Good morning, ladies and gentlemen. Thank you for holding. Welcome to Aeris' 4th quarter of 2022 results conference call. With us here today, we have Mr. Alexandre Negrão, CEO of the company, and Bruno Lolli, Planning and Investor Relations Officer. This event is being recorded. All participants will be in a listen-only mode during the company's presentation. After Aeris' remarks, there will be a Q&A session. At that time, further instructions will be given. Should any participant need assistance during this call, please send a message in the chat on the right side of the screen. Before proceeding, let me mention that statements made in this call regarding the business outlook of the company, operational and financial projections and goals are based on the beliefs and assumptions of Aeris' management. Forward-looking statements are not a guarantee of performance.
They involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. The macroeconomic conditions, industry conditions and other factors could also cause results to differ materially from those expressed in such forward-looking statements. I will turn the conference over to Mr. Alexandre Negrão for the presentation. Mr. Negrão, you may proceed.
Thank you, Lais. Good morning, everyone. It's a pleasure to be back at Aeris and this conference call with you. It's been two years that I was not in the company, and I've been back since a month. In this one month, I tried to understand what happened. The good things and the not so good things during this two-year period. Not only regarding Aeris, but the overall wind energy industry. We noticed and realized that the forecasts were not correct.
When we started to manufacture the larger blades, we assumed several risks in the projects considering the previous experience we've had with smaller blades. We've noticed that these larger blades have a much more higher degree of difficulty to manufacture and make them operational. Not only blades, but engines with the higher power are more complex. That does not apply only to Aeris'. The industry as a whole has the same problem. In addition, we've seen in these last two years, the market factors that had a strong impact on the performance of the industry. A war in Russia and the Russian war, the COVID pandemic, high rate of inflation here in Brazil. In addition to inflation, interest rates are very high.
This was a macro view, or outlook of what has happened and an overview of the macroeconomic factors, or what I have observed in these two years. Our focus for 2023, we're able to see what happened in 2021 and 2022 clearly. Now we're able to have a much clearer outlook for 2023. Now I take this opportunity to start the presentation on Slide number 2. We started the year with some production lines that are not mature, and we had a forecast or a ramp-up of the maturity of those lines that did not happen. The ramp-up speed was much lower than what we had expected. That caused several problems for us, such as the higher inventory levels, work in process, higher than expected, excessive labor.
As you may recall, we hire people in advance in order to mature the production line. When we're not able to reach that maturity level that we desired, we have the headcount versus output that's unbalanced. Another point that we observed in 2022 was that the chain noticed these economic imbalance and has made adjustments as we see the quarterly results of other companies. We see all our customers reporting, increase in prices. All of them highly impacted by material costs, and the same is happening with Aeris right now. Our focus for the year 2023 is to improve cash generation, improve quality, and also better output of blades. Moving on to Slide number 3. We had a net loss of BRL 39.4 million in the fourth quarter, and BRL 92.7 million in the year of 2022.
ROIC of 11.3%, lower than projected. CapEx of BRL 87.1 million, slightly below the guidance that had been provided. A net revenue of BRL 654.8 million in the fourth quarter of 2022, and BRL 2.46 billion in 2022. An EBITDA, BRL 80 million in the fourth quarter and BRL 267 million in the year of 2022. I turn the floor over to Bruno Lolli.
Thank you, Alexandre. Good morning, everyone. I'll start my presentation on Slide number 4. As we show on every earnings call, we have the invested capital. On average, we reached BRL 1.6 million in 2022. That's higher than for 2021. We had a major leap of invested capital in 2021, in terms of property, plant, and equipment.
Now in 2022, in excess of need of working capital. When we look at NOPAT on the scale of the right side of the chart, we don't see the growth that we had projected originally for the year. Since 2020, we have maintained the same levels of operating results and lost or decrease in the return levels because the invested capital increased. Going to Slide number 5, we can better understand this changed dynamics and the category of blades we produced. In 2018, 2019, the vast majority of blades produced were for generators, were for wind turbines below 3 MW, so products we've known for a long time. In 2018, for example, was the last year in which the company had 100% of mature lines and the products were well-known.
Starting in the end of 2019 and strongly in 2020-2021, we had a transition to bigger blades with a higher power wind turbine and a major concentration in this period, concentrated in turbines from 3 MW- 4.5 MW. Starting in 2022, higher than 4.5 MW up to 6 MW. The proportion of these products is just increasing. Alexandre Negrão mentioned about the ramp-ups of 2022 that were majorly for blades of higher power than those we produced previously. These bigger blades are more challenging, which caused our projections not to be fulfilled or met in the year 2022. Another important difference is the lead time between start producing the brand and launching it. The launch and production was much lower than we had in inventory.
When Aeris started producing this blade, the maturity level of the product design was smaller. The assumptions we used and discussed with our customers about the manufacturing cycle, the average levels of rework, quality requirements and robustness of tooling and the need of resources, especially labor allotted to production, were assumptions that included a higher risk level than we had previously seen in the past. They forced us to look for a new rebalancing with our customers to adjust prices to adjust capital invested and fixed costs and overall manufacturing costs. Now on Slide 6, this is a period in which most of the lines are no longer non-mature. Throughout the fourth quarter, we had an important volume of production from non-mature lines, but now almost all the lines are mature now.
When we look at the return in the fourth quarter, we had an 18.3% ROIC for mature lines, which is almost 17% in annualized ROIC, considering the average maturity of the lines. That's not enough to compensate the capital for the return on capital that we had predicted. Next, Slide 7, looking at the revenue. For the first time, we had 100% of blades for the domestic market. It's the record delivery for company in nominal terms of the domestic market. The division of services has also delivered above usual. Of course, there is some seasonality in services rendered. The United States accounts for a large part of our revenue from services, and the market in the U.S. is very seasonal. Moving on to slide 8.
As part of what Alexandre mentioned before, the industry during the COVID pandemic had an important, major inflation rate. That's what we see at the lower line of this chart. The cost of direct materials per megawatt in reals has grown a lot, and there's a combination of effects. There is also the depreciation of real, our currency, the global inflation, not only in terms of inputs, but logistics costs that are also pass-through to customers. What we see is that a major variation in the average price per megawatt in the last quarter.
One of the effects that's relevant, we had an important change in the mix from the fourth quarter compared to the third quarter. Also in this period, a price adjustment associated to pass-through of costs of materials that was coming from the past, retroactive. We've transferred or passed through in the fourth quarter. That accounts for BRL 10 million-BRL 20 million in the last quarter. The margins we would have in this quarter would be very close to historical margins in previous quarters. We had this one-off event in the fourth quarter. Moving on to slide number 9. We see the growth of EBITDA to almost BRL 81 million with a margin of 2.3%. Year to date, the company reached BRL 267 million EBITDA, which is slightly below the guidance rate.
In the end of the presentation, I will explain in detail the causes for that. Slide number 10. In the fourth quarter, we had investments that were postponed to the beginning of this year that took place in January and February. Actually, most of these investments are related to increasing the production capacity in the finishing buildings that contribute to increase the inventory of work in process. They didn't happen as expected in the fourth quarter, but now happen in the first quarer of 2023. Now we reach the end of the growth, capacity growth. Our nominal capacity today allows us to install up to 18 production lines of large blades. I'll show the evolution of the lines, and we expect to end 2023 with more lines than we started. Now moving on to Slide 11.
You may be able to see here one of the major causes of not delivering on the guidance, the evolution of inventory levels when compared to net revenue, both the inventory of work in process and raw materials. In the fourth quarter, there was a slight reduction in the inventory of raw materials, still above the regular line values. It has an important excess because as we execute the production plan, this excess disappears. We expect that during the first six months of 2023, it would have a turnover in the raw material inventories much better than what we had in 2022, because the expected volume for 2023 is much more aligned with the manufacturing cycle that we have. When we look at work in process inventory, we see an important growth in the third and fourth quarters.
The growth in the third quarter is very specific, and it was caused by a major change of product and criteria of inspection of one of our clients. We had an important increase of work in process inventory because the finishing cycle increased, and we had to reprocess a large number of blades that had been built, and we have invoiced to the customer, but we do have a negotiation with them. We were able to revert, although partially, this increase. This confirmation was not confirmed in the fourth quarter, but now in the first semester of 2023, we'll resume the levels of work in process much lower than the current ones.
When we see the goal that our target is to end 2023 with these levels below historical levels, that because in the end of 2023, we'll have one full year of mature lines. It's, we should have a much lower work in process inventory by then. Another important point is that this work in process inventory level is partially linked to what we have in advances from customers, which also represents an important volume. A part of this excess of work in process inventory, customers, when they negotiate with us and they understand that they caused this excess, they accept to pay for the blades that haven't been invoiced yet. A part of this inventory is offset by the advances from customers.
This is why we see a good liquidity and cash position on Slide 12, with financial obligations of BRL 262 million throughout 2023. These obligations increase or liabilities increase in 20 then after 2023, but the lines will be more mature by then. Moving on to Slide 13. We see the development of the potential orders covered by long-term contracts. At the year-end, comparing the fourth quarter to the third quarter, it has dropped much by a higher amount than we had produced in the period. Caused by two factors: A reduction considered original contracts. The production capacity declared in the original contracts suggested a production of 1.5 GW, and we produced about 40% of that. A part of that decrease can be offset in this year of 2023 as we reduce the inventory of work in process.
The net effect is the 10.5 GW backlog in the production of the year. We are negotiating with our customers, two of them include increase in volumes. One of them talks about the increase of production line for products that are already being manufactured and postponement of the end of their contract. Another negotiation for the transition of production lines at the end of 2024, beginning of 2025. We do expect that throughout 2023, we can execute a part of this backlog that's shown here, but we'll make new additions to this backlog if these negotiations are successful. Next slide, we see the production lines. We start the year 2023 with two lines about to be discontinued.
Two that were completely destined for the export market, the products were discontinued by the customer, we are dedicated to producing one single type of product for that client. We start the year, 14 mature lines and one line to become mature in the beginning of the year. The projection is for all these lines and one more to be running throughout 2023. We'll have a high concentration of mature lines. The same scenario for 2024. The last time that happened was in 2018. The projections are quite optimistic regarding the stability in the volumes of production, so we can work to optimize processes and capture benefits considering the lean manufacturing concepts. That is certainly included in the management goals for the year. Moving on to Slide 15.
We show the original guidance on the first column that closed in September of 21. The guidance revised in August. By then we didn't have a clear view of the impact of the changes in criteria and design coming from customers. Finally, the realized one. We delivered 22.8 GW in 2022, BRL 2.469 million in net revenue, BRL 267 million EBITDA, and BRL 87 million CapEx. On the last Slide, 16, we show a breakdown of what management has taken into account to make these projections. In this slide, we have an alternative scenario that did not take place. The realized one is the gray line. In the alternative scenario, we would have completed manufacturing and invoiced this additional volume of blades that we ended the year as just work in process.
Instead of ending the year with 698 of work in process, we would have 380, which was not optimal, but it was a protection of the company. If that had happened, the production volume would have been 1.1 GW, which is an indication of expected volumes for 2023. Revenue would have exceeded BRL 1 billion for the period, which would be within the guidance range. We would have an EBITDA of more than BRL 126 million. Net total EBITDA for the year of above BRL 300 million, which was the expectation for the year. The not delivering on the guidance is strongly associated to this lengthening of the average manufacturing term, much more concentrated in one client than the others.
This was a very important effect and explains why we didn't attain the guidance for 2023. We are not disclosing guidance for 2023, at least for now. The main reasons for that are the negotiations that are in progress. The uncertainty about the results of the year is still in terms of volumes. In terms of volumes, it is low. Our confidence level is very high because the difference between what we are producing now and the challenge in terms of production throughout the year is much lower than we had in the beginning of 2022. The uncertainty of results is still significant. That's why we're not disclosing guidance now. Now I turn the floor over to Lais.
Ladies and gentlemen, we'll now start the Q&A session for investors and analysts.
If you have a question, please send it on the chat located on the right side of your screen. If you wish to ask by audio, please click on the link we sent on the chat box. The first question comes from Lucas from XP.
Good morning, Lais, Larissa Lollis, and Alexandre. There are some topics I would like to explore with you, especially results and expectations for 2023. When you look at this figure, 1.5 GW projected production throughout the fourth quarter, could you give us some color on what was the performance in January and what we should expect for the first quarter of 2023? Especially considering the expected productivity improvement in the customer line that is causing the reduction in projected volume.
That's the first question: How can we think about this use of projected capacity looking at the first quarter, 2023? Should this be close to or below 40%? What we should expect for 2023, taking into account the change in contracts by customers and the lower productivity levels given by this specific client? That's the first question.
Thank you, Lucas. It's great to talk to you. In fact, when we look at this drop of 1.5 GW and project that in time, this is the consumption of backlog in 2023, considering the original contract. Looking at the volume of the fourth quarter, we have explained the reasons we were below 40%. What we expect in this first quarter is not to reach stable production levels when we look at the average of the year.
We're talking about a 60% occupancy level. When we look at the current production capacity, as we discuss with customers, we don't want to repeat 2022, to be optimistic and project volumes that are higher than we can deliver. When I compare to the volumes that we plan to deliver in 2023 against this maximum volume, that is in the contracts, we're talking about 60% occupancy in the year.
Two other points. If you could give us a color on labor costs, because we've seen the development of unit prices offsetting or seeing how it is effective in mitigating the changes in raw material prices. There was a major effect in the personnel line in terms of costs.
I would like to understand the specific increase in the labor cost and how is that reflected or what's the impact of that. The second part is about working capital. You've commented on the increase in inventory levels that were partially offset by advances from customers. How much does that represent, that refer to higher inventory levels? What's the percentage maybe? What are the factors that reflect the more specific levels, or increase in levels?
Thank you for the two questions.
Okay. About the labor costs, we did expect to increase that when compared to 2021, obviously, because there were production lines, projected for much higher volumes.
We expected that despite the labor increases, they were to be diluted in a larger production volume. When we look at 2023, a great part of this labor cost is to be maintained close to the levels of 2022. We're making adjustments only for inflation. The growth in volume that we are already delivering in the first quarter and will continue to deliver throughout the year will allow to dilute labor costs in 2022. This is insufficient to resume our historical return levels if we don't increase prices. Now, speaking of the need for working capital, an important part of this excessive need of working capital is upset by customer advances. I'd say that in some cases more advances from customers than excess.
There is the collaboration from customer in supporting our needs for working capital, especially as they recognize that they are the main reason for that to happen. If you project a production and the customer has a demand for volumes that are higher than we can deliver, and the cause of non-delivery are caused by changes imposed by customers. Sometimes we have changes in suppliers that we also cause. All of that causes customers to be inclined to help us in that. The total amount of excess of work in process at BRL 400 million is being extraordinarily supported by customers. As a consequence, we expect for 2023 is to resume levels of work in process that are healthy, is strongly associated to a reduction on the amounts of advances from customers.
Okay, perfect. Thank you.
The next question is from Ygor Araujo from Genial.
I would like to understand what's the level of investment projected for 2023. We know that the IPO expansion plan has been completed and funds raised have been used. You've mentioned about a possible greenfield in the U.S. Is this still in your plans?
Considering the investments for 2023, one of the reasons we don't disclose guidance is because 2023, there's one more significant investment that's conditioned to the renewal of a contract and an addition of a production line. If that is confirmed from the commercial levels, we can be more sure about the levels of 2023. What I can say now is that the level of investments to maintain competitive maintenance and production levels are in levels that are close to the annual depreciation levels.
Something between 50 and 60 for maintenance investments and extraordinary investments whenever there is an addition or transition in production lines or obviously a significant increase in capacity. About the United States, today, we don't have any active plans for growth in the United States. Nothing is being discussed. When we look at the benefits that are being granted for local manufacturing in the U.S., either onshore or offshore, against labor costs currently enforced in the U.S., we come to the conclusion that producing in Brazil is still a decision, even considering the logistics costs for these blades. This is a recurring discussion we have with our customers. That's not restricted to the U.S. Any growth project outside Brazil involves a specific one-on-one discussion with customers. We're not going to make a greenfield investment if we don't have a commercial agreement signed.
Next question from the chat is from Ricardo from Tagus Investimentos.
What are the expectations of Aeris about the offshore market? Do you expect a high increase in demand? The offshore blades different from the current ones, are they bigger or more complex?
Good morning, Ricardo. The offshore market in Brazil is regulated and defined, and we believe that this market will materialize, yes, mostly related to the beginning of green hydrogen. According to our projections, we believe it will amount to about 2 giga as a market size. We continue to our projections for Brazil in the next 10 years. We said that in the IPO from 2020 to 2030 of around 4 giga. If we add offshore to thatIt would be 6 giga. If that happens, I believe it would be more towards the decade of the 20s.
As for the complexity of the blades, yes, they tend to be more complex given the size. As I said in the beginning of the call, larger blades add a much higher level of complexity. If we had offshore blades of 100 meters or 120 meters long, they will be more complex. However, the prices will also be different. What we see in countries where offshore wind production is in progress, they have prices that are completely different from onshore blades. I believe offshore will be a whole animal altogether. Another business plan, lower volumes, lower scale, but margins will be higher.
The positive side is that today, at Aeris, we do have a physical space to accommodate such blades, we have 15 km away from the port, and the transportation of these blades makes it much less because we are located at the industrial complex of Pecém.
The next question is from Marcela from BTG.
I'd like to understand what would be the ideal mix of blades from now on. Do you plan to discontinue blades from 3 mega to 4.5 mega? What was the higher complexity referring the production of blades above 4.5 mega? How do you see the future for 2022?
The mix of blades has to do with the market. The decision of what products will be in the portfolio is more on the customer side than on our side.
It's not for Aeris to decide the optimum blade size. Answering your question more directly, it's not that the category between 3 MW and 4.5 MW will be discontinued. Some of our customers do understand that growing indefinitely the number or the size of blades and the engine power cannot necessarily be favorable in terms of reducing the final energy cost. When you increase the blade size and the engine power, there was an increase in the capacity factor and a dilution of fixed costs that allowed to reduce investments for the owner of a wind complex. A complex megawatts was lower and the capacity factor was higher. When you compare to the negative sides, which is increase in complexity of the industry as a whole, cost of logistics increase, all that has to be taken into account as well.
It's hard to affirm whether there is an optimum point in that growth and whether we are far or close to it. In terms of what we expect for 2023, we notice in practice that for smaller blades, whenever we have a rework in production, that could be in the bottleneck of the process. For smaller blades, it was common for these rework levels to be solved quickly and to have little impact on the process as a whole. That typically to the higher cost level in terms of the production volume we used to have in the past. For bigger blades, that's not exclusive to 4.5 MW blades. As the size of blades grows, whenever the defect arises, the repair cycle is larger, longer.
The commitment we have to our production capacity, the delivery rate we can commit to depends on the maturity level of the project and the robustness of tools. Of course, the maturity level of the process. Certainty about volumes decreases for these products. In January of 2023, we exceeded what we had projected in the budget for January. We brought production levels to a more conservative level in terms of volumes. That is widely discussed with our customers. We prefer to excess than to disappoint them. This increase in volume results in the lower capacity to dilute fixed cost, and we need a financial rebalance to remain healthy in the chain as a whole. I cannot say right now what is the optimum blade size and optimum power.
We see customers now launching engines above seven megawatts for onshore, for onshore. The speed at which complexity increased was much high. It was very high. We need processes that to manufacture engines and tools that are as robust as the demand and requirements we have for these category of blades.
Next question from Lucas Esteves from Santander.
Regarding the negotiation that's being done with customers, what do you expect when do you expect to define this topic?
Good morning, Lucas. We started these conversations at the beginning of the year, and we intend to finish them until the end of the first quarter. Conversations are always complex in the sense that it's not about simply, okay, let's increase price by X%. The contract involves some variables. The original contract involves variables such as volume, payment terms, the length of the contract, materials, cost of materials.
We are renegotiating the contracts and agreements considering 2023 and 2024. The conversations are taking a bit longer, but we intend to have all that finished in the second quarter.
Next question from Paulo, from AF Invest.
Do you see a reduction in operations of risk regarding the decrease of appetite from banks?
No. At first, no. If you think about the nature, what drives these transactions, most of our suppliers are certified by customers. We have a restricted volume of options of suppliers to use in our production process. As we Pass-through the variations in direct material costs, the expectation, the appetite of our customers also is deteriorated as we reduce the price of the blade by the cost, by certifying new suppliers was major.
Whenever we have a new supplier, of course, the payment terms are smaller than with the suppliers we have a long history of transactions. The risk for withdrawal is a combination of negotiation we have with consumer to have terms that are similar with older suppliers. These financial costs are transferred and passed through to customers because that becomes part of the cost of materials in this pass-through mechanism for costs that we have. The reduction in the volume of this risk may happen as these new suppliers develop a longer term reduction with a relationship with higher risk, and that can be natural. What we notice for these transactions in the first quarter is that there is a larger scrutiny by all financial institutions, especially the American ones. The operations continue to happen.
There's no restriction, the absolute volume of appetite, but the conditions change, so we continue to perform.
Next question from Caio, from Investment.
Good morning. The company will continue to present the cash burn during 2023 and increase in inventories. Is there a need for fundraising for working capital?
We're not disclosing guidance for 2023 still, but the original plan since we closed 2022 in excess of inventories, both of raw material work in process, there would be a release of cash coming from the reduction in inventory levels. With the comment that the reduction of work in process will be conditioned to the reduction of advances to customers. Now answering the question, if the reduction plan is delivered and complied with for 2023, as it is for now, we don't expect to increase the gross debt for the year.
This ends the Q&A session.
I would now like to turn the floor to Mr. Alexandre Negrão for his final remarks.
Thank you, Lais. We are very excited about 2023, as mentioned in Lais' presentation. Since 2018, we've never had a year in which 100% of our earnings with the mature lines. This is very good because it makes us very confident that we'll attain the production levels as planned, it gives us the capacity to work. I mean, we know we have to increase the output of blades in terms of mature lines, these are small improvements that need to be performed to attain our goal. The main consequence is that we're having higher predictability in the production lots. In addition, we are able to see that the wind energy market, both in Brazil and globally, remains robust.
The targets of decarbonization in countries remain high, the next quarter there will be some reports issued by global agencies disclosing the figures of how much of wind energy complexes were installed and what are the projections for coming years. We remain very confident that the reduction of carbon emissions thesis and the wind energy thesis remain robust, both globally as well as in Brazil. From 3 to 5 gigas only onshore in Brazil. When we speak of that figure, we believe that Aeris will have a major share in this market. In addition, we are talking to our customers. In addition to price adjustments, we're also talking about extending the agreements, which shows that despite the difficulties and despite delivering less than we had envisaged, the confidence levels between Aeris and customers and the level of trust remain high.
What I can say is that we're working hard to reestablish the economic and financial balance of our agreements at historical levels, and that we're also able to deliver quality blades in the next two years, and thus guaranteeing the sustainability of our business. Once again, it's a pleasure to be here with you. It's a pleasure to be back, I'll see you in the next calls.
Thank you very much, Alexandre. The call of Aeris has now ended. We thank you all.