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Edited Transcript of RAPT4.SA earnings conference call or presentation 24-Mar-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Randon SA Implementos e Participacoes Earnings Call

Mar 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Randon SA Implementos e Participacoes earnings conference call or presentation Friday, March 24, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Geraldo Santa Catharina

Randon SA Implementos e Participacoes - CFO and IR Director

* Hemerson Fernando de Souza

Randon SA Implementos e Participacoes - Planning and IR Manager

* Daniel Raul Randon

Randon SA Implementos e Participacoes - Director VP

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Conference Call Participants

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* Joao Noronha

Santander - Analyst

* Paolo Velasis

Citibank - Analyst

* Lucas Barbosa

UBS - Analyst

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Presentation

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Operator [1]

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Good afternoon, everyone, and thanks for waiting. Welcome to Randon's fourth Q4 and 2016 results conference call. With us here today, we have Mr. Daniel Raul Randon, Vice President Director; Mr. Geraldo Santa Catharina, Financial and Investor Relations Director; and Hemerson Fernando de Souza, planning and investor relations manager.

We inform that this event is being recorded and all participants will be in a-listen only mode during the Company's presentation. After, we will begin the Q&A session, when more instructions will be supplied. (Operator Instructions)

This event is also being broadcast live via webcast and may be accessed through Randon's website, ri.randon.com.br, where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded.

We remind you that the participants via webcast may post their questions on our website. They will be answered by the investor relations team after the conference is finished.

Before proceeding, we'd like to say that any forward-looking statements are based on belief and assumptions of Randon's management and on information currently available to the Company. They involve risks and uncertainties because they relate to future events. And, therefore, depend on circumstances that may or may or not occur.

Investors and analysts should understand that conditions related to macroeconomic conditions, industry, and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the conference over to Mr. Geraldo Santa Catharina, Financial and Investor Relations Director, who will begin the presentation. Sir, you have the floor.

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Geraldo Santa Catharina, Randon SA Implementos e Participacoes - CFO and IR Director [2]

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Good morning. Thank you for participating in this teleconference concerning the results of Q4 and 2016. Reinforcing that we have Mr. Daniel Randon, Hemerson, myself, and the investor relations team with David and Carol in order to make this presentation.

This morning, we had the conference and thus we're closing the [sill] we had with Fras-le, concluding a difficult year, but also with many conquests and in the midst of the greatest crisis that we had.

Here, we have a vision of the market -- capital markets financial results perspectives and questions. So we began 2016 with many uncertainties in the market, low foreseeability, and many question marks concerning the economy and politics of our country. After historical highs that we had in 2013 in production, we began to have drops and more drops in the market where we are present, especially in the market for trucks and semitrailers.

The year 2016 should have been the beginning of a recovery. We expected a lot for the second semester, but unfortunately, numbers did not change. The GDP, which was negative -- a negative surprise to all of us with minus 3.8 had no changes in 2016 and dropped another 3.6%, with the greatest recession in history in the last 40 years.

We cannot deny that important things -- important definitions happened in 2016. We had the continued effort of the [la bagiantu] and then many were sent to jail and Dilma left the government. Michel Temer became President, and we had a positive evolution in some indicators. We also had a drought which affected the grain harvest and also this added another negative environment to our business environment.

The end of the problems was a little further, but we acted. One of the goals for 2016 was to decrease debt because we have closed 2015 with a high degree of leverage, which was 8.38 times. So we focused on investments, the need for working capital. We decreased structures and we controlled each and every expense and disbursement.

Our debt is already close to the one when we had a market three times greater. During the presentation, we will see other topics.

Now I'd like to go on to slide number 4 to see the numbers for the production and sales of trucks, buses, and trailers. The production in Q4 2016 showed stability in trucks, a growth in buses, and then a significant drop in semitrailers, 28%.

Year to date, [2000], we had -- production was lower in 3 segments, with drops of 13%, 18%. In comparison with Q4 2015, sales in the domestic market dropped 27.5% in trucks, 49% in buses, 33% in semitrailers. So a drop in each segment.

And during the whole year, we sold 50,562 trucks in comparison with 71,655 in 2015, a 30% drop in the sale of trucks. Also we sold 23,000 semitrailers in comparison with 29,620 units in 2015, a drop of 22%. Although we began 2016 with a lower level of inventory than in 2015, the domestic market did not react and sales were very low.

With a high number of unemployment and reduction in consumption, the need for transportation was lower. Also, the low prices of transportation and freight were also delayed the decisions of buyers to buy new trucks.

And also, we also have the exports. These rose to 7% in trucks, rose 33.3% in buses, and rose 18.9% in semitrailers in comparison with 2015. These numbers can be checked in the association site ANFAVEA Brazil.

On slide number 5, let's see the indicators of the Company. In Q4, here, the gross revenue without elimination of intercompany sales totaled BRL867 million, 20.6% less than the revenue in Q4 2015. The consolidated net revenue arrived at BRL622 million in Q4, 23.6% less than in Q4 2015.

The drop is justified especially due to the sale of railway cars. In Q4 2015, the buying of railway cars was 50% higher than in Q4 2016, thus affecting our revenue.

Year to date, total revenue totaled BRL2.6 billion, 15.3% less than in 2015. This drop shows the current market situation in 2016. In the other slides, we will see the scenarios of each segment.

Analyzing the export sales, we observe a growth in the quarterly comparison of 7.5% and a drop of 4.2% in the whole year. One of the strongest markets for exports and highway products is the African market. They were presented 29% of total exports in 2015 and dropped to 14% in 2016.

With the drop in oil prices, some countries had difficulty in having foreign currency. Thus, the importation of semitrailers was not possible in the volume we expected. Also, there was priority for the importation of food and medicine. With the relationships and partnerships in these markets are maintained, we understand that we are in a position to have a rise again as soon as things get better.

Now, the net result. We see a loss of BRL67.2 million in 2016, BRL48.5 million in Q4 2016 due to low performance and also accruals of nonrecurring expense and nonrecurring expenses. The margins suffered due to the fact that we were not able to raise prices, and also surplus capacity, which did not allow us to dilute fixed costs.

Here we can see on this graph EBITDA: BRL142.7 million marks a 5.4%, and nonrecurring BRL109.4 million. So the expenses that we see here. Expenses with restructuring, BRL44.7 million, write-off of assets or impairment BRL29.6 million, and the effects of hedge accounting: BRL26.6 million.

The two first internal restructuring were due to the closing of the plant in [Guadalupe] Sao Paulo. This unit began in 2016 with 264 employees, and the main activity was the manufacturing of a lifeline, one of the segments that suffered the most with the crisis.

Then on usage of the asset should be recognized in accounting with -- and here we see -- and the value of the hedge accounting is linked to the US dollar. Some contracts linked to hedge accounting already have a positive revenue in the result because they have rates close to BRL4 to a dollar.

Adding up all the expenses, the nonrecurring expenses, called nonrecurring expenses, we reach an adjusted EBITDA of BRL252.1 million and an EBITDA margin adjusted 9.5% on net revenue.

On slide number 7, here we see the adjusted results. So you can see without interference of the nonrecurring. At the end of 2016, the adjusted net revenue reached BRL2.650 billion and the gross margin 19.9% to 20%. And EBITDA, BRL252.1 million during the year.

Now I'd like to pass the floor to Hemerson and he will talk about the business environment and a general view of the segment and main indicators.

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Hemerson Fernando de Souza, Randon SA Implementos e Participacoes - Planning and IR Manager [3]

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Good morning to all those who are participating in our conference. On slide number 8, we will talk about the business environment. Q4 of the year is traditionally weaker than the average due to vacation, year-end celebrations, and also as lower production.

Together with the economy, which did not react significantly in the period, and the impact of the drought on the harvest, which was felt in the last three months of the year, the truck and accessory market had further drops in terms of volume of production during the last quarter. The surplus capacity of the plants was high and automobile and truck companies decided to stop production. Some began to foster retirement and also layoffs.

Although the economy did not show improvement, we can see that at the end of 2016, the drop in interest rates -- SELIC -- and the drop in inflation, which is closed at 6.29% in 2016 in comparison with 10.67% in 2015. We have -- these changes have not had an impact on results, but the allowance to have a good start in 2017.

On slide number 9, we will focus more on each segment, business segment of the Company, beginning with semitrailers. Q4 closed with 4,717 units -- semitrailers, a drop of 33.4% in comparison with the same quarter 2015. The drop also happens when we compared the Q4 with Q3 2016: almost 20% less.

Our sales for the primary segment represented 50% of the billing of semitrailers. And the drop in the harvest, grain harvest, really had a great interference in the volume. And now it is -- it will be possible.

Although the volumes are lower, the Company made important decisions in this segment. In 2016, we launched new products, a new dump truck and the S line. This is a product line that is less customized and more similar to that of the, competition, and this helped to recover part of the market for Randon.

At the end of 2015, the market share was 26.2%. At the end of 2016, it went to 29.1%. The drop in competition also helped. In 2016, we had 148 competitors. In 2015, we had 161 competitors. Even -- although they sold, it doesn't mean that they produced.

Some sold inventory, and we know that many competitors left the business. The small companies that began to make semi-trailers when there was lack of capacity lost to the large companies, which have fought hard to conquer every client and a sale. In some months of the year, we saw a price war instead of rational competition. But as financial results also decreased, the market went back to rationality and we can see a price recovery in the next few quarters.

On slide 10, we have a general view of railway cars and special vehicles. As we had announced in previous calls, we hoped to build around 1,600 railway cars in 2016 and we did that. We built and delivered 1,584 units. During the whole year, we reached 40.6% market share in this market.

The contracts for railway concessions are nearing their end. They will expire around 2018, 2019. And the main clients for railway cars are talking to the government to review the concessions. While we wait, the trend is for the railway car market to be a little weaker than in the previous years. And this will become normal as we have definitions, new contracts.

For Q1 2017, we have a portfolio of products to be delivered and we have a portfolio almost for all of 2017. And we're also looking for a new business. Now, special vehicle segment has suffered a lot with a lack of investment on the part of the government and had a drop of 45% in comparison with 2016.

For 2017, we will launch a new vehicle which we call mini-loaders. It is a multifunctional product with great acceptance in the market. There are no competitors in Brazil. So we have advantages and also we have high hopes to sell in the export market due to partnerships that we have with large distributors and manufacturers outside the country.

On slide 11, let's talk about the auto parts division. Q4 concentrated a smaller number of trucks being sold: 11,695 units. During the total year, 50,562 new trucks, a drop of almost 30% in relation to 2015, which was also very a very bad year.

In this segment, we worked strongly to expand our sales -- export sales and we see the results in the numbers. We can absorb in the physical volume charts on page 5 that the sales of auto parts fell less than 10% in most of the segments, mainly with the support of increased sale for maintenance and exports.

With the data we have for 2017 from ANFAVEA, we see an increase in the production of trucks when compared to 2016's, and the exports are also pushing the numbers up. Although in a timid way, we are prepared for greater demand. Although, as we said in many forums, we have no guarantee concerning volumes. We trust that there may be growth in volume, but we are not very optimistic in terms of seeing this rapidly.

On slide 12, we have a graph that shows the daily average volume of our preferential shares, RAPT4. On December 31, RAPT4 reached the price of BRL3.45, an increase of 40.8% in the year. And daily average financial volumes had an increase of 95%, reaching BRL8.1 million -- reaching this amount, as I said, BRL8.1 million. In 2015, 2016, the Company did not make any payments for interest and dividends as a result of the situation.

On slide number 13, we have the composition of the gross debt of the Company and then [CG] consolidated. Gross debt was BRL2.4 billion. Of this, 72% is in local currency, Brazilian currency. 28% in foreign currency.

At the end of 2015, the gross debt was BRL3.1 billion. There was a drop of BRL665.6 million in the debt. I will make more comments about debt on the next slide.

Concerning working capital need, there was a reduction of BRL266.3 million during the year, especially due to the client accounts, inventories, and vendors. To have these reductions, we had support from all the departments of the Company, with new processes and alternatives to improve our debt situation. This was the main result that we had during 2016. Very close to BRL300 million that we used to reduce the debt.

Going on to slide number 14, we see the net debt without the numbers of Randon Bank. We closed December with a net debt without Randon Bank: BRL385.6 million. It was BRL1.1 billion in 2015. Leverage 1.61 times with adjusted EBITDA. This was already mentioned how we do it if we consider a reported accounting EBITDA 2.95 times.

We have BRL530 million in loans with covenants and the majority has the indicator at 3.5 times the debt-EBITDA. Therefore we did not break covenant with the exception of 1 loan, which is 1.5 times and which will expire in 2017 and has no impact on the Company.

Before passing the floor to Geraldo, I would like to thank you all. The end of this year is very interesting. I am leaving the RI team and I'm going to Fras-le's investor relations team. It was -- I had good contacts during these 10 years. I hope it will continue, and I'm open to focus on the auto parts division.

I will continue participating in the forums with the investor relations team. It was a pleasure and privilege to participate in the history of the Company, although the results this year were not that satisfactory. But I'm sure that we are on the right track to go back to better days for our shareholders and stakeholders.

Now I would like to pass to Geraldo. He will make his final comments.

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Geraldo Santa Catharina, Randon SA Implementos e Participacoes - CFO and IR Director [4]

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Well, we talked about what happened in 2016. So we can talk a little about expectations for 2017. We have some indicators that we bear in mind to do our planning for 2017. We did this.

It's important that the focus report from the central bank gives us forecasts about the GDP. The forecasts have fluctuated, but we see a GDP of 1.5%, maybe in 2018 a 2.5% growth. If we compare that with 3.6% drop in 2016, it is a positive performance and can help business.

Other points that are important to highlight are inflation control, the reduction in the interest rates -- less than 10% until the end of the year. SELIC; it might get to 9%. And also the injection of funds in the economy. The government allowed unemployed people to withdraw their FGTS funds.

And also, I'd like to talk about the trust indicators in the market. For industries, for consumers, the trust indicator is more positive. People are trusting, and this is based on the qualification -- recognized qualification of the economic team of the government, although we are having giant problems in politics.

But the economic team is working and they seem to have everything under control. In 2016, the population went to the streets to ask for a change, and the crisis until then was felt only by businessman. Then it reached the population, the crisis. The number of unemployed persons arrived at 12.3 million in Brazil, and the population is asking for change.

Technological changes and social networks are helping to request from the government changes. I'd like to say that although the numbers in the market are not the best, change is happening and apparently for the better. We have to look forward as businessman and see that the future may be better than the past, guaranteeing the integrity of the companies and also employment for people.

We took measures to ensure the [prenity] of the Company. Some of these measures, as mentioned by Hemerson, for example, we have the increase of capital of Randon and Fras-le with success in 2016.

Another positive point is the next harvest, we are expecting 223 million tons of grain -- 19.5% growth in the harvest. And we can perceive already the next harvest influencing the orders for -- we have received and also the request for proposals that we have received. We did not receive so many requests for proposals for a long time.

The two first months of the year were not good. One of the factors that affected the sale of semi-trailers was a resolution in December -- mid-December allowing the expansion of cargoes from 72 tons to 91 tons capacity. Since this market had a lot of demand, some clients decided to delay orders. And this caused problems to our business environment and also the billing in Q1. We are doing a follow-up to solve this as soon as possible.

On slide 16, we have the number of the guidance for 2016 that we are giving to you today with all these factors. Based on studies and assumptions, we understand that it's possible to have a total gross revenue of BRL3.9 billion and also net revenue of BRL2.8 billion. These numbers are in line with what we had in 2016.

Concerning investments, we are imagining BRL100 million to be invested during the year and we're controlling this month by month based on what we are generating in cash and debt control. $240 million are expected as revenue from other countries and $45 million in imports.

On the next slide, we'd like to comment more on the current situation for trailers. One of the worst times in history: we have a capacity for 75,000 units and we're producing 25,000 units. Many competitors with this drop left the business and are going through serious difficulties.

During the year, we tried to recover our margins and expand our position. The graph shows this. As we are harder in terms of price position, our market share dropped. So we have a trend to follow the competitors in lowering prices.

To maintain our market share, we were able to improve our position, as the graph shows. In some months, 38% participation, well above the 30% that had been planned by the Company in the medium term.

Now, on the last slide of our presentation, number 18, we show that the last two years were extremely complex, with great adjustments in our structure, capacity, and the way we operate. These changes brought many nonrecurring expenses and they grew a lot and we are showing this to the market.

The great changes have already happened, although we cannot say that other nonrecurring expenses will not come. We are trusting and out operation is prepared for the new cycles.

Now I'd like to pass the floor to Daniel for his comments, Mr. Daniel, before the Q&A session.

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Daniel Raul Randon, Randon SA Implementos e Participacoes - Director VP [5]

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Good morning. I'd like to thank the presence of all the participants. I'd like to reinforce that 2016 was a very challenging year. The market was very complex. But we were able to recover the main points in our economic feasibility, decreasing the leverage.

This part of leverage grew a lot, not because of the debt, but because of drops in other areas in the market, as Hemerson showed: an expressive drop in volume, high surplus capacity resulting at competitive prices, and also due to the restructuring of the Company.

I'd like to highlight the actions made: the deleverage; increase in capital of the Randon companies; reinforcing, improving our governance; and also working on working capital and cash generation, even in a competitive market with a crisis. I'd like to highlight and reinforce that even during these periods of restructuring, the Company maintained its investment capacity.

We continued with some actions. We are continuing with some actions to decrease the debt of the Company. And we reinforce that we are ready for a new growth cycle. The signs are very positive. We see more trust in the domestic market. New concessions of airports.

We see foreign companies investing in Brazil -- the new airport concessions -- both in the fiscal area and political. There is a trend for the GDP to rise, again especially due to agriculture. It was important for our economy and for our sector. And also, the drop in the interest rates, where our main clients will begin to have more capacity to obtain credit and loans.

I'd like to reinforce the Company continues strong and is working to be ready for this new cycle. And the Company is better prepared, better restructured. And in 2017, we do not know yet if we will have a lot of growth. We hope to have growth in the export market and in the domestic market.

I'd like to thank you all, and we're available for the questions. 2017 is a challenging year, but the Company is now restructured, giving it more capacity to be more competitive. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Joao Noronha, Santander Bank.

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Joao Noronha, Santander - Analyst [2]

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Good morning. Thank you for the call. Two questions. What is the -- concerning the guidance, revenue is based on which assumption concerning growth during the year?

The second. In the guidance, CapEx BRL100 million. I remember previous conversations. The Company was focusing on cash preservation and saying that CapEx would be more compressed. So why did we have this increase in the estimate for CapEx for 2017?

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Geraldo Santa Catharina, Randon SA Implementos e Participacoes - CFO and IR Director [3]

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Thank you for the questions. Hemerson will talk about the assumptions in the guidance. In CapEx, BRL100 million, we are contemplating the possibility of really opening again the unit in Sao Paolo. We're accruing these values.

There is a great effort for this BRL100 million to really happen, to become a reality. But maybe not recorded this year. It will depend on supplies area. We'll have to control that.

We did not change our assumption in terms of controlling indebtedness, debts, investment. And as I said in the speech, we will make investments with cash generation. If our internal indicators for EBITDA and cash and ration happen, we will make the investments. That's the difference between what we were saying and the current guidance.

Hemerson can talk about growth.

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Hemerson Fernando de Souza, Randon SA Implementos e Participacoes - Planning and IR Manager [4]

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I'd like to supplement this issue of investments. And also with Fras-le, we had a call this morning. Fras-le had BRL10 million in investments last year, the minimum we need to really replace tooling.

We have different realities in the group; situation is different. Fras-le, when making investments, already impacts the consolidated investment. I'm not talking about acquisitions, just maintenance and improvement of our processes.

The BRL43 million that Randon invested in 2016 are the lowest level in the last decade certainly. Certainly in the last decade the lowest amount of investments. I don't know if we had lower numbers in the last 15 years. We were very conservative, as Geraldo said. Nothing has changed, but some investments are necessary for maintenance or also growth in business.

Going back to your first question, the basis, we have an indication that we may grow the production of trucks around 8% in 2017 as a whole. This is in our plans. We also believe that semi-trailers may grow 10%, 15% in total due to the excellent harvest that we will have. And this will have an impact on Randon's business. We have challenges. We have some horizons and perspectives that we have to see more clearly.

We know that the railway car market will be smaller. But we have some things already in exports, new lines. Also the weakness of the competitors will help us improve our market share. And we understand that these first two months are not a clear picture of 2017. So it seems to me that we are on the right track.

During this year of 2017, the reduction in the drop will happen. We have seen good signs. Marketing has been very strong. We have a lot of request for proposals. We are receiving orders and we are seeing a new situation. We are seeing more optimism, certainly better than the last two years. More optimism. So we are very optimistic. We are trusting that business will pick up.

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Joao Noronha, Santander - Analyst [5]

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Thank you.

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Operator [6]

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Paolo [Velasis], Citibank.

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Paolo Velasis, Citibank - Analyst [7]

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Good morning. Thanks for the opportunity. Two questions. The first on the guidance 2017. What do you imagine we can expect in terms of profitability? A recovery due to the cost reduction? Or is it too early? Second question: current backlog. The level of backlog is similar to that of last year, or is it higher, as foreseen for 2017.

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Geraldo Santa Catharina, Randon SA Implementos e Participacoes - CFO and IR Director [8]

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Thank you for the questions. We don't have an official guidance for profitability. But I can talk about what we're thinking for the year. 2016, we were careful to build a bridge to really wait until -- to go to the next year. So we were able to build this bridge. We did not lose sight of the other factors.

Last year, we centered our efforts on debt, indebtedness, and 2017, we're thinking more about profitability. We have some difficulties. Price increases are very difficult, as we said. Price increases are difficult.

But we know that as of the second quarter, so some price increases may occur. We are dealing with this, and also we are trying to expand the volume. In a nutshell, we believe we can do better this year in terms of profitability. Thus, reaching the main objective for the year. Now, we are only in March. The market is not easy. We believe we will have a better recovery in volumes.

Concerning backlog, yes, I was going to supplement the question. We insisted on showing nonrecurring numbers during the year because this shows the run rate of the Company. So, if we could not have so many nonrecurring expenses, we can't guarantee -- there's no way we can guarantee this.

And considering that we will not have so much restructuring, we closed a plant. And also we closed the plant -- we have a run rate that is different and this stabilizes. And we can think of new possibilities without creating any commitment, without --.

When we talk about real possibility of better numbers, this has a lot to do with this. Yet last year was a year of adjustments. We hope that these adjustments have had their desired effect.

The backlog has improved in March. We see a good capacity to reach the expected objectives in the period. I won't give you numbers. I don't have them, and it's not our custom. But we are satisfied what we are seeing in terms of business in March. We had an expansion in our portfolio with orders for highway products. And thus, this creates this positive mood and we are hoping to have a better year than the last two years.

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Paolo Velasis, Citibank - Analyst [9]

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Thank you.

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Operator [10]

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Lucas Barbosa, UBS.

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Lucas Barbosa, UBS - Analyst [11]

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Good morning, Daniel, Hemerson. My question concerning the prices of products. In Q4, the average price dropped 19%. Is this because of mix or prices dropping?

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Unidentified Company Representative [12]

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The sale cycle, the mix has an influence on the average price. Sometimes there is an impact of a package, a certain sale, or a certain product. This happened in Q4.

In general, Geraldo mentioned this, we showed a graph during the presentation. Every time we increased price, we lost market share. But this was also done by the competitors. There is no company that is healthy. Everyone is in a fragile position. Few orders, so they are fighting for these orders. So after one or two months, the competitors also try to raise their prices.

But we have a lot of pressure on price. It's one of the great challenges this year within our logic to try to expand the market and improve profitability. This is what will happen.

The fragility of the competitors this year will help us because they are at their limit. But also for some larger orders, there will be a lot of pressure and competition. We will try to win them and then we have to analyze this. Q4, it was a mix problem, purely mix.

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Lucas Barbosa, UBS - Analyst [13]

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Just one more question. Concerning your guidance 2017, what is your opinion about the exchange rate?

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Hemerson Fernando de Souza, Randon SA Implementos e Participacoes - Planning and IR Manager [14]

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Our exchange rate for planning, for budget, we're defining at BRL3.10 to a dollar. BRL3.1 to a dollar. Of course, this has an impact on our revenue in foreign exchange. 20% of our orders come from foreign countries.

And also the purchase of raw materials. Some raw materials, 8% to 9% are imported materials and some are paid in US currency. This benefits us, on the other hand, and helps us to reduce our debt.

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Lucas Barbosa, UBS - Analyst [15]

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Okay. Thank you, Hemerson.

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Operator [16]

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Mr. [Bartner], [Quantas].

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Unidentified Participant [17]

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Good morning. My question -- in 2016, we had an increase of capital in Randon and also at Fras-le. I believe this was strategic at Fras-le. And now we saw the announcement that one of the main executives, Hemerson, is going to Fras-le.

How will the Company work with its governance with these two companies and the opportunities for investment and growth in each one of these companies? Will there be a difference? For example, will there be a concentration of investments in auto parts Fras-le? And what investments will we have in Randon? Thank you.

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Unidentified Company Representative [18]

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I would ask Daniel. Is Daniel on the line?

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Daniel Raul Randon, Randon SA Implementos e Participacoes - Director VP [19]

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Wagner, thank you for the participation. In terms of Fras-le, this increase in capital was important. In 2014, the company tried to increase its capital with secondary issues, where they were able to go back to some projects they had with M&A.

Unfortunately, in the pricing at the time in 2014, the market dropped and did not recover. Even last year, capital markets had a difficult situation. We had a partnership with [gabi] and other investors to increase the capital. This improves governance, the creation, and committees, and evolution in terms of governance. This was very important: the improvement of governance. And the second point, also more liquidity to Fras-le.

So Hemerson is now going to Fras-le. He worked in this area, capital markets, and he will help them with having more exposure and doing a follow-up of Fras-le. Hemerson is -- Hemerson will have a greater challenge in -- greater challenge with controllership and also the M&A project.

So this is good for Hemerson, and he and others have this challenge working in this team. So we have two companies with shares on the stock in the stock market. And thus he will help improve the practices.

In terms of growth, Fras-le has less leverage than Randon and will have a greater opportunity to grow, and especially in our market. So there are also opportunities in the international market. So two companies: Randon and Fras-le. And thus, Fras-le can continue to grow in its projects without affecting leverage, which could hurt its growth.

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Unidentified Participant [20]

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Okay, thank you.

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Daniel Raul Randon, Randon SA Implementos e Participacoes - Director VP [21]

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Geraldo, if you wish to supplement the answer?

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Geraldo Santa Catharina, Randon SA Implementos e Participacoes - CFO and IR Director [22]

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No, I believe it's well covered, Daniel. I'd like to say, since we have this opportunity, to say that all the pillars that we worked on last year, 2015, restructuring 2015, 2016, this began actually in 2014.

We are continuing so we can really have a safe bridge to the future. We built a safe bridge with a good structure, people, talent, a new type of governance, a new type of management. Evidently also with support from McKinsey Group. All of this was very important to build this bridge, and now in 2017, 2018, we want to go back to normal.

One of the pillars we did not mention is the financial pillar. We have an enviable condition in terms of liquidity and capital structure. If we look at the numbers, we have 39%, 40% of -- is our own, well above the 30% in the market.

And in terms of debt, okay, we still have debt, but an index of liquidity. And the -- we have 1 -- more than BRL1 billion in cash. We are okay with 2017 and we are well prepared for 2018. And our credit situation is very good as a result of this capacity and the actions we took and the way we have been working during this decade.

So we are sure that we have full conditions, as Hemerson mentioned, as Daniel said, to now be ready when the crisis ends because we are in very good conditions now to grow. Thank you.

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Operator [23]

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(Operator Instructions) So we like to close the Q&A session, and would like to pass the floor to Mr. Geraldo Santa Catharina for his final comments. Sir, you have the floor.

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Geraldo Santa Catharina, Randon SA Implementos e Participacoes - CFO and IR Director [24]

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Well, once again, I'd like to thank you all for this opportunity. It was a difficult year. I would like to say that we are available. If you have further questions, please get in touch directly with our investor relations department for any clarifications. Thank you.

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Operator [25]

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So we'd like to end. We'd like to thank you, and thank you for using Chorus Call.

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Editor [26]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this event.