Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the Kepler Weber call for the first quarter results. We have here with us Mr. Piero Abbondi, CEO and Investor Relations Director. Please ask the help of the operator pressing star zero. This event is also being broadcast simultaneously via webcast and can be accessed at www.kepler.com.br/ri. The presentation will be available for download. The selection of the slides will be controlled by you. The replay of this event will be available on the company's website shortly after the ending of the conference. Before proceeding, we want to clarify that the statements made during this conference call refer to the business prospects of Kepler Weber, operation and financial projections and targets based exclusively on the expectations of the companies regarding the future business. Forward-looking statements should not be taken as a guarantee of performance.
They involve market conditions, performance of the Brazilian economy, industry, international markets, and therefore are subject to change. Because they relate to future events, they depend on the circumstances that may occur. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future and may cause results that materially differ from those expected. Now, I give the floor to Mr. Piero Abbondi, CEO, who will conduct the presentation.
Good morning. It's a great pleasure to be here with you to share the results of the first quarter of 2020. I will start with the highlights in the first slide. Briefly talking about our net revenues of BRL 127 million with a 7% reduction comparing to the same quarter of last year for different reasons that I will explain later on. However, due to operational improvements, we had a gross profit of BRL 29.6 million, 9% above the first quarter of 2019, with an improvement in gross margin to 23%. EBITDA amounted BRL 17.5 million compared to BRL 15.3 million in first quarter of 2019, reaching a margin of 13.7%, and the net profit was BRL 8.7 million, a significant increase in relation to the same period of last year with a net margin of about 7%.
In the next slides, we will explore each of these items. Regarding the net revenue on the next slide, we have a drop of 7%, especially because of the storage internal market. We have different reasons that contribute to this reduction. The first, I would say, was a drop in sales. As of the fourth quarter of 2019, we had a reduction. With a special program for a storage room or warehouse building, we saw the impact of this in the fourth quarter of last year, and this also had an impact on the net revenue of the first quarter of 2020. This is one of the first points. The second point, we have a quarter comparison here. If you look at the sales of the last quarter of 2018 was very robust. That took to the first quarter of 2019 above the average, which is a temporary situation.
It is worth mentioning that the plant got collective vacations in March 21 because of the pandemics. Further on, I will go into details, but this led to a reduction in revenue. Some clients, because of the pandemics, they requested to delay the deliveries, and we were able to ship products in the first half of March. These were the main causes of the reduction of the net revenue in the internal market that was partially offset by the other segments, especially Bulk and Parts and Services. Parts and Services has its own dynamics. It is facing robust growth in the last years. We are heavily focusing on this in the service and technical assistance to clients. We have two positive factors.
One is the dynamics of the sector itself, and the second is that our distribution centers, we have four DCs, they continue to operate in a certain normality. This had a lower impact than the planned, so we could minimize this reduction of revenue that stayed at 7%. Now, the next slide, the costs of goods sold. We had again here a significant gain, especially with projects concerning cost reduction, our lean project that we are doing it very nicely, projects in the supply area. We have several initiatives in terms of productivity and efficacy that are generating good fruits, and this allow us to have a significant reduction in goods sold and an increase in growth margin. You can see in the next slide that it was BRL 29 million, representing 23%, a very positive situation due to price management and cost reduction.
In the next slide, we have our expenses, sales and management administration. We had a reduction in relation to last year, and you see a series of actions to postpone contracts, reduction in travels, services, third-party services. Just remind you, the staff is the highest cost. This gain is higher than 2% because if we consider inflation and salary adjustment, that this is recurrent. To reduce in comparison to the previous year means that we have gains much higher than that, which is very significant. As for sales expenses, we have an increase of BRL 2 million, and this is due to several reasons.
First, the increase of sales in services and technical assistance. This imply higher commissions in logistic operations because logistics operations is carried by third parties. Our distribution centers are run by third party. This is very worthy due to the good margin in this segment. We have slightly higher expenses due to sales commissions. Then we had some extraordinary items, which is an increase for doubly payments of BRL 400,000. In 2019, we had a reduction in premiums in sales commission.
In 2019 was BRL 700,000 that we didn't have this year because these are more sporadic items. This makes a good comparison with the first quarter of 2019. With this, we have an increase on EBITDA from 11%- 17% and an increase to BRL 17 million in the EBITDA of the first quarter of 2020. This is the adjusted EBITDA. Last year, we had some write-offs that took it to BRL 20 million, and this year we didn't have, so EBITDA would be around BRL 17 million. This difference from BRL 20 million to BRL 17 million of the adjusted EBITDA relates to those expenses I have just mentioned in the sales area that were greater in BRL 2.6 million. The adjusted EBITDA is explained by this variation in sales and commercial expenses. In the next slide, we'll talk about the financial results and indebtedness.
We have an increase in financial revenues and an increase in financial expenses, mostly due to the exchange rate variation in this period. If you look to the net financial results, we had an improvement with 2.8 positive results, BRL 2.8 million, and this gave us a better advantage in our financial revenues. In the next slide, you can follow the net indebtedness. We have a reduction from BRL 44 million to BRL 29 million. We reduced the short-term and longer-term indebtedness with the payment of some debts in FINAME, FINEP, and ACC. It is important to mention this. The company closed March with an indebtedness of BRL 29 million and with a cash availability of BRL 81 million. This gives us a great robustness to face possible adverse scenarios related to the pandemics.
Later on, I will go into more details on how we are managing this pandemic situation and the market outlook related to this new scenario. The net income of the company, the net results. Income before income tax was BRL 3 million, and the net margin of 7% with the BRL 8.7 million results compared with BRL 4 million of the first quarter of the previous year. This all due to what I mentioned. In spite of a more adverse market in terms of volume, we had better prices in the segment of Ports and Services that is growing due to better margins and the efforts of affecting the business and cost reduction, giving the results. This is the detail of our statement. I will not go into details. I think I have been very clear about the results of the first quarter.
As I said, in spite of the adversities, especially due to a more restricted market of last quarter in the previous year when we were building warehouses, even though we were able to reach a very satisfactory results for the first quarter of the year. Now, I would like to share with you this subject of the pandemics and explain to you the impact it created in the company at the end of March and how we are going through it. As I said previously, on March 23, we started our collective vacations until April 14 due to the restrictions about the social distancing, and we did not know what was coming. We started a crisis management with two committees, one, an operational committee and the executive committee.
Each committee had the role of providing the strategic guidelines, and the operational committee was responsible for the management, operational management for plant, suppliers, and business issues. This committee met daily during what we call the peak of the crisis in our business. Currently, we have two weekly meetings of both committees. The objective was to implement actions to protect our collaborators and also concerning the business management, the focus on the cash, and especially guidelines regarding contracts and suppliers. During this more acute period, our plants were closed with a very, very small team just to meet ad hoc needs. Some clients requested to postpone the deliveries and some works were on hold. The works to build our equipment in Brazil. However, today all the works have returned to their normal process, and as of April 14, we gradually resume our normal tasks.
Today, I would say we have 90% of our operations reestablished. Those collaborators who can still do their work from home, they are working remotely until the end of this month, at least. All this move was done very carefully in relation to our collaborators, very carefully with this distancing. We have sanitation kits when you enter the plant, distancing in the plant, on the cafeteria. In case a collaborator presents signs, we have the medical assistance, and the collaborator remains at home for 3- 7 days until it is defined if it is a common cold or if it is really COVID-19. In Campo Grande, we have some cases of COVID-19 in the city, but no cases in our plant. In Panambi, fortunately, no confirmed cases in the city, neither among our collaborators. We are, until now, in a very comfortable position.
Although the disease in its evolution is not completely known, we are being very careful because maybe in the future it can have a change in the scenario. Up to now, we are being very safe and we are managing very carefully these pandemics. Now, talking about the business. Following what is running on the social media, that agro does not stop, and really we harvest our crops there, so it's duly harvested. Some works have been suspended, but they have already resumed to normal. We are delivering our works normally, and we are still receiving some requests and quotations and closing some deals. Not in the amounts or number we would like, but we are doing it. We are no longer traveling. We have a remote service. When there is a need, a local collaborator may meet the customer, but this is very special.
Most of the service is done remotely. It's important to highlight that we see the continuity of our business, its importance for the growth of the agribusiness and the growth of our company. Another point I'd like to raise. The food chain is the one that suffered the least because people need to eat. Maybe some distribution channels in the food area would suffer more, such as restaurants and other distribution channels. But if we look to the production source, it is operating normally. We are still distributing, and the country is supplied in its food needs. Fortunately, the chain is working normally. Starting with the grains, corn, and soybeans, which is the basis of capital business, but also animal protein, eggs, swine, beef, everything is working normally as in the past. The other big segment is the export chain. The ports are operating normally.
Exports in the first quarter were even higher than last year. China continues to be a major player, resuming its normality. We see it very positively, the exports to China. In terms of prices, some commodities were impacted, not because of the demand, but maybe due to other products like oil. Corn may have an impact due to the ethanol production in the U.S. Anyway, we see that we are being compensated by the significant devaluation of our currency. We see an impact on the producer's wallet. We expect to have a reasonable scenario for the Brazilian agribusiness. Brazil is filling a void that some countries left in relation to protein. As I said, the scenario is relatively good, and we still believe that we will have a reasonable year for Kepler Weber. We are being optimistic, but very cautious.
The future is difficult to be foreseen. We can have a change in the scenario, but for now, this is the scenario we are working with. Concerning Kepler, I believe we are very well prepared both in crisis management, as I said. Any additional turbulence, we feel prepared to manage operations with proper actions to face future possible turbulences. With the market, with this cash of BRL 81 million, we are prepared with a very robust position. Our segment is capital goods. We deliver the product in the future, so until the customer receives, it takes about six months. The client has already paid the company. This puts us in a nice position in the segment with a robust position and a very low credit risk.
I think this is another positive point, the credit line, the mark, the brand, the product's portfolio quality, services, assembly process in our area of projects implementation. Usually, the first half of the year is lower in terms of sales. For us, the game of 2020 is still to be played as of May, when the sales will accelerate. We have the new Plano Safra. It's important to mention the importance of the plan to build warehouses, and the importance of having these funds for long-term financing. With our association, ABIMAQ, we are supporting the government in terms of information and importance. The PCA will have the two importance so that the grains production continues to increase, but the storage capacity does not increase in the same rate or pace.
In addition to storage and logistic needs, I think this is a sector that provides opportunity to the government. The demand is there, so you can put money in a sector that will give you quick responses in terms of employment. Agribusiness, this segment will be a key in terms of storage and equipment for post-pandemics and in the recovery of the economy. With our association, we are very close together for this new Plano Safra, the season plan that will be announced next week, that goes in force from July 1st to June 30 of the following year. We think this Plano Safra will be very robust, and I hope we will have a reasonably good year. This is our position in terms of company.
I'd like to thank the entire Kepler team that were very positive facing all these difficulties, both in terms of a plant that all of a sudden, collaborators were on vacation, part in home office. The family is all in-house with the kids. In the first moment, it's very pleasant, but after some days, we see some problems, especially with the kids. We are in a very uncomfortable moment, but I'd like to thank our collaborators, people from the field, sales in our projects, who are with hard work to continue the sales process, to be together with the clients. Even with all these limitations on transportation, you have to do this virtually, remotely. But I believe we are meeting the expectations of our clients. I want to thank our team. Ladies and gentlemen, that's our explanations for today.
In spite of all difficulties, we continue with the challenge of providing sustainable profitability to our shareholders. We are going through a stress test to make sustainable profitability in this period, but we are doing our best to keep the company on the track. Thank you for your attention, and I am here to answer any questions you may have.
We now open the Q&A session. If you want to ask a question, please press star one. Our first question is from Andrew Sasson for Invest.
Good morning. Thank you for your explanations. This crisis is postponing the investments decision. You think we will have an idea only in the second quarter? Now with this stress scenario in the credit market in the banks, are we going to have an alternative for this in the short term? Thank you.
Good question. First, concerning this demand, we have a big unfulfilled demand, mainly because of the pandemics. We have a production of 250 million and a capacity of 180 million, so we have a potential demand. Every time we are always asking ourselves here, what can we do to turn this demand potential in real demand and not only potential? We are working two ways. One is that we, Kepler, and the sector as a whole, we need to be more active with the producers to show the benefits of having storage in their property. The payback is very good if you compare Brazil, U.S. It is incomparable, this point of how much they storage in the origin, in the rural properties. The other way is to look for funding, financing. Brazil, because of the real interest rate level, has never done that.
We have a problem with long-term financing. Today, what we are doing is working on the PCA, the government plan. Second, what we see is that more and more private banks are interested in provide a lower interest rate. I believe that the private sector has room to come into. We are looking for agents to see alternatives to finance these investments. Obviously, the crisis also brings some hurdles because we have a higher difficulty in getting credit. That said, the interest rates are low now. Another point is that most of the investments are done with their own resources, and this interest rate gives an incentive to the rural producer to make investments. Instead of leaving the money in the bank at 3%, it is better to invest in their property, their business, to have a payback or a more significant return.
With the low interest rate, we really foster operational investments. Answering your question, yes, PCA is important. The resources were exhausted last year. That is what we saw, the results. On the other hand, we see that this new interest rate scenario provides some credit alternatives, and not only to the rural producer that needs to buy, let us say, financing matching the product, but to other players. For instance, cooperatives, they can issue LCA, and this LCA is able to finance all the investment projects, not only in storage, but in animal protein, in milk, cattle, and other points. It is not overnight. The change will not be overnight, but we see now more investments for long-term. Also the logistics. With a more reliable legal scenario, what we are seeing is that we are improving the investments in logistics, which is another driver to the growth of our business.
The freight cost from Sorriso, the north of Mato Grosso, to China, it is $110. From Illinois to China is $55. We have a whole world of gains in logistic that will benefit the entire business chain. This is another segment that will provide some incentives.
Okay, thank you very much.
Our next question is Werner Roger.
Good morning. Congratulations for your results in such a challenging period. I have two questions. First, relating to competition, you have a very tight scenario, the risk that the supplier is not able to deliver the products, the difficulties in getting supplies. What about the competitors? Are they aggressive, willing to do business at any price, or are they retracted? The client, more restrictive in relation to the supplier. The second question concerns what you have just said in terms of logistic, where the silo comes into play in relation to infrastructure. I heard your comments about the farms and cooperatives, but where you have opportunity to finance or investments in ports, hydro ways, and roads as a buffer in logistic, where you should have the storage, where you have the final transportation. Thank you.
Good morning, Werner. Thank you for the two interesting questions. The first concerning the supply chain. This was one of our first points when we started to face the crisis in March. Our great concern was cash, of course, because we did not know where we were going to. We could have had a total discontinuity of business, which fortunately did not happen. We focused on cash and supply chain. Just to give you an example, we have some supply coming from China. We had this concern since the beginning of the year. Of course, in terms of imported materials, we do have safe inventories, but the supply is now normalized.
We mapped all the local suppliers, not only in terms of capacity to supply, but also in terms of financial risk, credit risk, if the supplier could not meet their obligations due to financial issues. We detected some critical cases that are already solved. Solved with the supplier himself, or looking for supply alternatives with other suppliers. But this was very few, and this is not a problem or is a problem that is already solved. Concerning steel, which is the major consumable, we have no problems with our major suppliers. They also felt this drop in their supply. They are negotiating with all segments, not only with us, to keep the production and keep the stock to supply. We do not see any risks of disruption. We now need to manage price.
What will be the price behavior in the future because of this decrease in input, decrease in demand, decrease in demand in China with possibilities to more capacity to provide steel. We are considering all these issues to take the necessary actions. This is for supply. Okay, Werner, would you like to add something?
How is the behavior of the competitors? Are they more aggressive or not?
They do not have credit, or they do not have reliability with the clients because there is a risk of not receiving the product. Well, that is true. Concerning competitors, we have different approaches. First, this is a moment where the market is not at high. Our big volume starts in May, after the producer harvests, he does demand, and he starts to prepare for the coming year, which is now the season plan. He plans how much he will plant and the inputs he needs. This is the moment that we have a peak in the sales market. Until March, the market is low, but we see some moves. The move of the competitors who want to benefit and do their cash because they do not have cash. Competitors that have no money and they want to sell with this advance payment to finance the raw material.
We have a mix of actions. However, I believe that with the natural recovery of the business, this will be minimized. But yes, we felt some competition move in terms of price. Not to the point of having a disrupter in the market, but yes, we did see some change that is natural. We need to manage this process and with the recovery of the demands and sales to make this normal.
Now, concerning logistics. Logistic is a driver to increase investments. Why? Because until the product reaches the port, the more it changes the model, more need for storage. In a perfect optimal situation, you harvest the product and it is stored close to the farm, and this is the way to the port. From the farm, it would be to a terminal or it goes to a river terminal or road terminal. River, especially in the Amazon, and you need the capacity of overrun because you have to have the entire stock available when the trucks arrive. You have this storage need.
After this river terminal, they go to a seaport, where you have the large vessels that go to China. Again, you need to have a robust capacity of overrun. The cost of a ship is very high, so the warehouse must be capable enough to load the ship the fastest possible. These are l oading above 1,000 tons per hour and robust storage. Yes, we need better logistics, and when we say logistics, we say railroad, road, and ports, but also infrastructure in the terminals in this entire chain.
Just going back to the competition point, since you have a high-value cycle with a production cycle and execution cycle, do you believe that Kepler Weber has some advantage because of the name it has? Since the competition does not have this financial robustness, do you think this will be better for Kepler Weber just because of the reliability of the company to meet the obligations?
I think you will see this when the demand comes with a higher volume. Well, I would like to say that Kepler Weber has also had this differential, a brand differential, a reputation differential, quality, and a broad product portfolio, and also the differential in financial robustness. Yes, this is shown to the market and also to the premium price that we have in the market. The clients pay more to have Kepler Weber. But of course, in a crisis situation, in a stress situation like now, we see this much more emphasized. I read a very interesting article that I think applies to this case. There is nothing new in what is happening. This already existed.
It only emerged that our health system is fragile. We knew that, but it just emerged. Everything was there, not so colorful. Kepler's differential was already there, but with this crisis, I think clients will be more careful when choosing their partners because it is a marriage very close during the assembly. Since the client signs the contract until the plant starts to run, it takes six months or one year, and then the warranty period, the plant has to provide the capacity defined in the sales contract, and then the service, the technical assistance. We have distribution centers to meet our customers' needs with a technical team. All of this is important at the moment of the purchase.
Thank you very much.
Remember that to ask a question, please press star one. Again, to ask a question, please press star one. We are going now to start the questions from the webcast. We have two questions from Guilherme Chaves from Itaú Unibanco. The first question is, the shareholding of Kepler, how is it?
Last year, we had participation of data that we sold the PREVI interests, and data became the major shareholder. Now they have 30% of the interest control. Also, Banco do Brasil with 17.5% that keeps this control for many years. Then Fernando Kepler with 14.5% and Banco Clássico with 10%. These four shareholders accounts for 72% of controlling interests, and the remaining 28% are with different shareholders with lower, smaller participation. I think I have answered your question about holding.
The second question, the long-term plans of Kepler and how it will generate value.
Well, Guilherme, our focus during 2018 and 2019, we went from a post-bubble period from 2014, 2015, when we have a high volume of sales and expansion, and then 2016, a very weak period with all the sector facing losses. The cycle that we will start in the second half of 2018 was a cycle in search of profitability. Our focus at the end of 2018 and 2019 was to search, to seek this profitability and to seek the sustainability of this profitability. In different conversations I have with the market people, I always say that we have three big rollercoaster. We have three. First is Brazil, where we have inflation, and emerging countries has a 12% of exchange rate devaluation, and Brazil is big. It's Brazil. It's not only global conditions. We have the rollercoaster of Brazil, the agribusiness rollercoaster.
We see a robust growth, but agribusiness is related to nature. We can have a super harvest in U.S., bringing some surprises. The Brazilian territory is very big, and we end up having several microclimate. We have a drop in the state of Rio Grande do Sul compensated by other regions. It's hard to see a general drop in Brazil, but it's not impossible. The agribusiness has its peaks and valleys, not only in terms of production, but prices. Finally, we, Kepler, we are in a segment of capital goods, and our clients only invest in capital goods when they need to replace an asset that is no longer productive or when they are expanding.
Thanks God, that's what's happening in Brazil, but nothing prevents us from having a postponement in investments, and investments in capital goods can be postponed, just the opposite of consumption goods. Since we are in three areas that can be facing peaks and valleys, sustainability is important because we need to prepare the company for difficult moments. We know that we are going to suffer, but we need to deliver satisfactory results. Our efforts were this, to prepare Kepler Weber for that after this sustainability and profitability plan. During the crisis, we think, "Well, with this plan executed, let's see where we can generate or add more value, always focusing post-harvesting," because this is our segment, how Kepler Weber can act in the Post-Harvest segment to generate more shareholder value.
With this current crisis, our focus is to keep sustainability of the results in the first place, but we are still thinking about where we can grow, and we can grow post-harvest. We know that this crisis will have an end. We hope that Brazil will face this very positively. Kepler Weber, in this segment, well positioned in this segment with this cash availability, will be able to execute our investments. Well, Guilherme Chaves, I hope I have answered your both questions. I do not know if there is any other question. No more questions here through the webcast, so I give the floor back to our call manager.
Well, just reminding you to ask questions, please press star one. If you have no more questions, we close the Q&A session. We go back to Mr. Piero Abbondi, CEO, for his final comments.
Well, I would like to thank you again for your attention, for the time dedicated to our company, and to close saying that we do have many challenges. We need to be prepared. In spite of all difficulties, we believe that we are well-positioned to capture future opportunities. As I mentioned during this call, we are optimistic but cautious, and we are preparing the company for the future. I thank you again for your attention, and have a nice day.
The conference call is closed. We thank you for your participation and thank you for using Chorus Call.