Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to MAHLE Metal Leve for the third quarter of 2020 results conference call. With us here today, we have Mr. Daniel Brasil Alves, Marketing and Corporate Communication Manager, Mr. Daniel de Oliveira Camargo , Executive Accounting Manager, and Mr. Fábio Lopes Peres , Executive Finance Manager. This event is being recorded, and all participants will be in listen-only mode during the company's presentation. After MAHLE Metal Leve's remarks, there will be a question -and -answer session. At that time, instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. This event is also being transmitted simultaneously through the internet via the webcast and can be accessed through the investor relations website of the company, 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. Those following the presentation via the webcast may pose their questions on our website. They will be answered by the IR team after the conference is finished. Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of MAHLE Metal Leve'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 not occur. I would now like to turn the conference over to Mr. Daniel de Oliveira Camargo , who will begin the presentation. Please, Mr. Camargo, you may proceed.
Good afternoon, everyone. Welcome to the conference call to discuss the results of MAHLE Metal Leve. To discuss the results of the third quarter 2020. Before continuing covering our agenda, we hope everyone is safe and healthy. As for July, we had a timid response of the automotive market. We saw a gradual in terms of the volume production. With this, we ended some of the aspects or temporary changes, salary reduction, and some measures that we had taken, and most employees went back to work that were in their working contract.
MAHLE adopted different measures to avoid contamination by the virus. This is the general overview that we would like to give you all. At the end of the presentation, I would like to say that we are going to be available to the Q&A session. Following the presentation on slide number two, we will talk about the highlights of the third quarter 2020 at first, then we are going to move on to a market overview.
Then we will discuss the net revenue performance by the market, then we will have a summary of the P&L and EBITDA, the financial manager, CapEx and depreciation, then we will open the Q&A session. On next slide number three, we have the highlights of the third quarter 2020. The net sales revenue reached BRL 691 million in the third quarter 2020, an increase of 7.1% when we compare to the third quarter 2019. Good performance. The aftermarket in the third quarter, there was an increase of 35.3% when compared to the third quarter 2019. Year -to -date, we almost reached the levels of 2019. In the export aftermarket, there was an increase of 21% of the sales in the third quarter 2020. Year -to- date, we reported a reduction of 8.1%.
As for domestic OE, for the third quarter 2020, the company recorded a sales reduction of 21%, and year- to -date, the reduction was 32%. We will provide more details about the performance of sales for each of the markets on the following slides. Lastly, the company has also recorded, and this was a piece of information that was provided in the material fact, about the impairment in the amount of BRL 45 million related to the expenses with the development of technology, and BRL 36 million related to the provision for losses in inventory. Lastly, our gross margin of the third quarter of 2020 reached 27.7% compared to 2019. I would like to turn the call over to Mr. Daniel Brasil, who will provide information about registration and production, and sales of the company.
Thank you, Daniel Camargo. Good morning, everyone. Thank you very much for attending our conference call to discuss the results of MAHLE Metal Leve. On slide four, we have information about sales and production of vehicles in Brazil and Argentina in the first nine months of 2020, compared to the same period of 2019. Beginning discussing about light vehicles. In Brazil, we had a drop of 33% in sales of light vehicles, and also in the production, we had a drop of 41.5%. In Argentina, the drop was 28.2% for sales, and production, a drop of 31.3%. Considering Brazil and Argentina combined, year -to -date, we reached a number of 32.3% for sales and 40.4% for production. These figures show a continuous recovery, meaning that we have improved our sales performance in vehicles and also in production month after month.
It's important to mention that there is a mismatch in the percentage of drop of sales in relation to production, so sales reaching 32% and production reaching 40% of reduction. There's a stock reduction involved, and stock, according to Anfavea, is enough for 18 days of sales. Generally speaking, the inventory is about 30 or 35 days. This means that the production has been very strong, accelerated in order to meet the demand in terms of sales of vehicles. When we look at October itself, it's not in this presentation, but this is public information that has already been disclosed. When we compare sales of light vehicles in October, sales was - 11% and production - 16%. We can see that the volumes are very close to what we recorded last year, reinforcing this continuous recovery of the market. Moving on to medium and heavy vehicles.
There was a drop in medium and heavy vehicles of 13.4% reduction. As for production, the drop was 29.7%. In Argentina, the drop was 24% and production a - 40%. The figures combined, we come to a reduction of 14% for sales and 30% for production. We can also see this mismatch of sales in comparison to production. We have a certain timing to recover the production chain so that we can meet these sales volumes. We have seen that there has been a constant better performance and industries making all the adaptations in order to meet this demand. When we look at heavy vehicles for October, the drop in sales was 11%, and production, the drop was 8%. We can observe this recovery as we said before. Now moving on, about the figures for the end of the year.
We are about two months before we close the year. When we observe the information that was posted by Anfavea for light vehicles, in terms of sale, there is a drop of 31%. As for production, the projection is a reduction of 35%, and for heavy vehicles, a drop of 14%, and as for production, a drop of 25%. We can observe that all those indexes are very similar to what we have recorded year -to -date up to September. For sales, we can see that the figures are very close, but as to production, we can see that indexes have been improving, closing the gap between sales and production. MAHLE sees for the end of the year an estimated result which is a little bit better than what Anfavea disclosed, 3 percentage points, both for sales and production for the close of the year.
Now moving on to slide five. We have information about the vehicle production in North America and Europe. In the first nine months of 2020 compared to the previous period of last year, there was a drop of 25.5% in vehicle production. As for light vehicle, the drop was 26.7%, and for medium heavy vehicles, the drop was 45.5%. In Europe, we recorded a drop of 30.4%, in which 30% for light vehicles and 34% for medium and heavy vehicles. Combining those markets, we reached the number of 29.1%. It's a better performance when we compare that to Brazil and Argentina's performance, and this is associated with the second wave of COVID-19 pandemic. We have been following the news, and there are some uncertainties in terms of the effects of the second wave of the pandemic in the export market of the company.
Now moving on to slide six. On slide six, we can see the performance of net revenues of the third quarter 2020 when compared to the third quarter 2019. I'm going to focus on the last column. As for original equipment, the domestic segment recorded a drop of 21.8%. When we combine those markets, we see that the income is very aligned with the results. As for export, we see a drop of 9.2%, and we see a positive FX combination. So the effect in terms of volume and price, the drop was 13%, so the export market is below the levels of 2019. When we consolidate domestic and export, we see that there was a drop of 6.4%. In the aftermarket, in the domestic sector, there was a growth of 35.3%.
In relation to export, we see a growth of 21.2%, and 35.9% is related to the FX impact. So we see a drop of 14% in terms of volume and price. The total in the aftermarket, we see a growth of 32.2%. When we combine the original equipment and aftermarket, we record an increase of 7.1% with an FX impact of 9.4% and an effect of volume and price of - 2.3%, which is very close to what we recorded in the third quarter of 2019. Now on slide number seven, you can see our net.
Now on slide number seven, y ou can see our net revenue performance in the first nine months of 2020 compared to the first nine months of 2019. If you look at the last column for original equipment in the domestic market, there was a drop of 32.1%. We outperformed the market. We saw a drop in the production in the first nine months of the year in Brazil and Argentina of 40%, so we outperformed the rest of the market here.
The three main factors for our outperformance was the mix. We saw that in heavy vehicles, the drop was smaller. There was a 30% drop in production. The second effect was of OES pieces or service pieces, which parts which had a smaller reduction than the rest of the market. Third, the continuous growth. Our numbers are improving, so this monthly sale reflects the production of the following month. That is why our performance in vehicle production was better than the rest of the market. In exports, a drop of 14.4% in original equipment with an FX impact of 9%. So the volume over price impact was - 23.4%. In the exports market, we also saw a significant drop, a bit better than the drop we saw in the North American, Europe markets.
For original equipment consolidated with domestic and exports, there was a drop of 22.6%, an FX impact of 4.7%, volume over price of - 27.3% over the net revenue of sales. Now, aftermarket domestic had a 0.5% drop and FX - 1.8%. This FX variation in the domestic market, both for aftermarket and original equipment in our unit in Argentina that manufactures valves impacts this number. We had the conversion of Argentinian pesos to Brazilian reais, so that is why we had this FX impact. A domestic aftermarket volume over price, a growth of 1.3%. Interesting revenues in the aftermarket. This is a historical effect. When there is a drop of sales in new vehicles, the aftermarket usually has a better performance. In addition to that, we also have foreign exchange depreciation.
We are valuing parts produced in Brazil that gained market share compared to imported parts that suffered an increase in prices in Brazilian reais. Aftermarket exports, a drop of 8.1% and an FX impact of 20.1%. A drop in volume over price of 28.2%. Aftermarket consolidated both domestic and imports, a drop of 2.2% FX impact 3.2% and volume over price -5.4%. If we combine original equipment and aftermarket in the first nine months of the year, we had a drop in revenue of 15.8%, FX impact 4.2%, volume over price, a drop of 20%.
Now, slide number eight. Here you can see consolidated exports by region in the first nine months of 2020, year-over-year. There were not major changes in Europe, 47.2% and then 47.3%. North America, 35% - 39%. South America, 12% - 10%. And other markets, 4 %- 3%. Now I turn the floor over to Daniel Camargo, and I will be available at the end of the conference for questions.
Thank you, Daniel Brasil. Now on slide number nine, you can see our gross margin. If we focus on the last column, our gross margin in the quarter remained with the same percentage year-over-year. In the first nine months of the year, we had a slight drop. However, if we exclude the effects of BRL 36 million of stock provision, then we would have achieved a gross margin of 33% in the third quarter of 2020.
In the first nine months of the year, that would be a margin of 26.7%, which is very close to the first nine months of 2019. Now on slide number 10, you can see a summary of all the other expenses on our P&L. Selling expenses in the third quarter of 2020 accounted for 6% against 6.5% year-over-year. Even with the use of freight and this recovery after the pandemic, we have had some impacts of foreign currency on some expenses which prevented us from improving our selling expenses.
General and administrative expenses were impacted by several factors, especially changes in expenses with maintenance, materials, and utilities, and also by the effects of restructuring. R&D expenses accounted for 1.9% only in the third quarter of 2020 due to the impact of the pandemic. Some R&D activities were suspended or delayed from the original schedule because of the pandemic. When it comes to other operating income expenses, the major impact, as we mentioned last quarter, with volume over price -5.4%.
When it comes to other operating income expenses, the major impact, as we mentioned last quarter, was the impairment of BRL 22.9 million in Argentina and BRL 45 million for the intangibles of MBE-2. These are non-recurring expenses that influenced other operating expenses. Now on the next slide, you can see the operating income measured by EBITDA. The adjusted EBITDA was of 24.5% for the third quarter of 2020 against 20% in the third quarter of 2019. The EBITDA was 12.8% due to the events I mentioned. But this does not have an impact on the company's cash. Now I'd like to turn the floor over to Fábio Peres, who's going to share our net financial results with you.
Good afternoon, everyone. Thank you very much for joining us for our earnings conference call today. Focusing on our net financial results, we've had an interest growth, as you can see here on the table on slide number 12, because of the fundraising in March of this year of BRL 250 million to support our cash during these times of uncertainties of the pandemic. When we did not know exactly what would happen because of a scarcity of resources.
The company decided to borrow BRL 150 million to support our cash during this period of time. So you can see the numbers for the third quarter of 2020, BRL 425 million right now. The interest rates were 5.5% and now 2.5%, and also the debt level. The average debt of the company was BRL 382.2 million. With those new funds, this has been impacted. The costs are at the same level, as you can see in the table. 4.2% in 2020 with similar numbers in 2019.
Now we have the accumulated for the first nine months of the year, BRL 376.7 million and now BRL 597.5 million. The cost of debt also remained at the same level from 4.1% to 4.2% from 2019 to 2020. The average level of investment, 47.7%. So that's why the net income had a delta of 3.1% in the last three months and 4.3% in the first nine months of the year. Accounts receivable and accounts payable. There is a net.
There is a net of 1.9% and 5.4% in ACC exchange variation. Other transactions, 4.9%. A delta of 1.4% when we compare the third quarter of 2020 to the third quarter of 2019. On the right-hand side of the table, you can see that the delta achieved was a 42.9%, most coming from the ACC foreign exchange variation and transactions we have done in the past. Now for net monetary variation, we achieved 1.1% of variation in the third quarter year-over-year and 2.3% in the first nine months of the year. Now, slide number 13. You can see our indebtedness. Our cash had a variation of BRL 382 million, and a variation of BRL 226 million in our liabilities, achieving 33.0% in indebtedness in the third quarter of 2020. On the right-hand side, you can see our borrowings by type. Law 4,131, accounting for 41.6% of the total. ACC, 28.1%.
FINEP, 27.8%, and BNDES, 2.4%. In total, a debt level of 4.15% per year. In the bottom of the slide, you can see short and long-term indebtedness and their maturities. In March 2021, we have BRL 260 million in debt maturing. We are still evaluating what to do if we roll out the debt or if we pay back. But we have raised money, especially to support these times of uncertainties of the pandemic. Now on slide number 14, you can see depreciation.
CapEx and depreciation comparing the third quarter of 2020 to the third quarter of 2019, we are below the levels of 2019. That is mainly due to the COVID-19 pandemic. As Daniel said in the beginning of the call, we still have uncertainties ahead of us and some signs of a second wave of the pandemic coming, and the uncertainties regarding the vaccine. We are not sure whether this is going to be made available by the end of the year. For those reasons, we are withholding investments until things become clearer.
Now we would like- Covered with the impairment. Maybe some patents or maybe hardware or software that were developed and could be sold to the market, and if that possible sale would generate cash considering the impairment. I do not know if the impairment made all the calculations back to zero, or if there is any value that can be recovered with this impairment.
Okay, thank you. Here with us, we have the director of MBE-2, and I am going to ask him to provide details or to provide more details so that we can clarify the question you have. Could you help us answer this question, please?
Marcelo, thank you very much for your question. In the amount of the impairment, we are not considering any sort of recovery at the time. Just to remind you that MAHLE is a licensed company. We have the license to use this technology. MAHLE would not be able to sell this technology. MAHLE has 1/3 of all their shares of a company that holds the patent. It is another company that does the management. As far as MAHLE is concerned, we are going to close all the activities related to MBE-2 technology, and all the data related to the projects have been duly stored. Considering the value that we disclosed, we do not consider any residual value up to the moment.
Okay, perfect. Thank you.
We would like to remind you that if you wish to ask a question, please press star one. Our next question is from Gabriel Rezende with Bradesco BBI. You may proceed, sir.
Hello. I have two questions. The first one is a follow-up of Marcelo's question related to MBE-2. I would like to understand that once the project was terminated, finished, I would like to know if there is any other project or any investment channel that MAHLE is considering for the years to come. Is there anything on your radar? The second question is related to market operations. If you could provide some clarifications of how your clients expect. What are the expectations for the next months? Do you expect the car assemblers to have a collective vacation, or do you think that the revenues are held back, or what are your expectations, in other words?
I am going to make a comment on your first question, because the answer is, there is nothing that we can disclose at the moment. As soon as we have any investment plan to be made, we are going to disclose it to the market. Right now, we do not have any information to provide you with. The second question-
To open for questions. We will be open to give you any clarification that you might need. Thank you very much.
Ladies and gentlemen, we will now begin the Q&A session. To ask a question, please press star one. To remove your question from the list, press star two. The first question is by Marcelo Motta with JP Morgan.
Hello. Good afternoon, everyone. I have two questions. The first one is about the gross margin of the company. I can see that the recovery was quite strong. In spite of the fact that we do not have volume-related data, we can see that there was a combination of FX and the income or the revenues increased.
I believe that the volumes were a bit lower than those recorded in the third quarter 2019, but the margin recovered. I would like to understand which are the factors that led to that result, and if you believe that there can be further improvement. The second question is related to MBE-2. There was an impairment, and the company decided to stop the investment and causing this impairment. Is there any technology or patent that you could sell and could bring in some cash increase? Is there any possibility of reversing this impairment? Thank you.
Good afternoon, Marcelo. Thank you very much for your questions. In relation to the gross margin and the major impact on the sales costs are considering this resumption, we can say that the productive increased, and we managed to have some synergies.
These are results of the restructuring that we brought about, and these are the main factors. In relation to the continuity of this process, there is no way we can have any future guidelines. We would like to have a result very similar to what we recorded in the third quarter. That would depend on the market sales and everything else. Our cost will continue, we hope, to remain at the level of 70% in relation to the revenues. This is what we have seen, and this is the performance that we have been able to see. In relation to the MBE-2, I would like you to repeat your question. You raised two points. Could you ask the question again, please?
Yes, of course. I would like to know if there is any cash that can be re-
Mr. Brasil will help us with the answer.
Daniel Camargo, complementing the first comment that you made, and thank you, Gabriel, for your question. MAHLE continuously invests in technology. We have our technology center based in Jundiaí City, and the company is always analyzing the market, and we are always looking for solutions. As Mr. Camargo said, we cannot disclose any technology before it is officially launched. The company is doing this research continuously in R&D, both for the future products and the products we already have. We have the electrification technology with the possibility to be used in the future. We expect that hybrid vehicles will be produced and moving towards the hybrid level before we move towards the electrical cars. The company is always working in different technologies.
In relation to your second question, in relation to the future months, we can say that the inventory level is very low. Anfavea provides information about the Brazilian market, and according to it, the truck market is being impacted by the lack of product. So to say, the production chain is taking some time or delaying the production in order to make the proper adaptations. Some companies will have collective vacations, and these are the information that we have received, and they will have a shorter period for vacation in the end of the year. This information is not consolidated yet. We know that companies are still evaluating all this, and it seems that assemblers will make the proper adjustments to the demand. You probably heard about car rentals. They are taking time to receive those vehicles because of the period of resumption.
Everybody is being cautious. People are not making high investments to increase production if you are not sure that everything will be continuous. Those collective vacations, which is going to be shorter, is likely to help us make adjustments to the demand. I do not know if I answered your question.
Yes, you did. Thank you. Thank you very much.
We would like to remind you that if you wish to ask a question, please press star 1. This concludes today's question and answer session. I would like to turn the call to Mr. Daniel Camargo for his closing statements.
Thank you very much for having attended this conference call, and see you next call for the next quarter.
This concludes MAHLE Metal Leve audio conference for today. Thank you very much for your participation. Have a good day, and thank you for using Chorus Call.