Good afternoon and thank you for waiting. Welcome to Tegma Gestão Logística S.A conference call to discuss the results of the first quarter of 2021. Today with us, we have Mr. Marcos Medeiros, CEO of the company, and Ramón Pérez , CFO and Investor Relations Officer. We would like to inform you that this event is being recorded, and all participants will be in listen-only mode during the company presentation. At the end, we will have a Q&A session when further instructions for you to participate will be given. Should you need assistance during the call, please press star zero to reach the operator. The replay of this event will be available for a period of seven days. Now we would like to give the floor to Mr. Marcos Medeiros, CEO of Tegma, who will start the presentation.
I hope you are all enjoying very good health, and on behalf of my whole company, I would like to once again thank you very much for participating in another earnings conference call. In this quarter, we formulated our presentation so that it may be more dynamic and thus improving understanding of the company and its results by all of you. Today with us, we have Ramón Pérez , our CFO and Investor Relations Officer, Ian Nunes, Head of IR, and William Santos, our Investor Relations Analyst. Very well. Starting on slide two. As you all know, the COVID-19 pandemic has been impacting severely the global economy, making the environment very volatile and placing uncertainties about the forward-looking statement that will be made during this presentation. Tegma is giving you information as of this date and reserve the right not to update any forward-looking statements contained in this event.
Now let's go to slide number three, and before we talk about the highlights of the quarter, I would like to say a few words about the current moment that we are living. Our main market, new vehicles, is living a very different moment, a very atypical moment. On one hand, we see signs that there is a very big pent-up demand for vehicles, be it from rental companies or fleet owners or individuals, reflecting in the increase in the sale of used vehicles and with a very long wait line. On the other hand, automakers have been facing many challenges in production because of the shortage of parts and the increase in production costs and limitations of mobility imposed to society because of the pandemic and the price of vehicles as well.
Here at Tegma, we are paying attention to the very short time, a very uncertain one, mainly the second quarter of 2021. When production resumes, car assembly companies will need the full support from logistics operators in order to rebuild their inventories of the industry as fast as possible. Starting by the first highlight, we have a new logistic flow of road deliveries of new vehicles to Chile that intensified in this quarter, and this operation is highly complex due to the fact that it crosses the Andes. It becomes a new option for delivery for car companies here in Brazil. Thus, they start to rely less on issues such as delays in ports or lack of availability of ships in this moment of international logistic bottlenecks.
Although it does not present quite a lot in our revenues, it is another way for Tegma to prove itself as an end-to-end solution provider to our clients, further improving our competitiveness. The second item had to do with the broadening of the scope of service for the current clients of our industrial logistic operation in the integrated logistics division. The expansion plan for this division is to offer more interconnected services. For current and new clients, we were able to sign the road transportation service of sodium sulfate to the plant of a current client and sign an agreement for road transportation with another one. With that, we are able to deliver growth at its best, contracts that are based on productivity and not only price, increasing loyalty of our clients and generating value for them and for our shareholders.
The third point is something that I have already referred before. The downtimes in the production of vehicles that occurred in the first quarter of 2021 were caused mainly by the shortage of parts and semiconductors. This crisis affects production of vehicles all over the world. In spite of the problem and the shutdown of the Ford plant in January 2021, the industry has been able to maintain stable production in this quarter on a year-on-year comparison due to the lack of availability that affected more some car companies than others. General Motors, that makes the most widely sold vehicle in Brazil, the Onix, interrupted a few times production of this model in March.
According to the car company itself, it will be keeping the Gravataí plant in Rio Grande do Sul inactive up to June 2021, and other downtimes on the part of car companies should be considered, and we are paying attention to any consequences on our operations. Lastly, the fourth item has to do with the substantial change in the market share of automakers in domestic sales. If we look at the sales performance per brand in the first quarter of 2021, on a year-on-year comparison, we can see that only two of the seven largest brands grew. FCA, which is Stellantis, that grew 33% and already represents almost 1/3 of the market, and Hyundai, and the others either remained stable, or they had a drop in sales.
If we ignore Ford, that discontinued local operations, General Motors, an important client of ours, was the one with the worst performance in this comparison due to the temporary limitation in production that was explained in the previous item. Thus, I would like to give the floor to Ramón Pérez , our CFO and Investor Relations Officer, to continue this presentation.
Thank you, Marcos. Good afternoon, everybody. Now let's go to slide number four, where we see the main statistics in the vehicle market in Brazil. Quarterly domestic sales were 7% lower on a year-on-year comparison, and this drop is lower than the one that we saw in the fourth quarter of 2020 vis-à-vis the fourth quarter of 2019, which was 10%. In other words, it confirms the recovery of the market.
Due to the all restrictions in place today because of the aggravation of the pandemic, we could consider this as a very important sign. Now talking about production, we can see on the lower part of the slide that the first quarter of 2021 was stable on a year-on-year comparison. Even considering the fact that the Ford plant was discontinued and all the restrictions regarding the supply of parts that were imposed by the pandemic. Exports had a positive performance, and they grew by 4% in 1Q 2021 year-on-year, impacted mainly by the exchange devaluation that made exports more competitive. Now let's go to slide number five. In slide number five, we see the main operating indicators of the automotive logistics division.
On the chart, on the upper part, we see the number of vehicles carried in the first quarter of 2021, and it was 12% lower on a year-on-year comparison. This has translated into a loss of 2.9 percentage points in our market share, which was 22.8%. This reduction is due mainly to the changes in the car company's market share, as was mentioned in the highlights of the quarter, due to the temporary production stoppage of an important client. The average distance on the lower part of the slide also had a negative performance in the quarter, and this can be explained mainly by the increase in exports via port in the transport mix.
It is also explained by the shutdown of the Ford plant in Brazil in January, which means that there will be no more trips between the state of Bahia, where one of the Ford plants was located, coming down to the southeast and the south regions. Now let's go to slide number six, in which we mention the results of the automotive logistics division. We can see on the chart above that the net revenue of the company was 17% lower on a year-on-year comparison, mainly due to all the aspects that we have already mentioned, such as the drop in the number of vehicles carried and also the reduction in the average distance. Besides, there was a drop also in the logistics services revenue due to the lower inventory in the industry.
Nevertheless, over last year and also during the first quarter of 2021, we saw adjustments in tariffs that had a positive contribution to our revenue. On the lower part of the slide on the left, we can see the EBIT or operating income of the division in the first quarter of 2021 growing by 37% year-on-year or a 12.4% margin. Part of this increase comes from the expense and cost control that we implemented during the last few months. Nevertheless, we should also mention that non-recurring events also happened in the first quarter of 2020, deteriorating the result. On the other hand, in the first quarter of 2021, these events improved the results.
If we were to ignore these events that are detailed in our earnings release, we would have an EBITDA margin in the first quarter of 2021 around 9%, which would represent a drop of 2 percentage points in relation to the first quarter of 2020, also adjusted. This lower EBIT margin is due to the drop in revenue, which leads to a lower dilution of fixed costs. Likewise, we can see on the chart on the side that the EBITDA of the first quarter of 2021, which was BRL 33 million, with 13% growth, was affected by the positive non-recurrent event in 2021. Net of these events, these non-recurrent events, we would have an EBITDA of BRL 27 million in the first quarter of 2021, a reduction of 30% in relation to the first quarter of 2020, also adjusted a margin of 13.2%, that is to say 2.4 percentage points lower on a year-on-year comparison.
Now, let's go to slide number seven. In which we can see the main operating indicators of integrated logistics. Let's start by the two charts on the lower part, and we can see that volume transported of both solid and liquid bulk by the chemical's operation was 3% higher in the first quarter of 2021 on a year-on-year comparison. This was due to the high inventory that was accumulated in this operation over the second half of 2020. On the chart on the side, we can see that there was a drop in the average stored volume in the first quarter of 2021 on a yearly comparison.
This was due to the consumption of the existing inventory and the non-arrival of ships in order to rebuild them, and these oscillations are normal, and they are obviously aligned to the production strategy and also the consumer demand and also the inventory formation of finished products of our client. As a reflex of this movement on the upper chart, we can see that the number of trips was 8% lower, mainly due to the lower flow of chemicals transport between the port and the warehouse, in spite of a very slight increase in the trips in the home appliance operation. On slide number eight, we show the results of logistics, integrated logistics. On the upper part, on the upper chart, we see the net revenue of the division in the first quarter of 2021, which was 15% lower year-on-year.
This drop is mainly explained by the loss of a client in the warehousing operation as we published in our earnings release of the fourth quarter of 2020. Now, let's turn to the chart below, to the left, where we show the EBIT of the division, and we see that there was a significant drop of 37% in the operating income in the first quarter of 2021 on a year-on-year comparison, which represents a 5.7 percentage point reduction in the EBIT margin. This performance is explained by the discontinuation of the warehousing client that, as we mentioned before, became unprofitable in spite of all the cost adjustments that we promoted. Besides, the industrial logistics services mix was temporarily less favorable with an increase in the number of services that have lower margins.
On the right of the slide, we can see that the EBITDA of the division was 33% lower in the first quarter of 2021 on a year-on-year comparison, resulting into a drop of 7.9 percentage point of the margin. Beside the same explanation that we gave about the drop in the EBIT, the EBITDA has a distortion coming from the implementation of the IFRS 16 currently, as it no longer contemplates the rental costs. If we were to draw the same comparison, including the rental costs, that is to say, if we were to calculate the EBITDA in the previous format, the margin for the first quarter of 2021 would have been 23.8%. Then we would have a drop of only 2.6 percentage points in relation to the EBITDA, of course, calculated on the same basis for the first quarter of 2020.
This would be in line with the unfavorable services mix mentioned. Now, slide number nine, where we talk about the consolidated results, we can see that the net revenue of the company dropped by 16%, and this performance was mainly impacted by the reduction in the number of vehicles carried in the automotive division. In spite of this performance, we can see a growth on the chart below to the left of the EBIT at 13% in the first quarter of 2021 year-on-year, an increase of 3.4 percentage points in the margin. This performance, as explained before, is due mainly to non-recurrent events that occurred in both quarters, but also it is due to the cost and expense control process implemented over 2020, and also in the first quarter of 2021.
In the middle chart, we can see that the company EBITDA remain practically stable in the first quarter of 2021, BRL 43 million, representing an 18.5% margin with an increase of 2.7 percentage points on our year-on-year comparison. This increase was due to extraordinary or non-recurrent events in both quarters and by the cost control implemented in the last 12 months. Lastly, on the chart on the right, we show our net income, and we can see that in the first quarter of 2021, we delivered BRL 20 million in net income, 5% higher than 2020, driven by all the previous operating variations that we described. A slight increase in interest expenses because of funding that was taking at a slightly higher cost at the beginning of the pandemic in order to take preventive measures to strengthen our cash and a slightly inferior equity income on a YoY comparison.
On the next slide 10, we highlight a very important factor in a moment of uncertainty such as the one that we are living, which is the management of costs and expenses. On the upper part, you have a chart showing in the first two columns that the net revenue of the automotive logistics division, as shown before, was 17% lower in the first quarter of 2021 on a year-on-year comparison. Beside it, we can see that the variable costs went down by 14%, showing the high correlation existing between them. Lastly, on the right, you can see that the fixed costs went down by 21% in the first quarter of 2021 on a year-on-year comparison. This was driven by all the efforts undertaken over 2020 and during the first quarter of 2021 as well. On the lower part, on the lower chart, we show the consolidated G&A.
First on the left, you can see a comparison of expenses of the first quarter of 2021, BRL 18 million , 33% lower year-on-year. On the side, we show the same comparison, but vis-à-vis the fourth quarter of 2020 with a reduction of 16%. The expense management is part of the reductions implemented by the management of the company over last year in order to face the impact of the pandemic. These savings have been incorporated permanently in the company. Among the main items of these savings, we can mention the reduction of our payroll expenses because of the adjustment carried out over last year. Also, the drop in expenses with outsourced services such as consultancy services and also a reduction in severance costs, among others. On slide number 11, we show on the left the company free cash flow.
As you can see, in the last three years, this has been growing consistently. Talking about the first quarter of 2021, we had BRL 44 million in free cash flow, a level that is slightly inferior to the previous year due to the reasons that we have already referred to and operating issues, and also due to the fact that there was a lower compensation of the tax credit in the first quarter of 2021. In the middle chart, we can see that the consolidated cash cycle is 39 days. This is a recurrent level in the company, and you can see it in the recent quarters also due to the normal receiving days and also because of the centralization of payment to our suppliers that we did and that extended the average payment days.
Lastly, on this side, we have the investments made by the company in the first quarter, BRL 7 million. A rebound of investment going back to levels similar to the pre-pandemic levels in percentage of the net revenue, close to 3%. The main investment in the quarter was the acquisition of packaging for the home appliance operation. On slide number 12, we show details of our capital structure. On the first chart, you can see it is evident that the over BRL 300 million cash, BRL 305 million in March 2021, is much higher than our current gross debt amortization for the next four years. This amount is due to our capacity to generate operating cash and also the reduction in the need for working capital because of the lower level of operations. Besides, this is also a strategic decision on the part of the company.
This cash position, when compared to our gross debt, results in net cash of BRL 111 million , reflecting the deleveraged structure of the company. On the upper right, you can see that the increase in the average debt cost is due to the funding that we had to resort to at the beginning of the pandemic, as I claimed before, and that aimed at strengthening our cash. The cost of debt in March 2021 remains at CDI + 2.9%. Lastly, we show that our rating by Fitch remains at A L ocal, with a stable outlook. It is important to mention that this rating has just been confirmed by the agency last Friday. This confirms the sound financial situation of the company. In our opinion, it ratifies the correction of our strategic guidelines, the way that we lead our businesses, and the perspectives for growth.
Lastly, let's go to slide number 13, in which we show the evolution of our return. We are talking about ROIC as well as ROE. ROIC, 17.8% in the first quarter of 2021, reflects a reversal in the downward trend that we had since the first quarter of 2020, and this confirms the recovery of the automotive market over the second half of 2020. It also reflects all the cost and expense control done by the company that allowed us to bounce back to operating margin levels that are similar to the ones delivered in 2019. At the same time, ROE was maintained at 11.6%, practically stable vis-à-vis the fourth quarter of 2020. On the lower left, we show the history of dividend and interest on equity paid out by the company.
On the gray line, the payout for 2020 bounced back to a level higher than a minimum 50% established in our policy. You can see on the orange line below it, we can see the dividend yield, that was 2.4% in 2020. On the charts beside, we see information related to our shares. We believe that the current levels of market multiples are due mainly to the uncertainties that are related to the automotive market, and which had a major impact on the depreciation of the price of our stock. But we remain confident in the recovery and the positive signs that are coming from the market already, and especially the pent-up demand for new vehicles. Lastly, on the lower part, we can see the performance of our stock in a comparison with the Ibovespa i ndex.
I think we should highlight that as of April, we can see a recovery in the confidence of investors, probably based on March market data, and also the belief on a more consistent recovery of the automotive market. With that, I would like to give the floor back to Marcos.
Ram ó n, thank you very much. You can see on the last slide on the left, we see the next events where we will be participating and we expect you all to participate. On the lower part, we mention the most recent events, and one of them can be revisited at YouTube. Before we open for questions, I would like to remind you to evaluate our results by means of the QR code so that we may further improve our communication with you. This is very important for us. Thank you very much.
Ladies and gentlemen, now we are going to start our Q&A session. In order to ask a question, please press star one. In order to remove your question from the queue, please press star two. Questions asked through the webcast will be read. Pedro Zaniolo from Condor Insider.
Good afternoon. Thank you very much for the question. Could you give us more color about April? In the integrated logistics division and the automotive division as well. Do you see any recovery in automotive logistics, or do you believe this will happen only in the next semester?
Pedro, thank you very much. This is Marcos. The April result, FENABRAVE has just published, and we have already read it, and we carried out a pre-analysis. You can see that sales were 7.5% lower than March, and you don't have the total amount, only the nominal one. Because in April, April had three business days less. But on the other hand, we see that this is about these daily sales of April, 6% higher than March. This is a good indicator for demand, which means that demand is going up. It is important to mention that the March sales were impacted by sales that happened in January and December, and they were only delivered in March. This is the reason why we have this effect in March.
Just to give you two examples of some of our clients, some of our automaker clients, we saw once again, Fiat, for instance, Jeep with regular growth and drawing a lot of attention and having a very big impact on market share. Also, Toyota with some new moves, mainly the last launch or the most recent launch. And April, we have just analyzed the data, and we are following our clients very closely in terms of outlook. That's it, Pedro.
Thank you.
Pedro, could you repeat your second question, please?
If you see some recovery already in automotive logistics.
Oh, okay. So I have already answered all together. Yes, we already see that, and daily sales indicator is very important because it shows demand. You can see that it's already starting to take off. Thank you, Pedro.
Victor Demier from Vinci Partners.
Good afternoon. Thank you for the presentation. It's a quick question. I would like to understand the effect of integrated logistics on your EBIT. It had been coming at a strong level and there was an impact on this quarter. What was the reason for that?
The interpreter could barely hear the question.
Thank you for the question. In fact, there was a drop in revenue. I think it's important to explain the fact that from the accounting viewpoint, although the EBITDA is not necessarily an EBITDA indicator, we have a perverse impact of the application of IFRS 16 because the loss of this client in warehousing that represented a major part of the drop in our revenues led to a drop of 53% in our costs with rental, in our rental costs. So when we compare the EBITDA in the current format, you take the drop in revenue, but you do not consider the drop in rental.
If we were to calculate according to the previous format, that is to say, if the rental costs could be deducted before calculating the EBITDA, we would have a drop of 2.4, 2.5 percentage points only because of the loss of the client and also the lower inventories of chemicals in our warehouses, and which led to a lower dilution of our fixed cost. So in summary, we had a loss in margin, but the loss that you see is artificially inflated, I would say, by this methodology that uses the IFRS 16.
Thank you very much. Just continuing. We saw during the course of the automakers over the first quarter, the expectation of normalization or going back to normal is being further delayed. Do you believe this will happen in the beginning of the second half of this year? What is your opinion?
This is Marcos. We have a positive outlook, and in the last call, we said that there was a 450,000 vehicle backlog. What we have been reading about is that the fleets are getting old and the operating cost increases, and there is a need on the part of rental companies to buy new equipment. Automakers do not want to lose this demand. There was a fight in the past trying to hold prices down. I think rental companies will have to rebuild their inventories, and this is something that we are reading about all the time. They cannot even sell the cars, because if you sell the used car, you have no car to rent. Rental companies are living a very positive moment from the revenue viewpoint because the ticket, the average ticket went up quite steeply because of a shortage of vehicles available.
There is a pent-up demand. Now I would say it should be around 500,000 vehicles and no longer 450,000. The important point is that the fleet is getting old. We see a scenario of resumption of volumes on the part of rental companies.
Thank you very much.
The next question will come from webcast.
We received it in writing, so I am going to read it. The question comes from Rafael Maisonnave, thanking us for the presentation, and he asks about the EBITDA margin for automotive logistics. He asked if we were to ignore the non-recurrent events or it has been badly hit in this quarter. He asks us to expand on that.
Part of the explanation here, I will try to explain this. It is also due to the IFRS 16 that I have already referred to. Here we have a perfect storm because there are many factors that ended up contributing to this picture. I am referring to the drop in volume that has already been explained leading to a drop in our market share. Also in this quarter, we had a major drop in the total distance traveled. We must keep in mind that our revenues come from the number of vehicles carried and also the average distance traveled. For reasons that we have already referred to, the distance was smaller, exports via ports, and also transport from Bahia and the lower volume from an important client that has a plant in the south. There were many factors that came into play.
Just to give you an idea, if we were to compare the total distance of this quarter, it was only observed or similar in 2016 when we were living another crisis that was very important here in Brazil as well. We did some math in order to measure this. At the time in 2016, we had an EBITDA margin that was around 7%. I would like to remind you that there was no IFRS 16. We are talking about the old "EBITDA". In the first quarter of 2021, net of the non-recurrent effect, and if we remove the effects of the IFRS 16 in order to be able to draw a comparison of apples to apples, it would be an EBITDA margin of 9.5%.
I think it makes things very evident because with the same level of operation, with the same kilometers traveled, we would have 9.5% vis-à-vis 7% in 2016. This comes because of the increase in productivity in the company as a whole. Our margins today, they are even better than they were in the past. We are prepared to tap into this wave of recovery that we all believe will be happening in the next few months.
Marcelo Audi from Cardinal Partners.
Thank you. You talked about demand going back to normal, but I would like to know about production going back to normal. How do you see production and supply normalization, so to say, on the part of the car makers from now on.
Marcelo, this is Marcos. Just to give you an update, because as you can see, this has a global impact. This paralysis that we had here in Brazil in the beginning of April, that we had so many stoppages, it was really to recover the level of inventories, but it will still have ripplings in this quarter, the current quarter. We do not see major impact, but each automaker has a different strategy. We talked about General Motors, for instance, and the Onix, almost two and a half months with a downtime in production, but that should come back at full steam at the beginning of July. There is an impact. You have a supply chain that is very complex and you rely on imported product to a great extent. But logistic adapts, and we expect this impact as of June to be absorbed, I would say, in a more natural fashion and in synchrony with demand.
This is a very important point because you have to synchronize production with demand. As I said before, demand is giving signs that it exists, and you already have this increase, or each automaker has a different strategy. For instance, believe that May and June will still remain a little bit complex, but after that, I wouldn't call it going back to normal, but there will be a bigger balance between the need for production and supplying the stores with items.
Thank you.
Ladies and gentlemen, I would like to remind you that in order to ask a question, you should press star one. The Q&A session has come to an end, and I would like to give the floor back to Mr. Medeiros for his closing remarks. Mr. Medeiros, you may proceed. Thank you very much.
I would like to thank you all very much for participating in our call. This first quarter of 2021, as you have seen, suffered impact in volume in automotive logistics and integrated logistics as well, especially in the chemicals part and the white line. Also in the first quarter, it had some difficulties regarding the availability of parts. This is not only a problem for the automotive sector, also for home appliances and electronic product as well. The first quarter had an impact on volume. But as you can see, one thing that was very important for us last year was that we made Tegma leaner, more flexible, more nimble, and we have to be flexible. This was a very important lesson, as you saw in the indicators that Ramón presented, with a very strong expense reduction.
What we did last year was because of the pandemic, but it was based on process improvement and technology and the reduction that we had to carry out in our headcount. Unfortunately, we are prepared to go back to our normal volumes with a reduced headcount, and this shows an increase in productivity, in fact. I would like to say that Tegma is ready to support our clients in the recovery of the volumes. We have been able to prove that we have the capacity and that we have resilience in our result. The volume goes down, the revenue goes down, but the strong action taken in the reduction of the fixed cost and cost and expenses in general is a very important agenda, and that is with us permanently.
We continue to focus on investments in technology, and Ramón said something about it when he talked about CapEx and operating efficiency, because we have to become more and more efficient in everything that we do. With that, thank you very much. We wish you a very good week, and please stay healthy. Please take care.
Tegma's conference call has come to an end. We thank you for participating and wish you a good afternoon and thank you very much for using Chorus Call. Thank you.