Good afternoon, and thank you for waiting. Welcome to the conference call of Tegma Gestão Logística to discuss the earnings concerning Q1 2018. We have with us Mr. Gennaro Oddone, Chairman and Investor Relations, and Ramón Pérez , CFO. We inform that this event is being recorded, and all participants will be in the listen mode only. Next, we will begin the Q&A sessions. If any of the participants needs assistance during the conference call, please request the help of an operator by dialing star one. The replay will be available after the end for seven days. Before proceeding, we would like to clarify that any declarations that may be made during this conference call concerning the business perspectives of Tegma, projections, operational financial goals, are beliefs on the part of the company's management, and also based on information currently available.
Considerations about the future are not guarantees of performance. They involve risks, uncertainties, and assumptions because they refer to future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operational factors may affect the future performance of Tegma and lead to results that will differ materially from those expressed here. Now, we would like to pass the floor to Mr. Gennaro Oddone, Chairman and Investor Relations Officer. Mr. Gennaro, you have the floor.
Thank you. Good afternoon. We would like to begin another conference call with the earnings of Tegma. I thank you all for your interest in the company. I would like to begin with slide number two with the agenda of our presentation. We will begin with market performance and some operational indicators of Tegma.
We will then see the results in the period as well as cash flow, investments, and debts in Q1 2018. On slide three, we show the performance of the automotive market and indicators of Tegma. At left, it is possible to see that domestic sales were 15% higher in Q1 2018, influenced by the better improvements of the domestic economy, the increase of credits to buy vehicles, and the recovery of the consumer's trust. On the other hand, the exports, which grew almost 50% in 2017, had an inferior performance with a growth of only 3.3% in Q1 2018. Looking at the graph in the middle, we can see that the growth in production and imports are in line with domestic sales performance already explained, and due to the end of the benefits to vehicles produced locally through the program Inovar-Auto, which ended in December 2017.
Finally, the graph on the right, we see that in Q1 2018, we transported 177,000 cars, 8% more than in Q1 2017. The growth below the market brought a loss in market share, which was 25% in Q1 2018, due to an interruption of the plants for an important client in five weeks in Q1 2018 due to an expansion project and modernization of assembly lines. The average distance in Q1 2018, which was 969 km, was influenced by the growth in domestic trips. On slide number four, we show the evolution of net revenue of the divisions on the left, profitability, EBITDA in the graph in the middle, and net consolidated profit on the right. From here, do not include the storage operation in Cariacica in 2017, in January 2018.
We can see that the revenue from automotive logistics in Q1 2018 had a growth of 28%, due especially to the increase in the number of vehicles transported and the average distance. The net revenue of integrated logistics grew 10% due to the increase in volume and the entry of new clients in the storage operation. Talking about the EBITDA per operation in the graph in the middle, the growth of automotive EBITDA was 43% and one percentage point gain in blue, versus 2017, are the results of cost control together with revenue. The non-recurring expenses in this quarter are related to success fee of tax consultancy companies that helped us to recover BRL 38 million of PIS/COFINS taxes in Q4 2017, consultancy services related to startups, and also lawyers' fees, which we don't expect to have in subsequent quarters.
The growth of 9% of EBITDA and the maintenance of the margin of the integrated logistics division in orange, due to the cost control and expense control and the implementation of new contracts with the same profitability profile. The recovery of net profit in Q1 2018, on the graph on the right, as well as the growth of net margin is due to everything we said previously, and also less smaller balance of net debt and lower interest rates. Now I'd like to pass the floor to Ramón, our CFO.
Thank you, Gennaro. On slide five, we show on the graph on the left the evolution of our return on equity in blue and on invested capital in orange.
The growth of both, if you compare with other quarters, apart from better operational financial results explained by Gennaro, are also due to the reduction in capital used and the reduction of the debt in the period. In the graph in the middle, we can see that operational cash in blue was much higher than in Q1 2018 versus Q1 2017 due to better operational results, but especially due to the usage of BRL 27 million of the BRL 38 million from tax credits, which were recognized in Q4 2017. The CapEx in orange in Q1 2018 was BRL 3 million lower than in Q1 2017, due especially to the non-existence of CapEx for renewal of a contract with a client that we had in Q1 2017. The contract was not renewed.
As a result of this, the free cash flow in gray presented a significant growth, contributing to reduce the leverage shown on the graph on the right. Now talking about leverage in the graph on the right, the reduction of gross debt in blue is due to the payments of an installment of the first issuance of debentures worth BRL 71 million made in February 2018. This value, together with the free cash flow explained previously, explains the drop of BRL 23 million in cash in orange. The reduction of net debt in gray is a consequence, as already explained, but it's worthwhile mentioning that in March 2018, we had not paid yet the installment of supplementary dividends of BRL 38 million, which was paid on May 4th. With this, I'd like to pass the floor back to Mr. Gennaro.
Thank you, Ramón.
Continuing on slide six, talking about capital markets and expectations, we show the evolution of the price of TGMA3, which went up 19% in 2018 due to better economic conditions, sales of vehicles, and positive results. In line with this performance, our daily volume of sale of shares also improved by 50%. In the center, we see that our rating continued as B1 by Moody's, given to us in December 2017. We also show the relationship of our analysts in sell side with average price estimated by them for the end of 2018. Finally, we talk about the topics that we have followed. The negotiation of Rota 2030 government program influences our clients' investments. We hope that there will be a favorable conclusion without compromising public numbers. We have also accompanied consumers' trust. Although it has gone up every year, we had a drop in the last few months.
We have also dedicated attention to the behavior of banks in automotive credit. The greater liquidity with lesser has enabled a better scenario for credit growth favoring our business. With this, we conclude our presentation, and now we'd like to begin the Q&A session.
Ladies and gentlemen, we'd like to begin the Q&A session. To ask a question, please dial asterisk one, star one. To remove the question from the list, please dial star two. Mr. Gennaro will collect the questions. Our first question comes from Felipe Matsumoto, Santander.
Good afternoon. First of all, I'd like to know, you mentioned the project that interrupted the plans of an important client in the first semester. Can you tell us how your market share would have been with these five weeks when the client's plant stopped.
A second question, I'd like to understand, with the current situation in Argentina, interest and exchange rate, any exposure of Tegma to the Argentinian market? How is this exposure to the Argentinian market?
Hello, Felipe. Good afternoon. Well, concerning the first question, what I can say to you is that we did not lose anything in terms of clients or dealerships served. So this difference that you observed in our market share in Q1 or in relation to the average last year can be attributed to the interruption in the plant of an important client. This is the best explanation I can give you. Second, concerning Argentina. Argentina, Felipe, represents today a little over 50% of exports from Brazil. The volume of exports from Brazil. We work for this market. We are present in this market with direct transportation, road transportation, and also transportation from the plants to the port.
But in spite of having exports, although exports dropped, as I mentioned, we had a drop of 50%. In terms of volume of vehicles, it represent the total exports represent around 20%-25%, but in terms of revenue, it represents less than 5%. The impact is very small. Finally, considering exposure in foreign currency, we have no exposure. Everything we do is paid in local currency. We don't have exposure to exchange rates.
Thank you. Next question, Lucas Marquiori , Banco Safra.
Hello, Gennaro, Ramón. Two points. The first, please remind us the policies to increase prices when diesel fuel goes up. Is it automatic? Do you increase prices when diesel fuel goes up, or do you really increase prices immediately? The second point, Gennaro, are you concerned with the second semester for the automotive markets? We've seen some clouds in the sector, politics, Argentina.
Are you feeling a concern on the part of car companies or reduction in sales in the second semester after this excellent first semester?
Good afternoon, Lucas. The first question has to do with the diesel fuel policy. We have a trigger that we normally apply a trigger when we reach a certain variance in the price of diesel oil. We have a calculation of this impact on our cost, but it's not automatic. There's always a delay. But in the last quarters, we haven't had the need to use this trigger. We believe that possibly we will have a significant impact this year from diesel fuel due to. With this new price policy for oil in the country, you can see it goes up, down, and remains on a certain average.
Now, concerning our expectations, we continue to be optimistic due to the conversations we had with the main clients, many investing. This client that we mentioned invested, adapted the production line to improve productivity and to improve production capacity. Some clients are announcing growth, introduction of a third shift. So other clients announcing investments. The environment today is more favorable for the continuity of the growth of the market, consistent growth. We believe that traditionally, Lucas, in the second semester, we always have a better semester than in the first. Although there is some volatility due to politics and uncertainty due to politics, I believe we will only have a better idea closer to Q4.
It seems that there will be very little time to close the year. So in a nutshell, today we don't have any sign on the part of our clients to change our expectations.
If you have any question, please dial star one, or you can also send your question via webcast. Next question sent by webcast. Well, a question from Marcelo: How do you see the evolution of costs managed in the next quarters?
Cost management. As you know, we have been doing a follow-up and control of the so-called managed costs for a long time now. Today, we worked reducing new expenses, renegotiating some fixed costs, trying to avoid increasing prices due to inflation. Like rent that we pay under fixed costs, it's under control, and we have no expectation of evolution concerning these costs in the next quarters.
There is a third question. Alfonso, we have noticed an increase in the cost since the cheaper debts are being paid. What are the perspectives for the future? Do you hope to lengthen the debts?
Well, first, I believe we can clarify that the payment that we're making, amortizing the debt, follows the original schedule. Due to temporal reasons, the debentures that we captured a few years ago in another scenario of cost and with specific instruments and more structured, these are being paid off in the last few months, like this one that I mentioned in February. In spite of this, the remaining debt does not have a much higher cost. Today, the spread, when we compare the CDI index, the CDI plus spread, in the case of new loans, it will be a little higher than the debts we're paying, but lower than the ones loans we got last year.
We had an improvement due to the results of the company, which ended upgrading our rating at the end of last year. In fact, we analyzed recently to lengthen the maturity for 2019. We do not have anything to pay this year, only 2019, BRL 90 million, BRL 100 million. But the cost of advanced payment, the penalty fee that this would include, or the cost of carrying additional cash, that is not worth the while, considering that our amortization capacity with our own resources or a new leverage the way we see will be even better than the conditions we have today. This is what I can comment.
Reminding you to ask questions, please dial star one. The next question, Guilherme Polido.
Good morning, Gennaro, Ramón. I would like to understand of these investments in the car company that stopped the plant for five weeks. This happened.
Will your market share be below the historical average?
No, Guilherme. I believe it will be the opposite. I can tell you that we observed that this client is already producing normally, normal production, and it is a high volume, very high volume. We do not believe that. We believe that now as of the second quarter, we will go back to historical levels. We do not believe in any additional impact except this one that happened in Q1.
Thank you. Another question. You talked about non-recurring administrative expenses, success fee paid to a consultancy company which helped to recover taxes and other expenses. Can you tell us how much it was? How much it was worth, these payments?
Around BRL 3.5 million.
Thank you. In all those items that you explained.
Thank you. Next, Mr. Gennaro will read another question.
We have a question from Lucas: With this result, you have BRL 18 million in reserves and dividends. You have no debts for this year and a positive expectation of cash flow. What is the expectation of allocation of this cash? Can we have an extra distribution of dividends? Well, Lucas, what I can tell you is that yes, we have a favorable position. We have a forecast of a good cash generation for the year. Obviously, we work with a policy that if we win new projects that would require CapEx, we would use part of this cash generation to these new projects. And historically, we have a policy. Historically, we have a more aggressive dividend distribution. Historically, this policy is a policy that establishes that we have a floor for distribution.
But this does not mean, as we had in previous years, that we cannot have an extra or higher distribution than policy. During the year, if we see that we will have surplus cash, possibly the surplus cash will be distributed as dividends.
We have a question from Alexandre: With the stabilization of operations and cash generation, are you planning investments to increase capacity?
I answered this partially in my previous response, but I can supplement. I can tell you that as I said, we will only use cash to investments if we have new projects. For the time being, we do not have new projects to use this cash.
Another question from Marcelo: The company is reaching margins higher than last year when the volumes were higher. What can we expect in EBITDA margin going back to the levels before the crisis?
In reality, we retaught our cost structure. We are able to improve, decrease our fixed costs. We improved productivity. Obviously, we hope that we will have benefits with this restructuring when we have growth in the market from now on. This also includes commercial negotiations. We cannot force 100%, but what I can tell you is that we hope that this year, our EBITDA margin will be superior to that of last year, with better volumes and the work we did to reduce costs. Maybe a last sign, we hope with a smaller volume to the peak we reached in the past, with an inferior volume, we hope to go back to the EBITDA margins we had in the past.
Once again, to ask questions, please dial star one. Mr. Gennaro , you can continue with the questions from the webcast. Ladies and gentlemen, please wait. We will reconnect. Ladies and gentlemen, please wait.
Okay, sir, you may proceed.
Well, Ramón, once again, concerning the drop in margin, we don't have any precise estimates, but it was small. This did not have any impact on working capital days. Concerning CapEx, it's important to mention this CapEx is not Tegma's CapEx. Tegma is not making this investment. This investment is being done by the client. We did not disperse anything. The investment is being done by the client.
We'd like to conclude the Q&A session. Now I'd like to pass the floor to Mr. Gennaro for final comments.
Well, once again, I'd like to thank the participation of all, also the participation of the Q&A session, and we're available through our investor relations department to clarify any other points. Thank you. Good afternoon.
This concludes our conference call. Thank you for using Chorus Call.