Good afternoon in Brazil, everyone, and thank you for waiting. Welcome to MAHLE Metal Leve for the third quarter of 2018's results conference call. With us here today, we have Dr. Christian Binkert, CFO, Chief Financial Officer, and Mr. Daniel Alves, Marketing Corporate Communication Manager. This event is being recorded, and all participants will be in a listen-only mode during the company's presentation. After MAHLE Metal Leve remarks, there will be a question -and -answer session. At the time, further 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 to the channels 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 post 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 statements are based on the beliefs and assumptions of MAHLE Metal Leve 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. Now, I'll turn the conference over to Dr. Christian Binkert, CFO, who will begin the presentation. Please, Dr. Binkert, you may begin your presentation.
Good morning, good afternoon, and good lunchtime, ladies and gentlemen. Welcome to the third quarter conference call of MAHLE Metal Leve. Let's go briefly through the agenda. We will start as usual with the Q3 2018 highlights, followed by the market overview. Then some insights in regards of the net revenues by markets, summary of the P&L and EBITDA. The financial management, meaning really the financial results and the independence of MAHLE Metal Leve. The second last point before the discussion, that would be the current CapEx and depreciation. Coming to the highlights. First of all, the net sales revenue in the third quarter was BRL 710 million, a growth of 19% compared to Q3 2017. The growth mainly coming from domestic sales, OEM with 17%, and for export OEMs, it's around 20%.
Yesterday in the Board of Directors meeting, it was decided to distribute BRL 71.7 million interest on equity, which will be paid out end of December 2018. Another positive news, in October 2018, we received a Transparency Trophy from ANEFAC for the good quality which MAHLE Metal Leve is disclosing the financial statements in regards of 2017. Of course, not to forget our very good and strong quarter for MAHLE Metal Leve in regards of EBITDA. We reached in third quarter EBITDA of around 21% compared to a similar value Q3 2017, 22%. Now I would like to hand over the words to Daniel.
Good morning, everybody, and thank you for attending our conference call today. I'm on Slide four, where we have the Brazil and Argentina vehicle registration production for the year -to -date, September this year and last year. We have two tables, the first one with the light vehicles and the second one with the medium and heavy vehicle. On the light vehicle, we have Brazil, Argentina, and the combination of the two countries. For Brazil, we can see an increase of 13% for the vehicle sales and 9.6% for the vehicle production. In Argentina, we have a decline of -12% and an increase in production of 5.6%. This increase is mainly related to the Brazilian market. The two markets are very correlated. It's interesting to mention about Argentina, if you look one more month, so if we include October on these numbers, we already have -16%.
The full year expectation for the Argentina market is to finish the year around 24%-25% decline. If we combine the year -to -date September of Brazil and Argentina, we have in sales 5.8% increase and a vehicle production 9% increase. The full year expectation for the market in vehicle sales, the combination of the two countries, it's around 2%, and for vehicle production, 5%. Even with the decline of Argentina, we will finish the year with an increase when we combine the two countries. Moving to the medium and heavy vehicle. We have for Brazil almost 29% for the vehicle sales, and in production, we have 24.5%. In Argentina, the same situation for the light vehicles. We are declining 9.2% in the year-to-date September, and -6% from the vehicle production.
The combination of Brazil and Argentina in vehicle sales for the medium and heavy, it's a 17.7% increase for sales, and now around 22% for the vehicle production. In this case, the full year expectation for the combination of the two countries, it's around 16% for the vehicle sales and 22% for the vehicle production. Regarding the next year, 2019 year, we have a positive perspective for Brazil. For Argentina, also we have a decline for vehicle sales in June. We will have a high comparison for the first half of the year. Therefore, we will have, again, our expectation is a decline on vehicle sales for the next year, around 20%. However, when we combine Brazil and Argentina, the expectation for the next year, it's a positive perspective, around 2%, 3% on vehicle sales, and therefore, also for the vehicle production. Moving to Slide five.
We have the vehicle production for the main markets of export of MAHLE Metal Leve. In North America, we have -0.5% on the vehicle production. However, the medium heavy vehicle, we have a 12% increase. In Europe, we have a 1.1% increase. Also for the medium, we have a high number, so 4.8% increase on the vehicle production. Total vehicle production, 0.4%. However, as the medium heavy is high, we have some benefits for the MAHLE Metal Leve, also have a good participation for this market in the export business. Moving to Slide six, where we have the net revenues performance by market. In this case, the first column is the third quarter this year. We have the volume price, the tax variation, and the fourth column, we have the last year quarter. Moving directly to the last column, where we have the variation.
We can see on the original equipment, an increase of almost 19% on the MAHLE Metal Leve sales. On the aftermarket, we have an increase of 19.4%. The combination of the original equipment and the aftermarket, we have 19%. If you look on this quarter, we had a positive impact because of, we had the truckers strike on May. This affected our sales, and also in June. Therefore, we have stronger sales on July and also on August. This is one of the reasons for the strong third quarter for this year, comparing to the last year. Now moving to Slide seven. In this case, we have the net revenues performance by market, the year-to-date September this year, comparing to the year-to-date September last year. On the second column, we have the volume price, on the third column, the tax variation. Again, moving direct to the last column.
On the original equipment, we have an increase of around 20%. On the domestic market, 23.6% increase. For the export, 17% increase. This performance on the domestic market is higher than the market. We look at the vehicle production, around 10% increase, and our sales increase, it's 23.6%. The main reasons for this better performance is the high increase of the medium heavy market, so the trucks and bus and agricultural. Also, the service parts, the OES business, and a ramp-up for new business. These are the three main reasons for our better performance comparing to the vehicle production. In the export market, we can see the effect impact around 15%, and the volume price impact of 2%. In this case, we have a higher market share for one business for the medium heavy market. It's some liners.
This is the main reason for our increase on volume, in this case. Going to the aftermarket, we have a consolidation of 8.9% for the domestic and export. In the domestic market, we have 4.4%, and a negative impact for the effects, around 8%. The reason of this negative impact is mainly because of our consolidation of Argentina. So the sales we have in pesos, we convert to Brazilian reais. So we have this negative impact on the effects for the domestic market on the aftermarket. Therefore, the volume price impact for the aftermarket domestic, it's 12.2% increase. In the export market, we have 26% increase and a tax impact of 10%. The volume price impact is 16% increase, and the main reason is the Colombia market and Chile, and also some new share for the intercompany business.
The combination of the original equipment and the aftermarket, it's an increase of 16%, an FX impact of 4.4%, and the volume price impact of 11.6%. Now moving to Slide eight. In this slide, we have the consolidated exports by region. You can see a similar graph as we had on the last call, an increase of the NAFTA market. The main reason for this increase, it's about, as I mentioned, the share for the medium heavy customer for the liners. Now I will hand over to Mr. Christian, so he'll continue the presentation, and I will be available for questions at the end of the conference call.
Thank you, Daniel. Moving to page number nine, the summary in regards of P&L. As already mentioned, the sales in the third quarter was quite strong with BRL 710 million, giving us a margin of 13.5%, very comparable to last year with 31%. If we now look year -to -date, we have a sales of BRL 1.957 billion, +16% compared to previous year. Here our margin is improving by 0.9 percentage points, to third quarter or year -to -date, 29%. Page number 10, some details about selling, general administration, R&D, and other operating income. We can see that our selling costs in the third quarter are increasing from BRL 37.9 million to BRL 51.6 million. One of the major reasons, as already explained the last call, is the truck strike. We still have some negative impacts in Q3 2018.
In addition, we had last year some reversal of accruals, which impacts the selling cost positively last year, which did not happen this year. We also did have a negative impact, especially in regards of the selling cost because of the revaluation, the new rules in Argentina, the so-called IAS 29. The main changes in regards of the admin costs, where we had last year level of 3% and this third quarter 3.3%, they are the reclassification of some contingency last year from admin costs to other operating costs. The R&D costs in the third quarter, very similar compared to last year. Last year we had 3.2%; this year we have 2.8%.
One of the reasons why we have slightly lower R&D cost is that we had more third-party R&D, meaning the costs related to third-party R&D is not shown in R&D cost, but respectively in sales and cost of sales. Other operating income, a couple of impacts, even the amounts are rather small. Here to mention the sales of land and building MAHLE Hirschvogel Portugal in Q3 2018. Lower impacts in regards of the Reintegra, the exports program, and the provision reversal of obsolete stock accruals. Moving to page number 11. Last year, third quarter, we had a EBITDA of BRL 113.26 million, with a margin of 22.2%. Where are the major impacts coming from? The gross income, meaning really higher volumes, around BRL 32 million.
On the other hand, as already mentioned, higher selling cost of around BRL 13.7 million and slightly higher general admin cost by BRL 5.6 million, giving a third quarter 2018 EBITDA margin of around BRL 149 million or in percent, 20.9%. Year -to -date, we have last year a margin of BRL 319 million, with a margin of 18.9%. This year we have BRL 380 million, an increase of the margin to 19.4%. The major changes, like in the third quarter, mainly coming from gross income, higher volumes, BRL 95 million, higher selling cost, and slightly higher operating income expenses. Moving to Slide number 12. Next financial result, if we go from top to the bottom, the interest result, we had last year in the same quarter a positive impact of BRL 0.1 million. This year, BRL -0.8 million, so really no major changes.
We can see that our overall investment amount went down from BRL 422 million to BRL 124 million. In the same period, the overall interest for investments went down from 8.7% to 6.1%. On the other hand, the interest expenses, we have a positive impact, BRL -9.3 million last year. This year, BRL - 2.7 million, so positive impact of around BRL 7 million. The average days debt went down by around BRL 180 million, and also the cost of debt improved from 8 percentage points to 3.6 percentage points. In regards of the exchange rate variation, the points number two, also really no change. Last year we had BRL 4.1 million. This year, BRL 3.2 million. So it is rather stable and stable as all the monetary variations at the third point. Last year, BRL - 11.3 million. This year, BRL -10.1 million.
Overall, the financial income with last year BRL - 7.1 million and this year BRL - 7.7 million, a small negative impact of BRL 0.6 million. Going to page number 13. Our liabilities short-term BRL 202 million. You can see the distribution over the period since September 2019. There is a major portion in January 2019 with BRL 26 million, and a large amount in March 2019 with BRL 57 million, and then in April and May once again, BRL 25.6 million. Long-term liabilities, the BRL 138 million, are well distributed between the periods 2020 and 2023.
Cash position BRL 211 million compared to last year, BRL 190 million. Overall, the net position this third quarter, end of September, is BRL 128.8 million. Page number 14, the breakdown of our financing. Last year, we still had our, better end of December, we still had a lot of financing with FINAME. We changed our strategy a little bit. We have now much more ACC contracts with 50%, but still have a portion with FINAME with around 45%, and then around 5% in September distributed by BNDES loans and other loans. Coming to page number 15. Already mentioned yesterday at the board of directors meeting, it was decided to distribute BRL 71.7 million on interest on equity by the end of 2018. Coming already to the last slide number 16. We expect for the total year an investment of around BRL 106 million, slightly higher than we originally had budgeted. Year -to -date, we have invested BRL 55 million, and the total depreciation year -to -date is BRL 68 million. Looking at some ratios, we have invested 2.8% in regards of our sales. The same number like previous year, where we also had 2.8%. In percent of depreciation, we have increased from 65% to 81%. Thank you very much, ladies and gentlemen, for your attention. If you have any questions, kindly let us know.
Excuse me, ladies and gentlemen. We will now begin the question and answer session. If you have a question, please press the star key followed by the one key or no touch tone phone now. If at any time you would like to remove yourself from the questioning queue, press star two . Our first question comes from João Noronha Santander .
Hello, good morning. Thank you for the question. Two from my side. First one, if you can comment a little bit more on the current capacitization of your operations in Brazil. Also, the second question, it is more related to import tariffs. If you can give us some idea of the level of import tariffs that your products that you sell in Brazil, mainly on the aftermarket they have. Asking this mainly because of local news discussing the willingness of the new government to open the country more widely to imports. Thank you.
Thank you very much for your question. Coming to the first point, the current capacity utilization, of course, it varies from plant to plant. But in general, we can say for MAHLE Metal Leve, we have currently a capacity utilization of around 70%.
João, this is Daniel speaking. Could you repeat again your question? The second question. Should be more clear for me to answer.
Sure. The second question is regarding import tariffs. What level of import tariffs do your main products have currently? Looking in terms of aftermarket, if we would divide overall on pistons, rings, and bearings, what is the current level of import tariffs for those products? My question regards the local news that the new government could be willing to open the country more widely to imports. Just to assess the level of competition that you could face in case import tariffs decline.
Okay, thank you. The exact number of the imported, again, it varies, depends on the product, and regarding should be more open the marketing. Also there are other effects, for instance, the tax rate. For now, it is not only for the aftermarket, but also for the OE, for instance, for the vehicles, the taxes. We need to have more clear information or definition to calculate the real impact in our sales. We have so many variants in this case, so I do not have this evaluation by now.
Okay. In ballpark numbers or in large numbers, don't you have an assessment of the level of tariffs currently?
Yeah, I don't have it here by now with me. We can talk later on to get more details on it.
Okay, great. Thank you.
Our next question comes from Marcelo Inoue, Citibank.
Hi, everybody. Thanks for the opportunity. I have two questions on my side. The first is on Europe. We have seen news about the impact on automakers in Europe with new emission test procedures, and I wanted to understand if the contraction in volumes in OEM exports you had in the quarter reflect that or if there is something else. If you could break down how volumes for OEM exports performed per region, that would help us. The second question is on OEM domestic, here in Brazil specifically. You mentioned in the call that you expect growth for Brazil and Argentina combined to grow something like 2%-3% next year. I wanted to sort of check with you if an implied growth of 9%-11% in Brazil makes sense in 2018. Thank you.
Okay, Marcelo, this is Daniel speaking. Regarding the first question, talking about the Rota 2030, we expect a positive impact for the MAHLE Metal Leve because we have the new limits for the fuel consumption, and this will bring more technology to the products, to the engines, and for the vehicles. This for sure will bring more members or more sales to MAHLE Metal Leve. Regarding the second question, the market, if I understood right your question. For the end of this year, we will finish the year with the positive trend. The full year for production for the light vehicle, we expect around 5%. For the next year, even with the decline of the Argentina, we also expected a positive trend in vehicle sales combining the two markets, the Brazil and Argentina. I do not know if this answers your question.
Yeah. On the second question, you mentioned in the call that you expect sales in Argentina to contract by 20% next year, right?
Yes.
Does that mean implicitly Brazil growing high single digit to low double digits next year?
Yes. The market numbers or the numbers about Anfavea or the automakers, they are talking about lower two digits, so around 10%, 9%. This will, even with the -20% of the Argentina, will bring a 2% increase on vehicle sales, the combination.
Okay. Thank you.
Our next question comes from Gabriela Cortez, Banco do Brasil.
Hi, good afternoon. Thanks for taking my question, and congratulations on the results posted. My question regards gross margin. We saw a great improvement when you compare the year-to-date results. When we see the third quarter from 2018 compared to 2017, we see a slight drop on that. I would like to know what to expect from now, if you are expecting improvements for the next quarter and for the next year, and how it's going to work. The second question, you mentioned you were expecting an increase in production of 22% for 2018 in mid and heavy vehicles and 15% in sales. Does it mean that in the fourth quarter, you won't see an advancement in production and sales? Is that correct? That's it. Thank you very much.
The first two questions, of course.
Hello?
If you answer.
Okay. Gabriela, this is Daniel speaking. I will answer first the second question about the market. We have, as I mentioned, in the vehicle sales, 16% our expectation for the full year, and for production, 22%. The main reason of this, we have, in this case, a positive perspective. Also, we have the truck strike in May. We have some customer or some companies buying their own fleet, and this also helps to increase the number, and also the effect on the export business.
Okay.
I do not know if this answered your question on this.
Yeah. It is clear.
Okay.
Coming to your margin questions, this is Christian speaking. Actually, we see the future quite positive, but of course, it depends on many factors, mainly on the volume development, but also the exchange rates, also the material prices. As somebody already mentioned in the call about possible tariffs or not tariffs. As a summary, we see the future quite bright. But it depends on many factors which we often do not directly have an impact on.
Could you mention for this quarter, what was the highest impact? Was it effect rate or material price? Can you open that for us?
Yes. The highest impact in the third quarter compared to the previous quarter really was the increase in material costs.
Okay. That sounds great. Thank you very much.
Our next question comes from Marcelo Motta, JP Morgan.
Hi. Good afternoon, everyone. Two questions on my side as well. First, you comment about the increase on freight cost that had a negative impact on the overall margin. Wondering if this is a cause that you guys expect to remain or if it was more related to some kind of one-off. The second question is regarding the NV2 technology, and if there is any updates regarding this front that you guys could share with us. Thank you.
Let's start with your last question. Christian, Motta again speaking in regards of NV2. At the moment, we are fully tracked with our possible sales contracts, not only with the sales contracts, also with our expected investments, as well as our costs. We rather see an upside potential in regards of the NV2 business at the moment, especially after the elections. In regards of your freight cost, it's a combination. Of course, we hope that the truck strike will not happen anymore going forward. This would be a one-time impact. As mentioned, this new accounting regulation, which is now valid for Argentina, which had a quite high impact on our selling cost, the so-called IAS 29. This will continue going forward, as long as Argentina is a hyperinflation country.
As a summary, it's a combination of one-time impact where we hope it will not happen anymore, and some impacts we are at the moment quite certain. As mentioned, IAS 29, this going forward still will happen, and will have a negative impact on MAHLE Metal Leve. Does this answer your questions?
Yes. The second question is regarding the price cost. If you expect this to remain, the increase that you had during this quarter, or if it was more like a one-off.
Could you repeat, Marcelo, please?
Freight cost.
Freight cost. Especially freight.
Exactly. Yeah.
Once again, as mentioned just now, the freight cost is a combination. The truck strike, where we think and hope it is a one-timer. On the other hand, we had some rather big impacts due to the new accounting rules in Argentina, the IAS 29, which is valid for hyperinflation countries. For this impact, we think as long as Argentina is a hyperinflation country, we will have this negative impact also going forward. As a summary, it is a combination of a one-time impact and a continuous impact out of Argentina. These are really the two major impacts in Q3 2018.
Okay. Perfect, guys. Thank you very much.
Thank you.
Excuse me, ladies and gentlemen. As a reminder, if you would like to pose a question, please press the star key followed by the one key on your touchtone phone now. This concludes today's question and answer session. I would like to invite Dr. Christian Binkert to proceed with his closing statements. Please go ahead, sir.
Once again, thank you, ladies and gentlemen, for participating for our call. Have a nice day, a nice evening, and looking forward to hear you very soon again. Thank you. Goodbye.
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