Good morning, ladies and gentlemen, and thank you for holding. Welcome to Aeris Energy third quarter of 2022 results conference call. With us here today we have Mr. Bruno Vilela, CEO, and Mr. Bruno Lolli, Chief Planning and Investor Relations Officer. This event is being recorded and our participants will be in a listen-only mode during the company's presentation. After Aeris Energy remarks, there will be a Q&A session when 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 Energy management. Forward-looking statements are not a guarantee of performance.
They involve risks and uncertainties as they refer to future events, and therefore depend on circumstances that may or may not occur. The macroeconomic conditions, industry conditions, and other operating factors could affect future results of the company and cause them to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Bruno Vilela. You may continue, Mr. Vilela.
Good morning, everyone. First, before talking about the first slide, I would like to briefly update the macroeconomic, the macro view that we have about the business, and then we'll spend more of the time talking about the results of this quarter.
As you know, there is COP27 in Egypt going on now, and great part of the topics being discussed there are the interactions of renewable energy in terms of energy safety in Europe, as well as the global warming and decreasing global warming. I think this is a well-discussed and well-known subject. As from Biden package, what we've heard is that there will be growth in the U.S. market as of the second half of 2023. We see a great movement going on already, and part of the negotiations we are making in terms of new contracts or extending current contracts are related to this resumption of growth in the U.S. market. Now let's move on to the first slide. This slide, we would like to highlight the leverage reduction.
This was made possible through a discipline of management and the need for working capital, and it caused our leverage to go from 3.2x in the last quarter to 2.8x now. Another important point that also affects leverage and that will cause us to reduce this 2.8x are the changes in customers' projects. Changes are changing the design of blades, and that caused us to increase the WIP, which are work in process. You see that the occupancy rate of the plant has been reduced in this quarter. These changes are negotiated because according to the contracts, customers may request such changes, but Aeris is entitled on an open book basis to recalculate the costs that would generate for the company, either in terms of labor and financial costs due to this unplanned increase in the WIP.
Another important item is that we are talking about quality lately. Quality is one of the main values of Aeris and a basic assumption of our business. We have changed the internal structure of the company, creating a specific department for quality. Now we have a quality officer. This officer is dedicated to quality only. He has a lot of experience in the aeronautics market. He has worked at Embraer, and he joined the company 35 days ago. His name is Alexandre Negroni. On behalf of the company, I would like to welcome him, and we do count on the focus on quality for the serenity of the business. Okay. Now on the next slide, we'll talk about the results. We had a net result, net income of BRL 25.9 million. Actually a loss.
In the nine months period, accumulated losses of BRL 53.3 million, ROIC of 10.7%, and CapEx of BRL 32 million in the third quarter, net revenue of BRL 625 million. Year to date, in the first nine months of 2022, BRL 1.8 billion. EBITDA of BRL 64.8 million in third quarter and year to date, EBITDA BRL 186 million in the first nine months of 2022. Now I'll turn the floor over to Lolli.
Thank you, Vilela. Good morning, everyone. I'll start on slide 4 . We always bring this slide to show more of a long-term view of the company, the cycle of investments and capturing value.
You may see here that since 2019 and 2020, we had a very important investment cycle in order to exchange or to increase the production capacity and for working capital needs. This cycle is losing acceleration now in 2022. Once the investment cycle is ended and becomes stable, now we start the phase of capturing value derived from this cycle of investment. We had many changes in the relationship with customers in 2022 in terms of products, change in suppliers. That affects the value generation in the short-term, and we project for 2023, much more stable and mature production. 2023, we'll have 15 mature lines, as we'll see further on the presentation. This will be an important point to resume the value and the return on invested capital.
On slide 5 , an important change we had compared to the previous quarter was the maturity of large volume lines. We have the migration of capital invested from non-mature to mature lines and a growth of EBITDA not so large. That explained the return on this quarter for mature lines to have dropped in this quarter. In addition to this recent maturity of some important lines, we had an important lines in the mature lines in this quarter. We had a drop in volume of lines that have been mature for some time now. Those that were mature for a long time delivered lower volumes and therefore lowered the capacity to decrease fixed cost. Despite that, we maintained margins and returns stable, although a bit lower than we planned previously.
Now, moving on to slide 6, let's talk about the net revenue. We had a drop of 4% in revenues in this third quarter. We expected to have a growth in revenue, but it didn't occur because we didn't attain the production plan for mature lines as a result, and changes in the design, as mentioned before. The delivered volume in megawatts was quite stable. Most of the drop in revenue is related to average prices, and the average price in the third quarter has an important component in the average exchange rate of the second quarter. Since the exchange rate of the second quarter was much lower than the average of the year, now in the third quarter, this has increased and therefore it will have a growth in the average price for the fourth quarter.
Since we also had a growth in volume, revenues will increase until the year end. We'll probably attain the guidance, which remains the same for this quarter. Another important highlight is the growth in services division, especially in the U.S. unit. In this period, the company was able to perform well in significant contracts. We don't have any environmental issue that prevents service from being provided there, and this trend will continue. Today, the significance of the services unit in the U.S. in terms of the entire services of the company is more than 80%, and we believe this growth will continue to grow more in the U.S. than in Brazil. On slide 7, we show the relationship between price in reais per megawatt and the cost of direct materials. This is a historical chart since 2019. The price adjustments, it's quite natural.
It is in every contract. In this last quarter, we see that the drop in the average price is accompanied by a drop in the average cost of raw materials or direct materials. On slide 8, the EBITDA. In the year to date, it's the largest EBITDA of the company, BRL 253. In the quarter, BRL 64.8, a margin of 10.4%, projecting when looking at the guidance, since it remains unchanged, we have an EBITDA above BRL 85 million for the fourth quarter. Based on the assumption that the problems we had in the third quarter regarding the increase in the manufacturing cycle will be solved in the fourth quarter. In the current position, they are quite advanced.
We're very close to attaining the original rates, and we have until the end of the year to remove the excess of inventory in process. Now and attain the guidance. On slide 9, the CapEx. In this quarter, we invested BRL 32 million. When we reviewed the guidance and increased the projection of CapEx, a lot of that was related to incremental investments to increase the production capacity in the finishing units. Historically, the bottleneck of production is always in the rolling buildings, and we noticed that for the larger blades, especially as a consequence of major changes in design, is that the finishing building now has a longer manufacturing cycle, which requires more positions for finishing, higher labor costs, and that requires more CapEx. This is something that's been negotiated with customers so that these investment of Aeris is compensated by customers.
On slide 10, Vilela mentioned about the management discipline in working capital management. We had an increase of BRL 240 million seen in the raw material inventories, an increase in the average production period and inventory, work in process. That increases the need for capital, working capital, but we're investing in improving relationship with our suppliers, and this increase in the average production term in mature lines was offset by a increase in advances from customers. We offset that by advances from customers. The sales that did not take place did not affect the cash flow of the company. Our cash position remains very healthy and will have normalized value for the needs of working capital for future quarters. Now talking about debt amortization flow.
We ended the quarter with over BRL 850 million in cash, with obligations for debt amortization that are not significant for the years of 2022 and 2023. We are quite comfortable then on the fact that when the operations start generating results that are higher than financial results, which will happen with the growth of volume, we'll have a net generation of cash from operations in an environment where there are few obligations to repay our debts. On slide 12, we had an occupancy rate lower this quarter, which is fully associated to the lower sales for lines that have been mature for longer, and this is a consequence of changes in design from customers, as we mentioned.
In this quarter, we expected 100% occupancy 1.4 GW, and we delivered slightly over half of that. Even so, adjusting prices according to the current exchange rate, we have a backlog higher than BRL 10 million, and it's five the average power is 5 MW, BRL 10.2 billion. The evolution of production lines, we had the decommissioning of one line that was quite old, originally installed in 2013. We had two changes of products in that line, the latest one in 2019. Altogether, this decommissioned line delivered more than 2 GW. Not the line specifically, but the products in this line delivered more than 2 GW. In this quarter, we'll decommission another two lines that as forecasted. As of 2023, the company will operate with 15 mature lines.
We are negotiating with one specific customer to add at least one more line in 2023 of a product we already make. We'll have a base scenario of 15-16 mature lines throughout 2023. The company is making efforts in negotiating to extend agreements for the lines that close in 2023 for at least the end of 2024. Expect to be operating with the mature lines, current lines, and a mature status for at least two years. More relevant changes in design and projects create non-mature phases within a mature state, and that's negotiated to customers. In this quarter, we had a negative impact of such changes. We are now negotiating to transfer such impact to our customers. Finally, on slide 14, we maintain the projections of our guidance, which indicates strong results for the fourth quarter of the year.
We project to deliver 3.2 GW-3.6 GW, with a net revenue going from BRL 2.6 billion-BRL 3.1 billion and EBITDA between BRL 270 million and BRL 340 million and CapEx between BRL 95 million-BRL 135 million. This completes our presentation for today. Now I turn the floor over to Laís, so we can start the Q&A session.
Thank you, Bruno. We'll now start the Q&A session. In order to ask a question, please write it on the chat located on the right side of the screen with your name and company name. Should you wish to join the conference to make a question by audio, please let us know on the chat and we'll send the link. The first question is from Lucas Laghi from XP.
I'm sorry, I cannot hear the question. Let's wait for the question to be asked again. Lucas, I am sorry to interrupt you. We've heard very little of your question. I don't know if it's my connection. Could you please go back to the beginning of your question and ask it again, please?
Can you hear me now?
Yes, we can hear you well.
Well, it's just to understand whether this difference of the 95% of usage of capacity lines have brought the 55% in this quarter came. If this difference is being offset by any mitigation effect, by any contractual clause that would cause the effect of loss in production to be mitigated. Better understand the pricing dynamics. You mentioned that up to 60% of production, there is a certain guarantee of return, and since that was lower than that, I would like to understand the risk. Since you are operating way lower than what was reported in the second quarter below your capacity limit. I would like to understand that better. Thank you.
Good morning, Lucas. Well, the answer is yes. There are provisions in all our agreements regarding variations of prices according to the utilization of our capacity in the component of added value of the price. With one of our customers, we have started the beginning of the year with a much lower occupancy rate than expected in the agreement, and it was corrected below 60%.
For another customer that we had a major change in the third quarter, most of the decrease we had in terms of occupancy was in invoicing. Blades continued to be produced, so we added costs of materials. That's why the work in process has grown. That makes it possible to, in the fourth quarter and in the first quarter of 2023, to have an occupancy rate for this customer to go above 100%. The overall impact during these two or three quarters will define the average occupancy, and that will be considered for pricing in order to calculate the price of the impact during this period.
This is the customer that had been mature for longer.
Yes, exactly.
Okay, just one last update here. Looking at the fourth quarter, I would like to understand the operational improvement of the lines that became mature more recently, 2 of them in the third quarter and 1 in the second quarter. How is the maturing process of the 3 lines that are expected to reach maturity in the fourth quarter? That's my last question. Thank you.
Okay, Lucas. The lines that have matured in the second and third quarter technically have become mature because they have been installed for more than 1 year, but they still deliver results lower than a typical mature lines. That is due to volumes that are slightly lower and higher costs, especially in the finishing stations. We're also adjusting all our costs and prices based on this stabilized production for those lines.
For the lines that will become mature in the fourth quarter, they are delivering better results than these other lines that matured in the second quarter. In closing the third quarter, we saw an important development for the three lines that will become mature in the fourth quarter. The execution, by executing all the projects we have to improve the lines that have matured throughout the year, we'll have 2023 with lines mature in terms of technical aspect as well as in delivering results.
Our next question comes from Lucas Barbosa from Santander.
Thank you. Good morning, Vilela and Lolli. I have two questions. One, and then after the answer, I'll ask the other one. Could you give us an update on the production of blades for offshore turbines? Any visibility about the offshore demand from the U.S.? Then I'll ask the second question. Thank you.
Good morning, Lucas. How are you? The negotiations are ongoing still. There is nothing completed. The market is very hot in the U.S.. I mean, especially because of green hydrogen. There is no advanced discussions or negotiations. Negotiations are taking place. We are partners here in Brazil, or we are producing at Pecém. Negotiations are being made, but there's nothing very advanced so far.
Okay. Thank you, Vilela. Very clear. Then my second question is about the energy crisis in Europe. Trying to understand, is there any angle that could benefit you from that aspect? Is there any blades that you produce that it's for the model of turbine that's commonly used in Europe and could somehow allow assemblers to choose to import those blades from Aeris? Is there any discussions in terms of being a supplier for the European market?
Lucas, yes, we have exported blades that we produce to Europe. The European market that has the bottleneck, not on demand for energy, because that is clear, but regulation. You'll see in the news from COP27 that this is something that's being heavily discussed, how to render the renewable energy regulations more flexible in Europe and make that less bureaucratic. So the blades we produce are compatible with European market, and our agreements allow customers to direct the blades that we produce wherever they want to.
They never specify to us, "Oh, next year's demand is to produce blades for Europe." They know of our production capacity. They know that they place orders for the blades we produce, and they can send according to the demand. We are negotiating. We're seeing an extension in agreements and an increase in blades, but we don't know exactly what market it would be. It could be either for the U.S. or European market or for the domestic market that's also increasing.
In terms of Europe, do you have any idea in the last years in Europe of wind complexes, how much is onshore and how much is offshore? Just for us to understand how you could benefit from that.
Lucas, I don't have the numbers to give you that answer now. I prefer to please do my research here on the reports. Yeah, I would be irresponsible if I gave you an answer now, but I'll give you this answer later on.
Okay. Thank you very much. Have a good day.
Next question is from Ygor from Genial.
Hello, everyone. Good morning. I have a question about productivity. It is a bit difficult for us to measure, to calculate that. I know that you announced that you were engaging Falconi to focus on increase of productivity and employees, et cetera, and in training employees. I would like to understand how we can capture that increase in productivity. The number of employees that you need to produce one megawatt, that number is a bit impacted due to the manufacturing problems and with the assemblers.
I would like to know how you were considering cost per employee, given that the scenario for 2023 and 2024 onwards, at least for the next 4 years, tells us that there will be more aggressive adjustments in terms of employees. I mean, are you planning for that? And is there anything to be done in addition to the gains of productivity?
Good morning, Ygor. In fact, it is more complex now in terms of analyzing the cost and productivity throughout the year due to more frequent changes in design and also because of suppliers. Something we didn't talk so much about, but whenever a customer brings a new supplier, there is a period of adaptation, especially when there are materials that require certain processes and then we're less productive and we apply whatever we have in contracts to transfer that increase in costs.
We had many changes this year and in terms of suppliers and products, so that has damaged our productivity. In order to ensure that we will not delay the delivery to customers, we're adding more people at the finishing units to reduce the working process because the need for working capital becomes more significant with the cost of capital going up in Brazil. It's not such very simple analysis. We have a projections for 2023 that will be more clear based on the assumption that production will be more stable for mature lines next year. In terms of inflation, when we do not consider the cost of direct materials, cost of expenses associated to payroll account up to 70% of the other costs and expenses. Inflation on salaries and wages is a topic we discuss often.
Since the value-added component of price is fully corrected by the IPCA on an annual basis. Despite we may have a higher inflation affecting our costs, that is offset by the annual price review that we have in the added value component.
Okay, perfect. If you allow me to ask a second question. I would like to talk about the backlog. For 2023 and 2024, could you give us some color on how much is concentrated for exports and for the domestic market, so that we can fine-tune the calculations we have made here. Thank you.
Okay, that's very clear. According to the contracts, they have to tell Aeris about the destination of the blades at least six months in advance so we can do the drawback and to reduce and not paying for taxes on materials when we are exporting blades. We have a concentration of deliveries for next year mainly for the domestic market. More than 95% of the first half of 2023 will be for the domestic market. It's more of an estimate, but we believe that the second half of 2023 will have a lot higher volume of exports. Still the domestic market will prevail. Well, this is a wild guess. I'd say 80% of deliveries for the second half of 2023 in Brazil and in 2024, that is uncertain.
Customers may review their plans, and if the growth is for U.S. and Europe, that could change and it could be half and half.
Okay. Perfect. That was very helpful.
The next question is from Victor.
I'll ask the question. I'll read the question. Do you have an update of the addressable market and market share of Aeris for coming years?
Well, this is an important topic when we look at the market size. In terms of addressable market, we'd say this is the world minus China, and we saw 40 GW-45 GW installed per year and projections up to the middle of the decade of more than 500 GW per year. We considered this entire market as addressable. That depends highly on the models of wind turbines that are sold in each location.
When we have capacity to deliver that model, the customer will always choose the model that has the lower cost at that point in time to meet the sales made. In terms of market share, we cannot just affirm right now because there is a major variation of occupied lines in our main competitor, TPI. TPI has reduced significantly the number of occupied lines for next year, and we don't see customers making investments to increase capacity in-house. If there is no major change in the outsourcing index, we can see Aeris growing in terms of market share next year.
As I said before, this is quite uncertain right now, and there is another parameter that makes it harder to measure our market share in the short run because we measure it comparing what we produced and invoiced in that period and which was commissioned. At the limit, we could have a market share of more than 100% in some regions because of the way we make those calculations and the limitations of it. We propose to adjust this way of calculating our market share in order to compare from the complexes that have been commissioned in that period, what were the blades of Aeris used. That would allow us to have a more assertive market share.
Currently, we deliver more than 3.2 GW this year, and the projection of addressable markets for this year continues, remains at higher than 40 GW.
The next question is from Danielle Dutra.
Two questions. What is the maximum size of blade that Aeris is capable of manufacturing? And please comment on research and development.
The largest blade when we made the contract and the largest expansion after the IPO, the buildings and all the circulation area in the company was programmed to manufacture blades of up to 120 meters. In offshore models worldwide, they are between 110 and 120 meters. These investments made in 2020, 2021 have been designed and optimized for this size of blades, between 80 m and 120 m.
In terms of research and development, most of our investments are related to inspection methods, materials, so that we can have a more optimized production process. The design of blades comes from our customers. We collaborate with design in some of our relationships, but our main focus is to develop and use manufacturing process. This is what we dedicate our R&D investments to. We have a team dedicated to new business. This team develops processes and products for other markets, always thinking about energetic transition, energy transition. This business is developing well in the company. Relationships are being developed with major players in the market. As soon as we have some agreement signed, we'll announce it to the market.
Next question from Eduardo Rosa.
What is the company's view in terms of risks and opportunities with a major Chinese player coming to Ceará?
Good morning, Luis. Or rather, good morning, Eduardo. We see a major movement of Goldwind that is a manufacturer of wind turbines that would be a potential customer. That's the only company that has announced an MOU with the state of Ceará, but we know that they are talking to other states as well. Nothing is final in terms of where Goldwind will be installed. It is a potential customer, actually, because they don't manufacture blades, so they would not be a competitor. We already have a turbine model and blade model that they will use in Brazil. We're now preparing commercial negotiations. We see this more as an opportunity rather than a risk.
We don't know if it will be installed in Ceará.
Next question from Caio from Banco Inter.
Could you explain better the dynamics of use of working capital in the quarter and for the next quarters, what do you expect to have in terms of working capital?
Caio, we always talk about working capital very closely with our customers. There are important changes in inventories, and the cycle of purchase of materials until they are used is about 5-6 months. Any change in the production plan that happens in a period that's lower than 5-6 months will change and generate inventories in that period.
The way we manage that, whenever the change comes from customs, we try to offset that either in terms of change of prices by charging the cost of higher capital in terms of inventories or renegotiating that. For the next quarters, we expect to reduce the inventory of materials, improving turnover, and reduce even more the work in process. This way, we can return, so advances will invoice the blades that have been paid in advance by customers, and therefore offset that.
This ends the Q&A session. I would now like to turn the floor over to Bruno Vilela, CEO of the company, for his final remarks.
Thank you very much for your attention, for your time. I think we have talked extensively about the results and about our plans, and I would like to give you an overview of the market quickly.
When we talk about demand for the generation of wind energy. It's very clear that it's growing and growing exponentially, either because of energy safety as well as because it's a clean energy. Demand is here and it exists. Just for you to have an idea today, wind energy is the source of generation that is the cheapest one in most countries. I won't say in every country because we're not aware of the figures of every country, but in most of them it is the cheapest source of energy generation. Right now the demand is high and the energy is cheap. When you look at the first player on the supply chain, which are the turbine manufacturers, they had tight margins and many times, losses. All of them have reported an increase in prices, so turbines will be more expensive. Will that reduce demand?
No, because wind energy will still be the cheapest one. There will be a natural rebalance in the supply chain. The manufacturer of turbines have increased their prices and now the suppliers of components will start negotiating with the turbine manufacturers. This macro view shows that there is a total rebalancing in the supply chain for wind energy. The demand is here and we have a high rising inflation worldwide and very high interest rates.
This rebalance must happen. This is what we're focusing on right now. We're trying to revert these losses in the short, very short term. This is more of a macro overview showing that demand is basically infinite. This rebalancing process has started. With that, the manufacturers of wind turbine are now getting out of the valley, and we reach the peak in a very short period of time. Okay, this is it, folks. Thank you again for your attention and have a good Friday.
Thank you, Bruno. The conference call has now ended. We thank you for your attention and have a good day.