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Good morning, ladies and gentlemen. Welcome to Mills Second Quarter of 2020 Earnings Conference Call. [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 who are connected from abroad, and the recording will be available at ir.mills.com.br. This call is being broadcast simultaneously on the Internet with access at ir.mills.com.br as well.
Before proceeding, we would like to clarify that forward-looking statements that might be made during this call in relation to business perspectives of Mills and projections, these are only forward-looking statements that are based on the company's management expectations regarding the future of Mills, and they are subject to macroeconomic conditions, market risks and other factors. Today with us, we have Sergio Kariya, CEO; Mr. James Guerreiro, CFO and Investor Relations Officer; and Ms. Camila Conrado, Head of Investor Relations and Corporate Governance. In order to open this call, I would like to give the floor to Sergio Kariya, CEO of Mills.
Good morning, everybody. We thank you very much for your interest in participating in this call about Mills' second quarter of 2020 earnings. As you all know, the second quarter was marked by a very strong crisis in Brazil and in the world caused by COVID-19. As you can see on Slide #3, since March 2020, the company has been adopting many actions in order to mitigate this impact. Looking after the health and the safety of our employees above all and the continuity of the activities and also the financial health of the company. In spite of the economic slowdown, we had a reduction of 26.4% in the Rental net revenue of the Rental business unit vis-à-vis the first quarter and 56.6% in the adjusted EBITDA and may have the biggest reduction in the Rental activity at the end of June. This activity was already 80% of the pre-crisis level, showing the beginning of a recovery of the sector in the quarter itself.
The Construction business unit had a bigger resilience in this quarter due to the fact that the equipment and contract have a slower turnover, closing the second quarter of 2020 with an increase of 6.1% in the net rental revenue on a quarter-on-quarter basis. I would like to remind you that the adjusted EBITDA of Construction reached BRL 3.2 million in the second quarter of '20. And although these are not relevant figures, they show the attainment of our breakeven target that we have been seeking for some time. And this shows that the unit is on the right track in terms of improving its results. Overall, the company reached an adjusted EBITDA of BRL 20.6 million in the second quarter of '20, generating BRL 45.7 million in adjusted operating cash flow, which was 37.6% higher quarter-on-quarter, as a result of the actions taken for the presentation of our cash in the quarter. Thus, we closed the second quarter of '20 with BRL 289 million in cash and a gross debt of BRL 188 million, resulting in net cash of approximately BRL 102 million.
Now to talk about the results of the quarter. I would like to give the floor to Guerreiro, our CFO and Investor Relations Officer.
Thank you, Kariya. Good morning, everybody. I would like to thank you very much for your presence and considering the relevance for Mills the combination of business with Solaris and aiming at a better understanding of the figures besides the consolidated figures that reflect the results of Solaris and Mills as of May 2019 when the combination of business was carried out. We bring you some analysis about combined information, which means referring to the sum of the Mills and Solaris results for the period. And the combined data may be found on Slides 9 and 12 of this presentation and on Item 17 of the earnings release.
Now let's go to Slide #4. Total consolidated net revenue was BRL 98.3 million in the second quarter, and the Rental business unit contributed 82% of this amount. The rental net revenue in the second quarter of '20 was BRL 81.1 million, being 26.3% lower quarter-on-quarter due mainly to the impact caused by COVID-19, which provoked the shutdown of activities of many industrial plants and commercial centers and other venues.
The 26.4% reduction in the rental revenue is in line with the drop in the average volume that was rented in the period, 23.2%, with no relevant changes in prices. On a combined basis, the reduction of the total rental revenue of Rental was 16% year-on-year.
In the Construction business unit, net revenue was BRL 17.2 million in the quarter, and the Rental revenue accounted for 83% of this amount. I would like to mention that net rental revenue from Construction amounting to BRL 14.2 million was 29% higher than in the first quarter of '19, in line with what was said by Kariya about the performance of this unit improvement.
On Slide 5, the costs and expenses consolidated, excluding depreciation and the effect of IFRS 16, amounted to BRL 77.9 million in the second quarter of '20, with a reduction of 12.3% on a quarter-on-quarter comparison, mainly due to the lower consumption of parts for equipment maintenance, the reduction in the rental activity and lower cost for sales in line with the lower revenue and the reduction of the provision for expected credit losses at the better level of receiving and other actions to reduce expense and aiming at preserving the cash of the company in the quarter. The reclassification from -- we did a reclassification from COGS to SG&A of BRL 3 million. And although this is not relevant and does not have an impact on the result, ends up interfering in the variation analysis of these groups. Net of this change, we see a reduction of COGS of 6.2% and SG&A 17.3% quarter-on-quarter for the reasons that we have just referred to.
On Slide #6, we show the Mills consolidated adjusted EBITDA, BRL 20.6 million in the quarter and 20.9% margin, and we present the adjusted operating cash flow, BRL 45.7 million, reflecting the actions for the preservation of cash. It's important to mention that the postponement of payment that benefited our cash in the quarter by approximately BRL 17 million will be honored over the second half of 2020.
On Slide #7, we have data about our indebtedness. We closed the quarter with a consolidated net debt of BRL 188 million and free cash of BRL 289.9 million. We meant a net cash of BRL 101.9 million. The average term for the payment of our total debt on June 30, 2020, is 1.5 year, with an average cost of the CDI plus 4.07% a year.
On June 30, Mills complied, once again, the original covenants of the debentures with the net debt adjusted EBITDA ratio of 0.08 and adjusted EBITDA financial result ratio of 16.3%. I would like to mention that in April, we extended for 1 year the Solaris debentures, BRL 22 million, that now mature in the first quarter of '22.
On Slide #8, some consolidated data in the last few years. On Slide #9, some combined data for Mills and Solaris. And on the next few slides, more information about the performance of each one of the business units.
With that, we end our presentation. And now we would like to open for questions.
[Operator Instructions] Pedro Gonzaga from Pacifico. Andres Calderon, Consilium.
What about the trend for demand in this quarter? And how do you see the remainder of this year? Was there an improvement in this quarter? And what does that mean to the remainder of the year?
Thank you very much for your question. I would say that we are bullish for the second half of this year. We noticed that, apparently, we had a point of inflection in June. We had a turning point in July, more specifically, starts to see an improvement, especially in Rental and Construction, as we have already referred to. But there are still some uncertainties in terms of the degree of resilience of this economic recovery for the second half of the year, but we are bullish about the result for the second half of the year both for Rental and for Construction.
What about the impact of the crisis on the competition, mainly the smaller competitors? Are -- have they become weaker because of the crisis?
Andrea, this is very difficult because they are not public companies, so it's very difficult for us to clear -- to have a visibility in terms of being able to compare the performances. But with the talks that we have been having with the sector, we see that they have suffered more, let's say, than we have. But once again, I repeat that as they are not public companies, so they do not have their figures disclosed.
Would you consider the possibility of making another acquisition, let's say, for a company that is facing more difficulties?
Andrea, we are always looking at our radar screen and the positive factor of the company was the fact that we have a very good beginning of the year in terms of balance sheet or cash. We had already done our homework, and we are still doing our homework. And our company is resilient enough in order to tap into possible opportunities. So our radar is always on, and we're always paying attention to that and considering strategic moves for the company.
[Operator Instructions] Pedro Gonzaga via webcast.
With the company generating cash and the company and the economy improvement, what about your capital allocation? Are you going back to the plans of capture of synergy with Solaris or looking for new M&As and accelerated amortization of more expensive debt or even going into a buyback activity?
Pedro, this is Guerreiro. Thank you for the question. Pedro, we pay attention to the allocation of our resources. We have already talked about that. And we were very strong when the crisis hit, and we continue to generate cash, and we have a net cash that is even stronger on June 30. And we expect to have the same situation in the next few quarters. So this is very important. And we have to allocate our cash in good opportunities and then tapping into synergies that you mentioned as well. Yes, we intend to accelerate the capture of synergies with Solaris, but there was a small stumbling block in terms of the integration of the branches.
About the mobilization of our fleet -- and we have an optimal point for -- to make these investments, and there is an optimum point for the decision for these investments. And this will be based on the speed of recovery of the economy. But undoubtedly, the idea is to have the fleet available and Kariya talked about the new opportunities, M&A and also regarding the prepayment of debt.
No, this is not in our agenda. And before the crisis, we considered the possibility of prepaying this BRL 20 million, referring to Solaris. But as the market brought about new opportunities for us, we have the opportunity to allocate resources. And so the prepayment of that would not be in our agenda now.
Do you believe that the construction sector will go back to being a very good lever?
This is Kariya, Pedro. With everything that we have been seeing during this pandemic and all the efforts being made by the ministry, I think this could generate, yes, the opportunity to drive growth in the country and of course, assuming benefit for the Construction business and for the Rental business as well. So undoubtedly, there are some very interesting expectations about the development of the infrastructure sector for the country.
How quickly will you be able to go back to the rental rate after the devaluation of the real?
Well, this is a very tough question, Pedro. You have the exchange rate factor and the depreciation of the real vis-à-vis the dollar was very fast. So we have to look for the economic financial balance vis-à-vis the prices because of that. And the crisis did not really hit in terms of a drop, and we said that in the last webcast as well.
But on the other hand, we didn't have the opportunity to recover prices either, so we maintained our prices in reals. We kept them stable. And with a more favorable scenario in terms of demand, then I believe that we will be able to look for this recovery. And in the last webcast, we talked about this as well. We said that the sector as a whole did not have big sacrifices in terms of with this drop in the real and the cost of acquisition of new equipment as well as replacement part. All of that suffering and impact because of the depreciation of the real vis-à-vis the dollar. So with the recovery of the economy, we will continue to try and balance all that.
[Operator Instructions] There are no more questions. The Q&A session has come to an end, and we would like to give the floor back to Mr. Sergio Kariya for his closing remarks. Mr. Kariya, you may proceed.
We would like to thank you very much for your participation in our call about the results of Mills of the second quarter of 2020. Our Investor Relations team is available to clarify any doubt that you might still have. Thank you very much.
This conference call has come to an end. And the audio will be available for replay and the slide presentation will also be available at ir.mills.com.br. Thank you very much for your participation, and have a good day. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]