Mahle Metal Leve SA

BOVESPA:LEVE3

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for waiting. You are mostly welcome to participate at our call, which makes reference to the first quarter of 2021 results. With us here today, we have Mr. Daniel Brasil Alves, Markets and Corporates Communication Manager; Mr. Daniel de Oliveira, Executive Account Manager; and Mr. [ Fabio Lopes Peres ], Executive Finance Manager. This event is being recorded. [Operator Instructions]

This event is also being transmitted simultaneously through the Internet via the webcast and can be accessed through the Investors Relations website of the company, where the presentation is also available. Participants may view the slides in any order they wish. The reply will be available shortly after the event is concluded. Those who following the presentations via the webcast may post 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're related to future events and therefore, depend on circumstances that may or may not occur. And those considering considerations, we will not guarantee the related to future events and they depend on circumstances that they may or may not occur.

Now I'll turn the conference over to Mr. Daniel Camargo will be starting this presentation. Please, Mr. Daniel Camargo, you may begin your presentation.

[Daniel de Oliveira Camargo, executive]

Good afternoon, ladies and gentlemen, you are all mostly welcome to our conference call to address first quarter of 2021 results. Before we proceed to our agenda, we hope that you are all doing fine and healthy. And MAHLE is considering really strict health protocols to guarantee our operations as well as to mitigate any possible contamination risks. By the end of this presentation, we'll be available to your questions throughout the Q&A session. And now let's proceed to Slide #2. We are going to talk about some highlights, market overview, net revenues performance by market. Also, a summary of our P&L, EBITDA, financial management, CapEx and depreciation, followed by a question-and-answer session.

Next slide, some highlights for the first quarter '21 conference call. Net sales revenue, BRL 835 million in first quarter, up 45.5% compared with first quarter 2020. As to domestic aftermarket in this first quarter 2021, the company reported a 64.2% increase in sales compared to the prior quarter '20. Domestic OE, we see an increase in sales of 40.5% compared with first quarter '20. As to aftermarket exports in the first quarter 2021, the company reported an increase in sales of 53.9% compared with the first quarter last year. Original equipment exports, we reported an increase in sales of 35.7% in comparison to last year.

Regarding EBITDA margin, 23.9% in our first quarter this year versus last year, 15.9%. Supplementary dividends. In our Annual General Meeting approved on April 29, 2021, we approved the dividend distribution of BRL 48.6 million relating to fiscal year 2020. The company paid out BRL 119.2 million for the full year of 2020, representing 100% of this net profit.

Now I'd like to hand over to Daniel Brasil, who will address sales.

[Daniel Alves, executive]

Thank you, Daniel Camargo. Good afternoon, everyone. I hope that you're fine. Once again, thank you for your participation at MAHLE Metal Leve's Conference on its results. I'll start on Slide 4, where you can see the sales and production of vehicles in Brazil and Argentina. In the first quarter of 2021, vis-à-vis, the first quarter of 2020, in the first block, we have light vehicles. Starting with Brazil. We had a 6.7% drop in sales in Brazil. There was a impact of the month in March, when we had some restrictions in the operations of the stores and the -- that had an impact on sales. So still, we had a 6.7% drop. And in Argentina, growth of 20.2%. And in the combined data between Brazil and Argentina, a drop in sales of 3.5%.

In terms of production of light vehicles, it was an increase in 0.8% in Brazil and 35.3% in Argentina, and the combined growth totaled 4.4% in increase in productions. There is a mismatch between production and sales, but still, it was not enough to increase our inventory. Today, we have 97,000 vehicles in stock in Brazil that accounts for 97 days that usually should be 30 to 33 days. So although production grew more than sales, we could still not replenish inventory as we wish. This is still very low.

Now moving to the lower chart. You see for medium and heavy vehicles that in Brazil, there was an increase in sales of 23.6%. So a heated market. In Argentina, the growth was up 63.1% and combined sales growth of 27.3%. In terms of production, there was a growth of 24.7% in Brazil and 66.7% in Argentina. The combined increase in production was 25.2%. Here, we noticed a major difference between [ medium ] light vehicles and heavy vehicles. Heavy vehicles have a high demand, especially driven by the agribusiness and delivery services. But mainly agribusiness has leveraged sales of heavy vehicles. That includes trucks and buses. And if you exclude buses, whose performance is not so good, basically, the growth in sales of trucks is even higher than this amount.

Now I'm going to talk about our expectations for the full year of 2021. Let me start with light vehicles. I will use the data from ANFAVEA as a reference. They expect a 15% increase. And in the last call, I mentioned that our production was aligned. But this quarter, we are below ANFAVEA's projection because of the restrictions we've had in -- so OEMs suffered with that and some car makers suffered even more. Some of them had to close their doors or sometimes advance the vacation of their employees. So it's been a very -- it's been challenging to keep their lines running. This is why our production was a little bit lower.

In terms of production, ANFAVEA's expectation is a 25% growth, vis-à-vis, last year. Here, we are also a little bit lower than this forecast. In terms of medium and heavy vehicle, ANFAVEA expected a 13% growth. And MAHLE's perspective is more optimistic than that because of the sales we've had on year-to-date, including April, which was also a strong month in terms of sales. In terms of production, ANFAVEA's forecast was of a 25% growth, while MAHLE's is also more optimistic about this point. So despite the difficulties, the market has shown to be resilient. Daily sales. Even considering April, daily sales were considerably positive, lower than the daily sales levels of the first quarter of last year, but still good level despite the difficulties we are being able to keep up with the demand.

Now I'm turning over to Slide 5. On Slide 5, you can see the vehicle production for North America and Europe. For North America, it was a 3.8% drop in production. There was a 17.3% growth in the production of medium and heavy vehicles. So that helps. So despite negative 3.8%, this was kind of offset by the medium and heavy vehicle production increase. In Europe, we also had a 9.8% increase for the production of medium and heavy vehicles and a negative growth in Europe in total. And combined, the information of North America and Europe, the production was of minus 3.3%. So the figures are inferior than those of 2020, but we see a ramp-up. We see recovery leading us to the levels we had before the crisis.

Now moving to Slide 6. On Slide 6, we see the evolution of net revenue in the quarter. In the first quarter, you see the first quarter of 2021. In the second column, the impact on price. In the third column, it's exchange rate variation. And in the fourth column, the figures for the first quarter of 2020. I'm going straight to the last column of variations. So starting with original equipment for the domestic market, there was a growth of 40.5% increase in revenue. The impact of exchange rate of minus 1.5%, that in the domestic market is related to Argentina, where we have evolved plant. And when this is converted to reals, then the impact is negative.

And a total growth of 42% in volume and price, superior to the market reference. The key reasons for this growth have to do with the mix between light vehicles and heavy vehicles because heavy vehicles have grown more. Also, this is also an aftermarket. You see that there is a gain in market share. And this is why MAHLE' revenues were higher than the market benchmark. In exports, there was a 35.7% increase in revenue and the impact of exchange rate variation was a 33.4%, while the volume/price was 2.3%. So it was basically associated with the exports market because of the exchange rate.

Now considering domestic aftermarket, there was a growth in revenue of 64.2%. The exchange rate variation impact was minus 8.6%, and the volume over price impact was 72.8%. So this was a market recovery plus stock replenishment of our customers and also a gain in market share. Imported components lost some space because of the devaluation of the exchange rate. The aftermarket for exports had a 53.9% growth, the impact of the exchange rate of 19.6% and the volume over price impact, 34.3%. This indicates a market recovery. Of course, we are still in the middle of the pandemic, but the market is recovering, especially Chile, Paraguay and Peru. Those are the key countries that represent this growth. So the overall growth in revenue was a 45.5% and the impact of the exchange rate variation, 11.8% and an impact of the volume over price percent of 33.7%.

Now moving to Slide 7. Here, we see consolidated exports by geographic region. I have no comments related to the slide because you see that everything is very similar. Europe, North America, other markets, very similar between the first quarters.

And now I turn back to Daniel Camargo, and I'll be available for the Q&A session.

[Daniel de Oliveira Camargo, executive]

Thank you. In our next slide, we have some results highlights, and we have the gross profit, the gross margin with a 45.5% growth. Cost of sales, we see a very similar increase. Therefore, our gross margin reached 2.5 percentage points, considering the volume of the markets where our company operates.

Next slide. We have some P&L expenses in first quarter '21 were impacted mainly by freight and variable selling expenses and increased by 12.5%. It's still against growth of our net sales revenue. General and administrative expenses in this first quarter were highly impacted by the increase in maintenance materials and utilities expenses. R&D expenses, we see a decrease, considering the main focus on the operation and commercialization of those sell quickly developing products. Other operating income expenses. We also perceive a lower expense in the period, mainly due to provision and reversal for labor contingencies.

Next slide, operating income measured by the EBITDA, which amounts 23.9% in our first quarter '21. Nothing much to be said. The slide talks by itself. That was the main factor. Gross profit, BRL 94.5 million for this combined EBITDA amount. And as to gain losses on net monetary position, 13.2. This is an amount, which is a correction of the IAS 29 -- [ IAR 29 ] considering inflation.

Now I'd like to give the floor to Fabio Peres.

[Fábio Peres, executive]

Thank you, and good afternoon. Let's address net financial result. Once we compare first quarter last year and this year, we see a total finance income of BRL 34.6 million. If we break that down, we have BRL 1.1 million. And as to interests as a result of our revenue, that is based on our investments. And let me add that 5% of investment yield in this year is a result of the consolidation of the Brazilian market with Argentina one. And as you all may know, Argentinian market consumption is higher than the Brazilian one. With that, we had reached BRL 5.5 million. As of cost of debt, BRL 4.3 million with a result of BRL 7.5 million.

And the variations that we see as to net rates amount to BRL 1.1 million. That is a consequence of the volume of investments within that period. In the last 2 lines of this slide, we see investments average in BRL's million and an average debt amounting 16.0%, and the investments averaged BRL 98.2 million. exchange rate, we have BRL 35.9 million. And as to exchange rate of ACC, we have similar operations to last year. But this year, since last April 2020, we are paying our debt. And the last installment will be paid in this month, reducing such an exchange rate, which also allowed that decrease.

Last year, we had some devaluation of our exchange rate. If we compare October 2020 to March 2021, we see a BRL devaluation around 35%. And this is one of the reasons why we had perceived such a huge impact. We have some operations in Austria rates over capital that also had to comply with some exchange rates. And if we combine all these aspects, we reach a deal of BRL 34 million.

Now Page 12. This is our indebtedness. On the left chart, you can see the net indebtedness in shown below. With a increase of BRL 76 million in comparison to one short-term results to long-term results. On the chart below on the right, we have our debt of BRL 65.9 million for FINEP, 27.8%. NCE and the Brazilian Development Bank, BNDES, and [ Finem ], a total of 6.3%, 0.47 yearly. And BNDES, 5.89 with a total of 5% yearly. Below is presented the maturities of short-term and long-term indebtedness. In last May, or this may, I should say, we'll be paying around BRL 70 million actually next week. And that has to do with our open debt. And to the right, we have the payment flow chart for the development bank and FINEP.

Page 13, CapEx and depreciation. First half -- first quarter 2020, we have BRL 4.9 million, and this year, BRL 14.1 million, amounting 1.7% of the percentage of net sales revenue 2021. And for the first quarter, 20.9% and a total percentage of depreciation for the first quarter '20 of 19.1% and 54.2% for this quarter 2021. Our investments, they consider not only productivity, but also quality of our products and investment on technology. And throughout the year, we are responsible to approve each one of those possible future investments and to keep our net sales revenue.

Next, we would like to open for your questions, and let's now just wait for them. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Victor Mizusaki with Bradesco BBI.

[Victor Mizusaki, analyst]

I have 2 questions. The first one, would like you to comment about the results of MAHLE Argentina. Could you please give us more details about that? I understand there was a strong increase in revenues there. Could you tell us more about their production of light and heavy vehicles? And more specifically, in the case of MAHLE. So what was the price versus volume distribution in this market? Is that going to be something sustainable along 2021 given the scenario of lack of components? And I have a second question. Given the recovery in profitability in the company, what is your plan for CapEx and also investments in R&D for 2021?

[Daniel Alves, executive]

Victor, this is Daniel Brasil speaking. Let me tell you about the sales in Argentina. We have a unit of the producers evolves in Rafaela and also a distribution center for aftermarket pieces in Buenos Aires. Our Rafaela plant, the plant that produces valves. Its main share is for heavy vehicles and for exports. So basically evolves for heavy engines for trucks. And you could see the data for Europe and North America, we did experience a major increase in these markets. And this is why we had a higher revenue in the case of Argentina. Your second question has to do with CapEx and investments in R&D, right? Okay. So if Daniel Camargo would like to comment on this topic, he can say more after me.

We presented the data for the first quarter. And along 2021, we plan to make investments. Maybe Daniel Camargo can comment on that.

[Daniel de Oliveira Camargo, executive]

Yes, Daniel Brasil. Answering this question. We have an improved CapEx of BRL 73.3 million for development technology. We have the same percentage of that amount aligned with what we've been investing in the past years.

[Operator]

[Operator Instructions] Our next question is from Jonathan Koutras with JPMorgan.

[Jonathan Koutras, analyst]

I have 2 questions. You have the gross margin in the quarter, considering the pressure of materials. I understand there is a peak right now. And do you have any update on the lack of semiconductors in the market? How do you see OEMs recover their components? Does that affect any line of business directly?

[Daniel Alves, executive]

Jonathan, this is Daniel Brasil. Regarding margins, you yourself highlighted that there is pressure related to materials. So the margin of the first quarter was very good. Of course, we have contracts with our clients. And because of that, we transfer price increases of our raw materials. So we try to keep this transfer, but sometimes it is complicated to understand what is going on. It's difficult to make forecast because of increasing -- of constant increases we've had. It's difficult to manage that. However, we've been working on the timing of these agreements sometimes. Of course, there is pressure on MAHLE Metal Leve related to this.

As to the semiconductors, we've seen some car makers having to anticipate their collective vacations. And of course, that is going to have an impact on MAHLE too. Depending on the car maker, depending on the OEM, that will happen. But what we've been doing is to bring those components by air to try to keep production running. I mentioned about our stock levels in the beginning of the call. It is still lower than it used to be. We've not been able to replenish stock at the same rate, but we are keeping up with the daily sales volume. So when car makers stop, of course, there's some change in the market share. Some car makers can run more smoothly, and they've gained market share in 2021 because of that. I don't know if I answered your question.

[Operator]

[Operator Instructions] If there are no further questions, we will now conclude the Q&A session. Now I would like to turn over to Daniel Camargo for his final comments. You may proceed, sir.

[Daniel de Oliveira Camargo, executive]

Thank you so much to all of you. Please be safe and see you soon again. Thank you.

[Operator]

This audio conference call is being concluded. I thank you so much for your participation. Good morning, and thank you for using Chorus Call. You may disconnect now.