Mahle Metal Leve SA

BOVESPA:LEVE3

Earnings Call Transcript 2021-Q3

[Operator]

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to MAHLE Metal Leve Conference for Third Quarter of 2021 Results.

With us here today, we have Mr. Daniel Brasil Alves, Marketing and Corporate Communication Manager; Mr. Daniel de Oliveira Camargo, Executive Accounting Manager; and Mr. Fábio 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 Investor Relations website of the company where the presentation is also available. Participants may view the slides in any order they wish. The replay will be available shortly after the event is concluded. Those following the presentation 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 uncertainty because they relate to future events and, therefore, depend on circumstances that may or may not occur. Because in future events, they will be discussed.

Now I will turn the conference over to Mr. Daniel Camargo, who will begin the presentation. Please, Mr. Daniel Camargo, you may begin your presentation.

[Daniel de Oliveira Camargo, executive]

Good afternoon, everyone, ladies and gentlemen. Welcome to this results conference call of MAHLE Metal Leve to talk about the third quarter of 2021. Before we start with our agenda, I hope everyone is safe and healthy. And after this presentation, we'll be available as mentioned, for our Q&A session.

So I will start our presentation with Slide #2, where we see our agenda. And we will talk about the highlights of this quarter. We'll talk about the general view on the market, talk about net sales results and performance, then financial management investments and then questions and answers.

In Slide #3, we have some highlights on the third quarter of this year numbers. The net sales, BRL 949.5 million, 37.4% higher than the third quarter of 2020. And in the accrued number, it was 64.4% higher than the same period of last year. This, as earning per market in the domestic aftermarket, we had BRL 267.4 million in the third quarter, 12.3% million higher than the third quarter of 2020. And in the 9 months accrued period, the domestic aftermarket was 50.9% higher than the same period in the previous year.

In the domestic OE, our income was BRL 277.4 million in the third quarter of this year, 67.4% higher than the third quarter of 2020. In the accrued period, 86.6% higher. In the aftermarket exports, BRL 86.2 million in the third quarter, which means 42.5% higher than the same period last year.

In the accrued period, we had 60.4% higher than the same period last year. In the original equipment exports, we had BRL 318.5 million in the third quarter, 40.4% higher than the third quarter of 2020. In the 9 months of the year, it was 61.5% higher than the same period last year.

Now I'd like to call Mr. Daniel Brasil, who will talk about the general view of the market and the performance of net earnings.

[Daniel Alves, executive]

Thank you, Mr. Daniel Camargo. Good afternoon, everyone, and once again, thank you for your participation in this MAHLE Metal Leve results conference call. It's always a pleasure to welcome you here.

Let me start on Slide #4 where we have sales in production in Brazil and Argentina market for the 9 months of 2021 against the same period for the same -- the first 9 months of 2020.

So the first table, we have light vehicles. We have Brazil, Argentina in the total. And in sales, we had an increase of 13% in the Brazilian market. In Argentina, there was an increase of 18.9%. So Brazil plus Argentina responded for 13.8% in growth.

Now talking about the expectation for the end of 2021 in the Brazilian market. If you consider -- the production is 1 -- I mean, plus 1% or plus 2%. And in Argentina, this figure will be 1% or 2% positive. So the closing for light vehicle sales will probably be 0%. The same vehicle sales as in 2020, the year of the pandemic.

Taking this into a global perspective, the projection of global vehicle sales is less than 1%. So we have difficulties less of -- there is difficulty with competitors and semiconductors, so it was pretty challenging.

Now talking about the production of vehicles in Brazil, there was an increase of 20.5%, in Argentina 85.5%. So Brazil plus Argentina meant 28.1%. So comparing '21 to '20, in Brazil, the Anfavea updated projection is 3% to 7% growth depending on the pace of the last 3 months. In October, it was a little better than these lower estimates by Anfavea. So from 3% to 7% is the total estimate. In Argentina, it will be nearly 60%. So when we analyze the 2 combined markets, that is an estimated growth of 10% in the production of light-weight vehicles.

Now talking about medium and heavy vehicles in Brazil, there was an increase in sales of 46%, in Argentina increasing sales of 50.8%, and the 2 countries combined 46.5%. In production, there was an increase in Brazil of 84.6% in Argentina, 95.9% in Brazil, plus Argentina, 84.8%.

So in medium and heavy vehicles, the scenario is different, very positive, even higher than 2019 prepandemic. So for the whole year of '21 against '20, sales will increase more than 30% in total vehicles production and in production over 50% against 2020.

Now moving on to Slide #5. We have the vehicle production in U.S. and Europe, the 2 main exports markets for the company. So North America for lightweight vehicles in production for the 9 months of '21 against the same period in '20, there was a growth of 7.7%. In medium and heavy-duty vehicles, there was a growth of 33.4%. If we put together North America in lightweight and medium and heavy-duty vehicles, 8.6%.

And in Europe, light vehicles, 8.8%; in heavy 28.8%; in Europe, 9.4% then. So the total vehicle production meant 9.1% in growth and the performance of heavy-duty vehicles was better than lightweight vehicles. So the close to the year of 2020, maybe a little -- slightly lower because 2020 was the year of the pandemic. And we had a lot of setbacks in the production chain.

Now Slide #6, we have net revenues performance by market. The first table talks about the third quarter, then -- after then, we have the accrued of the year for the 9 months compared -- comparing this year to the previous one. So in the first column, we have the first 9 months of 2021, then the volume/price effect than exchange rate change. And then the third quarter of '20 and the 3 last columns talks about variations.

Now talking about original -- the domestic original equipment market. There was 86% difference, less 2.5% in exchange rate change. It refers to sales in Argentina. We have a plant in Rafaela. And this sales converted to rails generates this 2.8% negative impact. The 89% of the domestic market impact. It's better if compared to vehicles. And the main reasons for these better results for MAHLE Metal Leve is the mix because we talked about lightweight vehicles plus heavy-duty vehicles and the sales for replacement markets, OES, there was also an increase in market share. So these are the 3 main reasons.

Second market is original equipment and exports, where we had a growth in the Y-to-Y of 61.5%, impact of exchange rate 30.3%, and the other impact [ 31.2%, ] also a performance better than the market. And once again, the mix of heavy-duty contributing to this increase in revenue. Aftermarket -- domestic aftermarket growth of 50.9% year-to-year, impact of exchange rate, minus 11.3%, impact volume price, 62.2%. This exchange rate impact concerning Argentinian sales also, we have -- we had a negative impact. In relation to domestic aftermarket, the most impact is of the strong demand, increase in market share, especially due to exchange devaluation of the real.

In the aftermarket export, a growth of 60.4% exchange rate impact 5.8% (sic) [ 5.6% ] ; volume/price 54.8%. A total in the aftermarket of a growth of 53% with the impact of exchange of minus 7.6%. Volume/price 60.6%. Both markets combined, original equipment and aftermarket, we had a Y-to-Y growth of 64.4%, impact of exchange rate of 7.6%, volume/price 56.8%.

Now going to Slide 7. We have consolidated export per geographic region of the most important markets. So we have here Europe, North America, South America and other markets, not much variation on this graph. And I give the floor, again, to Daniel Camargo. And at the end, I'll be at your disposal for Q&A.

[Daniel de Oliveira Camargo, executive]

Thank you, Daniel Brasil. On Slide #8, going on with the presentation, we have the gross margin, and we can see the gross margin in the 9 months that improved from 24.4% to 29%. However, on this year, especially on the third Q, the margin has been suffering pressures because of increase in prices, on goods and freight and energy. And as we know, it's not a privilege of our sector. In many sectors, this has been happening. And this is why the margin of the 3Q '21 is a little bit lower or smaller than 2Q '20.

The company is really striving to protect the margin and sustain it at historical levels, trying to compensate this pressure that we have been suffering with process automation, synergies in the manufacturing process.

On the next slide, we have expenses with sales. They have the same trend of the gross margin, as we said, and they have been increasing because of freight and different expenses in sales, lack of containers. G&A are at better levels percentage-wise when we compare one quarter to the 9 months period in relation to revenue. So they represent a smaller percentage, which is good. R&D expenses. The company, in a conservative way, still is focusing in developing products that can be quickly applied and sold.

And in other operational revenues and expenses, the most important impact is nonrecurrent tax credit, as we have commented in 2Q '21 because of the exclusion of ICMS due to the calculation base of PIS and COFINS. This is the most important factor along this line.

Now I give the floor to Fábio Peres to comment about the financial net result.

[Fábio Peres, executive]

Good afternoon. Talking about the financial results. First block of this table shows the net interest rates comparing the periods of the third quarter and the accumulated of 2021. So focus on the last 3 columns for us to be able to have our discussion. The second block is exchange rate variation and results for derivatives and the third one is the currency variation. At the bottom part, we see how much we paid in the period of 2020. During the year, 3.3% and selling in those times was much lower than nowadays.

And today, 8.5%, the level of payment for this year. Also aligned with that, we have the investment application in 2020, BRL 348 million. And now in 2021, a little bit less, BRL 278 million. Putting all those in making the math, we have an improvement in our financial result of almost BRL 24 million.

Here, as Daniel commented, we had the tax credits, and we had the interest rate included here. This is why we have here, when we look at 2021, we have a value of BRL 9.4 million that's almost the total of this interest. In relation to exchange rate, we had an improvement dealt at BRL 38.9 million. The most important reason was the exchange rate variation due to the loans we applied this year.

Last year, we had BRL 88 million negative. And this year, it's positive, so we improved BRL 98.5 million. When we combine the exchange rate variation of our accounts receivable and payable, the variation of ACC and other transactions that are basically receivables in foreign currency, we have a total of BRL 38.9 million.

And the last topic here is the net currency variation. We had a small one BRL 8.2 million that is due to corrections of our fiscal and employee processes. When we compare both periods, the delta was, as you saw. Total result, we reached an improvement in the financial result of BRL 61.6 million.

So total of revenue and expenses for the accumulated period of 2021 is BRL 12.1 million. Same exercise we do for the debts that we have. There the cost of debt of 4%, and now we have a mean cost taken into account on the loans that we had throughout the 9 months of the year. We have 3.9%. And the average of almost BRL 600 million for 2021 and now BRL 280 million for '21.

Next slide, we can see here in the first chart to your left, we see the cash liquidity where we had in December, BRL 680-some million. Here we have BRL 404 million. And the loans or finances, BRL 552 million against BRL 216 million (sic) [ BRL 227 million ]. When we see 62% in the short term, you can see the distribution of the due date considering the next 12 months from October '21 to September '22, we have this imbursement in June '22 of BRL 85 million, which is exactly ACC and NCA that -- NCE that you can see in the upper right chart that is 36% of -- at a cost of 0.7% (sic) [ 1.7% ].

And in the last graph, we see this imbursement in the long run. That starts in October '22 and goes to the end of 2030. 63.8%, which is basically the loans that we have from FINEP. This is the scenario today of our indebtedness, I was reinforcing what Daniel said that the company has, as a principle, the protection of the results. And here, we can see that the financial management has been working to maintain the levels low today in 3.2% in the weighted. So the position on September 30, the cost -- the weighted cost of the debt, 13.8%, 36% corresponding to HCC and FINEP 64% of the total.

Now Slide #12, we see the investments that were done until September this year, almost BRL 45 million. And last year during the pandemic BRL 17 million, BRL 18 million. This in terms of depreciation in 2020 represented 22.4% and this year represents around 60%. Obviously, the company will go on investing, analyzing the new projects, projects of rationalization and, of course, always monitoring the whole scenario and demand of our clients so that investments are aligned with that and looking at the need of the company in terms of renewal and new projects for our clients.

So we finish here our presentation, our comments and we open for Q&A sessions. And you can participate and send your questions so that Daniel Brasil and Daniel Camargo are here to answer your questions. Thank you.

[Operator]

[Operator Instructions] Our first question comes from [indiscernible] JPMorgan.

[Unknown Analyst]

I'd like to know with the height in the prices of 30%, 40% in semiconductors in the past few years and setbacks in the supply chain, and considering that these prices will remain high, what can you do for the next few years to deal with that? And congratulations for your presentation.

[Daniel Alves, executive]

This is Daniel Brasil. Regarding semiconductors, the year of 2021 was difficult not only in Brazil but globally as well. Everyone suffered with the lack of this product, this component. There was a struggle between auto parts companies in several plants around the world and this estimate that we have for 2021 is that we'll still face challenges in this scenario. This situation is expected to last till the half of next year. We have a low stock, low inventory for vehicles, and we cannot sell more due to this restriction in products. So this is the scenario we have regarding sales and production of vehicles. I don't know if I answered your question, I couldn't -- I mean, your voice was a little low.

[Unknown Analyst]

You did. But when semiconductors industry is back to normal, what about production? Will it get back to normal even with higher prices?

[Daniel Alves, executive]

Good question, by the way. We have a repressed demand. We've had an increase in the price of vehicles of over 20%, if you consider the past 12 months. But even so, there is a change in the market. If you look at the sales of SUV vehicles, this is a premium market, we know, but even more popular cars are lower price -- cars with lower prices, we have a difference. We have a decrease, it's getting back to normal little by little. So yes, I believe that we have a repressed demand. And when the product comes back then we will sell more. But it's not easy to say that 2021 will be challenging. There was a deterioration of expectations. But -- so that is a challenge. But on the other hand, that is also a suppressed demand -- or repressed demand that is to be met.

[Operator]

[Operator Instructions] We now close our Q&A session. Let me call Mr. Daniel Camargo for his final remarks.

[Daniel de Oliveira Camargo, executive]

Thank you very much, everyone. Thank you very much for those who attended this conference call. I wish you all remain healthy and safe. Thank you very much.

[Operator]

MAHLE Metal Leve conference call is hereby closed. Thank you all for your participation, and we wish you have a nice day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]