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Good morning, ladies and gentlemen, welcome to Mills conference call during which we will be discussing the results of the second quarter of 2019. [Operator Instructions] I would like to remind you that this call is being recorded and translated simultaneously into English. Questions may be asked normally by participants connected from abroad. The recording of this call will be available at the company's website, www.mills.com.br/investor-relations.
This call is being broadcast simultaneously on the Internet, also with access through the company's website, mills.com.br/ir. Before proceeding, we would like to clarify that forward-looking statements that might be made during this call in relation to the company's perspectives and businesses as well as projections are assumptions based on the company's management expectation in relation to the future of Mills. These assumptions are subject to macroeconomic conditions, market risks and other factors.
Today with us, we have Mr. Sergio Kariya, CEO; Mr. James Guerreiro, CFO and Investor Relations Officer; and Mrs. Camila Conrado, Head of Investor Relations and Governance. In order to open our call about the second quarter of 2019, I would like to give the floor to the CEO of the company, Mr. Sergio Kariya.
Good morning, everyone, and we thank you very much for your interest and participation in this call. And it is with great pleasure that we present the results of the second quarter of 2019 of Mills.
We have as the main highlight is the combination of businesses with Solaris, and as you can see on Slide #3, together with other highlights of the quarter. With this combination of businesses, we made an important step to reinforce our important position in equipment rental, and we also started the process of tapping into the synergies between the 2 companies. Up to today, we have already unified 100% of the teams and commercial processes as well. And our HS&E people and management areas and 2 of the 17 branches planned to be unified by the end of 2020.
The work for the adaptation of 2 additional branches have already been started beside the unification of operations, IT, finance and other departments. The process adaptations and systems and the construction of a new organizational culture, natural challenges faced by an integration such as this one has already been started.
In relation to the Brazilian economic scenario, we have been following a degree of frustration in terms of the GDP expectation for 2019, with constant reductions in the forecast for growth. And this is corroborate by the recent publication made by the Banco Central, the Central Bank, the IBC-Br, referring to the second quarter of the year showing a drop of 0.13% quarter-on-quarter, and this frustration in the GDP has an impact on the organic growth of our top line in our business units. And besides the process of integration with Solaris that we started on May 13 got a major volume of new activities and required quite a lot of energy on the part of our teams for the fast adaptation of some of the internal processes of the company, especially the commercial portfolios and the stabilization of the CRM system, which might have impacted in June the Rental revenues generation.
It is important to mention that the new process matures every day. And today, we have a 100% of our commercial team focused on delivering better results in the second quarter of '19. The company reached BRL 100 million of total consolidated net revenue and BRL 19.3 million in consolidated adjusted EBITDA net of the effects of the IFRS 16 and nonrecurrent items being 41% and 33% higher on a quarter-on-quarter basis, respectively.
And these figures were positively impacted by the combination of businesses with Solaris. And in Rental, we saw a lower utilization rate of the equipment, closing the quarter at 45%, new price increases and higher sale of new equipment, balancing the overall revenue. The company operates in commercial strategies per region and per family of products with the objective of resuming the utilization rate growth.
In the Construction business unit, the utilization rate of equipment was in line with the previous quarter around 32%, low due to the slow recovery of the infrastructure projects in the country and also because of the high capacity of this unit vis-à-vis the pipeline of projects. And although the main objective of this unit is to continue the quest of the breakeven of the cash -- of the EBITDA proxy cash in its current activities. And although Construction has a better performance vis-à-vis '18, we know that this target is becoming more and more challenging due to the low activity of the infrastructure sector.
In spite of all the challenges faced by -- in the last few year by Mills, the gradual improvement in the performance of the business units and the adequate management -- cash management of the company made the original debentures covenants linked to the adjusted EBITDA going back to the target recurrently releasing the restricted accounts for free move in May 2019. Besides in June and July, Moody's upgraded the corporate senior unsecured ratings of Mills from B2 to Ba1 nationally and with an improvement of 4 notches and B3 to B2 globally reflecting the better moment and perspectives of the company.
On Slide #4, we show you the ownership structure after the combination of businesses with Solaris with the issuance by Mills of approximately 76 million new common shares in the quarter.
On Slide 5, we show you the distribution of branches on June 30, 2019, and the projection for late 2020 after the integration is concluded.
And now, to talk more specifically about the result of the quarter, James Guerreiro will take the floor, our CFO and Investor Relations.
Good morning. I would like to thank you very much for your presence in considering the relevance for Mills of the combination of business with Solaris and aiming at a better understanding of the figures for the quarter besides the consolidated information that reflect the result of Solaris and Mills as of May 2019 when the combination of businesses was carried out. We bring some analysis about combined information that is to say, referring to the sum of Mills and Solaris results for that specific period. Combined data may be found on Slide 13 and 14 of this presentation and on Item 17 of the earnings release.
Now let's go to Slide #6. As Kariya mentioned, the consolidated total net revenue in 2Q '19 was BRL 100.5 million and the Rental business unit accounted for 81% of this amount. Due to the business combination with Solaris in May, the consolidated Rental net revenue was 53% higher on a quarter-on-quarter basis. And the combined net revenue of this business unit was 7% higher on a year-on-year basis and was stable quarter-on-quarter, considering that the lower utilization rate of the equipment was offset by the price increase and by the higher sale of new equipment.
Heavy Construction net revenue was BRL 18.6 million in the quarter, and the Rental revenue accounted for 60% of this amount; indemnifications, 14%; and revenue from sale of semi new equipment and scrap, 24%. Quarter-on-quarter, the Heavy Construction net revenue grew by 6% due to the higher sale of scrap being a nonrecurrent effect linked to the adjustment of capacity of this business unit.
Slide #7. Consolidated costs, COGS and services delivered net of depreciation, and the IFRS 16 effect also increased due to the consolidation with Solaris and closed the quarter at BRL 42.9 million, being 33.6% referring to payroll costs and 33.3% consumption materials, maintenance and repairs.
And analyzing the combined cost, we can see that the increase was 16.5% quarter-on-quarter due mainly to the higher costs of new, semi new and scrap sales directly related to the higher sales revenue in the period to the cost with the beginning of standardization of operating and maintenance processes of Rental and the change in the provision for the slow-moving inventory at Solaris necessary for the convergence to the Mills' accounting practices.
The consolidated SG&A, net of depreciation and the effects of IFRS 16, closed the quarter at BRL 41.1 million, higher quarter-on-quarter due also to the consolidation with Solaris of this amount, BRL 4 million, referred directly to nonrecurrent expenses referring to the integration of both companies. And now analyzing the combined SG&A and also net of the nonrecurrent items and the expected loss for credits, we see a reduction in expenses of 7.5% in 2Q '19 quarter-on-quarter and 15% in relation to the second quarter of '18. As of 3Q '19, we will publish the values related to the capture of synergies.
On Slide #8, we give you details about consolidated nonrecurrent items that is to say those referring to the restructure measures of the company, the liabilities of the Industrial Services business that we showed in 2013 and the expenses related to the integration with Solaris. On 2Q '19, the consolidated nonrecurring items were negative by BRL 2.8 million, mainly due to expenses with the Solaris integration as we said.
As you can see on Slide 9, the consolidated adjusted operating cash flow of Mills reached BRL 17.7 million in the second quarter in spite of the payment of short-term incentives in April amounting to BRL 6.6 million. The consolidated cash generation was stable quarter-on-quarter due to the consolidation with Solaris.
On Slide 10, we show you data about our indebtedness. We closed the quarter with a consolidated gross debt of BRL 163.1 million and free cash of BRL 149.4 million with a net debt of BRL 13.8 million. In May '19, we amortized the last installment of notes debentures remunerated at 116% of the CDI amounted to BRL 69.1 million, and we still have a balance referring to the debentures remunerated at the IPCA plus 7% a year, which will be amortized by August 2020. On June 30, 2019, Mills once again complied with the original debenture covenants linked to the adjusted EBITDA with a net debt adjusted EBITDA ratio of 0.2x and EBITDA financial result ratio equal to 5.4x.
The average maturity for the payment of the total debt is 0.9 year, with the average cost of CDI plus 4.48% a year.
On Slide 11, we show you our covenants, which are at the expected levels coming from the strategies adopted by the company to overcome the crisis.
On Slide 12, we show you some consolidated data over the last few years.
On Slide 13 and 14, as we mentioned, represents some combined Mills and Solaris data.
And the next slide show information about the consolidated performance of each one of the business units.
With this, we end our presentation. And now, we would like to open for questions from you.
[Operator Instructions] [indiscernible]
Could you talk about the timing for the synergies between the 2 companies? When are you going to start tapping into them and having results?
Mauricio, we have already started to tap into some of the synergies as I mentioned and 2 of the branches have already been integrated and consolidated into 1. And we have committed ourselves to start publishing as of the next quarter. On a quarterly basis, the capture of synergies as a whole, we will probably finalize this by the end of 2020 when we have all the infrastructure ready that is to say the merger between the branches in which we have overlapping. So it will take us about 18 months in order to capture all the synergies between the 2 companies.
Well, I have another doubt, Kariya, about the price increases. At the beginning of the year, it seems to me that you carried out a price increase and doing some last year with the consolidated data, I can see that end of last quarter there was no price effect. Do you see or do you foresee any price reductions because of the underutilization of your capacity?
Mauricio, we have measures towards price recovery on a consistent basis. And in the last quarter, as we mentioned in the release specifically, we ended up focusing more on our internal processes. And it had a small impact on this. And all the actions regarding integration and commercial processes, they are improving consistently. So we are improving this for the next quarter having a stabilization in the process area specifically. So the price recovery continues. In this quarter, there was a price increase. Nevertheless, it was offset by the drop in the utilization rate that we have in the last quarter.
[Operator Instructions] The Q&A session has come to an end. We would like to give the floor back to Mr. Sergio Kariya for his closing remarks. Mr. Kariya, you have the floor.
Ladies and gentlemen, we would like to thank you very much for participating in the call about Mills result of the second quarter of '19. The Investor Relations team continues to be available to you to solve any doubt that you might still have. Thank you very much.
This conference call is closed. Thank you very much and the audio for replay and the slide presentation will be available at the Investor Relations website of Mills at mills.com.br/investor-relations. Thank you very much for your participation, and we wish you all very good day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]