Good morning. Thank you for waiting. We would like to welcome you to the conference call for earnings for Q3 2020 for Tupy . All the participants are connected only in the listen- mode. Later, we will have the Q&A session when we will give you further instructions. If you need the help of an operator, please dial asterisk zero . This conference call is being recorded. The company would like to say that the event is being transmitted via internet via webcast. You can access at www.tupy.com.br/ri. The slides will be controlled by you. The company clarifies that any declaration and all operational goals concerning the company's business are assumptions made by management concerning the company's future. These expectations are highly dependent on market conditions, both national and international, on the company's performance and the sector performance.
With us we have Mr. Fernando Cestari de Rizzo, and Mr. Thiago Struminski, CF O.
Thank you, Jandira. Good morning. I'd like to thank you all for your presence. While we continue with the cure concerning COVID-19 and the resilience of our business model prepared for market fluctuations, we have been able to improve our operations to deliver better and better results. On slide number two of the presentation, I'd like to say that the company continues to make progress in efficiency and management. We restructured the team, and we reviewed essential processes, and we expanded the synergies between the different areas involved. In purchasing, we have made progress with a more global look at the choice of suppliers and the look for new alternatives. We improved the purchasing and also movements of materials between plants. This is improving, and we will still make more progress. In operations in Brazil and in Mexico, we also reinforced the dissemination of the Tupy production system.
We eliminated some aspects, and we turned off some less efficient systems, increasing flexibility, and we also improved the flow. During the pandemic, with control, we reviewed all the costs and expenses of services linked to the operation. We redefined the specification of all the raw materials. We also made progress in the efficiency in Mexico in machining, which we began in 2019, and we already reached the expected standard. In manufacturing, we intensified automation, and we continued with more data analytics in order to optimize material mix for furnaces and also better decisions in the interaction with suppliers and increasing efficiency. All of this is being led by a renewed management team made by internal talent and professionals that we brought with their experience in other markets to contribute with Tupy.
We understand that these efforts in cost reduction tend to be permanent and also replicable in operations with Teksid. We're creating a more agile company capable of adapting quickly to the change in scenarios and prepared to react quickly in executing our strategy. On slide number three, we present records in net and operational profits and also in EBITDA, the greatest in the company's history. When we compare with the previous quarter, the growth of revenue is 94%, reaching BRL 1.25 billion, showing the recovery. In comparison with Q3 2019, it is 7% lower. The product mix went back to pre-pandemic levels and much higher than Q2 2020. This also contributed to the growth of revenues and progress in margins, with CGI machining parts reaching 27% and 26% respectively. So, gross operational profit was BRL 282 million, with a gross margin of 22.5%, a record in our history.
We also reached greater EBITDA of BRL 249 million, with a margin of 20%. Adjusted EBITDA reached BRL 257 million with a margin of 21%. Net profit also record grew 93% in relation to the same period last year, showing the operational results and less volatility in financial results. With a strict control of cost expenses and also investments, we operated in the first nine months of the year with an accumulated CapEx of 3.2% of net revenue. The company generated BRL 152 million in cash in the period, and closes the period with a higher cash than in the beginning of the pandemic, with the increase in availability reaching BRL 1.4 billion in September. Now, I'd like to pass the floor to Thiago Struminski , our CFO.
Thank you. Good morning. So, we got a recovery month after month in sales, slide 10, but 26% lower than Q3 2019, a lthough this volume is already 79% higher than that of Q2 2020, although it is on the level of the first quarter this year. The mix of transport, infrastructure, agriculture was very favorable, with 26% were totally or partially machined, 27% CGI. On slide five, revenue had a drop of 5%, and here, comparing with Q2, revenue went up 94%, and the revenue per kilogram had an increase 26%. Comparing with Q2, the revenue increased 94%, 70% in NAFTA, 15% in South America, 11% in Europe, and 4% in Asia, Africa. In terms of application, 89% commercial off-road vehicles, 70% passenger vehicles, 4% hydraulics.
In the domestic market, we have a drop in revenue in applications for light and commercial vehicles. The effe ct, for example, we had an impact, a reduction, and also in exports for European and North American markets. On slide seven, we show the effects of revenue in the foreign market. There is a consistent recovery in sales of applications for light commercial vehicles. In spite of the good performance of agribusiness, off-road applications were impacted by delays in investment, especially in highly specialized systems like oil, gas, and mining. Here, we see, now, we see on the next slide, the performance in hydraulics, 5% of our revenue, and we see that in the Brazilian market, we had a better product mix, but in exports, we had the impact of coronavirus.
Slide nine, w hen we look at the products sold and the operational expenses, we had a drop of 54%, with growth margin of 22.5%, the highest in the company's history, a drop of 13% in the cost of raw materials, with a drop in volumes. The effect of currency devaluation had an impact on Mexican operations and also an indirect effect on materials consumed in Brazil. With more CGI products, this was mitigated by many initiatives in gains and efficiency, operational efficiency, so also flexibility in production, redesign of the flows, and also renegotiation of contracts with suppliers. We observed a reduction of 17% in expenses with labor, especially due to the decrease in headcount and overtime, with many measures to reduce wages and layoffs, a decrease of 9% in maintenance and third-party materials.
In Q3 2019, there was an impact when we received credits worth BRL 6.5 million. Here too, many impacts due to inflation and also currency, iron currency. Operational expenses had an increase of 1% year-over-year, and t he great impact is related to freights and also devaluation of the currency, of the local currency . On slide 10, adjusted EBITDA reached BRL 257 million, 25% more in relation to Q3 2019, and a margin of 21%. EBITDA here, CVM, was BRL 249 million with a margin of 20%, sorry. The drop in volumes in the group was compensated by all these initiatives to increase efficiency in the last months. Net profit Q3 reached BRL 128 million, a growth of 93% in relation to the previous year, and both profit and EBITDA were the highest values we had in the company's history.
Slide 11, we show the effects of devaluation of the Brazilian currency. The devaluation contributes with revenue from abroad, but it has an impact on our costs. Here, both due to the smaller availability of raw materials that we consume in Brazil, that we have to pay in dollars, and t hese macroeconomic effects contribute our revenue but have an impact on volumes, both due to the drop in the economy, downturn in the economy. We hope that we cover these volumes in the next quarters and with the devaluation of the Brazilian currency, this may be positive for the company. Now continuing, we talk about the financial results. Financial expenses were impacted mainly due to the devaluation of the local currency in relation to the dollar.
We see here 5.38, the exchange rate, and 3.97 last year, and t his affects loans and also more debt due to loans in local currency that we did in March, BRL 494 million. As an offset, the use of these resources helped in financial revenue, BRL 7.5 million, the interest earned. The hedge operations on cash, an effect of BRL 23 million. We have a positive effect of the open contracts. There is a payment here for adjustments in contracts already closed in the period. On slide 13, we have the variations and the main working capital accounts comparing with Q2, an increase of 27 days in accounts receivable, shows here an expressive amount in sales in comparison with the previous quarter, especially in August and September, apart from the effect of exchange variation receivables, since 87% is in foreign currency. We observed also one day of reduction in inventory.
The company has a strategy to have flexibility in production in the plants, increasing operational efficiency. This also suffers with the exchange rate and the inventory in strong currency corresponds to 58%. Accounts payable 22 days in relation to the previous quarter due to increase in production, more purchases during the period. Apart from exchange rate devaluation, things we have to pay in foreign currency, this corresponds to 50% of our commitments with suppliers in U.S. dollars. Slide, h ere on slide 32, we see investments in assets, BRL 32 million, a drop of 45% in comparison with 2019 and 2.6% of the revenue. Here on slide 15, we see cash generation, BRL 152 million, 20% higher than last year.
A drop in volumes and consequently, reduction in accounts receivable from clients was compensated by cash preservation, renegotiation of contracts, flexibilization of the lines, and the use of materials available in inventory. We closed September with a cash balance of BRL 1.4 billion, higher than that of the beginning of the crisis, coronavirus crisis, in the beginning of the year. Now, here at the next slide, we see also our debt, BRL 1.2 billion here corresponding to 2.05x EBITDA and an expressive reduction in relation to the past, which was 2.65%. We see the percentage in foreign currency is in accordance with our business. In relation to cash, 40% of our cash is in foreign currency. Now, I would like to pass the floor to Fernando to talk about our markets.
Thank you, Thiago. After slide 17, I would like to talk about some indicators in our main markets, p ositive signs that show clearly the recovery of economic activity in markets that are important for our company. Since May, we had a recovery in the sales of light commercial vehicles. This had an impact on inventory, and now is the lowest in nine years. Our market consists of applications used in professional activities which benefit from the recovery of the segments such as home construction, house construction. In Brazil, on slide 18, we show the growing volume of heavy vehicles. Although the production in September was 29% above that of August, we are not absorbing all the demand in the market. We see our portfolio with positive signs of recovery, although gradual, of the orders related to indirect exports.
On slide 19, in relation to average and heavy trucks in the U.S., the fleet activity is higher than that of pre-coronavirus, a nd the projections are positive. This should mean a new cycle of new fleets of vehicles as of 2021. In off-road, we see also we have delays in investments due to the pandemic. This group includes applications for mining, heavy construction, oil and gas, and energy generation. But we see positive signs in new orders. Certainly, we will benefit by infrastructure packages being discussed in U.S. Congress and also sanitation and gas in Brazil. Our clients should benefit from the recovery of the Chinese market in construction and mining. On slide 20, we stress that the diversification in investments also helps us because we are in segments that are essential for economy recovery. We have seen a consistent recovery.
Others should benefit from other growth cycles as of 2021. We will continue adopting a strict cost control, CapEx control, implementing new projects for operational efficiency gains, working with partners in Brazil and abroad with the system we have to develop products. We continue based on Tupy production method, and this allows us to implement the best practice very rapidly and new lines in o perations. Concerning research and development, we have a robust pipeline developing material concepts with complex geometries that we apply in alternative fuels linked to the reduction in carbon, and also solutions that request complex metallurgy. We continue working on new projects for machining, and we see many opportunities to continue making progress. Once again, I thank you all for attending. And now, we will begin the Q&A session.
Ladies and gentlemen, we will begin now the Q&A session. To ask a question, please dial asterisk one. To remove the question, please dial asterisk two. The first question comes from Mr. Victor Mizusaki, Bradesco BBI .
Good morning. Congratulations for the results. I have two questions. First, please talk about the outlook in Brazil and abroad, c omments on the lineup of production for Q4. The second question concerning EBITDA margin. In Q3, it was strong. You mentioned costs, better product mix, and also the exchange rate effect. We understand that you are on a new level. Please comment, looking forward, how much of this will contribute for a higher profit margin in the next few years?
Victor, thank you for the question. Fernando. I will begin, and Thiago will supplement. First, looking at the markets, we have seen some strong signs. Brazil continues to grow, should continue growing. There is a lack of vehicles and equipment in Brazil, so production is accelerated, even heavy trucks and agriculture, but also light trucks for urban use. This has grown a lot. Th e sale of, i n the U.S., light commercial vehicles is very strong, low inventory, and we should have a lot of sales. Also, Ford made two important launches. One is on the market; o ne should reach the market soon. This is good for us. We have strong orders for this.
But still, in this quarter, we did not see medium and heavy trucks in the U.S. being strong. Sales were low. The sales of light and medium and heavy trucks in the U.S. did not recover. The exception was agricultural machines. The other off-road vehicles were weak. We believe we are seeing signs of more demand for, y ou asked about Q4, w e see signs of demand, which will continue with these sectors that are strong, a nd also, the other sectors we see a recovery f or the Q4 and Q1 2021. So, we should continue growing. On slide 19, I believe we show the difference in the months in relation to last year. We should continue decreasing the gap in relation to the previous period in the next few months. This is what we are seeing.
So, we are hiring more employees for some shifts where we are growing production. This should happen. Now, concerning margins and what is permanent, what we have worked in the last two years to bring new professionals, invest in organization, t wo new vice presidents in a year and a half. One of them is internal talent, one came from the market. They are restructuring their teams. In purchasing, we revamped totally purchasing in the last few months. We brought an international consultancy company to help us. So, we are seeing that purchasing has changed a lot. It will continue to change. We are integrating the purchases of Brazil and Mexico. We have more clear comparison. We are rediscussing the specs for materials. We are exchanging materials between plants, m aterials going to Mexico, coming from Mexico to Brazil.
So, this will continue so w e have new alternatives in terms of suppliers, new materials. This strengthens our supplier base. Now, in terms of production, also, especially during the pandemic, this helped us to review productive processes, methods, every phase, standard operations in each process. We also had a renewal in the team. We brought professionals from other companies with more sophisticated models for maintenance and other activities in machining in Mexico. And in all of this, we have seen progress. So, this progress is permanent, yes. Training also, there is a lot of training in the company. So, this has helped us. The mix is better. On one side, we have a lower volume. So, w hen other markets recover, these are important, they are profitable for the company, and we are not producing for them right now. We believe they will recover and help in the results.
In the quarter, we showed that we can deliver higher margins. When we look forward, Q4 specifically, December has seasonality. For example, many clients stop, but we are on a sustainable level above 17% already. So, q uarter after quarter, we have to prove to the markets that, in fact, we increased company margins for a new level. But w e have the volume, Fernando mentioned, t he recovery of the market is 26% behind Q3 2019. We hope that, so operational leverage and looking at fixed costs, with the growth of the operation, we will be able to have a strong EBITDA.
Thank you.
The next question from Catherine Kiselar, from Bank of Brazil .
Good morning. I have two questions. The first has to do with gains in efficiency. Do you see space for more restructuring in the company?
Well, what we see in this quarter, what we saw, and Fernando mentioned the main measures for cost reduction, w e understand that they are structural. We have a package for operational efficiency, cost reduction, supplies had a relevant impact, and t oday, when we look at restructuring, additional restructuring, as you asked, most will come with a combination of Teksid. We have great opportunities. Our plants are very close. We have plants in Brazil; we have plants in Mexico. They have two, Teksid has two. So, we have plants next to each other in Brazil and Mexico. So, everything that we build is sustainable. We have also some more opportunities. Some machines in Brazil are better than those in Mexico, but most of this new quantum leap comes with a combination of the two companies.
Thank you. Second question. We have looked at capital goods that are selling well. Have you seen this in practice? Do you believe there will be an impact on Q4 and next year? How do you see pricing increases?
This issue of price, for example, higher prices passing higher costs to clients, this is well structured in the contract. We're suffering pressure, especially in metals. We've had increases in price. Steel, the price of steel went up. There is strong pressure, especially in imported components and imported materials. If we look at inflation, it's almost 15%, but our structure guarantees that when we pay more, that we pass this on to the clients. It's in our contracts. So, we have protection in our agreements and contracts.
Catherine, this question is important. We must understand, we participate in global platforms. Every product I supply in Brazil, I also supply outside Brazil on platforms that we sell around the world. The plants are global. They have these global platforms, and they manufacture in Brazil, and they also consume the same products here and abroad. This sale process, we sell to OEMs. So, the combination with Teksid has helped us a lot to reduce costs, reduce costs. We can expand these models. We have some important models that we began flexibility, plants and equipment between the exchange of machinery and materials between plants. All this model, when we arrived at the pandemic, we had all of this ready on the shelf. So, we began to take action, and we applied these things quickly to help us, and during the recovery too.
So, all of this has contributed, and the next great step to reduce costs and increase efficiency comes through the combination between the two companies, Tupy and Teksid. Our clients, some, our clients in Brazil sometimes buy parts abroad. For example, there are many imports. Many engine blocks and heads are imported and assembled in Brazil. So, t hey buy from us, and they buy from abroad too, the engines. So, we have an important tool now, the combination of Teksid and Tupy to give us growth with the combined sales of the companies.
Thank you. Excellent.
If you have a question, please dial asterisk one. Once again, if you have a question, please dial asterisk one. Our next question comes from Mr. Werner Roger from Trígono Capital.
Good morning, Fernando, Thiago. Congratulations for the results. Concerning the number six , seal number six, and the incentives to renew fleets, i s there anything new? Do you have any dialogue with the government and entities because of new restrictions on pollution and other things?
Werner, good morning. Unfortunately, we don't have any updates. It is a program I believe has had some difficulties. Yes, we agree it's necessary, not only for more efficiency in logistics, but also safety. Nowadays, we see old trucks on the roads. 25% of the Brazilian fleet is over 15 years of age. They pollute more, no emissions control. They have safety problems. They cause accidents. And we support this movement. Unfortunately, there is no update on that.
Here, we saw the results of Caterpillar two days ago, 35% drop in volume. Have you seen a recovery of orders from Caterpillar, especially in mining, or do you expect this to happen next year?
Werner, we have seen our sector in general, not only Caterpillar. If we sell to many clients who compete in the same sectors as Caterpillar, a s I said, we see some signs of better demand for the beginning of next year. But all the companies that work in construction mining or energy generation generators and also engines for ships, we've seen a little more demand.
Thank you.
The next question is from Catherine Kiselar from Bank of Brazil .
Thank you for the opportunity. Can you update on Teksid?
Well, we don't have great news to process. It was approved; t he analysis was approved in Europe. Now, we're looking at analysis in Mexico, Brazil, and the U.S. Our authorities are working on it. They're making additional analysis, so we continue waiting for an answer until Q1 next year, t he approval of Teksid.
Thank you.
The next question comes from Werner Roger from Trígono Capital .
One more question. T he exchange rates devaluation, the company had a hedge until the end of the year. Do you believe this can have an impact on the results in the last quarter, the devaluation of the Brazilian currency, or do you believe everything has reported, and nothing significant will change?
Werner, the impact on the hedge of cash flow was positive. We had a positive effect that was relevant. We have still, until December 2020, we have a notional for $124 million. We have no more operations. The market is very unstable, a nd the market, we see the local currency being devalued. This forces us to protect our accounts. So, we continue with the same policy, and we may have an impact on the results.
Thank you.
We'd like to conclude the Q&A session for Tupy. I'd like to pass the floor to Mr. Fernando for his final comments.
Thank you, Jandira. Once again, I'd like to thank the interest and the participation of all of you. The growing results and constant evolution of our process is something built by our team. I would like to congratulate and thank our team. It's good to see that these initiatives we adopted in the last few years have had a direct impact on results. We'd like to reinforce that the global crisis with the pandemic continues to be a challenge, both in economic and social ways. So, we continue with looking at safety and health, and we're very close to our clients and suppliers. We see a gradual recovery in the markets at different speeds, but with good perspectives for next year.
We're exposed to fundamental sectors for the recovery of the global economy, and they will benefit from public policy that will be implemented in all the world, like sanitation in Brazil and infrastructure packages in the U.S. Even with these impacts that we have, we were able to use this moment to improve our production process and also look at purchasing, and we're reaping the results of these initiatives that we have in the last few years. This has had a significant impact on our type of production and will continue to give us positive results in the future. To summarize, more important than the results in this quarter are the changes, structural changes in the process, the dedication and the perseverance of our employees, teamwork, and always innovating. We continue to work to grow, and we see that this has been done in the last 82 years.
We will benefit from the recovery in volumes impacting revenue and a decrease in fixed costs. We are a transformation industry. We have chemical, metallurgical, and mechanical processes. Our in-depth knowledge in metallurgy engineering helps us, and we work with research institutes and universities and other partners. This places us as being in a very well position. Developing new materials for the renewable economy will give us many opportunities for companies that have good knowledge of metallurgy and different materials. And Tupy will certainly benefit from this. Thank you, and we wish you a good day.
The conference call of Tupy is concluded. We thank you all, and we wish you a good day.