Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to MAHLE Metal Leve Second Quarter 2020 Earnings Conference Call. With us here today, Daniel Brasil Alves, Marketing and Corporate Communication Manager. Daniel de Oliveira Camargo, Executive Accounting Manager, and Fábio Lopes Peres, Executive Finance Manager. We would like to inform you that this event is being recorded, and all participants will be in a listen-only mode during the company's presentation. After that, we will open for Q&A session, when further instructions will be provided. Should you need any assistance during this call, please press star zero to reach the operator. This event is also being transmitted simultaneously through the internet, and it can be accessed through the company's IR website, where the slide deck is also available.
The selection of the slides will be controlled by participants, and the replay of this event will be available shortly after it ends. You can also send your questions to the company's website and they will be answered later by the IR team. Before proceeding, we would like to clarify that any forward statements made during this call related to MAHLE Metal Leve business prospects, projections, operating, and financial targets are based on the beliefs and assumptions of the company's management team, as well as all information currently available to the company. Forward-looking statements are no guarantee of performance and involve risks, uncertainties, and assumptions because they relate to future events and are therefore dependent on circumstances that may or may not occur. Now let me turn it over to Daniel Camargo. Mr. Camargo, you can start.
Good afternoon, everyone. Ladies and gentlemen, welcome to all of you. Today, we are going to discuss the second quarter of 2020 highlights. Before starting, we would like to say that we hope all of you to be safe and healthy. The safety and health of our employees is the most important value of our company. Not only our employees, but also our employees' family members. We have taken action in order to reduce any potential contamination by COVID-19. We are also producing our own masks in order to protect our employees. Operations were fully resumed last month. Let me go over our agenda. On Slide number two, we will have the second quarter 2020 highlights, and this has certainly been the most challenging quarter. At the end of the presentation, we will answer your questions. On Slide number two, we have today's agenda.
We are going to start with our highlights, then we are going to go over the market overview. We are going to talk about the net performance, net revenues performance, then a summary of our P&L and EBITDA. Then we are going to talk about net financial results and net debt. Finally, we are going to talk about CapEx and depreciation. I am going to now discuss Slide number three with some of the highlights. Our net sales revenue was BRL 360 million in the second quarter, which represents a decline of 45% when compared to the same period in 2019. That was 27% lower when compared to the first half of 2019. We are going to go over this in depth later on. As for OEM, we have data coming from the Brazilian and Argentinian automakers.
The consolidated production of vehicles dropped 49.7%, 50.1% in the Brazilian market and 46.3% in the Argentinian market. As for our net debt, despite the impact of this pandemic, MAHLE succeeded in reducing its net debt by BRL 45.2 million or 24%. Finally, this slide presents the key indicators of our company, how the company performed. I would like to highlight our EBITDA margin. On the second quarter of 2020, it was -4.1%. We also have the adjusted EBITDA margin, +4%.
I would like to talk about this gap between these margins, and that is because of the impairment coming from the subsidiary, MAHLE Argentina. That is for impairment. The main driver was also the increase of Argentina's risk as a country. It used to be 9% last year, and right now this risk is at 15%, almost 16%. That is why when we calculated the goodwill of this controlled company, we had this reduction, and we are recognizing this impairment of BRL 29.2 million and the impact it had on our EBITDA. I would like to turn it to Daniel Brasil, who is going to give us an overview of the market.
Thank you, Daniel Camargo. Good morning, everyone, and thank you for joining us in this webcast. I would like to start on Slide number four. This is the market overview. Sales of vehicles, Brazil and Argentina, for the first half of 2020 against first half of last year. Let us start with the light vehicle. In Brazil, we had a decrease of 39% in sales and 51% in production. A decrease as well. In Argentina, a decline of 34% in sales, 46% in production.
When we put this together, we had a drop in sales of 38% and -50.7% in production. This is due to the full shutdown. Automakers in April were all shut down, and they started to reopen in middle of May or June and some companies even in July. That explains this 50% decrease in production as well as a decrease in sales because of the pandemic. I would like to highlight one fact. You can see that we had the decrease was lower in sales compared to production. You can see -38% in sales, -50% in production. Here we have the number of units produced. Brazil and Argentina usually present a positive trade balance, so they export to other markets. Production surpasses sales. Here it represents a decrease in our inventory.
Currently, we have the fact that in Brazil we have 138,000 vehicles or 24 inventory days. That will probably drive production. One additional piece of information is about sales from July, and the numbers are better. We see an improvement month-after-month. In July, we had an increase of sales of light vehicles by 20% and production increased 70% compared to July from the previous year. As for the full year full projection for 2020, recently, ANFAVEA disclosed some numbers, and they forecast we are going to see a 14% decrease in heavy vehicles and 39%. Their forecast is a little bit better in Argentina, especially for heavy vehicles.
Now I will present the figures for heavy vehicles. In Brazil, the sales in heavy vehicles presented a reduction in sales of 17%, reduction in production of 33%. In Argentina, a drop in sales of 29% and 41% drop in production. Combined, the Brazilian and Argentinian market for heavy vehicles was -18.5%, and in production, -33.6%. Again, there is a smaller drop in sales than there is in production. 18% drop in sales and 33% drop in production. In June and July, we sold trucks in Brazil in levels that were higher than the levels of sales of trucks in June of 2018 and 2019. The agricultural business has contributed to that. The sales of heavy vehicles are more associated with the agricultural sector, and this is why we got better figures for this category. Now moving to Slide five.
Here we have the production of vehicles in the main export markets for us. In North America, there was a drop in the production. When comparing the first half of 2020 to the first half of 2019, it was a 40% drop, and in Europe, a 41% drop. Better than the drop that we had in our region, in Brazil and Argentina, but also a significant drop of 41% when combining the two regions. Now moving to Slide six. On Slide six, you can see the evolution of the net revenues from sales in the second quarter of 2020, vis-à-vis the second quarter of 2019. I will focus on the last column. This is where you see the variation. From original equipment in the domestic market, there was a drop of 63.8%. As a reference, the production of vehicles in the same period experienced an 82% drop.
The revenue performance was better than the production performance because of OES parts that were sold that contributed to a better result for revenues when compared to the production of vehicles. In exports, there was a drop of 43.3%. In this case, the pandemic affected other regions in different times, both in North America and Europe. Shutdown of operators took place in those countries, in those regions before than it did in Argentina and Brazil. This is why in the second quarter of 2020, for exports, we had better results than in the same previous of last year. When combining original equipment for domestic and export market, the drop was 52.5%. In aftermarket, the domestic market had a reduction of 32%, and in exports 26.4%. Combined in aftermarket, we had a drop of 30.7%. The aftermarket market has a different behavior when compared to original equipment.
We still have cars being taken to maintenance checks. When compared to the total sales of revenues, you see that in both markets, the drop was 45.5% in a combination between information from OE and aftermarket. Now on Slide seven. Here we see the evolution of net revenues of the first half of 2020 vis-à-vis the first half of 2019. Again, I will focus on the last column. Here we see the variation. In the domestic market for original equipment, there was a drop of 37.7%. Again, a better performance when compared to the market reference. Production of vehicles, the drop was much higher than that. In this particular case, this better performance has to do with a mix of products. In the case of heavy vehicles, the drop in production was not as significant as in light vehicles.
Its share in net revenues also, its share is higher. Considering OES parts, service parts, performance was also better when compared to the production of vehicles. Finally, there was a gradual recovery of the market. Sales in June are connected to the performance of the production of July because you are selling parts today so that OEMs can use them the next month or the next day. This contributes to a better performance. When you consider the month of June, you see an upward trend. This benefits the net revenue of the first half of the year when you compare the revenues of this market when compared to the production of vehicles. In the aftermarket, there was a 20% drop in the domestic market and a 23.2% drop in the export market. Combined, -20.8%. Again, the aftermarket behavior difference from OE market behavior.
There was a drop in the sales of new vehicles, but maintenance checks remain. There is an increase in the sales in aftermarket. The drop in this particular market is lower than in OE. Combined, the net revenues for the first half of the year showed a drop of 27.3%. This is a challenging year for any company. This is the result of the evolution of the net revenues for the company. On Slide eight, you see consolidated exports by region. Not major changes here. The main markets are still North America and Europe, followed by South America and other markets. Again, I will turn over to Daniel Camargo, and I will be available at the end of this talk to answer questions you may have.
Thank you, Daniel Brasil. Moving to Slide nine, you see the P&L summary. Here you see a drop in revenues for the reasons that have already been explained, a drop of 45.5% in the second quarter vis-à-vis the second quarter 2019. A drop of 27.3% year -to -date, because of the reasons already explained, like drop in volumes. Although this is partially offset for the impact of the currency exchange variation, costs have dropped at a lower proportion, especially fixed costs. The variation or the proportion in drop is not the same as in other revenues. On Slide 10. Again, as part of the summary of P&L, selling expenses were reduced in absolute values when compared to the second quarter of 2019.
However, its proportion in relation to the revenue has increased 6.4% - 9.4% in the second quarter of 2020. This is due to minor impacts combined, like exposure to foreign exchange rates and also restructuring inflation. General and administrative expenses, because of several factors such as strong restructuring measures, also had an impact 3.5% in the second quarter of 2019 to higher levels in the second quarter of 2020. Expenses with R&D, not only they were reduced in total amount, but also in percentual amounts when compared to the revenues. With a reduction in expenses with R&D because of the impacts of the pandemic. Activities related to R&D were partially suspended because of the pandemic.
Other operating income. The main impact here had to do with the non-recurrent expenses from the provision for impairment losses because of our subsidiary in MAHLE Argentina in a total amount of BRL 29.2 million. This is the main impact in terms of other operating expenses. Let us move to Slide number 11. We have the operating results. You can see here our EBITDA. And as for the results from 2019, you had BRL 114.9 million. We have a substantial decrease in 2020, BRL -14.9 million. Major impact was the gross results as discussed earlier. And once again, some other SG&A. Those are BRL 29.2 million that are part of this result for this quarter. And also the numbers here for the first half of the year. Let me turn it to Fábio Peres. He's going to talk to us about financial management.
Well, good afternoon, everyone. I'm on Slide number 12. Here we have the net consolidated financial results in two parts. We have the FX variation and others. When we start, we have a gap for this year -to -date of BRL 1.2 million when we compare the first half of this year to last year. And this comes from interest also on loans. We know that has been declining over time, and that has an impact on our CapEx, as well as on our borrowings and loans. Combined to that, we also had an increase on our CapEx, particularly in the second quarter of 2020 for BRL 103 million against that of BRL 618 million.
So we're going to have a gap of BRL -1.1 million. And when comparing the second quarter of 2020 against the same period in 2019, we had a gap of BRL 1.7 million. With regard to FX, we also had the devaluation of the currency. The Brazilian currency suffered an impact and compared to the U.S. dollar and euro. We had BRL -44.2 result, and that comes from some activities taken throughout the year. But this is offset by our hedging and also the variation, FX variation. But we have this mismatch between borrowing
And that was done in euros, and you can see that in details in other documents. And sales also in foreign currency. As they add up and when we have the maturity of that loan, we also need to pay for that. We have this negative financial result up to maturity, and at maturity, we have to repay operations in euros, not in reais. We borrow in euro and we also pay in euro. We don't have any impact on our cash. But when we consider the exposure and when we consider foreign currency, particularly euro, we have this negative result. And also we have a monetary variation. We can see that we had a variation of BRL 3.5 million, and for this second half year, BRL 7.3 million. Here we have some corrections done and also the decrease in volumes.
What we see here is that we have a BRL -10.4 against the year -to -date of BRL 42.1 million. This is the result we achieved regarding this financial management. Slide number 13. We have our net debt, and that increased from BRL 394 million to BRL 612 million. And that's because of the BRL 250 million that we borrowed at the end of March in order to protect our company's robustness and because of the pandemic. And below, you can see the maturities and short-term and long-term debt. In March of 2021, we will have the maturity of two operations regarding borrowing for protecting the company against COVID-19. And we are now negotiating the extension of this debt. But we are starting negotiations now. The goal is really to benefit from that, discuss costs, also a decrease in Selic, also interest rates.
We are already talking to the market in order to make the best decision. Anticipating negotiations that should start early at the beginning of 2021. Slide number 14. We have the percentage of our net debt. Altogether here we have 41.5%, then at 29.4%. ACC, as we explained, we had the FX variation, 26%, and the BNDES, 2.5%. I would like just to emphasize the fact that despite all the challenges with the pandemic, the company decreased its net debt by 24%. Slide number 15.
Here we have CapEx during this first half. You can see that it was not much because of the pandemic, and we decided to focus on our cash flow. We all know about the challenges and having to face. The company decided to wait a little bit when it came to CapEx. The goal was really to protect our company's health. Very well. With that, I would like to close the presentation, and now let's open for the Q&A session. Then you will have the opportunity to ask us to go in depth in any question you may have.
Ladies and gentlemen, we will now start the Q&A session. To ask a question, please press star one. To remove the question from the queue, please press star two. The first question is from Gabriel Rezende, Bradesco BBI. You may proceed.
Hello, and good morning.
We are not getting his audio. Just wait one second. Let me remind you that to ask a question, please press star one. Please wait while we collect the questions. Our next question is from Marcelo Motta from JPMorgan. Marcelo, you may proceed.
Good afternoon. I have two questions. First, I would like you to comment on the demand for OE and aftermarket in the beginning of the third quarter. Could you please share with us the behavior of July and August for orders? Also the stats that you mentioned and the potential rollover to the beginning of next year. What type of savings do you plan to have and what type of range you are aiming at improving the financial cost of the company?
Marcelo, this is Daniel Brasil. Thank you for your question. As to demand, as I have mentioned, it is in an upward trend. The figures of vehicle production and sales in July will determine the orders for the company a lot in terms of OE, but that's also true for exports. After reaching bottom in April, we are in an upward trend. Fábio, could you please answer his second question?
Talking about that, and as I have mentioned before, we started some discussions with some financial institutions. We are aiming at lower costs. What happened in the end of March and the beginning of April is that spreads were higher because of all the uncertainties we were going through and market volatility.
They were talking about CDI plus 4, CDI plus 6. Some banks even saying about CDI plus 8. Now probing the market, you see CDI plus 2 or plus 1.5. Naturally, because of the reduction in market volatility, the costs have returned to more attractive levels. We are obviously not simply looking at ACC, but other lines like Law 4131. Of course, we are also checking ACC. It is also interesting, and it is an interesting line, our average cost of ACC in Brazil, in composition with Argentina, it is 0.40% a year. It is very attractive. So rollover that will take place in March, it is going to have lower costs than the costs we have today. But if we aim at doing that in March 2021, we should start discussing that in February.
But we are getting ahead of ourselves and starting these discussions with financial institutions now, including related to Law 4131, trying to find an opportunity to renegotiate the debt or maybe renegotiating payment terms. Maybe pushing the payment date forward. So it is going to be more attractive than when we first discussed that in March this year. I am not sure whether I answered your question, and if not, please let me know.
Yes, it was very clear. Thank you.
Let me remind you that to ask a question, you should press star one. Once again, if you want to ask a question, please press star one. Our next question is from Gabriel Rezende of Bradesco BBI. Go ahead, Gabriel.
Good morning. I am sorry I had connection issues. I wanted to ask you about your expectation in terms of the recovery of the vehicle markets in North America and Europe. You shared your optimism for the Brazilian market in comparison to Fábio's forecast. But what about your expectations to the foreign market? Do you see stronger recovery than what was forecast in the beginning of the pandemic? I would like to understand your take on it.
This is Daniel Brasil. Good afternoon, Gabriel. Indeed, the recovery in European and North American markets are expected to improve better than Brazil or Latin America as a whole. The year-to-date production in June, our drop was higher than the drop experienced in foreign markets. Even when it resumes, the resumption is going to be slower than the recovery expected for North America and Europe. Although we are being surprised because based on the forecast we were made in April and May, the results we are getting now are better than the forecast and one example of that is for heavy vehicles. The sales of trucks from June and July of 2020, the sales was even higher than the sales of the same period in previous years. So that was surprising to us.
I would just like to ask a follow-up question. So these forecasts that you have reviewed and now made a more optimist one, is that also true for your forecast for foreign markets?
Yes. We are making more optimistic forecast because they are better than what was initially expected in April.
Okay. Thank you.
Let me remind you that to ask a question, please press star one. Since there are no further questions, we will conclude the Q&A session. Now I would like to turn over to Mr. Daniel Camargo to proceed with his closing statements.
Thank you very much to everyone who attended this conference call. We wish that all of you remain safe and healthy, and see you in our next meeting.