Mahle Metal Leve SA

BOVESPA:LEVE3

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentleman, welcome to MAHLE Metal Leve video conference call to discuss the results for the second quarter of 2024. This video conference is being recorded and replay can be reached on the company's Investor Relations website. The presentation is also available for download. [Operator Instructions]

Before moving on, I'd like to emphasize that the forward-looking statements are based on the beliefs and assumptions of MAHLE Metals Leve management and the current information available to the company. These statements may involve risks and uncertainties since they relate to future events and therefore, depend on circumstances that may or may not occur.

Investors, analysts and the general public should take into account the events related to the macroeconomic environment, the segment and other factors could cause results to differ materially from those into the respective forward-looking statements.

Today, with us we have Mr. Claudio Cesar Braga, Chief Financial Officer. Daniel Brasil Alves, Marketing and Corporate Communications Manager. Fábio Lopes Peres, Finance Manager; and Mr. Everton Lopes da Silva, Director of the Technology Center. Now we are going to turn the call over to Mr. Braga that will begin the presentation. Mr. Braga, you may go on.

[Claudio Braga, executive]

Good afternoon, everyone. [indiscernible] thanks for intro. I have to admit that the video always moves me. It is always very pleasant to see the overview of our units and all the potential and synergies that we have.

Well, let's talk about the results of the second quarter '24 compared to '23, 2 very different years. If you think in macro economics, especially in Argentina and MAHLE Metals Leve itself in terms of bank credit and leverage and also compare the first half of this year against the first half of last year. We start with an overview and some points that we consider a very representative and important formal MAHLE Metal Leve, then we are going to go into highlights, one of them that was announced to the market 1, 2 days ago.

Also about the summary of the MOVER program, Everton is going to give you some color on that. Then a market overview, performance of net revenues, Daniel is going to talk a bit about how we are in the market in Brazil and overseas and also revenues broken down to different market segments. Then I come back to talk a bit about our profit and loss in the period I mentioned. And then I turn back to Fábio to talk a bit about financial management, expenses, leverage and et cetera.

And in the end, as usual, we are going to be available for any questions or clarifications that you might have okay? As [ Grazilia ] mentioned, in addition to myself, we have Fábio Peres, Executive Financial Manager, Daniel Brasil responsible for marketing and communications and Everton, as we have been doing, usually, we always bring a special guest to give you some color or approach some topics that we think are relevant for the company.

Well, so the highlights, what I would like to draw your attention to, you did see in our financials statements. We closed the year with BRL 2.1 billion in revenues slightly lower, about 2% lower than the first half of last year. And we included here an observation about operating profit despite the loss of 2% in revenues. When we compare operating profit, gross profit and net operating profit after overhead expenses and other financial expenses of about 18% to 19% of revenues.

Going back to previous years, we see this number quite consistent. And even slightly above what we saw before. So I think this has to do with part of your questions, the lines that we have below operating profit. Another highlight and you can see in research and developing the company's pipeline, we call it expenses that we consider it investments of BRL 29.4 million, and you see that we are united in the technology center Jundiaí. Everton is going to give you a bit more color on that. But it is the Americas Center for the development of filtration products, a segment that we have in Mogi Guaçu and implants, both in Mexico and in the United States and also has released some months ago, some of you had the opportunity of coming to visit Jundiaí, our opening of the biomobility center in research and development, we have more than 50 employees -- 150 employees.

And another highlight that I think it's important to mention is that we have CapEx approved of about BRL 120 million for the year of '24. The 2 other projects came up after we talked to the market about the product line, extension of existing products with an additional BRL 15 million to BRL 16 million. So total CapEx planned is BRL 136 million for this year. And in the facilities that you saw in the video that we have in South America, we employ about 7,100 employees.

As for notice to the market on August 13, just I'm going to be very brief, but this is a subject in which numbers are confidential, as we mentioned in the last bullet, this is still being under the analysis and approval of the Brazilian antitrust agency, CADE. So we cannot give you too more color. But anyway, after the meeting of the Board of Directors, we entered into the share purchase and sale agreement. It still was a minority stake, 1/3 of the capital stock of [indiscernible] company that is located in Rio Grande do Sul.

Our idea with the operation is to keep agility and flexibility and ensure the success of [ ARCO ] that the success that it has been enjoyed since it was founded. And with our knowledge and capacity to negotiate with customers, suppliers, our efficiency in logistics, admin and financial areas create synergies with [ ARCO ] and really leverage the company's situation. Both for MAHLE Leve and for [ ARCO ] itself. This move is part of broader move that we are going to be talking about in the coming quarters, but it's very strategic for MAHLE Metal Leve because with that, we can strengthen our presence in thermal management, specifically with [ ARCO ] in air conditioning solution for buses. Both existing buses and also future fleet both with fuel fossils and electric engines.

Well, can we go to the next slide. And just as I mentioned on the previous slide, the main market up operation with the partnership would be a bus body manufacturers, especially where we have a production in the 7 months of '24 compared to '23 with an increased volume of 47%. It's not an increase in volume that we can consider consistent year after year. This is a move that we see that can be cyclic. It happens every 2 years. Basically, when you have public tenders to renew bus fleets. But in addition, there is an extension of the adoption and even of the passing of laws to demand air conditioning in public transportation vehicles, and this can also leverage the partnership.

I think we can move on to the next slide. And the second highlight, again, research and development. So I'm going to turn to Everton

[Everton Lopes, executive]

Good morning, everyone. I bring to you a bit of an overview of our new program. That is connected to the local automotive policy. It's called MOVER. It is an evolution of the ROTA 2030 program. The market is very much aware of, but this is a more expanded product. The objective is to develop technologies in the local market. Innovation as an important point connected to technology increasing global competitiveness of the Brazilian market, particularly the automotive market, but not important is also working with sustainability and decarbonization of mobility. Very important topics.

And if you remember, we've been talking about that for some time with actions in the tech center in Jundiaí of MAHLE Metal Leve group. So there it is to have decarbonized mobility. There are important pillars in this program. First, benefits, clear incentive for sustainable vehicles and even OEMs in Brazil they are going to have publications of developing less-polluted vehicles, reducing CO2 emissions.

And at the same time, they will receive tax incentive be able to sell these vehicles in the market in an affordable manner also incentives for research and development activities. Later on, I'm going to talk about this impact for us, which is quite positive because in a way, it encourages activities developed in Jundiaí and there is support to local production. So a clear indication of localization, nationalization for the regional markets. And all OEMs of automotive products included MAHLE OEMs everyone involved in the program, raw material suppliers, input suppliers, but there are requirements, the most important being a minimum requirement in R&D.

And MAHLE Metal Leve is compliant with this requirement, vis-a-vis the amount that we invest in research and develop as Claudio mentioned. So it is a program to really support technological development for the region. And the history of MAHLE Metal Leve MOVER, does not stop today. We had an active participation in the building of the program in '21 and '22 through associations, particularly with ANFAVEA of which we are a member. We work together with the government, and it was quite interesting because we supported how policy was being built through the pillars we mentioned.

In the end of last year, it became a provisional measure. And in March '24, the program was opened for enrollment companies in road complying with our requirements, but also in starting process of incentives especially in research and development. and MAHLE was of the first companies to apply in April '24, and we had the confirmation of the Ministry of Industry and Trade that MAHLE is inside the MOVER programs has been since April. So between '24 and '28, we have -- we will have support and benefits to develop technologies, focus on sustainable mobility, supporting initiatives with the bio mobility center that we mentioned before and also other actions related to National Engineering.

Next slide, please. And the opportunities that MOVER brings to us, as I mentioned, not only auto parts, but to OEMs, automakers are also in the program. And in addition to requirements in R&D, they also have requirements for products. So in the coming years, OEMs will have to comply with requirements in terms of higher energy efficiency, reducing fuel use, increase the use of recyclable materials and also have the labeling that is reporting to consumers the most efficient vehicles in the market through labels. So all these requirements demand new technologies. So auto parts are going to require new technologies, OEMs, we have to be compliant, and that will generate cycle of development technology. And not only these 4 things, the source of energy ethanol [ proposal ] technologies, carbon footprints that is how much emit in terms of COG, ethanol, hybrid flex. All these technologies are clearly referred to in the program as mandatory points that will certainly bring benefits to OEMs as well.

And how are we prepared for the opportunities? Many of you had the opportunity of this sitting out center in Jundiaí, the second largest in motors engine development in South America. We are very much focused on sustainable mobility with biofuels, recyclable materials with the biomobility center, our engineering center for the Americas. Not only in Brazil but also working with the whole of the Americas. In North America, we are anticipating demand. OEMs know very well MAHLE Tech Center, they provide engineering services in our region increasing our penetration in the market. And today, we have 150 employees, working in Jundiaí prepared to seize opportunities.

Next slide, please. So to conclude, the MOVER program is a clear evolution of the ROTA 2030 program, but it has a broader scape with sustainable mobility, which is a clear opportunity for the next 10 years. So MOVER is very effective. It's going to be very effective until 2030, 2032. So we have very clear directors in terms of technology. MAHLE Metal Leve was part of the development of this program that benefits not only MAHLE, but the whole Brazilian production chain and through our R&D activities, the Jundiaí Tech Center has all conditions to be enrolled in the program. And so we did. And that will really ensure that we are going to develop new technologies for the company. mandatory requirements technologies. This is good for us, for the auto parts industry.

Technologies have to be domestic that helps us in decent and MAHLE Metal Leve structure is prepared for technological development. And we are paying attention to market moves, not only associations, discussions with the government, but also very close to our customers to seize the opportunities to come. This is my message about MOVER, and then I'm open for your questions. Thank you very much.

[Unknown Executive]

Thank you Everton. Good morning, everyone. And thanks for attending on our conference call for the second quarter '24, the first half of '24. We are like 13 up , where we have sales and production in Brazil and Argentina and also North America and Europe. So starting with the upper part, we have sales of light and heavy vehicles in the Brazilian market. So in Brazil, we have growth in the half year of 15.4%, 1.78 million vehicles sold. The expectations of ANFAVEA was updated up. So it was 5.7%, and it went up to 10.9%. So the sales of vehicles is doing very well.

In Argentina, 162,000 units, a drop of 21.7% and Argentina in '24 is going through economic adjustments after the election of the new President and all the adjustments to curb inflation, and that impacts the automotive market. So in the case of Argentina, for the whole of '24, we have an expectation of minus 15 to minus 20. So we are not expecting a huge recovery in the second half.

Brazil and Argentina together, we have light vehicles 8.7% increase, 1.240 million units sold and expectation in terms of projection for the whole of the year is to close between 4% to 6% growth in vehicle sales. As for heavy vehicles in Brazil, growth of 2.8%. Here, it's always important to remind you that last year, we could sell buses and trucks with the previous sell out Euro 5. So that was and excess inventory.

So the first half of '23 was very much driven by the sale of this cheaper vehicles, cheaper than Euro 6 trucks and therefore, growth of 2.8%, the expectation for the whole of the year in '24 and '25 is 10.9% as well exactly as light vehicles. In Argentina, as in light vehicles, we had significant drop, 29.9%, 5,600 units of buses and trucks projection for the whole of the year. Also a ground to debt, a drop of close to 20%.

Brazil and Argentina together for the first half of '24 against the first half of '23, rose up 0.1%, 71,000 units. The expectation for the whole year of '24 with heavy duty vehicles is growth from 5% to 7%. So both light and heavy vehicles with close to 5% growth for the whole year of '24. Production, we're starting with light vehicles in the Brazilian market. We had a drop of 1.5%.

So we did see a mismatch between sales and production, that is sales increasing by 15% and production decreasing by 1.5%. Two effects are important. An increase in the share of important vehicles, you should be following the scenario and Fábio is highlighting the issue import taxes for imported trucks for electrics and hybrids is up now and last year, it was 0, just as an example. Battery started with 10%, and now it is at 18%. Remember that import taxes or fuel vehicles is 30%.

So in the month of July, we already see "an accommodation in the sale of imported vehicles". So you have increased taxes that do impact sales. And the second effect to explain the mismatch is a drop in exports.

So the main markets, Brazil exports to Chile, Peru, Colombia, also are having drops of 2 digits. We had an improvement in July for the indicator. So we have to monitor that. But currently, that's the impact. Production of minus 1.5%. Projection for the whole of the by ANFAVEA was also adjusted. It was a projection of a growth of 4.8% and now it is 3.4%. So not a major recovery for the second half of the year. There is a bit of the impact of the tragedy in Rio Grande do Sul that happened in the second quarter, but the projection is to close the year with growth of 3.4% in Brazilian in production.

In Argentina, as I mentioned, sales impact obviously impacts production because of economic adjustments dropped of 26.7%. In the half year, and the projection for the whole of the year '24 between 15% to 20%. Argentina and Brazil, together for light vehicles production shows a drop of 7% year-on-year. And here, the expectation is to close at 0%. That is in line with the production of '23, at least stable.

We might have a positive surprise but the current expectation is to close. Brazil and Argentina just stable with the same production of '23. In heavy vehicles in Brazil growth of 39.4%, also because of last year, remember the year of '23. But we had inventories of the Euro 5 legislation. So in the first half of '23, we had low production because we were selling the inventory. And then consequently, we have this increase of almost 40% expectation of ANFAVEA is for the year close of 32.1%, so they kept the project for production, Argentina, an important drop, 26.4% and the expectation of 20% minus for the whole of the year.

Brazil and Argentina together growth of 35% and projection of the whole of this year between 20% to 30%. So heavy duties markets as the trucks, we have the path to school program, the government program for buses to school. So this is what we have for Brazil and Argentina. North America and Europe, we have production of the first half of this year against first half last year.

In Europe, light vehicle production, minus 3%. The projection is to close between minus 2% to minus 3%, so a drop in the European market North America growth of 1.5% and a projection between 1% to 2% in the whole of the year. Together, Europe and North America drop of 0.9% and projection of closing the year between 0% and 1%. So again, closing the year stable comparing to the previous year. North America is slightly better, Europe with a drop. Heavy duty in Europe 0.6% growth. In this case, the outlook is to have a 2-digit drop that is between minus 10% and minus 15%. That's projection for heavy vehicles set a market that grew by 2 digits in '23. So very strong in '23. So '24 shows the reflects in production compared to previous years.

North America year-to-date minus 0.7%. And for the whole of the year, the estimate is minus 5% to minus 10%. Altogether, minus 1.6% and for the whole of the year, minus 10%. Now we are going to go to Slide 14, where we show our net revenues performance. And you see again the second quarter '24, second quarter '23. First, domestic for original equipment, exports and then aftermarket domestic and exports. In the quarter, we had a drop of 4.6%, altogether in original equipment, a drop of 6.6% mainly driven by exports. I'm going to give you a bit more color in the half year because these are similar events that did impact the second quarter and the whole of the half year. In exports a drop in the aftermarket mainly because of Argentina, we see the sales in aftermarket. We have an important sales in Argentina that includes domestic. So in domestic, you have sales in Brazil and in Argentina from our units in Argentina sold in the local market. So it's domestic. It did have an important drop and the Brazilian market partially offsets the Argentinian drop. You see that in the half year, we have a drop of only 1%. So a strong impact in Argentina that the Brazilian market almost completely offset in exports in Argentina the aftermarket, I'm sorry, an increase of 15%.

Last year, we had many uncertainties. This year, a new commercial policy was defined and we have dedicated sales in Colombia, Peru and Chile, and that helps leverage and provide customized services for the aftermarket export. In the quarter, a drop altogether of 1.9%. Now explaining the half year, the original and domestic a drop of minus 2.1% and in this case, and I just showed you a drop in the production of light vehicles. However, in light vehicles, company revenues was offset by new businesses. So drop of revenues was not in light vehicles, although the production of light vehicles dropped if you consider Brazil and Argentina.

The main effect of the drop in revenues is that we had sales to customers in Brazil, and these customers exported engines, motors or equipment or components. So although it is regional domestic equipment, you supplies to a domestic customer, and they export components or the motors so we had a spot sale. The market was very strong last year North America and Europe. So the demand was heated. And this year, I showed you the market that's going to have a reduction, and therefore, we see a drop for original domestic equipment.

And exports, a drop of minus -- a drop of 8.6% for 2 things. First, because of the heavy duty market. I showed you the market going down, both in North America and Europe. And that brings revenues down and also onetime business of evolve that we exported to a light vehicle customer, but most of the heavy market altogether, a drop of 5.6% in original equipment.

Domestic aftermarket. As I mentioned, a drop of 1%. The justification here is the Argentinian market that had substantial drop. However, last year, customers did half inventory they knew that there would be an exchange devaluation. So customers stopped that product. We knew that, that would impact '24. But in the Brazilian market, we are almost able to offset this effect.

And in exports, as I mentioned, last year, a bit weaker and improvements in commercial policies, dedicated teams, leveraging sales. Aftermarket ended with growth of 1.9%. And altogether, a drop in revenues of 2.5%. So Claudio is going to talk about the growth projects and operating profit being maintained despite this drop. So I'm going to turn back to Claudio, and I'm going to be here for your questions in the end.

[Claudio Braga, executive]

Thank you. So the company's profit and loss in the last 3 columns, we are comparing the first half of 23% against the first half of '24. In the central columns, we are more focused on quarters, again -- quarter '23 against quarter '24. But the first line, I don't think that I have to say much because Daniel was very clear about revenues, but we have 2 very important indicators because this is the main line of our P&L. A drop comparing half year of 2.5%. In the second quarter, we see a drop of 4.6%.

However, when we take a look at cost of products and services sold we see a very stable number, 69% to 70% of revenues. So I cannot say that this is independent, but we work very much with synergies between production areas, procurement, logistics and production and sales areas regardless of onetime increases in commodity, labor, raw material, together with the sales department, we can make sure that gross profit continues consistent at about 30%.

Going down, talking a bit about sales, administrative expenses, likewise. We are always at 10%, 11% of our revenues quite consistent and a topic that we always like to highlight is our investments in research and development. Despite we saw an absolute number slightly more expressive. We still have room to increase our investments today about 1.5% of our revenues. And other operating income and expenses, a bit less significant. The number that you see is quite incipient.

Operating profit that is what at the end of the day is easily managed by the company's leadership always at a level of 18%. We are going to exclude 2020, which is the year pandemic. But from '21 to '24, operating profit and gross profits have been maintained or even increased.

What draws our attention and probably you notice that, which is below those lines. So the next position is the net monetary position in foreign subsidiary, which is basically MAHLE Leve in Austria and Argentina. In Argentina you have been following -- has been facing for some time now high inflation, and that has an impact in consumption of our customers, as Daniel mentioned in previous slides, but adjustments in terms of exchange rate, accounting adjustments because of hyperinflation.

So we see quite substantial numbers when you take a look at the first half of '24. You will remember the previous call. In the first quarter, we had about BRL 65 million in the half year. Now we have BRL 51 million. It's only 3.4% of sales, the amount continues to be substantial, slightly above last year in the first 6 months of BRL 58 million. Here, it's important to understand the next devaluation of December last year that impacted the result of the first quarter. So this is a topic that we also talked about extensively with investors and on our live calls.

Now considering the second quarter alone, the number goes down. So we do see movement in our expectation and not some partners that analyze the situation from closer in Argentina. We start to see a bit of an accommodation or stabilization. And I think that the movements were quite right for the medium, long term to start seeing Argentina a bit more stable in the future. And the adjustment for hyperinflation now that we have a bit of a more controlled inflation that are discrepancies, but as most of the institutions we talk to in Argentina. Do not expect any major devaluations in the coming 12 months. But we saw the BRL 65 million, BRL 64 million of the first quarter that do impact our results.

So in the quarter, we have about 22% against 18% in the second quarter. And what I think is important for us to draw your attention to is that accounting adjustments for hyperinflation, they don't have an impact in the company's cash flow, but accounting adjustment for hyperinflation generally take place in recent years more strongly in the first half of the year. So we saw that difference between the first and the second quarter. Another line that our attention. In my opinion, it's not really a noxious line, but it is changing the strategy of the organization. When you think of MAHLE Metal Leve until the third quarter of last year between financial expenses and income, we had more of -- we had also the payout of dividends of the company that is generally made. So historically, what we saw was the company taking credit to guarantee the payment of dividends in May, and that was normalized by the end of the year.

We are going to talk a bit about that in the end of the presentation. But comparing the financial indicators of MAHLE Metal Leve to its peers, and a bit more focused on leverage. I think that this number is extremely healthy. But it is a number for those that are used to following MAHLE shares that draws a bit attention. So you see a positive in '23, to a negative of BRL 38 million and only focus on the quarter, I'm not talking about the half year, but the second quarter of last year compared to the second quarter this year, we see an inversion of financial expenses from financial income to financial expenses.

And you'll probably remember this movement of follow-on that we had in the last quarter of last year and the payout of dividends and reserves that were very strong in the end of the year. And obviously, that involves an increase in indebtedness that has a financial cost. So we are going to talk a bit more about that on the next pages. But I think it was a phase, and this is something that we are working very much on to improve. Likewise, I think it's quite comparable to market peers and quite healthy.

Now in terms of income tax and other number that draws a bit of our attention, but nothing new in terms of absolute volumes, quite consistent. What through our attention and perhaps yours, when you take a look at the P&L was an increase in the second half of this year of the effective tax bracket for those of you that read details, we had the evolution of a process that we had, the tax lawsuit that we had that is no longer at the judicial grant.

We are just waiting for the regulatories, so we've reduced the provision and the reversal of provision in the second quarter of this year, has changed the calculation of the effective tax bracket when we exclude the number we see the normalization of what we saw before. So in theory, it was an atypical quarter because of this reversal. And also, this is public information. We had an increase of provisions directed to the environment, soil decontamination relatively old plants. We worked very strongly and proactively with company and public agencies like CADE in Sao Poulo and others in Mogi Guaçu for the decontamination of soil. We are working very much in line with our strategy and policy of sustainability. But all that carries a cost it's not cost free. And therefore, we updated our provisions in the second quarter of the year. So in short, it was a reduction of provisions for the tax lawsuit of about BRL 38 million and for environment about BRL 29 million. All that impacts the net income for the year -- for the period. And if you think of effective rates. We have a bit of impact from the Argentinian hyperinflation and the provision reversals that we mentioned.

Now going from a profit for the period of 8.3% and 13.8% for the half year, we have an EBIT of 21% along the year, quite stable. I believe that we can now go to the next page.

In this quarter, I wanted to draw your attention. We are always very much focused on results. Of course, results are very important for any organization. And this is also public information, you have access to that. This is also a historical data, but it is the evolution of our cash flow. I think that you as investors are representatives probably pay very much attention to these numbers. We started the year with a cash and cash equivalents of BRL 383 million. We closed the second quarter with BRL 427 million. And basically, these are the movements that took place in the period. We had a new loan and you see in the second column BRL 249 million to our cash, mostly used for the payment and amortization of short-term debt. Working capital mostly and also part of this money because of generation of extremely positive operating cash generated or made it possible for us to pay dividends of BRL 240 million. And interest on equity in the second quarter of this year, payment of taxes, it is an outflow and the BRL 130 million that I mentioned as the main highlight, almost BRL 40 million were already paid in the first 6 months. Historically, most of the payments that we have for CapEx takes place in the second half of the year, even more so in the last quarter. So we expect to see this number growing based on our plans.

I think that now I can turn to Fabio.

[Fábio Peres, executive]

Good afternoon, everyone. Thanks Claudio. Let me talk a bit about financial management and reinforcing that the low end that in May this year in the amount of BRL 249 million, as Claudio mentioned, was basically to roll out our debt. So the debt -- a short-term debt turn to long-term debt with maturity in March '27. So we extended our debt. Talking about financial management, in the first part of the slide, we talk about our net financial results in the first half of '23, the net interest we had BRL 49.7 million. You have to consider that in December '23, there was a reclassification of bonds yield all the amounts were being allocated on the line.

And then in December 23, there was a reclassification for the exchange variation of about BRL 37 million. So when we exclude the BRL 37 million, you have an amount of approximately BRL 12 million in terms of net interest. Then we had 2 events, the first is that the interest rate in Argentina in the first half of this year, had a substantial drop in the beginning of the year. It was 110% and now it's 36%. So all the funds applied in Argentina, suffered reduction because of the interest paid buyers in Argentina, and as a reflect of that in Argentina, we had the reduction of the net interest.

In terms of net monetary variations. We had BRL 5.5 million in '23 and when you have the reclassification of BRL 37 million, you have BRL 43 million positive against BRL 57 million negative. So in the same line in the second quarter '24, we have BRL 77 million, which comes from the loans and the exchange variation of loans indexed in euros, about BRL 153 million. The rate in March was [ BRL 539.79 against BRL 595.47 ] on June 30. So a devaluation of the real of 10.36%. So when you get to the nominal amount and you apply 10% devaluation, you have the exchange variation of BRL 77 million.

It's also worth mentioning that this is an accounting effect. We had no disbursement of this amount. So no cash effect because although indexing in euro, the amounts are going to be paid in future exports according to our budget for the coming years. So because the company will make the payments with exports also index in euro vis-a-vis are lower indexing euro, we are not going to have the exchange variation in our cash because exports are going to follow the same rate in which amounts are going to be paid. Third line is net monetary variations. As Claudio mentioned, we had a reversal in the second quarter of about BRL 20 million the impact of financial income and expenses and as a result of all that we have a net finance income of BRL 44.2 million in the first half of '23 and in the second half -- in the first half of '24, BRL 38 million. So a change between the period, BRL 82 million. Remember, BRL 77 million come from what I just explained about loans indexed in euros, foreign currency.

The bottom part, the second table, we have the amounts in our cash. Claudio already talked about the bridge between BRL 383 million to BRL 427 million and the extension of maturity credit, we have BRL 839 million in the long term. And the effective cost of these loans is 5.1% for the period of '24. And in '23, the cost were 4.5%, slightly up because of the funds raised as Claudio mentioned in the previous slide and the role out of the debt that we had in May this year. And the bottom line, net debt-to-EBITDA ratio, we closed '23 at 0.51x and in '24, we are at 0.63x, again, because of the loans raised in May this year.

Now, we are going to open for your questions. Claudio, Daniel, Everton and myself are available to answer any questions you might have and that we can clarify. Thank you very much.

[Operator]

[Operator Instructions] Our first question comes from Jonathan Koutras from JPMorgan.

[Jonathan Koutras, analyst]

I have 2 questions on my side. First, still talking [ ARCO ] air conditioning. But we would like to know how relevant the acquisition is in terms of size on how much it can contribute to your results? So that would help a lot. At least a range how does the valuation of the company compared to the valuation of MAHLE today, just for us to have an idea of capital allocation?

And second question, Daniel mentioned, the deceleration in the quarter, especially with exports. So how do you see the remainder of the year you had a quick devaluation of the exchange rate, but you had a pickup. So do you think that revenue is a new running rate for MAHLE or should expect an acceleration for the coming quarters?

[Claudio Braga, executive]

Thank you, Jonathan, for your question. You always asked a very interesting question. As for partial acquisition of -- again, minorities stake at [ ARCO ]. This is quite relevant to us regardless of amount, I cannot give you too much color with regards to valuation. But very soon, we are going to have an opportunity to talk about that, perhaps even with larger group of people. But for now, we have to wait for the CADE approval. But this is a company that has 2 individuals as partners MAHLE now being the third partner. And we do not want to expose any one. So the numbers are quite reserved. But regardless of valuation it's not value that we are going to see immediately of the acquisition in sales because it is a minority stake, so which is more of an investment.

But for the future, it will impact us in terms of future dividends this is to see. But right now, if everything is okay, and if we are able to increase our stake, but this is going to be something different. But this is for the future. It's not for now. So regardless of the valuation, Jonathan, the main focus is the strategic approach.

This is a company that works very strongly with bus body manufacturers, a very good relationship with these customers. And that for us, MAHLE Metal Leve, having the synergy with products that we have such as what you realized in the video in the opening and even a chance of us leveraging more sales in the future and also lots of synergy with regards to customers, suppliers, supply chain and financial management.

So a bit further on Jonathan, if you have the patient to wait, we are going to come back and give you a bit more color. For now, I really can't. But I'm going to turn to Daniel to try talk a bit more about [ ARCO ], the second part of your question.

[Daniel Alves, executive]

Thanks Claudio. Well, revenues for the third quarter. I cannot mention revenues for the third quarter, but we can analyze the market. I showed you the half year. You're talking about light vehicles a drop in production of 7% and to close the year at 0%. So you have an improvement in the production of vehicles for light vehicles. Argentina was quite impacted to this half year because of financial adjustments.

In July, we start to see some recovery, slow but it is a light in the end of the tunnel and even Brazilian exports to other countries, July was a better month. As for heavy vehicles at a very strong pace year to date 35% growth in production. And I mentioned that we expect to close the year between 25% and 30%, so a strong market. In exports, likewise, as I mentioned, the half year with a drop of 1.6% in heavy vehicles, outlook of 10% and light 0.9% minus and at breakeven. So in the domestic market, that is Brazil, Argentina, we do see some improvement for the second half of the year compared to the first half of the year. And in export light vehicles, a better the second half, but in heavy vehicles a worse second half. This is what I can talk about the second half of '24.

[Operator]

Our next question comes from Andre Ferreira from Bradesco BBI.

[Andre Ferreira, analyst]

Congratulations on your results. I have 2 questions. First about margins. Although there was a slight drop in the EBITDA margin, it was still very strong. I'd like to understand your mindset how the margin is going to behave for the remainder of the year and '25 as well. And the second point, I apologize is the provision for environmental liabilities. In the second quarter of '21, there was a similar nonrecurring item. I think it was the refurbishment of our plant in Sao Paulo.

Now our new provision I'd like to understand, first, if it's the same process. The reason for such for you to have this new provision. And if you assess other regions, other plants, if you have a potential for something along the line or if you have a lower risk?

[Unknown Executive]

Thanks for your question and your knowledge of results. I agree with you. I think it was quite good. As for projecting it for the future, it's a bit hard. I would say that there are some macroeconomic factors that can have an impact. The evolution of the exchange rate that will be better for us in terms of exports, obviously, but as a counterpart, we have 2 factors. We have imported products as well. And when the exchange rate goes up, it's always like this. It's better for one side, but not for the other. Another factor that Fabio mentioned is indebtedness that we had in the last quarter of last year when the exchange rate goes up, we have higher financial expenses.

And Fábio said that this is reflected in our books. We do not see a problem with that because this is important because we have the exports that are extended most of it with maturity just for '26 and '27. So it's not something that we should worry in the short term.

There's lots to happen. Situations can change. But anyway, exchange rates, this is what we see. And regarding the operational part, another factor that we see that has impacted results, you know because you have been following us is Argentina. So you consolidate everything in MAHLE, you see that. But this is an accounting adjustment that we have in our assets and liabilities. Basically in this line that you have gains from monetary positions of the subsidiaries abroad. Then basically, you have a summary of everything that I mentioned and also the update of prices compared to inflation.

So when we try and thinking about the future there are 2 items that are quite unpredictable and less manageable by companies that operate in Argentina. So it's very difficult to measure, but as I tried to mention when I was explaining the slide, when we talk to Argentina economists and export, they do not expect another maxi-devaluation, but we cannot know for sure some. So there are 2 important factors for the profit and loss that you have been following.

Operating profit up, and I do not expect any news at least not being operational that can impact our results. So what I have seen based on our history, again, not projecting future labor, raw materials. Sales is working very well with a good customer base, gross profit quite stable. To be honest, I joined the company a few -- a while ago, we see it's even going up. It is a positive evolution that we see with those numbers. Operating profit with overhead expenses already included also very consistent, so talking about a bit, I do not see any major surprises. We, of course, can always have a second pandemic or something, but nothing that is in our mind. It's of course, that would have a macro impact.

As for your questions with regards to the environmental liability, and I thank you for your question. Yes, this is slightly related to what you mentioned, that was a plant that was deactivated in Sao Paulo. It is in process of decontamination, a huge process, not only of MAHLE Metal Leve, I don't know if you follow other companies that were located in the same region of Sao Paulo in the past. This is for everyone. It's not only for MAHLE Metal Leve. This is an area close to a river, the aquifers. And so this is a process that has a very long decontamination process. So part, yes, is so related to that, doesn't mean that it is recurring. So that was disclosed to CADE, so I'm not talking about anything that is confidential. But all this the company pro actively hired special consultants for all our sites where we are based or were based in the past.

So it took a long time, and we are verifying them all. In addition to specialists looking into them all, we hired a second opinion. So you have companies that are very well recognized in the market, but we also hired the second opinion, and they covered everything of MAHLE Metal Leve existing operations, operations already shut down. This is our responsibility. And a group of attorneys very strong. So it's a very strong process.

The provision in the second half of -- in the second quarter. Most of it is connected to this region of Sao Paulo, as I mentioned, but not only. We have something being developed in Mogi Guaçu in our plants of [indiscernible] and also something in [ Maua ], another plant that was already shut down, but the land is occupied today. We are the owners of third of the land and then [indiscernible] and then a bit in [indiscernible]. So nonrecurring, but it was a time to update information based on the reports that we received. I hope I have answered your question. If not, just ask me for further clarification.

[Andre Ferreira, analyst]

No, very, very clear.

[Operator]

[Operator Instructions] Our next question comes from [ Niels Tahara from Seth Investments ].

[Unknown Analyst]

Congratulations on your results. You have been delivering in recent years, a very consistent gross margin. I suppose that part of this comes from an increase in your share in aftermarket. But what else do you think would be a main reason for this gain in gross margin? Is it efficiency? Is it commercial management visit, raw materials management. And if you could give us a clearer breakdown for your cost line because you have a line that is others. What is exactly involved in your line of others? Because it was a relevant portion of your revenues, and it did grow a bit year-on-year. So these are my questions.

[Unknown Executive]

I think the first part of your question, I'm smiling Niels because what you asked is basically the answer I had to offer. So when you think it's a combo of everything you mentioned. So you have consistency, you have efforts and very good work developed by the sales areas trying to have passed through to customers and increases in raw materials and anything that can happen to the company. So that is partially explained by that. And of course, there is synergies between different companies department scenarios.

You talked about aftermarket. And I would say, we are suppliers to the automotive industry. And if we cannot deny that OEMs are in Brazil, they are quite strong, but the replacement market, the aftermarket, both in Brazil and Argentina is huge when you think of fleets in Brazil and Argentina, new vehicles and OEM is one part of that. But then you also have the existing fleet that needs tune up services, and that is aftermarket. So aftermarket undoubtedly is a contributor for the company's success. So Niels I think that it is a tripod.

We have exports that has a bit of a life in its own. United States, North America, depending on what cycle they are going through, what trends. Europe, so tripod exports would be one part. Then we have the local OEM market. And I'm going to turn to Daniel maybe he want to talk about that, but it's a very important pillar.

And the third pillar certainly aftermarket. And the combo of the 3 generates a healthy balance. It's not always that everyone is doing well. But fortunately, if they are doing well, the better for us that manage the company, but if one is not so well, we counterbalance with the other. And to see if I understood it clearly, when you're talking about the others line, are you talking about the cost of products sold.

[Unknown Analyst]

No, yes. The cost of products sold.

[Unknown Executive]

Okay. These are substantial numbers, you're right. I have sheet on my site. But when you get to the years of '24 and '23 comparing the first half of each one of the years. The most relevant in the 2 periods is the adjustment for hyperinflation. So BRL 102 million that are included in this line for the first half of this year, hyperinflation of Argentina IRS 29. Last year, BRL 94 million. And the other number that is of embedded in this line is the cost of services. You may see some enthusiasm on my part when I talk about research and development, but it's sheer admiration by the team, that's not only Jundiaí. And you saw Everton talking about the whole work because in addition to products, we sell services. So in the tech center and Everton is here, he can also talk about this. But in addition to the products that we developed and adapt and make it better to provide more specific needs of aftermarket of customers.

You have facilities for tests, we work with OEMs and the products are sold. So in the first slide, when I talked about highlights, as a center for the Americas of filtration products these are services that we provide. You see revenues in the first line, and you have a cost for this line. So Niels would say that these are the 2 things that draw most of my attention. And you can talk to me now or further in the future to give you more clarification. I hope I have answered your question.

[Operator]

[Operator Instructions] Q&A session is now closed. We are going to turn the call back to Claudio Braga for his closing remarks.

[Claudio Braga, executive]

Well, thanks for coordinating event. I think it was very nice. I think that some colleagues were able to show their faces, but we have an army here to try and answer questions. And it's always a pleasure to be here to talk to you. We have been intensifying our closeness to the market. I think past the 6 months of adaptation of the company.

Now we want to be closer to you with closer context. And we are here for you. Any questions you might have, request for clarification of everything we showed today are in our P&L, just let us know, and I hope to come back for good news. You know setbacks happened in Argentina, in Brazil, in the macroeconomic scenario, but we have to deal with this as well as possible. Thanks for the recognition of our results. Some of you voice that I share your view. I think the results were quite consistent, and I hope to see you soon. Thank you very much.

[Operator]

MAHLE Metal Leve conference call is now closed. We thank you very much for joining us and wish you a very good afternoon.