Good afternoon in Brazil, everyone, and thank you for waiting. Welcome to MAHLE Metal Leve for the first quarter of 2018 results conference call. With us here today, we have Dr. Christian Binkert, CFO, 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 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 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's 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. Please, Dr. Christian Binkert, you may begin your presentation.
Good morning, good afternoon, ladies and gentlemen, and welcome to the Q1 conference call of MAHLE Metal Leve. If we go to number slides. First of all, briefly about the agenda. A couple of words about the highlights for the first quarter 2018, followed by the market overview. Then we are going to discuss the net revenues and the performance by market, followed by the summary for profit and loss statement and EBITDA, financial management, and at the end, a short overview over the CapEx and depreciation. If you go to page number three, the highlights for the first quarter 2018. Sales increased to BRL 618.7 million in the first quarter, which is a growth of around 14.5%. Growth in the domestic sales of original equipment manufacturer, so-called OEM, increased first quarter around 17.6%.
Important in the annual general meeting held on the 27th of April, it was approved to pay dividends like in the past MAHLE Metal Leve has done historically. Like done historically, additional BRL 143.6 million. Management did not consider the information on subsidiary MAHLE Metal Leve Miba as material, so therefore, the numbers in 2017 include still MAHLE Metal Leve Miba. Looking at the main indicators, as mentioned, sales increased by 14.5% to a level of BRL 619 million. EBITDA increased nearly by 50% to a level of BRL 119 million. The EBITDA margin is 19.2%, meaning an increase of 4.3%. The net income nearly doubled to BRL 71.4 million, and the net margin is 11.5%, an increase by 4.4%. Now, I would like to hand over to Daniel, which gives you some more information about the market overview.
Good morning, everybody, and thank you to attend our conference call today. I will start on page four, where we have the automotive figures. In this case, Brazil and Argentina vehicle registration and production. The first quarter of 2018 and the last year first quarter. On the first table, we have the light vehicle. On the first column, we have the Brazilian figures. We can see the sales increase. It is almost 15%, and the production increase is 13.1%. On the second column, we have Argentina, where we have a 16.4% increase on the vehicle sales and 20% on the vehicle production. Combining these two countries as a block, Brazil and Argentina, the main countries of South America region, we have in vehicle sales 15.2% increase, and in production, we have a 14% increase.
If you look to the absolute numbers, we have a positive trade balance, a higher production level than the sales. We are in line, the sales and production. The inventory in March finished with 34 days with the amount of 231,000 vehicles. Also in April, we have the same level of the inventory of the vehicles, and up to 32 days. The inventory is in a good level, close to 30 days. The full year expectation for the vehicle sales, it is around 10%. We have a 15.2% for the two counts, Brazil and Argentina, and for the full year, we have 10% because of the higher comparison basis for the second semester. The first semester or the first quarter last year was low, so we have a lower comparison basis for this year.
On the second semester, we have a higher basis for comparison. For production, the full year expectation is around 12%. We have it on the first quarter 14, and the full year expectation is 12. We have a potential risk now. For Argentina, for sure you heard about the interest rate increase on the last weeks, and we already have an impact in April, daily vehicle sales in Argentina, so we have a decline. In this case, we did a simulation. If you keep the April daily vehicle sales for the full year, we would have the same level of vehicle sales in Argentina. In this case, we should have an impact on the vehicle production about 2%. Moving to the medium and heavy vehicle.
We have Brazil on the first column, where we have the sales increase, almost 20% increase, and the production, 36.4% increase. In this case, it is also for the production, we have a very low comparison basis. This is the reason for the discrepancy between the sales and production index. On the second column, we have the Argentina market. An increase of almost 10% on the vehicle sales and a 0.3% on the production. Combining the two counts, Brazil and Argentina, we have on vehicle sales for the medium and heavy, 16.3%, and in production, 32.6% of increase. In this case, the full year expectation for the vehicle sales, it is around 13%, and in production, around 14%. On this first quarter, we had a better trade balance, so we should have positive news on this case with a higher production.
If you keep the same trend that we have on the first quarter, the production should be almost 20% on the full year, the whole number. Moving to slide five, where we have the vehicle production, the main export markets. We have the North America market and the Europe market. For North America, in the light vehicle production, we have a - 2.6%, and the medium heavy production, we have a 20%. It is a huge increase, and it is good for the MAHLE Metal Leve because we supply for this market, so we got the benefits for this increase. In Europe, we have the light vehicle production, 0.9% increase on the quarter, and the medium heavy vehicle production, 4.4%. The combination of these two markets, it is - 0.3%. We have the same level.
The medium heavy, it is higher, so this is good for the mix, but the total vehicle production for Europe and North America is -0.3% . Moving to slide six, where we have the net revenues performance by market. We have the original equipment, the first two lines, and the aftermarket. On the first column, we have the first quarter of this year, turnover. We have the volume and price impact on the second column, and the effects variation on the third column. Last year, 2017, so the first quarter of last year on the fourth column. I will focus on the percentage. If you look for the original equipment, domestic, we had an increase of 35.3%. If you look at the vehicle production, it was 15%. However, with a higher production for the medium heavy. This is better for the mix.
This is the reason that we have the higher increase for the MAHLE sales, not only this reason, but one of this. The other reason was the service parts increase, where we have on the filters and also the engine components increase. The better economy, so increase also our service parts, not only the vehicle production for the OEM, but also the repair for the service. The export business, we have on the original equipment, an increase of almost 17%, with effects impact almost 12%. The volume and price impact, we have 5%. In this case, we got some increase on the market share for some business in North America, some liners for the heavy-duty market. This is the main reason for our increase in the volume for the export market for the original equipment.
Going to the aftermarket, the domestic aftermarket, we had an increase of 6%, and a negative impact for the effects, 4.6%. In this case, the negative impact for the effects is Argentina. We have our business in Argentina, and here we consolidating in Reais. This is the reason for the negative impact. If you look for the volume and price impact for the aftermarket domestic, we had an increase of 10.6%. Also mainly because of the recovery of the economy. This is also in line with the service I just mentioned for the automakers, and then we have this benefit also for the aftermarket. In the line of the export aftermarket, we had an increase of 39.1% and the effects of 3.6%, so a volume -price impact of 35.5%. The main reason for these better numbers are the intercompany business.
So we got some new market share for the intercompany for the aftermarket export. This is the main reason for our increase. So the total net revenue consolidated is 20.1%. Excluding the FX impact, we have 16.3%. So this is the net revenues performance by market, excluding the Miba Sinterizados impact. So we have a separated line for the Miba Sinterizados. So the volume and price impact, we have 6.3% increase. Now I'm going back to Dr. Christian, and I will be available at the end for the question.
Oh, sorry. I have one more slide. The slide seven. We have the participation of the turnover by region, our export turnover by region. You can see a decline in Europe and an increase in the NAFTA market, as I mentioned. So we got some market share for our liners, for the heavy duty customer. And this is the main reason for the change between NAFTA and Europe. So this business increase our NAFTA participation. Now it's okay. So I will go back to Dr. Christian, and I will be available at the end for questions.
Thank you, Daniel. Coming to the summary of P&L. As mentioned, the net sales revenue increased of 14.5%, and without Miba, it would be around 20% to a level of BRL 618.7 million. The gross income, we have now a level of BRL 173.5 million, an increase of 27%. And the gross margin in percent is 28%, an increase of 2.7 percentage points compared to previous year. Going to the next slide, giving some comments about SG&A, R&D, and other operating expenses. If you look at the total selling, general, and R&D costs, you can see a decline from 14.6% to 12.1% in the year first quarter 2018. Looking a little bit at the SG&A expenses, as described, the percentage is going down from 6.3% to 6.1%. On the other hand, the absolute number is going up.
The reason is severance payments and, of course, also, with higher sales levels, we also have, for example, more freight costs. In regards of the R&D, you can see a decline from 3.9% to 2.7%. The major reason for this decline is that we had more third-party R&D services, and this third-party R&D services are then not registered under the R&D cost, but reclassified as cost of sales. And in regards of the admin cost, general administration costs, we can see the biggest move in percentage from 4.4% to 3.3%. Here, we last year had some severance payments included, and I think we mentioned also in one of the previous telecons, we implemented or are still in implementation of a lean management program, meaning reducing our admin costs. And the first impact you can see in quarter one 2018.
The other operating income, with BRL 2.3 million on a rather low level. The main impacts are really the gain of disposal of assets, the income recover tax under Reintegra, and some reversal of labor, civil, and tax accruals in 2018. If we go to the EBITDA, in 2017, the first quarter, we had BRL 80.7 million, with an EBITDA margin of around 15%, increasing now to Q1 2018 to BRL 118 million, BRL 119 million or a margin of 19.2%. The major impacts really are higher gross income via higher sales of around BRL 37 million, slightly lower R&D expenses. The major reasons I already explained. Also lower admin cost of BRL 3.5 million, mainly because of the lean management program which we're implementing at the moment. Slightly lower depreciation—higher depreciation, sorry, and slightly higher selling costs.
Here once again, in regards of the selling costs, the higher freight costs because of the higher sales and the reversal of accruals, also to mention once again. Coming to the net financial results. First of all, the interest, where we had last year a negative impact of BRL -6.9 million, this year BRL -0.3 million. The reduction is a combination of lower interest rates, as you can see below on the table, 9.3% - 5.8%. In addition, also the average indebtedness decreased from BRL 517 million to BRL 175 million, and accordingly, the interest net was BRL 0.3 million. The exchange rate variation and the result with derivatives, we have seen a slight improvement from BRL 4.3 million to BRL 7.4 million, so improvement of BRL 3.2 million. The monetary variation, a small decrease from BRL 10.3 million to BRL 8.9 million.
The overall net financial result, last year BRL -13 million to this year, BRL -1.8 million, an improvement of BRL 11.2 million. Coming to the next page. The indebtedness already touched briefly. Last year in December, we had a net position of BRL 14 million. It's nearly stable. We achieved in March 2018, BRL 14.5 million. Liabilities, nearly no change. A slight increase of BRL 4 million, which was compensated in principle by higher cash, around BRL 4.6 million. So once again, the overall net position, nearly no change compared to December 2017. If you look at the maturities, short-term, we have around BRL 29 million distributed quite equally from April to March 2019 with amount from BRL 2.3 million to BRL 2.8 million.
Long-term, we have BRL 21.2 million in 2019, and coming up to a level of around BRL 30 million in the year 2023, and then decreasing for the outer years, once again, coming down to a very low level in 2029 of BRL 0.5 million. The financial management, how is the company financed? As you can see, we are financed mainly in FINAME with 92.5% and a small BNDES share of around 7.5%. The number shown here should not be December 2018, it should be March 2018. Very sorry. Coming to the net income and the benefits to the shareholders. Once again, the net sales revenue, BRL 618.7 million. The net income, BRL 71.4 million, an increase of around 86%.
As mentioned in the highlights once again, MAHLE Metal Leve will distribute around BRL 232 million in dividends for the year 2017, and BRL 88 million in interest on capital, and in April, approved in the annual shareholder meeting, additional BRL 143.6 Million. At the end, a couple of words in regards of the CapEx and depreciation. If you look, we have a CapEx of BRL 14.6 million, slightly higher compared to previous year. The total depreciation, on the other hand, is slightly going down. If we take some ratios in percent sales, we have 2.4% CapEx, and in regards of depreciation, we have around 64%. For the total year 2018, we forecast a CapEx of around BRL 100 million. Thank you very much for your attention. If you have any questions, please 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 on your 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 with Santander.
Hello. Good morning. Thank you for the question. Two questions from our side. First one, if you can elaborate a little bit more on the drivers behind the gross margin expansion. How much was improvement in mix and how much was driven by the not including Miba operations, and how sustainable can you expect this to be throughout the year? My second question, if you can discuss a little bit about the new government incentive program, Rota 2030. If you can elaborate a little bit on the R&D impact and how MAHLE can profit or not from it. I record that back in time in the Inovar-Auto time, MAHLE was benefited by the higher R&D expenses in the local market, and we see the Rota 2030 maybe will have a lower R&D requirement for the local market. Thank you. These are the two questions.
Okay. Thank you, João, for the question. First of all, coming really to your first question, the gross margin, in regards of MAHLE Miba Sinterizados. As you know, this was, let us call it, a break-even business. So selling this business had some positive impacts on us, but really the margin increase was coming. First reason is the sales increased, and the second reason, I think we have done our homework in regards of fixed cost reduction and so on during the crisis period of time. So in principle, it is a combination of sales increases and higher synergies because we have done our homework during the crisis. How sustainable is this margin going forward? I think it will be a challenge. It will be a challenge because we can see that material prices, for example, aluminum, steel prices are increasing.
Daniel also mentioned the crisis in Argentina, where the interest rates jumped now to a level of 40%. Nevertheless, we can see that, and also mentioned by Daniel, the sales forecast from ANFAVEA is still positive for the year 2018 with around 12%. There are ups and downs. At the moment, it is challenging to say we will stay on the same level, go up a little bit or go down a little bit. But of course, we will try our best to keep it at a very, very good and high level. Does this answer your first question, João?
Thanks. Yeah, it works.
Okay. The second question will be answered by Daniel.
Hello, João. Good morning. Thank you for your question. The Rota 2030, it looks like a novel. We are the postpone of the release of the program. But now we are getting more recent news about the program, and the main talk or the main point will be the incentives for the R&D. For sure, MAHLE will get the benefits for this program because we are prepared for this. We have our tech center in Jundiaí.
We are also anticipate some actions or some analysis for our customers, and we will provide them with the needs for the new targets they will have. It is not released yet, but I think we believe that will be this year, even with the postponing they did. But for sure, we will get some benefits for the R&D. So we have a picture or a definition about these incentives and how much the automakers can benefit for these investments. I do not know if this answers your question. This is the information we have so far.
Okay. Thank you very much. That helps.
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 a touch-tone phone now. Our next question comes from Lucas Barbosa with UBS.
Good morning, gentlemen. Thanks for taking my question, and congratulations for the results. My question is actually a follow-up on what Dr. Christian mentioned in the call. He mentioned the company's work to reduce SG&A. I just wanted to know what the company believes regarding SG&A and R&D expense levels. If you believe that these are recurring levels going forward or not. This is my first question. Thank you very much.
As mentioned, we have reduced our SG&A and R&D level from 14.6% to 12.1%, so a reduction of around 2.5%. If you look at the individual lines, I see further potential for a percentage reduction in the selling expenses. I see a further potential in reduction in the admin expenses. With the lean management program implemented, we are going still in some areas through the implementation phase. In my opinion, we will see slight increased R&D costs. 2.7% are quite low, and as explained, this also has a reason because we had more third-party R&D sales, which then are not recorded as R&D, but as cost of sales. Overall, at a level of around 12%, I still see some further potential coming down. Does this answer your question?
Yes. That answered my question. The second part of the question is, you delivered a very strong EBITDA margin of 19.2%. Do you believe that can be maintained going forward? What is your expectation regarding EBITDA margin?
This was a similar question like your colleague from Santander. As mentioned, it will be a challenge, on one hand because we see increasing aluminum prices, we see increasing steel prices, the crisis in Argentina. On the other hand, as mentioned by Daniel, ANFAVEA still gives a positive projection for the year 2018 of around 12% sales increase, production increase. Overall, it will be a challenge to keep the margin at the level of 19%. But the company, MAHLE Metal Leve, will try to do the best to keep it at a very good level like we have seen in the past.
Thank you very much, Dr. Christian. Have a good day.
Thank you. Bye.
Excuse me, ladies and gentlemen. As a reminder, if you'd like to pose a question, please press the star key followed by the one key on your touch tone phone now. Our next question comes from Lucas Marquiori from Banco Safra.
Hello, guys. Good morning. Just a quick question on my side. Could you give us a quick update quarter-over-quarter regarding the MB2 program? Does it have the commercial campaigns accelerated, or should we expect some push-up on the back of the Rota 2030 announcement?
In regards of MB2, as you all know, it was approved to really selling the product beginning of this year. We are in close contact with some specific customers and to really close the first contracts, hopefully very soon in the future. In regards of Rota 2030, I think, yes, the indications we have that it might potentially increase even more the potential MB2 sales going forward. Does this answer your question?
Yeah. Thank you.
Thank you.
Our next question comes from Murilo Freiberger with Bank of America Merrill Lynch.
Hi, good morning. Thank you for the opportunity to ask the question. From our side, the question is regarding the solid performance on the top line. MAHLE outperformed market volumes in most of the regions, especially in South America. I would like to understand where that outperformance comes from, if it is more a mix, you are selling more high-value added products with higher average price, or if it is some kind of market share gains from imports. If it is mix, do you guys think it is already a consequence of downsizing trends and OEMs building smaller but more efficient engines? That is the question.
Okay, Murilo. This is Daniel. Good morning. Regarding our outperformance for the domestic market, we have not only one effect, but we need to take care. Looking to the medium and heavy market, the participation of the MAHLE sales in this segment comparing to the vehicle production, it's different. We have a higher mix when we see the MAHLE sales. The second point is the service parts, as I mentioned.
We had also in filters and engine components, an increase of these service parts due to the economy recovery and also some business that we recovering that we had lost, and now we get back with this one. And the third point, it's also some benefits for some export engines. We have some customers exporting engines, and we are supplying components for these engines. And the last one is some new business. These are the four reasons for our outperformance from the domestic market. This answer your question?
Yes. That answers. Thank you.
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, ladies and gentlemen, for participating in Q1's channel call from MAHLE Metal Leve. Looking forward to hearing, seeing you again in the second quarter of 2018. Thank you very much, and have a nice day. Goodbye.
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