Morning, ladies and gentlemen. Welcome to MAHLE Metal Leve's 2023 Q2 Earnings Conference Call. This call is being recorded, and the replay will be available at the company's investor relations website, where the presentation is also available for download. We would like to inform you that all participants will be only watching the conference during the company's remarks, right after which we will open for questions, and at that time, further instructions will be given. Before proceeding, let me point out that any forward-looking statements made during this call are based on the beliefs and assumptions of MAHLE Metal Leve's management, as well as information currently available to the company. These forward-looking statements may involve risks and uncertainties because they refer to future events and therefore depend on circumstances that may or may not occur.
Investors, analysts, and the general public should take into consideration that events relative to the macroeconomic environment, the industry, and other factors may lead to results that differ materially from those expressed in said forward-looking statement. Today, we have here with us Mr. Nathan John Quye, CFO, Mr. Daniel Brasil Alves, Marketing and Corporate Communication Manager, and Mr. Fábio Lopes Peres, Finance Manager. Now I'd like to turn the conference over to Mr. Nathan to start his presentation.
Hello. Thank you. Good afternoon, everyone. Ladies and gentlemen, welcome to MAHLE Metal Leve's earnings conference call for Q2 2023. It is a pleasure to have you join us today. Before we start with today's agenda, I hope you're all safe and healthy. At the end of this presentation, we will be available for a question and answer session.
As for today's agenda, this agenda is very similar to that of previous editions. We will start with the quarter highlights and overview of the market given by Daniel. Then I will give you more details about our results. Then you're going to hear from Fábio about the company's net income. At the end of the presentation, we will leave some time for questions. On this first slide, we have an overview of our net sales revenue. This was a very positive quarter comparing year-over-year with Q2 2022 in terms of sale. But the market has some differences. In terms of the domestic market for original equipment, there was a slight drop compared with Q2 2022, particularly for heavy vehicles.
In Q2, when we switched to Euro 6, there was a drop in the numbers, and Daniel will give you more information, but our numbers are lower than those of 2022. In terms of exports for original equipment, our numbers are well above year-over-year. So markets were better in 2023. As for the domestic aftermarket, we had a more than 20% increase year-over-year. It was the opposite of the export aftermarket. The export market, the aftermarket for exports, is going through some difficulties because of political instability and some problems in South America. Daniel will give you more information about this later on. In respect to our distribution to shareholders in 2023, we paid out more than BRL 500 million. It was a record-breaking number for us. This was paid out in May.
There was an impact on quarter 2 2022, but this was a historical record for the company, so we are very happy with this distribution to our shareholders. This is very much in line with our results. The key indicators, as I had mentioned, the net revenues were well above compared with quarter 2 2022. Our EBITDA was very similar when compared with quarter 1 2023, BRL 252 million, up 40% compared with quarter 2 2022. So this result makes us really pleased. As I said, the market for heavy vehicles was not easy in quarter 2, but our EBITDA numbers are positive. The EBITDA margin was slightly below compared with quarter 1 this year, but well above the numbers of 2022. I am going to give you more details later about this.
Our net income showed an improvement compared with quarter 1 and very strong results for quarter 2 this year. I would like to turn the floor to Daniel Brasil. He is going to give you more details about our sales.
Thank you, Nathan. Good morning, ladies and gentlemen, and once again, thank you for joining our conference call to announce the results of quarter 2. Let us move on to slide number 4. Here we have the sales and production for the Brazilian and the Argentinian market, as well as the production for North America and Europe, which are the main two export destinations of the company. Let us start with Brazil. For light vehicles, there was an increase in the first half of this year, a 9.6% increase compared to the first half of last year.
Here, it is worth noting the effects of the government incentives for the purchase of new vehicles. There were some incentive plans for vehicles that cost up to BRL 120,000, of 1.5%- 10.8% in terms of discount rates. So we had a lower comparison basis in 2022. Last year, in quarter 1, we still had some remaining effects of the COVID pandemic and some floods that we had in the beginning of the year. So this year, quarter 1 was lower in terms of sales when compared with quarter 2, but it was still higher than quarter 1 last year. So 9.6% increase for light vehicles. We give highlight to the month of July. It was the highest numbers. We had the highest numbers in July in terms of sales of vehicles because of the incentives offered by the government.
[Anfavea] also offered some additional discounts for the purchase of new vehicles, so that is why we had better numbers in July. In Argentina, there was a 14.1% increase. Despite the crisis in that country, with very high inflation rates and also difficulties to pay the country's debts, you know about the conditions in Argentina. However, there is an effect here to protect the equity, so people will buy vehicles in Argentina to protect their equity. They will have elections in the end of the year in Argentina, so there is an expectation of a devaluation of their currency. So this ends up impacting the sales in Argentina as well. When we combine Brazil and Argentina, the total growth was 10.4% for light vehicles. The prospects for the second half of this year is very positive. We are expecting higher sales than those of the first half of the year.
Now moving on to medium and heavy vehicles. We had very different quarters in the first half of the year. We had the start of the Euro 6, so in the first quarter, sales were very high because they were still selling trucks and buses with the Euro 5 emissions. In 2Q 2023, there is a hangover effect of the sales of these vehicles. Euro 6 vehicles have a higher price now, also due to the discounts offered by the government, we have not yet seen the effects of that. There is increased bureaucracy, so that is why we are not yet seeing the effect on the sales of trucks and buses. But we are expecting to see this effect in the second half of the year. We are expecting a second half better than the first half for trucks and buses in Brazil. Currently, there is a -1.6%.
In Argentina, there was a 5.2% drop, also an effect of their crisis. Combining Brazil and Argentina, the total drop was 2% for the sale of trucks and buses. Now, in terms of production. In Brazil, there was a 6.8% increase in the first half of the year. In Argentina, 21.4%. Combining Brazil and Argentina, the total increase was 9.7%. For production, there is also an expected higher production in the second half of the year compared with the first. For medium and heavy vehicles, first quarter, there was a drop of 33% in Brazil and 11% in Argentina. Combining the drops of Brazil and Argentina, the total drop was 32%. There will be some adjustments in the government program that should be beneficial for the sales of Euro 6 buses and trucks. Also, there is a record-breaking cohort that will come in the second half.
We expect a better second half compared with the first half of 2023. Now, as for Europe and North America, numbers are very positive. For light vehicles in Europe, there was an increase of 14.8% in the first half of the year. For medium and heavy, 10.3% in terms of production. In North America, an 11.5% increase in the production of light vehicles and 25.9% for medium and heavy. Combining Europe and North America, the total increase in the production of light vehicles was 13%, and for medium and heavy, 17.9%. This will consequently contribute to the increase in our exports. Next slide. On slide number 5, we see the evolution of our net sales. It is worth noting the first half of 2023 compared with the first half of 2022. For domestic original equipment, our sales increased 2.8%.
Despite the decrease in the heavy vehicle market, we were able to maintain an increase of 2.8%. We also gained market share for some of our products and also some of our exports. Some of our export customers also contributed to this increase despite the drop in the heavy vehicle market. For original equipment exports, we saw an increase of 15.1%, with a subtotal for original equipment of 9%, comparing the first half this year with the first half of last year. Now moving on to the aftermarket, domestic, there was a 28.2% increase in our sales. Here, we are taking into account a market share gain and also a heated up market, which is what we have right now. The trade balance also was positive due to our production of valves in the Rafaela site.
We are being able to import the components, and this leads to a market share gain, which is also contributing to the increase in domestic aftermarket. For the export aftermarket, as you heard from Nathan, we had a 23.3% drop. We are seeing some flatness, some stability in South American countries. There was also an increase in the interest rates, and capital is more expensive now, so this ends up having an effect in our export aftermarket. The subtotal for aftermarket was a 17.1% increase in the first half of the year, with a total sales increase of 12.2%. Now, let me give the floor back to Nathan, and I will be here to answer your questions in the end of this session.
Thank you, Daniel. Now let me go into more details about our results for quarter 2 compared with quarter 2 last year. As we heard, the sales level was much higher last year due to all the reasons mentioned by Daniel. The selling cost, the cost of sale, was much lower or much better when compared with 2022. This leads to a gross result over 30% compared with 25.4% last year. If we take into account the first quarter this year, we have a product mix that leads to higher aftermarket sales compared with last year. Also there were some improvements that we made in our plans. This all resulted in a gross result much higher than that of 2022. As for our expenses, let's start with our selling and distribution expenses.
In absolute numbers, they were higher than last year, BRL 87.5, and there are three reasons to explain this. First, we had more costs relative to advertisement. One specific example was Automec in April. In April 2023, we had this important event, Automec, that we didn't have last year. This is the first reason for this increase in our selling and distribution expenses. This also had a positive impact because by attending this type of event, we are able to advertise our company and increase our aftermarket sales, which are very relevant for us. The second reason is the increase in freight expenses relative to aftermarket sales, also export sales. With this increase in sales, of course, this leads to increased freight and distribution expenses.
The second line refers to G&A expenses. G&A expenses were significantly below those of 2022, but we had the effects of inflation rates on our personnel costs compared with 2022. We also had technology expenses that increased in number and percentage, but they were also very positive for us because this means that we are increasing the services provided by our engineers. Our engineers are now more focused on providing services to our partners, our MAHLE associates in North America, and these services are being sold to the other locations that MAHLE has. So they increase the cost, but they also bring positive results to the region and to MAHLE Metal Leve overall. Finally, we have other operating expenses.
There's no major change in quarter 2, but when we consider the first half, the first half of 2023 was much better than the first half of 2022 because we had lower contingencies compared with 2022. These are the details that I can give you about our results for quarter 2. Overall, the company is very pleased with our Q2 numbers and for Q1 as well, 2023. Our gross profit was BRL 657 million, so more than 30% increase in our gross margin. This is the result of all the hard work that everyone in MAHLE Metal Leve has been doing and did in the first half of the year. Now, I turn the conference over to Fábio, and he's going to go into our net financial results, and then I'll be back for questions.
Thank you, Nathan. Good afternoon, everyone. Now going into our net financial results. Let's first talk about the first half of 2023, and then we can talk specifically about Q2. Looking at the first half of 2023 and 2022, we had total finance income and costs composed by interest, income on financial investments, loans and borrowings, and other incomes.
In the first half of 2023, we had positive results of BRL 44.2 million. Basically, these results came from interest income on financial investment. When you look at our financial investments, we had a foreign exchange of BRL 5.4, the monetary variation of BRL 10.9, and this amount comes from the higher interest rates. This increase in interest rates comes from Brazil and Argentina. Argentina, in the first quarter of 2022, the average interest rate that was used by financial institutions was about 45%, and in the second half of 2022, it was about 86%. The difference comes from this higher interest rate in Argentina. Of course, that this increase in interest rates were accompanied by an increase in inflation rates as well. When we look at Q2 2022, we see the same effect of the higher interest rates.
In Q2, our net income results were BRL 12.3 million for 2022 and BRL 26.2 million for 2023. The exchange rate variation, there was also a significant improvement. We had -5.4 compared with a positive 8.4 in 2023. The composition of the foreign exchange variation, we should always consider ACC and NCA because we use natural hedge with our invoices and accounts payable. This is important to note because when we combine the 1.2 and 1.1, we have 15.8. However, the exchange variation of our loans was positive, 26.1. On the bottom, we had a monetary variation of 11.8 in 2022 versus 5.2 in 2023. This is due to reductions in our tax and labor provisions. For the quarter, we had -4.9 in 2022 versus a positive 29.4 in 2023, and the positive delta was 34.3. The next slide shows our indebtedness.
Let's start with our net cash. We had a reduction from December 2022 until June 2023 of nearly BRL 200 million in our net cash. This was basically because the cash was used for the payment of BRL 559 million of interest over capital and dividends. Our loans were in line. There was only a 10% increase during the period due to the cash generation that we had and the cash that we had in 2022, so we didn't really have to raise any funds to pay for these loans. In our net cash position, we had other penalties that we had to pay. In 2022, we had a positive 91.3, and now we have a net debt of 155.2. This reduction, as I said, is due to the payout of dividends and interest over capital, which was already mentioned by Nathan.
I stop here, and now I am available for questions. We will open for questions now, and Daniel, Nathan, and I will be available to answer your questions. Thank you.
Thank you. We will now open the floor for questions from investors and analysts. To ask a question, please click on Raise Hand. If at any point your question is answered, you can remove yourself from the line by clicking again on Raise Hand. The questions sent in writing will be answered after the conference by MAHLE Metal Leve's IR team. Please wait while we poll for your questions. The first question is from André Ferreira, Bradesco BBI. Mr. Ferreira, you can open your microphone now.
Good morning. Congratulations for your results, and thank you for taking my question. I have two questions. First, you reported a very strong growth margin over 30% in quarter 2. Initially, we may think that MAHLE is being able to hold back the prices to customers, even with the changes in raw material prices. Is my understanding correct, and can you give us more color about your negotiations with your clients and what we can expect in terms of margin until the end of the year? The second question is, can you comment on the main initiatives and investments for decarbonization in your portfolio?
Yes, thank you, André, for your questions. I will start and then Daniel can also add if he wants. Yes, the growth margin was very strong this quarter, over 30%, as you heard. There were, of course, some reasons for that. The product mix was much better in the aftermarket in 2023 versus 2022. The aftermarket accounts for 42% of our sales. It is very relevant. In respect to the original equipment market, we have contracts with most of our customers to adjust the prices according to the raw material prices, as you mentioned. Of course, each contract is individual. It depends on the customer. The change in prices is provided for in our contracts. As for your second question, could you please repeat your second question, please?
Sure. Can you please comment on the main initiatives and investments that you are making to address decarbonization in your portfolio?
Oh, of course. Thank you. We have MAHLE Metal Leve in Jundiaí, and we also have the MAHLE Group, and they have 14 locations around the world, and everybody is working strongly on the nitrogen technologies, as well as electric vehicles. MAHLE Metal Leve has different products planned for the future as well. We are working in different fronts. Here, specifically in the South American market, it is slightly different, as you probably know. Biofuels are very important here. HVO is very relevant here. We are working with the academia, we are working with suppliers and with the professional associations to keep evolving in this sense, in the sphere of biofuels that are used by traditional engines. We have different fronts, as I said. It is not just one way or just one option to work on this area in the future. I do not know if I answered your question, Daniel.
Good morning, André. Thank you for your question. I think that Nathan said it really well. We are in line with our customer's project, so we have different initiatives being conducted with our clients that go through hybrid vehicles. Our tech center, not just for light vehicles, but also medium and heavy, as Nathan mentioned. We have the BEVs, we have the hybrids, and we are very much aligned with the market and monitoring and tracking the initiatives in the market and the discussion about which will be the way to go in terms of decarbonization of our market. MAHLE Metal Leve will be working together with its clients to meet the needs in this field.
Thank you. Very clear.
To ask a question, please click on raise hand. The next question is from Jonathan Koutras, JP Morgan. Mr. Koutras, you can ask your question now.
Thank you. Good afternoon, Nathan, Daniel. Congratulations for your results. I have two questions. The first one is about the aftermarket exports. If this level that you saw in the first half of the year will be sustainable until the end of the year of about BRL 120 million per half, or if we should expect a reduction due to the foreign exchange issue. The second question, can you talk about your investments made in Q1 or another quarter with a CapEx below depreciation, even if the company is showing robust growth. So I'd like to know where these investments are being directed to your CapEx, and if we can expect BRL 10 million- BRL 12 million per quarter as a sustainable level of investment for the company. Thank you.
Let me answer your first question. First, good morning, of course, and thank you for your question. This is a very challenging market. So giving you any trends regarding the second half of the year is complicated because the car brands, the car makes, and we don't know what to expect in terms of the level of production of vehicles. But we are working to improve this revenue. But as we heard, this economic instability, political instability of the countries in the region has been a hurdle. So it's a challenge. For investments, Nathan, would you like to answer that one?
No, you can go ahead. What I can tell you, yes, I can answer the second question. Good afternoon, Jonathan. In respect to our investments, every year, we know that usually the second half is lower, and the second half we see an increase in the level of investments that we make. So our plans and the POs that we have issued for machinery, we will certainly see an increase in the second half of the year, the investments that we are planning to make.
Thank you.
To ask a question, please click on the button, Raise Hand. Let's wait while we poll for your questions.
While we wait for your questions, I just read a question from Pedro Santoro. This increase in our margin, Pedro, as I already mentioned, was an effect of the product mix, which was more concentrated on the aftermarket. This was the main reason for our higher margin this quarter.
To ask a question, please click on Raise Hand. The next question is from Mr. Jonathan Koutras, JP Morgan. Mr. Koutras, go ahead.
Hello, thank you again. Just a follow-up question. I'd like to hear more about your supply chain dynamics and where your bottlenecks are. In aftermarket or IAM, which one is suffering more, and what could improve in your supply chain in the upcoming periods?
I can answer that one. Daniel, of course, step in if you want to add something. For supply chain, we know supply chain is never easy. In our automotive industry, every day is a challenge, right? But it looks a little easier this year compared with last year in terms of supply chain, when we compare with 2021, 2022. But it's never easy.
I would just like to add that we can say the situation is more stable when compared with the previous quarters or previous periods. We're always tracking and monitoring, but we can say the situation is more stable now, both for OE and IAM.
Thank you, Daniel and Nathan.
To ask a question, please click on Raise Hand. Please wait while we poll for your questions. We have a question from Remy about the interest rates. About the lower interest rates and how this will help MAHLE Metal Leve.
This will help the market as a whole. We already had a first decrease in the standard interest rates, and we are expecting more in the future. This will certainly increase the financing of vehicles, and of course, this will lead to an increase in sales. As for expansion and acquisitions, this is the more sensitive issue. I can't really comment on that. But about the interest rates, this will certainly contribute to better results, not just in the auto industry, but to the all industries overall, because the interest rates are very high in Brazil right now.
This question and answer session is now closed. Now I'd like to turn the conference over to Mr. Nathan Quye for his final remarks. Mr. Quye, you may proceed.
Once again, I'd like to thank you all for joining our conference call. Thank you for your interest. This was a very strong quarter for us. We know the market is not easy with all these changes from Euro 6 in heavy vehicles. But with our excellent team, we are sure that MAHLE Metal Leve will continue to present good results. I'd like to thank the staff present here today. Daniel, Fábio, thank you for joining me. If you have any further questions, we are always available to answer them. Thank you all for joining. Have a great afternoon and a great week. Thank you.
This conference call is now closed. Thank you all for attending and have a great afternoon.