domestic market, a drop of 51%. The sector with the greatest drop, vis-à-vis 2019, had a drop of 74%. In the hydraulic segment, the situation was not different.
There was a drop of 51%. In the domestic market, the drop was 43%, in the foreign market, 63%. We go on to slide 10, where we show you the price of products sold. There was a drop of 44%, but we did resolve this through good management. In the second quarter, we have a structurally lower cost. A drop of 56% in the cost of raw material. A 35% drop in labor, especially headcount and overtime, because we adopted those salary reduction and layoff measures. A decrease of 37% in the maintenance line and third-party material, and with a lower dilution in fixed cost. Operating expenses had a reduction of 31% due to a decrease in expenses with sales. But here, this line item is under the influence of the dollar, and that is why the drop was not in the same intensity as other line items.
In slide number 11, an Adjusted EBITDA of 0.4% of BRL -2.3 million. Despite the highly atypical quarter, we have observed a significant improvement in this indicator vis-à-vis the peak of the crisis. The July margins have attained the pre-pandemic levels. At the bottom of the slide, a net loss of BRL 83 million. Once again, mainly due to the drop in operating results. In the next slide, we highlight the financial results for the period. Financial expenses, mainly impacted by the depreciation of the real vis-à-vis the dollar. The average rate was BRL 5.39 in the second quarter versus BRL 3.92 in the second quarter 2019, with an effect on the interest for the bond loans and an increase because of the indebtedness where we raised BRL 494 million in March. Now, the application of these resources helped us to grow financial revenues that reached BRL 11.5 million.
The cash flow hedge operations through the zero cost collar ended up in expenses of BRL 17 million, gives us a positive mark-to-market for all open contracts of BRL 73 million, and a payment of BRL 90 million referring to the contracts closed during this period. This was partially offset in the operating results and our cash position in foreign currency. On slide number 13, we show you the main accounts for working capital. Compared to the first quarter 2020, there was a reduction of 11 days in accounts receivable. Besides the impact of the exchange variation on receivables, we also had the impact of a reduction in volume since March, an increase of four days of inventory.
The drop of sales ended up in this increase in the safety stocks, which help us have a more flexible production movement between plants, and this is a risk measure to protect our export clients. This line item also suffers from the exchange variation. 70% of everything we have in this line item is pegged to the dollar. We had a drop of 20 days in accounts payable, because of a lower amount of raw material acquired during the period, and also a reduction in the production volumes, the price of inputs, and a lower term for payment. In slide number 14, we show you investments in assets of BRL 27 million, a drop of 63% vis-à-vis to 2019, representing 3.7% of revenues for the semester. We have suspended all possible investments this quarter, and we are now assessing what makes more sense going forward.
Slide 15 shows you a cash consumption of BRL 15 million in operating factors, and there was a great impact because of the drop of volume since March, of course, with lower receipts from clients, a variation in working capital. This effect was mitigated by management initiatives but had a negative impact this quarter. We also made adjustments in the maturity of our derivatives amounting to BRL 90 million, although we had a positive effect of the depreciation in the exchange rate. Now, all of this was geared towards preserving our cash flow, containing fixed cost and expenses. We renegotiated several contracts. We made our lines more flexible, and we used the material available in inventory. We ended the quarter in a situation very similar to that of the previous quarter.
Here, you see in the next slide a net debt that represents 2.65x of net debt -to- EBITDA. 80% of our debt is pegged to the dollar and is converted by the exchange rate at the end of the period of BRL 5.48. The percentage of foreign currency is perfectly in accordance with our business model, and it has a very comfortable maturity period. We will have a good EBITDA, because of the exchange rate in coming months. 70% is in reais. I would now like to return the floor to Fernando for his closing remarks.
Thank you, Thiago. Very well. Beginning with slide number 17, we speak about a consistent resumption, and we will speak about some indicators per segment. There are some positive indicators clearly pointing to a return to the market. We begin with the commercial vehicles, the light vehicles on slide number 18.
The highlight has been a recovery of the sales in less than 90 days, returning to the pre-pandemic levels. This segment has benefited from the resumption of residential construction, the good performance of agribusiness, and the success of the launches in the sector. The sale of pickups, as we presented in the last results call, continues to show a positive result. We even observe a reduction of inventory at dealerships, and the launches have been very well accepted. In some cases, there is a waiting line. In the second quarter, the sales of this category represented 77% of the sale of light vehicles in the U.SA. In slide 19, the demand for medium-sized and heavy trucks. There is a drop in the cycle, especially for the Class 8, and the resumption should only occur beginning in 2021.
The truck segment of Classes 4 to 7 will be less affected due to the exposure to e-commerce and urban distribution. In Brazil, the projections are being reviewed upward thanks to the effect of agribusiness. In slide number 20, referring to agribusiness, the stock of machines and equipment are at the lowest level in the last three years. This is one of the sectors that has proven to have greater resiliency during the pandemic. In the second quarter, we observed a strong growth in sales and a reduction of inventory at dealerships due to a consistent demand and replenishment of equipment in Brazil as well as in the U.S.A. We should continue to observe this trend towards 2021, given the outlook for an increase in production and a new cycle for replenishment of agricultural machines.
After a good beginning this year, expenses with non-residential construction entered into contraction in May, with an outlook to improve in 2021. This trend will also benefit the mining sector due to the CapEx of the companies in this segment. Government stimuli, such as an infrastructure package in Europe and the U.S.A., could increase investments in coming years with a significant impact in the demand of our clients. In slide number 21, the recovery of margins. I would like to refer to how the recovery strategy impacted Tupy. When we began to prepare for the crisis, the great concern was the health of our employees, the management of the supply chain, and preserving our cash flow, as well as the supply to clients.
Despite the impacts on our results in the first and especially the second quarter, we have observed a significant improvement since June, when the volumes and revenues had a growth of 74% and 85% compared to the averages in April and May. In July, we had a significant increase in the volumes marketed, a growth of 68% compared to the averages of the second quarter. Revenues 15% lower compared to July 2019. Additionally, this month, we observe a return of margins to the levels prior to the crisis. This is the result of the activation of our defense rings and a combination of initiatives led by a renewed structure of leaders.
I'm referring to the use of control towers to review all services and expenses, flexibility of products, and filling up the open capacity with assets with greater efficiency, a shutdown of assets that have a lower efficiency, adjustments in teams, the launch and strides in efficiency projects, data analytics, and production flows. All of these resulted in structurally lower costs that, along with a favorable exchange rate, should offer us interesting margins going forward. The fact is that these stoppages also allowed us to work on enhancement projects that we had already identified and that have now been accelerated. As I mentioned previously, in the second quarter, we decided to maintain the cost structure that has impacted the results of the period, but that is essential for the resumption. Now, this decision has proven to be correct. From the macroeconomic viewpoint, we project a long period with low interest rates.
This will stimulate investments throughout the world. This will have as a consequence, the depreciation of the real and the Mexican peso, allowing the company to become ever more competitive, capturing new opportunities. In slides number 22 and 23, the impact of the repressed demand. Historically, we observe that the crisis enhanced the cycles that are intrinsic to the sectors where we act. We will observe applications geared to trucks, construction machines, and mining. The most accentuated drop in the confidence of entrepreneurs and the lack of credit have contributed to a displacement between economic activity and investments that have even greater drops. Similar factors to those that stimulated demand for the industries that we work with in the 2009 crisis are also present now.
It is important to observe that despite the stoppage of assembly and reduction in sales and equipment, equipment c ontinued to operate intensely during the period without agricultural machinery, trucks, and energy generators. This leads to a higher operational cost, the scrapping and reduction of the fleet. As these economic uncertainties disappear, sales will be favored by this repressed demand. Because of the social and economic impact brought about by a crisis that, in essence, is a sanitary crisis, we will begin to debate topics such as access to basic sanitation, drinking water, hospitals, and infrastructure, allowing for a dignified life . That will demand investments from everybody, and our clients will be the victors in this case. We are referring to sectors that are fundamental for the resumption of the economy and that will benefit directly from the stimuli offered by the Central Bank.
Besides the possibility of specific packages for the infrastructure sector, regulatory changes such as the sanitation framework in Brazil, that will also contribute to an increase in demand. With this, we would like to thank you for your attention. We will go on to the question- and- answer session.
Ladies and gentlemen, we will now go on to the question- and- answer session. Should you wish to pose a question, please press star one. To withdraw your question from the queue, press star two. This conference call is exclusive for investors and analysts. Our first question is from Mr. Gabriel Rezende from Bradesco BBI. You may proceed, sir.
A good day to all of you, and I do have two questions. The first, thinking about this more positive scenario that began in June, which is the resumption that we can expect for the machined parts? A second question, if you could speak about the pressure that you have in terms of transferring the price because of raw material. Are you going to transfer these prices to your clients? Thank you.
Well, Gabriel, I think you mentioned two relevant points. In terms of the mix, of course, this was a very difficult quarter. Some of these products were not part of the company portfolio, and we ended up having 17% in terms of machined parts, but this is not something structural. In the coming quarter, the products that are more profitable for the company will go back to levels of 20% or 25% instead of 17%. Of course, we could face the risk of lack of supply, because of the exports and the geographic areas that we cover. The great focus was not only on cost, but the client protection.
We have to protect global chains, and this is an important moment to work on this protection. When it comes to materials, we do have long-term contracts to be able to foster these price transfers. This is something inherent to our business. Depending on the pace of the contract, we are going to transfer these price increases to the client seasonally. This is inherent to the business.
Very well. Thank you.
We would like to remind you that should you wish to pose a question, please press star one. Our next question comes from Werner Roger from Trígono Capital. You may proceed, sir.
A good day to all of you, Fernando and Thiago. Regarding the tax reform, we have heard the proposals for PIS and COFINS, as well as the reduction in the payroll. Do you have any idea, quantification perhaps, if there will be a reduction of 50% in the payroll? We have observed that there is an increase of BRL 50 million in the payroll. Now, will there be a proportional reduction of BRL 20 million, the 50%? And in terms of COFINS, which will be the reduction? I do not know if there will be an impact caused by scrapping and raw material, especially in PIS and COFINS. Thank you.
I think that what is important to recall is the impact of the reduction of the payroll. In our case, it represents more than BRL 50 million a year, and we have to absorb this cost in the figures. Of course, there are other effects that we were not able to have a counterpart for in our structure.
Now, when we look at the discussions that are ongoing in terms of the tax reform, this discussion, I think, still has some way to go. We have to understand exactly what it is that will be approved at the legislative and other branches to then begin thinking which will be the impact for Tupy. Of course, we are surveying this issue, and we have to wait for this to go through the Congress and the legislative branch to be able to see the final text of the reform and give you a more objective answer.
When it comes to the scrapping, what happens with taxation on raw material as well? Because this could have an effect on the supply chain. I know that you cannot quantify this, but perhaps we can understand the impact of presumed profit because of raw material.
Very generally, the trend is for the impact to be positive for us. But once again, there is so much discussion regarding this issue, and it is very difficult to adopt a stance of what will happen with the final product of this tax reform. The main effect or impact that we hope is simplification. Simplification will tend to reduce the cost of regulatory compliance, and the promise of the government will allow for greater legal safety, which will help a great deal, especially when it comes to collection. Now, very generally, this is the conceptual benefit that we foresee in the reform. What is being discussed, what is being sold, is that the global taxation load will now be structurally altered, and we will see what happens between one segment and the other.
There has been a complaint for the service area that this reform will increase the tax load for that specific segment. These are ongoing discussions, and we're awaiting an analysis after this initial phase. I believe the government has proposed that this discussion be done in stages. The first stage will refer to a contribution on goods and services, the sales revenues. I'm speaking conceptually once again, because we're surveying this reform. Our suppliers would also potentially suffer an impact from this. We need a few more months to be able to understand the final impact of this on Tupy.
Simply to conclude, as Tupy exports a great deal out of Brazil and has tax credits that are never realized. I'm thinking about this, the fact that you are exporting. The complications in Brazil are enormous, and there should be a benefit regarding these tax credits, a benefit that never existed before.
I think that the spirit of the reform will favor the industry, and companies such as Tupy will benefit from this. Now generating employment, to ease employment, to have a greater movement in employment, and make us more competitive for exports when we compare our labor cost in Brazil to Mexico, despite the exchange rate in Mexico that is 20% higher. I think the government is sensitive to this, and the result for Tupy, without a doubt, will end up being favorable. Very few of the survivors have been able to maintain this export flow from Brazil. In my opinion, this is an essential point. I think that the government will be sensitive to the need to support this type of industry.
Regarding those credits, Werner, that is a very important point. If we observe this semester specifically, we were able to work on quite a few things, PIS, COFINS, and others. The tax part has improved, and we have monetized some more. When we compare this with Mexico, the monetization is much faster in Mexico. The state took some interesting steps to help us.
In Santa Catarina, we're recovering more than we have generated in the last seven months. We have been able to reduce our credits, and we have recognized them in the balance a few months ago. Things are moving along in the right direction in that sense. I believe that in 2020, we have stopped accruing them.
Only in PIS and COFINS credits in cash, we have recovered approximately BRL 40 million and a decrease of BRL 20 million in general. We are in the right direction, I believe.
Thank you. Thank you very much.
The notion you should keep in mind is that things are improving, not getting worse. We're converting the existing balance of BRL 20 million. Besides the exports, we have reduced the existing balance by BRL 20 million, which is very important.
Our next question comes from Catherine from Banco do Brasil. You may proceed, ma'am.
A good day to all of you. Thank you, Fernando and the IR team. I have two questions on my part. In this quarter, you took the decision of having a better cost structure preparing for the resumption. Have you made a permanent adjustment in capacity, and will there be any investments in coming periods? My second question refers to the replacement of agricultural machinery and others. When does Tupy expect the resumption will happen? Will it be in the United States, in Brazil, or elsewhere? Thank you. These are my two questions.
Thank you, Catherine. Well, the first part, and this is Fernando speaking, refers to the assets. We have not planned shutting down any assets, but we have created mechanisms to move the products between our assets and to maintain our more efficient assets working at full capacity. For the time being, we have shut down machines with lower efficiency that were producing the products we sell today, but they are being produced on other machines. If there is a resumption of demand, we will reactivate this equipment. All of this will depend on several issues, and we can resume work. We have gained efficiency with our present day equipment. We have efficiency projects that are in place, and we have been able to produce more on the same equipment.
We produce more with less machines. This is a movement that began in 2017 with a significant movement in Brazil between Mauá and Joinville, Mauá and Mexico. A nd now, between Mexico and Brazil, Brazil and Mexico, in both directions. We are reorganizing everything so that we can generate better results. This is important because our industry has high fixed costs and a high CapEx to maintain the equipment. To have a low production with this asset base will become ever more expensive. This is what we are trying to redress in the company. This is something we have been very insistent on communicating to the market. It is very important for the company results. Regarding the agricultural sector, it operates in cycles, and it basically depends on the income of farmers. When the income of farmers improves, we see a change of machinery.
In the U.S.A., which is the largest market for the sale of equipment, we have a very long cycle. Machines have an average age. The fleet of agricultural machines in the U.S.A. is at its highest point, and they need to renew this because they will lose their reliability, and they need to reduce their operating cost. With a low interest rate, this might be the time. Global agricultural production has grown year-on-year, and the machinery is being used intensely, but without any replenishment. I think we are going into a new cycle to replenish these machines in the U.S.A. The data of the last quarter points to this, and we see a very important sale of equipment, a new cycle. If we compare the sale of machines in Brazil and the U.S.A., the figures here are very low.
There is a great potential in Brazilian agriculture for machinery and trucks, as well as other issues such as infrastructure and sanitation. All of this will generate a greater demand for trucks that will allow everything to operate properly. We have to be looking at the long-term foundations and the demands that society have. Africa will require equipment in the future, because of infrastructure, and it will partially be supplied by our clients. Doubtlessly, Brazil needs to renew its fleet, and so on and so forth. We do believe we will have a growing volume of sale in coming years, and we do believe this cycle will continue to increase.
Thank you. Thank you very much for your answers, and have a good day.
Our next question comes from Jonathan Koutras from JP Morgan. You may proceed, sir.
A good day to all of you. You're speaking about your internal forecast of 71%. Now, which will this figure be in more normal periods? Another question to Fernando is the following. How do you consider the acquisition of Teksid in this new scenario and because of the pandemic, and if this will change your strategy in terms of any of the points of the acquisition? Thank you.
If you could repeat the first question, please.
Of course. To understand how much of your operating expenses represent, and when will they become more normalized?
Well, when it comes to cost and expenses, I believe that the changes that we implemented are structural. Of course, we have variable costs that will increase with volume. But we did have a great deal of efficiency in the reduction of contracts and in the performance of the operation. We're very confident that the pace of margins will be much better in the second semester, depending on the exchange rate. This compared to the quarters before the crisis. I will now give the floor to Fernando.
Jonathan, when I said that structurally they are better regardless of the exchange rate, what we have observed is that we're more efficient. We have reduced in-house services. There have been reductions, and between 2018 to 2019 until the end of the third quarter, we had very high volumes. The marginal benefit of these volumes was no longer favorable to the company. This moment has helped us to reallocate things, review everything, and see if we should maintain the services that we had allocated for this boom period. This led to structurally lower costs.
Besides the analytics we mentioned last year, the data analytics and others, I think that our expectation is connected to the market, the economic resumption. Once it comes, we will probably be facing very interesting volumes beginning in 2021, stimulated by the sector. Once again, the trucks haven't stopped their movements. They have continued to work both in Brazil and abroad, and the machinery continues to operate. They are being consumed. Some of them need to be scrapped, but they haven't been replenished. Eventually, some will have to be replaced.
If there are incentives for infrastructure, sanitation, and other fronts that are appearing, and if the economy in general grows because of this new expansion movement that we observe, very naturally, this will activate several important segments for the company. We will have a global CapEx and higher volumes for Tupy as well as for Teksid. So we continue to work on the approval processes with the authorities, and we hope that in 2021, we will have a very positive scenario in term of economics and demand, and the synergies will not change. With Teksid, we continue to produce for the country, and we sell in developed countries, and perhaps there will be some benefits, such as the exchange rate displacement. This will benefit the companies going forward.
Thank you. Thank you very much.
Our next question comes from Werner Roger from Trígono Capital. You may proceed, sir.
You spoke about the resumption of the market. Of course, there have been investments and economic improvements. But when it comes to production, because of the safety that you require because of the pandemic, have there been any problems in the supply chain? Has there been a contention in the sales of Tupy related to bottlenecks? I will not say problems, but bottlenecks in the production of the automotive chain, the assembly, spare parts.
It is evident that we do not have a full confirmation of this, but we have observed that companies have already adapted to that. All have learned how to operate in this new way. Tupy, as well as our suppliers and our clients, have all gotten organized to be able to learn to live with this and continue gaining productivity that way.
Now, what is of interest here is to look at the demand at the other extreme. Of course, the sector works with some inventory. You can stop one week or two weeks. Everything will depend on the cycle of the pandemic and where the plants are located. The clients that have plants in Mexico, these plants suffered more than the plants in the United States, for example, that faced the problem before. In Europe, the problem was at its peak in the month of April. Presently, the situation is quite normal for European clients. Now, in terms of absenteeism, we have observed this in Joinville. We are still facing a very difficult moment, but we have operated the plant well. We have had an increase in absenteeism, but despite this, we can still observe the benefits of the structural costs. Once again, we did get prepared.
We have contingency measures. I am speaking on behalf of Tupy, and I am projecting this for clients who must be doing similar things. When somebody is absent, you have to have a support team to fill in the vacancies, and we have been training people for this. Of course, we have been extremely active around the operation to guarantee that the plant will operate adequately. The furnace is working, and we have to operate it. We have to continue on producing products. The entire system has to remain functional. Even in Joinville, at the peak of the pandemic or in Mexico, we can say that the production remains stable. We have a great deal of energy from the health group, from the human resources in terms of ensuring that everybody respects the rules in-house. I do not think that there is a risk for significant interruptions going forward.
I do believe that we will have a much more stable scenario in the future. Even if we think about a possible second wave, the society is much more prepared to absorb this and to get organized. The industry needs to be preserved as long as it complies with the rules. We have had very little contamination within the plant. It is more spread out among some employees and some clients. We are very attentive to this, as well as the clients. We may have some fluctuations going forward, but gradually, I think we have a growing visibility of the end of the third quarter and the fourth quarter that will be more calm and more orderly when it comes to the work within the plants.
Thank you. Thank you very much.
Once again, should you have a question, please press star one. Thank you. We would now like to end the question- and- answer session for Tupy. We will return the floor to Mr. Rizzo for his closing remarks.
Thank you, Fernanda. I would like to thank all of you for your presence and your interest, and reinforce that the third quarter has already begun with results that point to a recovery of volumes and especially of our margins. Despite the social and economic impact of the pandemic, we have made the most of this period to improve our production stages, to begin improvement measures. These will continue to bring positive results through time. In the meantime, our research and development team is still connected to the clients and to the future, developing technological solutions for machines and equipment that build work, transport merchandise, offer safety and protection, help to cultivate, harvest, and distribute food.
That is to say, they contribute with a better quality and life expectation, especially in countries under development. We hope that the economic resumption will coincide with the beginning of the Teksid project. That brings us a great deal of enthusiasm and motivation. We continue to work on new machining and pre-assembly projects with our clients, and we do foresee some avenues for opportunities. We have joined efforts with clients, research institutes, and engineering companies to accelerate the development of more efficient energy solutions and the use of alternative fuels, taking on the role of an important development in material and geometries that will help us towards reducing emissions and decarbonizing engines. Tupy is a company with a long-term vision and counts upon a highly motivated and trained team.
Despite the difficulties faced day after day, we surpass ourselves, and we're ready to capture the opportunities that will be present in this new reality. I would like to thank all of you, and I wish you a very good day.
The Tupy conference call ends here. We would like to thank all of you for your participation. Have a good day.