Good afternoon in Brazil, everyone, and thank you for waiting. Welcome to MAHLE Metal Leve for the second quarter of 2018 results conference call. With us here today, we have Dr. Christian Binkert, Chief Financial Officer, and Mr. Daniel Alves, Marketing and 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 that time, further instructions will be given. Should any participants need assistance during this call, please press star zero to reach the operator. 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, and the replay will be available shortly after this 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 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. Christian, you may begin.
Good morning, ladies and gentlemen, and welcome to the second quarter conference call of MAHLE Metal Leve. If we go to slide number two, the agenda. First of all, I will give some highlights, followed by the market overview, which will be commented by Daniel, as well as the net revenue by the market performance. The summary of P&L, EBITDA, I will speak about once again, as well I will speak about the financial management and the CapEx and depreciation. If we could switch to slide number three, the highlights. The net sales in the second quarter were BRL 628 million, a growth of around 9% compared to second quarter 2017. Here to mention, we had a truck strike which impacted MAHLE Metal Leve in May, but also in June 2018. The original equipment market, so-called OEM, the growth was in domestic around 20%, 19.9%.
For the export business compared to previous year, we had a growth of 14.1%. MAHLE Metal Leve did get two awards. The first one is from Valor Inovação Brasil 2018. We have been ranked the second-best company in the automotive industry in heavy vehicle category. This award was given in July to MAHLE Metal Leve, and yesterday evening we received additional awards for the automotive industry from the magazine Exame. If we concentrate a little bit on below charts, the main indicators. I mentioned already the net revenue increased by 9% if you compare the second quarter 2018, this last year second quarter. The EBITDA increased by around 5%, and EBITDA margin more or less on a stable level with 18.0%. The net income increased by around 6%, and the net margin was around 9.6%, also more or less on a stable level.
For the first half year, we achieved now a sales of BRL 1.246 billion, meaning an increase of 14%. The EBITDA increased by 24% to a level of BRL 231.7 million. The EBITDA margin increased by 1.5 percentage points to 18.6%, and the net income increased by around 38% to a level of BRL 132 million. The net margin at the first half of the year was 10.6% or an improvement of 1.9 percentage points compared to previous year. I would like hand over the speech to Daniel.
Good morning, everybody, and thank you to attend our conference call today. I will start on slide four, where we have the Brazil and Argentina vehicle registration production this semester and the last year's semester. On the first block, we have the light vehicle, and we have Brazil on the first column. We can see the sales increase of vehicles, almost 14%, and production we have 12.6% of increase. In Argentina, we have 1.6% of increase on vehicle sales and 10% increase on the vehicle production. Combining the two counts, we have a 10% increase on the vehicle sales and 12% on the vehicle production. Last conference call, we talked about a potential risk for Argentina. Now it's not more a potential, it's really declining the scenario for Argentina.
If you look for the July or year -to -date to July, we already have on vehicle sales -4%. In a, I would say, positive perspective, a -13%, or if you keep the bad situation as you have, it will be closer to -20%. The combination of Brazil and Argentina, the full-year expectation, now we have it 10%, and the full-year expectation, it's 3%. Also, in production, the year-to-date to June, we have 12%, and the full-year expectation is around 5%. Mainly because of the Argentina situation, the economic situation. Yesterday, once again, they increased the interest rate, so we do not see any good news in the short term for Argentina, in this case. Now, talking about the medium and heavy vehicles. We have it for the Brazil vehicle sales, increase of 23%, in the production, 24%.
For Argentina, we have 1.6% on the vehicle sales and -6.8% for the vehicle production. The combination of Brazil and Argentina for the vehicle production for medium and heavy, we have it in sales, 16% increase, in the production, 21%. Looking for the full-year expectation for the medium and heavy, we expect to finish the year with an increase of 10% in sales and 12% in production. Now, moving to slide five, where we have the vehicle production in the main export markets of the MAHLE Metal Leve. The first one, it's North America. We have a light -vehicle production, -20.5%, so a decline. For medium and heavy, we have an increase of 17.7%. For Europe, we have an increase on light -vehicle production of 2.4%, and for medium and heavy, an increase of 7.6%.
The combination of this total vehicle production is 0.6%. However, with a better mix for MAHLE Metal Leve, also the medium and heavy has a higher number or higher increase. Our good participation for the market of medium and heavy, it's good for the MAHLE Metal Leve sales. Moving to slide six, where we have the net revenues performance by market. In this slide, we have the second quarter this year and second quarter last year. On the second column is the volume and price variation, and the third column is the FX variation. Going directly to the last column, we have the variation. In the domestic markets, an increase of 20%. Even with the truckers strike in May, we got good results for the domestic market.
In the export business, the original equipment, we have a 14% of an increase, and the FX impact is 8%. We have a volume and price impact by 6%. So we got an increase in market share in this case. The total original equipment, it's an increase of 16%, and the aftermarket on the domestic aftermarket, we have it - 9.7%, and the FX impact, it's - 4%. The FX impact on the domestic market is because of Argentina. We sell the goods in Pesos Argentinos, and we convert to Brazilian reais to have the consolidation here. On the export for the aftermarket, we have an increase of 13% and a FX impact of 11%. The total aftermarket on the quarter was - 4.9%, and the combination of original equipment and the aftermarket, it's an increase of 9% for the net sales revenue.
Moving to slide seven, where we have the semester sales. On the first column, it's this year. On the second column, it's the volume price impact. The third one is the FX variation. The fourth column, it's the last year numbers. Again, moving to the last column, where we have the total variation for the semester. On the domestic market, we have an increase on the net sales revenue for 27%. If you look at the Brazil and Argentina vehicle production, we have around 13% of an increase. Therefore, we have a better performance for the MAHLE Metal Leve sales on the original equipment domestic. The main points, we have here for this better performance, it's a mix. We have a higher increase for the medium and heavy vehicle production. Also, the OES, the service parts, we have a higher increase.
Finally, an increase or a ramp-up for our new business. These are the three main reasons for this better performance for the original equipment domestic. On the export, we have an increase of 15%, and the FX impact of almost 10%. So 5% of the volume and price impact. In this case, we got some new volumes for the liners and business for North America. This is the main reason for this better performance on volume and price impact for the export market on the original equipment. Talking now about the aftermarket. We have a decline of - 2.4%. The FX impact, it's -4.5%, again, because of the Argentina, so when you convert to Brazilian reais. The volume price impact for the aftermarket domestic is 2.1%. In this case, it was mainly affected by the truckers' strike in May.
Not only in May, mentioned by Dr. Christian, but also in June, we got not so good results because of this. In the export, we have an increase of almost 25%, and the FX impact of almost 8%. The volume price impact for the export aftermarket is 17%. In this case, the main impact is because of a new intercompany sales for the aftermarket export. This is the main reason for this increase on the export aftermarket. The combination of the aftermarkets, domestic and export, is 3% increase, and the combination of the original equipment and the aftermarket, it is an increase of 14%, and the FX impact 3%, and the volume price impact increase, it is 11%. Now moving to slide eight, where we have the share by market for our exports. You can see no big change.
We have an increase for the NAFTA market because of the business I just mentioned, for the liners, for the heavy-duty customer. This is the main reason of this different participation for the markets. We have an increase for all markets, but in this case, higher for the NAFTA and a new split for the participation. Now, I give again the words to Dr. Christian. He can continue.
Thank you, Daniel. Moving to page number 9, the summary and P&L. As mentioned already, the sales increase second quarter 2018 compared to last year was 9%, resulting in a margin increase from 28.4% currently. We had last year 27%. On a half-year basis, as already explained by Daniel, our sales increased by around 14%, mainly by volume and prices. This resulted in a margin increase from 26.5% to 28.2% in the first half of 2018. If we switch to page number 10, continuing with the P&L in regards of the SG&A, we can see that we have been impacted, as mentioned already by Daniel, our sales, by the truck strike, meaning we had higher transportation costs to still deliver to our customers, not only domestic, but also for our export business.
Therefore, we see the selling cost increases for the second quarter this year to 7.6% compared to previous year, 6% on a half-year basis. We have now a selling cost of 6.9% compared to previous year of 6.2%. The admin costs, we can see in both periods in the second quarter, also in the half year, a decrease compared to previous year. For the second quarter, we had an SG&A rate and an admin ratio of 3.6% compared to 4.8% last year. For the first six months, we now achieved 3.5% admin cost compared to previous year, 4.7%. The R&D costs now are more or less on a normal level. We have on the half-year closing R&D cost of around 3% of sales.
The other operating income, as you might remember, we sold last year one business, which was MAHLE Metal Leve Miba Sinterizados, which gave us a positive impact last year, which did not happen this year anymore. Therefore, we have here smaller gains in the other operating income. Also to mention the Reintegra, the export incentives, the government decided to stop it from 1st of June, 2018. It was reduced from 2% to 0.1%, the legal requirement. This is also one additional main factor why we have a difference in the other operating income comparing the two periods. If we move to page number 11, the operating income, measured by EBITDA. In the second quarter 2017, we had an EBITDA of BRL 107.7 million, which gives a margin of 18.7%. Now, in the second quarter 2018, we achieved EBITDA of around BRL 113 million, EBITDA 18%.
Where is the major changes coming from? From the cross-income, which gives us a positive impact around BRL 23 million. As explained by Daniel already here, mainly to mention the volumes and the prices. Other operating income, I mentioned already here, the main difference compared to previous year is MAHLE Miba Sinterizados. In regards of the selling cost of BRL 13 million, the major impact here really are the higher transportation costs due to the truck strike in May. If you look at the half year 2017, we had a margin of BRL 170 million EBITDA, 17.1%. Now we moved up to 18.6%, an improvement of 1.5 percentage points, or in absolute values, BRL 232 million. In principle, the same reasons as mentioned before, the differences are mainly coming from higher gross income, meaning volume and prices.
On the other hand, we are a little bit burdened by the other operating income here, the keyword Miba once again, and the selling costs once again, the keyword transportation costs and the truck strike in May. If we move on to page number 12, the net financial results. If you look at the total financial income, we can see in the second quarter, we had a negative amount of BRL 5.2 million compared with last year, BRL -7.6 million, so really no major differences.
Also, in the first six months, 2018, BRL -7 million, we see compared to previous year, where we had BRL -17 million, a small improvement. The major improvement is coming from interest. This is really a combination of lower interest for our debts, but also for our investments as well as you can see on the lower part of the chart, lower loans, lower debts, but also lower investments compared to previous year. In regards of the exchange rate variation, if we look the first six months, we only have a small difference compared to previous year, a small positive difference of BRL 2.8 million.
We achieved now BRL 12.8 million, and the monetary variation also going slightly down now to BRL 18.6 million. Once again, overall now for the financial income, we have BRL -7 million, improvement of around BRL 10 million compared to previous year. If we look at the slide number 13, the indebtedness. Last year, in December 2017, we had a net position of BRL -14 million, now of BRL 124 million. Mainly because we did repay BNDES loans.
We also distributed this year, once again, the full dividends to our shareholders, and the difference then is really the cash generation from our operations. In the below chart, you can see our short and long-term distribution of our indebtedness, where you can see that it is well-distributed, not only in short-term, but also long-term over the years 2019 till mainly 2023. Moving on to the page number 14, the indebtedness part number two. Here, really the key message is in June 2018, we had around 56% with FINAME and around 40% with ACC financing and still a small portion, around 5% with BNDES loans. Page number 15. I mentioned already the distribution of dividends. We distributed for the year 2017, BRL 232 million. 2016, it was BRL 54 million because of the impairment which we had in our piston ring business.
In 2015, it was in the level of around BRL 198 million. Coming already to the last page number 16, the CapEx. We spent, year -to -date in June, around BRL 29 million, so a very similar value compared to previous year. Also, the depreciation with BRL 46 million is very similar compared to previous year. If we take some ratios in percent to sales, we have 2.3% spent in CapEx at the moment. In regards of depreciation, 63%. Our estimation is that we will spend for the year 2018 a CapEx of around BRL 100 million, which will exceed partially the depreciation. Thank you very much for your attention. If you have any questions to Daniel or myself, kindly let us know.
Ladies and gentlemen, we will now begin the question -and -answer session. If you have a question, please press star one. If at any time you would like to remove yourself from the questioning queue, press star two. Our first question comes from Lucas Marquiori with Banco Safra.
Hello, everyone. Thanks for the call. I have two questions on my side. First one, related to the domestic aftermarket volumes, in the second quarter, compared to the last year. I was wondering if you guys could give us any information regarding the volume behavior, in the months of April and June, or any volume increase or decrease, excluding the effects of the Argentinian crisis and excluding the effects of the truckers strike. Any metric on that would be nice. My second question is regarding the Rota 2030 program. Well, the program is now officially launched, so I was wondering if you guys have already studied or assessed the potential impacts for MAHLE, especially tax benefits or potential new product launching. Any color on that would be nice, too. Those are my questions. Thank you.
Okay, Lucas. This is Daniel Alves speaking. Regarding your first question for the aftermarket domestic, we have these impacts or the truckers strike impact all together with this scenario. It is difficult to separate it, which is the market, or in this case, the truckers. Because the situation in May and also in June was really affected by this situation. I do not have it for you, the numbers separating the effects about the strike in the market in this case.
Do you have the volume behavior for April, for example?
For April, we have a regular volume that we had compared to the last year, and May and June was the mainly months that is affected by the strike.
Okay.
Regarding the second question for the Rota 2030, the program was launched, and now we need to have the details about the program. But our expectation from MAHLE Metal Leve, it is a positive perspective because of the new targets for the fuel consumption. So we are expecting new developments from the customer and also MAHLE providing solutions or new technologies to achieve the targets for this new program. And a good point, the participation will be by the average of the models, but the additional discount of - 1% and - 2% will be by model, not in the average of the automaker. Therefore, this also help us, not in a specific model, but for all models of the customer, we can work together.
Okay, Daniel Alves. Just to make it clear, which was the volume increase or decrease in the domestic aftermarket only in April? Could you give us the number?
I do not have the number here in my hand for April.
Okay.
Next week I talk later to you and give you this information. I do not have it specific for April.
Okay, thanks.
Lucas, just let me add one comment. We know the impact of the truck strike for the aftermarket. We are speaking about a two-digit million reais negative impact, in the month June. But our expectation really is that the next couple of months we will recover this shortage in the truck strike in the aftermarket.
Okay, Christian. Thank you.
Our next question comes from Murilo Freiberger with Bank of America.
Thank you, guys. From our side, we have two questions. The first one, if you could remind us of your hedging policy. If I'm not mistaken, you have the policy of hedging roughly 75% of your FX exposure, looking into a 12-month horizon and then, in the long run, lower hedge positions. So we can understand how the FX depreciation can flow into our results. And the second question is still a follow-up question on what Lucas just asked regarding the truck drivers strike impact. If you guys could provide us any color if you already noticed an improvement in July in terms of volumes on the replacement market. I think that's it from my side.
Okay, Murilo, this is [inaudible] speaking. How are you?
Fine. Looking forward for your answer.
Okay. Regarding your first question, the hedging policy, actually, what we have, it's something that always come up from investors, is that our revenues would be affected by 85% on the FX volatility. So with this condition that we have, the valuation of reais recent, it could be rich positively in terms of revenues, okay? Because we have a hedging policy that we have to hedging, on average, 50% of the total volume. But from this 50%, 85% would be positively or negatively impact by the valuation of the exchange rates.
Okay.
Regarding your second question about the aftermarket in July. We cannot talk about the July figures, but for sure it's not similar that we had in May and June. It was not a common situation, and for July, you can say that's more normal. The volumes are not affected by the strike, but I cannot see the numbers. Okay?
Sure. Thank you, [inaudible], for the call.
Ladies and gentlemen, as a reminder, if you want to ask a question, please press star 1. Our next question comes from Victor Mizusaki with Bradesco BBI.
Hi, thank you. I have just a brief question. When I take a look on your earnings results, we can see this increase in freight costs. So I'd like to know if you think this cost as a percentage of revenues, can I assume that, given the discussion about the minimum road freight price, that this logistics cost is the new level? Or can I assume that it will go down to historical levels?
It's Christian speaking. As mentioned in the call already, the selling costs have been one of the major impacts, have been the transportation costs, because of the truck strike, because we still had to deliver to some domestic customers and also especially export customers. At the moment, we have been not approached by transportation company or by logistics company, because of the new topic you mentioned. So we don't feel any impacts in regards of the new approach at the moment. My perception would be that the selling costs, especially in the second quarter, has been rather high and should stabilize the next couple of months once again. Does this answer your question?
Yes. Depending on what the Supreme Federal Court will say maybe later this month on this minimal road freight price. Maybe we can see an increase after this decision.
Could be, but as mentioned, at the moment, we have been not approached from any of our transportation logistics companies about price increases or price change requests at the moment.
Okay. Thank you.
Thank you.
Ladies and gentlemen, as a reminder, if you would like to pose a question, please press star one. 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.
Thank you very much once again for participating the second quarter 2018 call. Looking forward to seeing you all again, our latest CEO in the third quarter conference call. Thank you very much and have a nice day.
That does conclude the MAHLE Metal Leve audio conference for today. Thank you very much for your participation. Have a good day, and thank you for using Conference Call.