Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the video conference of Aeris regarding the results of the third quarter of 2023. Here with us today are Alexandre Negrão, CEO, José Azevedo, CFO, and Bruno Lolli, Investor Relations Officer. Please be advised that this event will be recorded and that during Aeris presentation, all participants will only be watching the video conference. We will then begin the Q&A session when further instructions will be provided. If any of you need any assistance during the video conference, you can send it directly in the chat located on the right side of the screen. Before proceeding, we would like to clarify that any statements that may be made during this video conference regarding the company's business prospects, projections, and operating and financial targets, are based on the beliefs and assumptions of the Aeris management.
Forward-looking statements are not guarantees of performance. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. General economic conditions, industry conditions, and other operating factors may affect the company's future results and could lead to results that differ materially from those expressed in such forward-looking statements. Now I would like to turn over to Mr. Alexandre Negrão for his presentation. You may proceed, sir.
Thank you, Lais, and welcome everyone. Welcome to another video conference of the results of Aeris for the third quarter of 2023. Moving to slide two, I would like to show you some of the highlights of the third quarter of 2023. Talking about market, although we have a very challenging market, and that's what we have experienced in the past years, we can still see improvements in results of the companies in our industry. Vestas, this week, published their results, and now they have profit again.
This shows that the industry is now practicing or using higher prices. The market is becoming healthier, and we should probably see improvement in results in with other players as well. The market in Brazil is still challenging. We have lower levels of demand and consequently lower levels of price. We see a reflection of... We believe that price increases and increased demands will probably be present in Brazil only in 2025. Another highlight that is valid not just for the third quarter, but rather an evolution we've observed in 2023, relates to our operational efficiency.
Over the year, we've been operating with stabilized lines. We've had an increase of over 30% in EBITDA, over 40% in the year vis-a-vis 2022. ROIC was 10%, and it is now 14%. So we can see that in a stable year, we can deliver consistent figures. Also, with improvements in operating efficiency. In 2022, we had a lot of operating problems, so improvements in the operating performance are now reflected on figures, and this is due to a major restructuring in our balance. Along 2023, we have been reducing our raw material inventory and our WIP, the work in process for semi-finished goods. So these improvements take a while until we can actually see that reflected on our figures in a more significant way.
But I believe that the good news is that we have been able to show consistent results in our production. The third highlight of the third quarter, which is the most significant one, was a primary share offering that we released yesterday. This offering shows the company's commitment in revisiting our capital structure. We are focused on that, and we believe that this is a good window of opportunity to for this particular primary share offering. It's 100% primary shares that will take the company to a different level in terms of capital structure, and will also help us navigate 2024, which is going to be a more challenging year in terms of demand. Now, moving to slide three, I would like to share the results we've had in the third quarter of 2023.
The company has reported a loss in the third quarter of BRL 28 million. Accumulated in the year, that is, -BRL 70 million. The net revenue totals BRL 885 million in the third quarter, and 2.5 billion in the first nine months, year to date. So in terms of investments, we invested 5 million in the third quarter, year to date, BRL 65 million, and EBITDA total BRL 77 million in the third quarter. Year to date, that total 263 million. The ROIC, as I mentioned, totaled 14.2%. Now, I will turn over to Bruno Lolli, our Investor Relations Officer.
Thank you, Alexandre, and good morning, everyone. I will start on slide four. Here, we can show you on the left-hand side, an average invested capitals. The lower part of the columns are the average fixed assets, and the top part of these columns are the working capital requirement in average. So I'd like to make a comparison with 2021 and 2022. It is evident that we have completed a significant expansion cycle that started in year 2019 and 2020. We, for many years, invested significantly in expansion, and now we are investing to ensure competitiveness and maintenance of our manufacturing facilities, but no expansion is predicted for 2023. You see a 13% increase in the working capital requirement vis-a-vis 2022. It is not a pure analysis, it's not simply a growth when you compare that with the variation in revenue.
So our working capital vis-a-vis the net revenue moves from 85 days at the end of 2022 to 88 days. So it's a slight improvement in the cash conversion cycle. Here we have some diverging factor between the factors affecting working capital. In 2022, especially in the second half of the year, there was a major variation in terms of deliveries, and that made inventories to grow. To offset this effect, we received financial support from our customers and also advances. And for 2023, we have reduced our position of customer advances throughout the year, and we are also reframing our levels of inventories to optimum levels. So just to put this figure in perspective, inventory reduction was very relevant vis-a-vis the end of 2022, as I'm going to explain further later.
Looking at the operation on itself, the lines on the right-hand side, we had an improvement in the NOPAT of the company. After three consecutive years with a NOPAT that varied, we have had a significant increase in 2023 in NOPAT, 35% vis-a-vis the end of 2022. A larger part of that is a consequence of the maturing of the 15 production lines that are at a mature state. As Alexandre said, we also had a significant improvement in operating performance, and also reframing of some contract assumptions that have changed, affected prices in 2023. Now, on slide number five, we can see how different families of products we produce affect that. In the third quarter, we had deliveries for 5 MW wind turbines, with a slight increase in for wind turbines above 4.5 MW.
And when we see the evolution of contracts, we expect that in 2024, we have a higher ratio of blades up to 4.5 MW. This is different in mix, is going to affect our results, and this relates to our expectations for 2024. On slide six, we see the composition of the annualized ROIC, 19.2, for mature, for service, and mature line, 30%. I can talk more about services later, but in the third quarter, the company postponed a significant project in the U.S. with a large client. And this postponement had left an impact on services. We are resuming our project in this customer so that this is a more non-recurrent than recurrent effect.
In terms of ROIC, isolatedly, the ROIC of the third quarter, practically the same as the second quarter of 2023 for the production of blades, but the increase was significant for services. Now, slide number seven. Once again, we had record highs in revenue for our companies, sustained by the deliveries for the domestic market. When we see the year-to-date value, we installed 6.5 GW and Aeris produced 80% of what has been installed in the country. So we have high expectations that in 2023, we will reach our record high of installations in the country, and very likely that Aeris is going to be the top producer of that, totaling 5 GW.
Also, our participation of services in the total revenue was almost 5%, and we expect in 2024, the company to reach a two-digit share of revenue coming from services. On slide number eight, there isn't something new about what we have recently been reporting. There is an evolution of price in reais per megawatt and an evolution in direct costs. There was a mild reduction in both indicators, but the relationship between them, which is basically value-added, is stable vis-a-vis the previous quarter. Let me remind you that this is a chart of reais per megawatt. The exchange rate plays a very important role in that, and also the mix of products. Now, moving to slide nine. On the left-hand side, we show the accumulated EBITDA, the EBITDA year-to-date.
Aligned with what already reported in line four, there was a significant evolution, and we had a 29% increase in the EBITDA position of third quarter of 2023, vis-a-vis the end of 2022. This is sustained by the level of mature or how mature the production lines are. On the right-hand side, you see the evolution of EBITDA and of EBITDA margin in every quarter. There is a drop in the third quarter of 2023. In nominal terms, about 40% of that accounts for the service division. The other 60% is associated with the manufacturing of blades. The key point for this reduction relates to direct labor costs. There was more dilution of that in comparison to previous quarters.
This relates to the mix of products that we sold in the third quarter and on the average processing time of those blades that were sold in the third quarter. So those are blades that take longer to be processed. Their manufacturing cycle is longer, and this is why they absorb more costs, including labor costs, when they're built. So as we reduce the stock of products in process, the WIP, they could experience margins that could contribute to reduce the need of working capital. Now moving to slide number 10, and Alexandre already mentioned about that. So we had a very reduced amount of investments when compared to other periods. Since the beginning of 2022, we can see a significant reduction in the quarterly investments.
A relevant part of the investments that we've made in the past seven quarters relate to the expansion of production capacity in the finishing buildings. So this relates to this new balancing of production to make sure our finishing capacity is increased, and so that we can also reduce the inventories of work in process. As we can see on slide number 11, in the third quarter, we had a reduction of work in process of BRL 135 million, so that gives us about 50 days of revenue for WIP. Those are not optimal levels. Our target for work-in-process inventory should be under 30 days, so we still have room for improvement in terms of cash generation and reduction of work-in-process inventory.
In terms of raw material, there was an increase in the raw material inventory by 78%, but it is around the target of 30 days. So that increase is not worrisome because we have a comfortable inventory position, so that we do not have any surprises related to logistics. Most of the raw materials are imported, so this inventory position makes us comfortable to fight any problems that we have in transit for those raw materials. Now, on slide 12, as I've also mentioned in the beginning, the company is reverting this process of increasing customer advances, and now our accounts receivable are higher than advances. The cycle, the billing cycle, what's already been paid by customers, is completed.
Most of the advances we received along 2023 have a maturation period that is much longer than the ones we received along 2022, and returned to our customer through revenue in the first quarters of this year. Now on Slide 13, this is our cash position of BRL 743 million at the end of the third quarter, but we have significant results here. The leverage position of the company is of 3 x, and it ranges from 2.8x-3.2 x in the past quarters. On the last slide, I'm going to talk more about the capital operation and how that impacts our indebtedness. Now on slide 14. This is a question some people have asked us about the consumption of backlog. So I'll try to explain here.
The reduction we had from the first to the second quarters was a reduction in the consumption of backlog related to the regular contract performance, as well as contract renegotiation that has led a net loss of 1 GW, comparing the first quarter with the third quarter. Now, in the third quarter, we have the reduction that 100% is related to the contract performance. We've already mentioned that in the previous call, but we still have negotiations with current customers and with potential new customers. We have high expectations that we will complete these negotiations this year with a significant recovery of potential orders covered by long-term contracts, which is depicted on slide 15.
Well, a long time, you can see that we are moving towards the end of the contract for some production lines, and some of them are being negotiated to be postponed, lengthening the contract dates, and some of them can generate volumes all the way to 2028. So along this quarter, maybe the beginning of next year, the company will disclose evolution in this position of the production line schedule, as well as positioning of contracts or orders covered by long-term contracts. And finally, on slide number 16, here we show you an adjusted way, because I'm using as reference the end of the third quarter, the impact to expect for the fourth quarter. So the net debt was BRL 1.767 billion. That was the gross debt in the third quarter.
Cash position of BRL 744 million, so a net debt that totals BRL 1 billion, a 3x leverage. That primary offering is guaranteed by BTG. So this offering accounts for 39% of the current net debt of the company at the end of the third quarter, and consequently, the leverage adjusted by this offering would be turned to 1.8x. So here you can see the debt amortization schedule. This offering will allow the company to maintain a very comfortable cash position along 2024. As Alexandre said, it's going to be a more challenging year in terms of volume. And by keeping this comfortable cash position, amortizing operations and reducing the net, the gross debt, the company is prepared for a new cycle of growth that we plan to have as of 2025 to different markets.
Not just recovering the domestic market, but also a pickup in international markets. This operation is 100% guaranteed by BTG Bank. The Negrão family, the controlling controllers of the company, yields the preference right to BTG, with the obligation of repurchase and reversal of this operation in a period of two years, and the voting rights on these shares remain in the hands of the Negrão family, the controllers. They own 60% of the shares. So the family preferred to run this operation because it was interesting for the family and for the bank. So the bank is committed, so that if we have any leftovers of this offering, they will be 100% acquired by BTG.
So on the company's perspective, we are going to have a full offering of BRL 400 million completed until the end of 2023, and with that, our position will be more comfortable. We'll have more liquidity to face a more challenging scenario. Now, I turn over to Thais.
Thank you, Bruno. Ladies and gentlemen, we'll now begin the Q&A session. To ask a question, please send it in the chat located on the right side of the screen. If you want to ask your question live by opening your mic, please request the audio link on the chat.
Our first question comes from Lucas Laghi, from XP. I think that we are having some problem with Lucas' audio, so we are going to move to another question that we see in the chat. So this is a question from Bruno Souza. Could you better explain or give more details about the BTG agreement related to the investment commitment, contract?
Well, very objectively, this means that since this is a primary offering with the right of prevalence to the main shareholders, the shareholders who decide not to exercise this preference right, the shares are left over, so to speak, will be taken by BTG in full at the price of the offering. So on the company's perspective, this is an offering that is 100% guarantee from start.
Next question from Matheus Varela with the Grupo Soma: "Is the follow-on going to be used completely to improve the capital structure?"
Yes. We do not plan to make acquisitions or investments with these resources other than trying to balance what we believe should be the optimal capital structure, de-leveraging to less than 2x, and the debt, and also fulfilling the commitments that are due in the next three quarters, and also keeping a very comfortable cash position.
Next question from Ricardo Peixinho with Tagus Investimentos: "Could you explain a drop in the EBITDA margin in the third quarter of 2023? Is this direct labor situation recurring?"
Good morning, Ricardo. A drop in the EBITDA margin in the third quarter are related to two things. 60% relates to the manufacturing site of Bath, and 40% of that relates to services that are non-recurring. The blade manufacturing side of it relates to a change in mix. So we recognized a volume of blades of some customers with a labor cost that is slightly above the average. So the mix of products will be the main reason why there is a variation in labor costs. When we price the five contracts, of course, the expected numbers of hours of manufacturing per type of product are assumptions we use to build the price.
But over the year, there was some level of variation in terms of labor, vis-a-vis what had been priced. So the relevance of those blades with higher labor costs will have a negative impact on the margins of the third quarter. So it is recurring for this particular type of products that were built, sold, this quarter, but those products are likely to be less relevant in upcoming quarters.
Next question with Beto: "What is the forecast of production or the project for production in the U.S.?"
Good morning, Beto. Both the production project and the experts project is in our radar. I think that the part of what the market is asking us is: how fast will the American market grow, given the incentives that were given? PTC was renewed. That was an incentive, a tax incentive they have in the U.S., and also IRA, which is a package launched by President Biden. It's called Inflation Reduction Act, and that package focused on improvement in infrastructure and also the market of renewable energy as a whole. IRA, the main driver of this market, is not 100% regulated yet, and this is why projects that relate to it are on hold.
So what we ask ourselves is, how fast once IRA is 100% regulated, and this is expected to happen this year, so how fast will projects be implemented then? That will depend on how fast the demand for blades will increase in the U.S. Just to give you a perspective of figures in 2023. In 2022, a little bit above 5 GW were installed in the U.S., and similar figure is expected for 2023. As to forecast once IRA is implemented, they expect this figure to reach 25 GW in a two to three years time. So will this 20 GW be installed in 2026, 2027 or 2028? So I think it's just a matter of speed in terms of energy transition in the U.S., and as incentives are being provided. We keep talking to our potential customers.
We have monthly meetings with all of them, talking about contracts, contract structure, pricing, but we can only actually start them, those, customers, once this requirement is more consistent.
Next question from George Maia with Riza Asset. I have two questions: What is the backlog level that the company believes to be sustainable for 2025? And how is the expansion plan for the U.S.? Any chances of seeing exports to the U.S. based on the PTC in 2024?
Let me answer the second question first. There is a chance of having significant export volumes, especially to the U.S., which is historically is our largest export market. In all contracts, we have commercial conditions, both for the domestic market and for export market. Usually, customers place their orders with six months in advance.
So far, we don't have any of these orders, so in the first half of 2024, we are not going to have any exports in relevant volumes. But this is possible in the second half of 2024. As to your question related to backlog, I think it's interesting, especially considered orders for long-term contracts. The average contract term is of about four years until execution. So if I had contracts distributed uniformly, our average backlog would be of two years of production. That would be something to be expected. But in the industry where we operate with a competitive market, it's also normal that the launch of new equipment by our competitors come in cycles, so they come together. So you have cycles of launches of new equipment and also cycles of maturation. So our backlog level ranges from one to three years of scheduled production. That's normal.
Next question with Luciano Costa with TC. Could you comment on the perspectives for the wind power industry? Do you believe that it could be a long cycle of low demand in this industry? How long do you think that would last?
Good morning, Luciano. The expectations for this industry, they can be divided into global and regional perspectives. Talking about the global perspective, the world has about 100 GW installed, that probably are going to hit record levels this year. This figure is expected to grow to 200 GW in the next five years. So this market is expected to double its size in the world. China accounts for half of that.
When we talk about the U.S. and Europe, we have a market in the U.S. with the extension of PTC, will probably grow again significantly. So we feel confident in this market. We know that it may take a little bit longer to reach some figures. Sometimes supply or demand vary a little bit. That's what we have observed. But in the medium and long term, we expect growth to be consistent and feasible. For the world to fulfill the Paris Agreement requirements, by 2030, we would need to install 400 GW. So even with a significant growth, like growing from 100 to 200, still there is a major gap vis-à-vis the plan of the Paris Agreement.
So when we talk about, specifically the Brazilian market, we realize that this year, we will reach a record levels in installation in Brazil of about 5 GW, but next year, we expect it to be lower. This drop relates to some factors, high hydraulic reasons. So most of our grid depends on a water energy supply, and so when there's a lot of rain, this has an impact on the energy price. Also, we still have high interest rates, despite the reduction that already took place. Still, they are high interest rates. We also have an uncertain economic growth scenario. Those three factors influence a lot, the perspectives of our market. So we expect this 5 GW to be dropped to 2 GW next year in Brazil, and in 2025 and 2026, will depend on those factors I mentioned.
Aeris focuses a lot in the Americas continent as a whole, and in Americas, today, we are installing about 15 GW. This figure could reach 30 GW in the next five years. Aeris today sells about 4 GW of these 15 GW market. If we reach 30 GW for Aeris to maintain its market share, should double its size in the next five years. So this is the perspectives we have for the industry. Demand is high for wind power as a whole, but when we divide that based on regions, of course, there are variations.
Next question from Lucas Laghi with XP.
Good morning. I have three points I would like to go deeper into. We've shared a lot of context related to this slowdown in demand for next year. In terms of supply, it makes sense to have this capital adjustment. My first question is: how do you assess this cost readjustment in this context? Do you expect to cut fixed costs for the next half of the year? How would you implement that, if so?
Do you expect to sell land or maybe sell a plant? So in terms of costs readjustments, so how would you deal with that? A second question related to profitability. If we take the services operation, we see that structurally, the NOPAT margin is much higher, even than the mature operation in the sales of blades. So considering that services are likely to be more representative in terms of revenue, what about the net effect of that, maybe lower levels delivered in the next years, but maybe more representative services?
In the third quarter, I understand the margin is lower, but I would like to understand the net effect of a segment that has a higher margin and also the leverage, a lower leveraging that you expect. So if you want to answer these first two questions, I will leave my third question to the end.
Thank you, Lucas, for your questions. So let me talk about costs first. Let me divide it in two points. First, I'll talk about the operational aspects of fixed costs. Yes, there are adjustments in fixed costs that we expect to conduct in 2024, and this is aligned with the decommissioning of some production lines in the period. But I would like to add to your second point, those costs will be reduced or softened by the intensification of the services department.
Our historical difficulties in services department, it was the time that it take for you to hire the services contract and then train this highly specialized team, and this level of training will have a major impact on generation of margin. So from the strategic point of view, we have good competitive edge because the service department is seasonal. Since we have a factory- factories, and when we have high wind speed and low service demand, we can retrain people in the factory and keep these talents in the company. So indeed, we plan to reduce production, which is a bit softened by migration of part of our staff to the services area. To capture, as you described correctly, to have a more service-relevant environment with better returns, will create an important counter cycle, considering an environment of lower demand in the domestic market.
Even if we didn't have a lower demand in the domestic market, still, the strategy of accelerating our growth is a no-brainer strategy for us, because the service market does not have cycles, and it won't have for a long time, because every year, the number of wind blades is going to be higher than the previous year and older. So the number of working hours for the service department is likely to increase. So we are betting very strongly on that. And also to retain talents in the company when we see a new cycle of demand, when there'll be a pickup in blade production.
Okay, and also related to diversification of revenue... maybe moving towards different segments, not just sales of blades. I remember that in the past, you used to be more vocal about other types of products, maybe moving into the composite area to diversify revenue. You talked about the U.S., and that would probably be interesting to offset or to make up for a slower market in the short term. Do you plan to take those projects that you mentioned a while back? Would you keep diversifying revenue, so beyond the service that you provide?
Good morning, Lucas. Yes, we think about diversifying our portfolio. Right now, we are completing our strategic plan. This is a strategic plan that we run every five years. So our strategic plan started in 2018 to 2023, and now we are preparing another one for the future years. So we are discussing some possibilities.
So diversification of products, new products, always focus on composite materials. So that's true. Our focus is doing what we know how to do, is our know-how is on working with composite materials, but always focusing on the energy transition. This is the core business of Aeris. So yes, we are considering new products. It's not something we're going to implement in the short term, of course. When you consider portfolio diversification, that is never going to be implemented in the short term. But in addition to services, we are also considering other perspectives. Services account for 5% of our revenue in 2024. We expect that to reach 10%, at least. And we do not provide services only related to blades.
We also have inspection, maintenance of blades, of course, but the services area will also offer other types of services, like consulting services to the owner of the wind energy complex, for example, to sell more complete and maybe complex solutions. We want to be a big service provider to the owners of the wind energy complexes, and we also want to provide all sorts of solutions from a blade retrofit, maybe an exchange of a blade, inspection, inspection and maintenance services. So we are structuring the services area so that it can be a robust department and a big service provider to the owners of wind energy units.
Thank you, Alexandre. We will now close the Q&A session. I would like to turn over to Mr. Negrão for his closing remarks.
Once again, thank you for attending. Thank you for sending your questions. We had a lot of questions, as we expected to have, especially related to our primary offering. So the key message today is about increasing capital, and especially the shareholders' commitment and the family, the owning family commitment to the redistribution of capital, readjustment of capital of the company. 2024 can be a difficult year in terms of volume, but as executives and shareholders, we are confident in the company in the medium and long term, not just for the Brazilian markets, the Americas markets, and the global market.
In addition to the follow-on highlight, I would also like to say that we are increasingly confident in our operations. We are delivering consistent results, and we are improving not only in terms of growth and delivery, but also with a significant operating efficiency in our production lines. So these are the two main highlights and my final message to you. So once again, thank you for attending, and I wish you a good weekend.
Thank you, Alexandre. The video conference of Aeris is now closed. We thank all of you for your participation and wish you a nice day.