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Good afternoon, everyone. Thank you for waiting. Welcome to Mills' Live Conference Call to Discuss Second Quarter 2022 Results.
For those of you who need simultaneous interpretation, we have this feature available on the platform. You just need to click on the Interpretation button by clicking on the icon of the globe on the bottom of your screen and choose your preferred language, Portuguese or English. For those of you who are listening to the video conference in English, you have the option to click on mute original audio. We inform that this conference call is being recorded and will be available on the company's IR website, where you can also download the complete earnings release and presentation. [Operator Instructions]
We highlight that the statements and information that might be made during this video conference call relative to Mills' business perspectives, projections they're all based on the expectations of Mills' management regarding the future of the company. Forward-looking statements are not a guarantee of performance. They involve macroeconomic conditions, market risks and other factors.
I will now turn the floor to Mr. Sergio Kariya, CEO of Mills.
Good afternoon, everyone, and thank you for attending our results conference call live. We begin our presentation on Slide 3 with the highlights of the quarter. We totaled BRL 248 million in net revenue and net income of BRL 63 million in Q2 2022. A net income that was never achieved in the previous quarter, it was up 44% and 217%, respectively, year-over-year.
This result shows the success of our trajectory so far. We believe in the rental business and in the capacity and ability of our team. Supported by demand and always seeking to optimize our pricing, we delivered a gross margin before depreciation of 73%, adjusted EBITDA of BRL 112 million and adjusted EBITDA margin of 45% in Q2. Additionally, we achieved an ROIC of 21% in our consolidated results and 25% in the rental business unit.
Even in the face of the macroeconomic context and the challenges still faced in the global supply chain, Mills demonstrates its operating and financial strength with consistent results. Our initiatives and the resilience and flexibility of our operating model have contributed to solid results posted. We believe that our business model with its long-term vision and discipline in allocation of capital to generate value helps us mitigate these risks.
We continue with our share buyback program, having repurchased up to July 31, 4.7 million shares, and we will continue our strategy of maximizing shareholder return up to the limit of 14.9 million shares as established by the plan.
Still exploring all opportunities for the company, we have been evaluating tax opportunities. And this quarter, we have already recognized almost BRL 7 million in benefits identified in the recovery of PIS/COFINS credit, INSS and accelerated depreciation.
Last but not least, another relevant delivery this quarter was the publication of our sustainability report, prepared according to the guidelines of the Global Reporting Initiative, or GRI. We congratulate the team for the initiatives that have been carried out continuously and to reaffirm our commitment to generating a positive impact beyond the financial results, fulfilling our social responsibility and ensuring a sustainable future for our company.
On the next slide, we explore a bit about our transformation journey. We remain focused and confident in our strong growth agenda with value creation. As we have reiterated in our communications to the market, we entered the Yellow Line equipment business in a hybrid way combining an M&A move an acquisition with an organic move.
On the inorganic side, we acquired Triengel, an excellent company that has a high cultural fit and potential integration with our current business. Added to this movement, we also announced the acquisition of Yellow Line equipment totaling BRL 225 million, aiming at positioning ourselves as a relevant player in this market. This market is 10x larger than the market of lifting platforms. It is highly pulverized with no dominant player.
Our efforts in this direction were made after a lot of study and work to ensure the right entry move, where we can generate even more value through Mills strengths, while gaining experience and knowledge to become more and more relevant also in this line of equipment. We will explore new avenues of growth through product expansion, positioning ourselves as a one-stop shop in the machinery and equipment rental market.
We seek relevant markets that bring high growth potential. We are also focused on the predictability of our cash flow. Our entry in the Yellow Line segment will help us to balance this with longer contracts that will help us to have greater visibility regarding the future.
Diversification of products also brings with it opportunities to increase penetration and revenue from customers in important sectors of the Brazilian economy, customers that are already in our portfolio, but that would benefit from increased services with the quality assurance that only Mills can offer. We are the rental company with the largest footprint in the Brazilian territories, serving more than 1,400 cities with a broad customer base. We currently have more than 8,000 customers. We have a robust commercial structure and internationally recognized operating quality. We aim to strengthen Mills' leadership position, offering the best experience to our customers through innovative solutions and differentiated service.
We will leverage Mills' competencies gained over the years to win in new markets. We're very happy with what -- happy and confident with everything we have achieved thus far, but we remain optimistic and relentless with all of the opportunities ahead of us.
Now to give more detail about our earnings, I turn the floor over to our Chief Financial and Investor Relations Officer, Caroline Pepe.
Good afternoon, everyone. Starting on Slide 6, we present the operating data from the rental business unit. In the last 12 months, we increased our fleet by approximately 1,200 machines, ending the quarter with a fleet of over 9,200 pieces of equipment. It's a reflection of Mills' organic and inorganic growth strategy. The average age of our fleet is 9 years and replacement value is BRL 2.7 billion.
It is worth mentioning that Mills differentiated quality in equipment maintenance has a direct impact on customer satisfaction and on the longer useful life of our rental assets. We're also constantly evaluating opportunities in the secondary market for the optimal selling point of our equipment, which is sold today for an average of 30% of the value of a new machine.
In relation to the investment approved for the position of new machines, we received 16% of the 1,300 4 same machines with BRL 38 million already recognized in the result. Due to the bottleneck in the global supply chain, an additional investment of up to $16 million was approved for the acquisition of up to 220 lifting platforms. The new equipment will arrive between 2022 and the first half of 2023. The approved amounts do not consider the amounts to be obtained by the company with the sale of used platforms.
The average utilization rate in Q2 '22 was 64%, higher than in Q1 '22. Even with the increase in the fleet, we expect a second half of growth due to the demand forecast in several sectors of the economy due to the entry into new markets through the opening of branches and also in view of the perspective for investments in infrastructure announced by the Brazilian government.
In the next slide, we demonstrate the diversification of our revenue, which ensures greater resilience to the negative impacts of economic cycles since we serve several sectors. In addition to the 33% of revenues that come from the civil construction sector, 14% come from customers in the steel metallurgy sector, 8% from chemicals and petrochemical companies, 7% from services and so on, as shown in the graph.
From a different perspective, we highlight our diversified customer base with the top 20 customers accounted for 17% of revenues this quarter, with the top 5 customers accounting for only 8% of our revenues.
On Slide 8, we can see how operating performance translates into financial performance in the rental business unit. Net revenue of the rental unit was BRL 216 million with an important growth of 42% over Q2 '21. Sales growth is mainly explained by higher rental revenue, which increased 51% in the period, the BRL 66 million increase in rental revenue stemmed from the increase in average ticket and higher volume rented.
Sales revenues decreased by 23% year-on-year as a result of the global supply chain bottleneck. In this scenario, Mills' readjusted its strategy of selling assets and rescheduled the sale of semi new equipment. In relation to the previous quarter, net revenues grew 6%, also due to higher rental revenues and higher sales revenues driven by the sale of new machines.
In the quarter, adjusted EBITDA totaled BRL 101 million, up 67.4% over Q2 '21 and up -- and also higher quarter-on-quarter. EBITDA margin reached 46.9%, a year-on-year increase of 7.2 percentage points.
On Slide 10, we are now moving to the formwork and shoring unit. In Q2 '22, we had an average rental of 27,000 tonnes and the utilization rate of 51.4%. We had a 17% increase in rented volume in the annual comparison as a reflection of increased demand in the infrastructure sector.
We now turn to the financial results of this business unit on Slide 11. In the second quarter, net revenue grew 59% compared to the previous year due to higher rental revenue, which increased 63% in the period as a result of higher volume rented and higher average ticket charged. Comparing with Q1 '22, net revenue posted a 2% drop due to lower indemnity revenue referring to the agreement of judicial collection that produced additional revenue in Q1 '22. Rental revenue recorded growth of 8% in the period.
The adjusted EBITDA of the business unit totaled BRL 11 million, 7x higher year-on-year with an EBITDA margin of 34.4%.
Now looking at the consolidated results. We can see on Slide 13, important advances in the quarter's results. Net revenue was 44% higher year-on-year and 5% higher quarter-on-quarter, totaling BRL 247.6 million. This revenue increase reflects the increased demand in several sectors and our initiatives to increase market coverage via organic growth and M&As. It is worth noting that both business units saw increases in rental volume and average ticket. Consolidated adjusted EBITDA was BRL 112 million, 81% higher over Q2 '21 with an EBITDA margin of 45%.
As you can see on Slide 14, we recorded a net income of 3x higher than in Q2 '21 and 55% higher than Q1 '22. Our commitment is to an efficient operation and our continuous improvement initiatives have demonstrated cost and expense control, which benefits our bottom line and maximizes the return to our shareholders.
Even in the face of relevant investments, we remain a company with strong cash generation capacity, having recorded an adjusted operating cash flow of BRL 78 million in the quarter and BRL 9.3 million of adjusted free cash flow for the company.
On Slide 15, we showed the company's debt profile in June 30, 2022. Our gross debt amounts to BRL 425 million for the quarter and has an average maturity of 2.6 years with a spread of 2.8% per annum above the CDI, of which 14.5% is due for payment in the short-term and 86% is due for payment with a term of more than 12 months until 2027, according to the schedule that can be seen in the chart below. 97% of the debt refers to 3 debentures issued in 2020 and 2022.
As disclosed in an advisory to the market yesterday, S&P Global Ratings published our credit rating at AA- on the national scale, which will enable us to reduce the cost and profile of our debt. This rating represents an important progress being 3 notches above our current rating. We continue with our disciplined capital structure management, poised for strong growth in 2022 and beyond.
In the next slide, complementing the previous slide, the first chart shows that our gross debt of BRL 425 million is composed of BRL 421 million in principal, BRL 4 million in interest, considering the BRL 470 million in cash recorded. In the Q2 '22 balance sheet, we have obtained a net cash position of BRL 45 million. As shown in the graphs below, again, in this quarter, we have met our covenants.
Lastly on Slide 17, we would like to highlight that the company's consolidated ROIC is at 21.4%, a percentage above the company's average cost of debt. Our ROE was 16% in the quarter, up from 3% in Q2 '21.
To end, I'd like to stress that we continue on our transformation journey with strong growth and discipline in capital allocation. We are confident and engaged with this new phase of the company. Mills is in a favorable competitive position to capture the opportunities for growth while maximizing value. We remain at the disposal of our shareholders and investors and reinforce our commitment to deliver positive returns to all of those who believe in Mills.
We are now available to answer your questions. Thank you very much.
[Operator Instructions] Our first question comes from [ Fernanda Urbano ] sell-side analyst with XP.
Congratulations on the results. We have 2 questions. First will be about the utilization rate in rental. We continue to see an evolution this quarter. Could you elaborate more on operating initiatives that you have been implementing to keep it at this level? And how do you expect this rate to behave in the second half of the year and in 2023? This is our first question.
Fernanda, thank you for the question. Our utilization rate, as you could see, has expanded quarter-on-quarter. We still have a relatively more compressed utilization rate for higher equipment given that heavier constructions haven't been started yet. But we see expansion with new branches being opened, the arrival of new equipment and machine because we have some profile of equipment whose utilization profile is quite high. So this equipment is going to these new branches and this is what we're estimating for the second half of the year and upcoming quarters, an evolution in other words, in our utilization rate.
Perfect. My second question is regarding Yellow Line entry. Could you comment on what you expect in terms of impact on average ticket on the average age of the fleet once the operations are integrated? And what is your expected schedule or time line regarding integration and approval by CADE, the Anti-trust entity of Brazil?
Fernanda, let me start talking about CADE. Our estimate is that by month end or beginning of September, CADE will be approving the acquisition of Triengel by Mills. And as you could see in our communications, Triengel has a fleet average age of 2 years. So we are making an acquisition of practically equal value with new equipment, BRL 225 million.
And we are obviously looking to expand not only in agri business, but always in construction, mining, so that we can support our customers by renting this equipment in the mid to long run. So we are very optimistic given the pipeline that we've had since this communication. Several customers are knocking on our doors, approaching us. We are sending out a lot of quotes, already expecting the arrival of the new equipment and the eventual integration of Triengel with Mills.
Our next question comes from [ Carlos Alberto] , investor.
[ Carlos Alberto Sizlick from TC ]. Congratulations and congrats to the whole team. My question is also about the utilization rate. What are you expecting for the new equipment that will be arriving soon? And also, you have new branches opening. So how can you increase the utilization rate because it is a very important factor. So I want to know what you expect with the arrival of new equipment and something that we were expecting, to increase utilization rates. Could you speak about the Phoenix project, is it done? Is there another step to it, another stage?
We have received almost 16% of the order that we placed in mid-2021. We should be receiving a greater concentration of equipment along the second half of the year. And that's when we will also concentrate the opening of new branches. We have started operationalizing a number of locations. Demand is there. It's a little stressed still. The supply chain of lifting platforms is more stressed than other equipment. So we have suffered a lot of pain with the deliveries, but that will be concentrated in the second half of the year. So we have a positive expectation of receiving the equipment, renting it quickly in these new locations.
As for Phoenix, almost 90% of the Phoenix project should be completed in 2022. There should be only 10% left for the first and second quarters of 2023. We have been constantly re-leasing the equipment according to our schedule.
Our next question comes from [ Alexandra Saf ], individual investor. Well, we will read Mr. Alexandra's question, which is -- congratulations on the excellent results. When do you estimate the infrastructure program through government concessions will be impacting sales of the company? And the second question is, is it possible to maintain or increase ROIC with the entry in Yellow Line and what is the impact?
I think that concessions and auctions by the government already have a positive impact on our demand, not only in the business of lifting platforms, but also in our formwork and shoring business. I think we can have more visibility now in our formwork and shoring business. We have been expanding the revenue. We have obviously already -- we have been improving our prices and we have a robust backlog for this business. We have BRL 90 million in backlog contracted for formwork and shoring, but due to -- and all due to auctions/concessions by the federal government.
Regarding your question of the return on invested capital, of course, Yellow Line business has a very interesting ROIC, slightly lower than the ROIC of lifting platforms and formwork and shoring. But it is a positive delta of ROIC, which is a positive factor. It's quite interesting for us to have this share of Yellow Line.
Another very relevant and important fact in the Yellow Line is the addressable market. The addressable market is robustly greater than the addressable market of lifting platforms. Our estimates, as we said before is that this market is submitted to be 10x the size of the lifting platform market. So the ROIC is interesting with a much greater addressable market compared to lifting platforms.
Our next question is by Celso Kuntz-Navarro, sell-side analyst of Script International LLC.
We'll also read the question by Mr. Kuntz-Navarro. And the question is, with almost BRL 1 billion in revenues in 2022, what is the share of Mills of the Brazilian market? And what is the expectation of market share for the next 3 years? What is the size of the estimated Brazilian market, including Yellow Line?
So I think it's kind of hard to estimate the size of the rental market of any equipment, generally speaking, in Brazil. What we did in terms of our analysis when we look at the markets where we are operating, our lifting platforms, Yellow Line, compressors and generators in 2021, this was a market that amounted to around BRL 40 billion. And last year, and Mills had a gross revenue of almost BRL 1 billion. Now we have a net revenue of BRL 1 billion.
So what we see in terms of these markets for 2022 is that they're expanding around 10%. So it's a market with BRL 44 billion, BRL 45 billion for these sectors. The market is a lot broader than that. We have other types of equipment. But what we have assessed, evaluated and stated in our estimates are based on the equipment with which we operate.
[Operator Instructions] Our next question is by Pedro [ Cardoso ], sell-side analyst of Eleven.
Congratulations on the results. I have a quick question. You were able to achieve a rental rate of 4%, which is quite positive. And sometimes in the market, we hear the deal number would be 5%, but that's way ahead. Do you believe that you can continue to increase the rental rate from 4% to 5% since you achieved 4% in 2022 already?
Over 4% Pedro, you can see the ROIC is quite interesting. And of course, we are always trying to improve. We have equipment that has rental rates close to 5%. The 4% is obviously the average of our equipment. Some equipment have the rental rate a little more depressed, but we are being very optimistic looking forward in terms of expanding our prices. In Q2 2022, we were practically flat in terms of prices compared to Q1. In terms of price increases, these were marginal.
The average ticket dropped slightly, but due to mix and not price, you could see that the volumes increased. So we have some products that are posting very high rental rates and utilization rates. And we are now looking for opportunities to have more and more profit coming from our assets. But yes, I agree I think that there is room for us to increase the rental rate for some products to reach perhaps even higher than 5%.
[Operator Instructions] The Q&A session is closed. I would like to turn the floor to Mr. Sergio Kariya for his final statements. Mr. Kariya, you may begin.
Well, I'd like to thank everyone for your interest in our live video conference call. Our Investor Relations department remains available if you have any additional questions. Thank you very much and have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]