Good afternoon, thank you for holding. Welcome to Mills Live to discuss the earnings of the first quarter of 2023. If you need simultaneous translation, this tool is available on the platform. Simply click the interpretation button at the globe icon on the bottom of the screen and select the language you prefer, Portuguese or English. For those listening to the conference in English, there is the option to click on 'Mute Original Audio'. We inform that this video conference is being recorded and will be made available at the company's IR website, where you may find all materials of this earnings release. During the company's presentation, the microphones of all participants will remain on mute. Afterwards, we will begin the questions and answer session.
Note that the information contained in this presentation and the forward-looking statements that may be made during this conference call relating to the company's business prospects and projections are based on the management's expectations regarding the future of Mills. 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 Sérgio Kariya, Mills CEO.
Good afternoon. I thank you for your interest in our company, and we want to take this opportunity to share our views on Mills' performance in the first quarter of 2023. The first three months of 2023 were spent with enthusiasm by our team, with a strong focus on customer satisfaction and the expansion of our business. These are the highlights of the period.
Regarding the rental fleet, we added 967 machines and reached a total of 11,348 machines and equipment. We operate with a fleet in 56 addresses, and today we are already a team of nearly 2,000 employees. Consolidated gross revenue was BRL 304 million, an increase of 38% compared to Q1 2022. Growth was significant in both business units, 30% in rental and 86% in formwork and shoring compared to the first quarter of last year. We achieved record adjusted EBITDA of BRL 163 million, up 46% compared to the first quarter of last year, at a margin of 50%. We remain watchful of the cash return that our operation has generated.
We observe interest curves, inflation and other economic indicators that are crucial to sustain margins and guide our financial decisions. Net income was BRL 66 million with a net margin of 20%. Our leverage ended the first quarter of the year 2023 at 0.6 net debt over adjusted EBITDA ratio, still a comfortable position. We always have economic sustainability in mind, considering that low risk drives the use of all opportunities. Investments were BRL 334 million in the quarter. Our business grows as we invest, but it takes zeal and good reading of the moment with the diligent monitoring of operational indicators so that the service is always excellent and profitable.
An important point was a slight decrease in demand due to the off-season, a lower volume of maintenance stoppages considering the macroeconomic scenario and other seasonal effects that have always affected our first quarter's business. Return on consolidated invested capital in the first quarter compared to the last 12 months was 23.2%. ROIC of formwork and shoring improved significantly as the assets of this business unit is already highly depreciated. Interest on equity already announced for 2023 financial year total BRL 18.5 million. We are committed to shareholder returns without losing sight of the value generated by reinvesting in our company. Mills won first place in the Training Instructor of the Year category at the IAPA Awards with our collaborator, Anna Sarah Costa Morais.
We thank Anna Sarah for representing our company and also for embodying our values related to equity, diversity, and inclusion. We were also finalists in another three categories, one of them the best rental company in the world. We remained on the top three rental companies in the world. Last week, we published our 2022 annual report, a document that includes information on our financial and non-financial performance, being our main channel of accountability on how we're contributing or intend to contribute to sustainable development through our business. The circumstances may seem uncertain from some points of view, especially considering the macro scenario. We are confident that our team is prepared and motivated to make the best efforts in their working hours. Customers continue to be our reason to move forward and to continue being indispensable partners for the success of their business.
It will be through collaboration and partnership that we will build an even better future for all our stakeholders. On the next slide 4, we recap the most important messages about the company that we'd like to share with you. First, we affirm our commitment to stakeholders and look forward very confident on our strength to deal with market uncertainties. The success of our work is only achieved when the client says they're satisfied. They are at the center of everything we do. That's why we move toward being a one-stop-shop company. When they sign a contract with Mills, they know the job will be well done and complete. Resilience is the result of three main pillars. As for operational efficiency, we emphasize that management is done at the branch level.
Our processes are based on continuous improvement, with benchmarking of solutions and experiences being standardized in all branches 100%. A customer at any one of our locations find exactly the same service. We use the lean methodology, and we offer differentiated productivity and service to all of our customers. We invest and continue investing in technology and innovation. On the revenue diversification and predictability front, we aim for diversification, focusing on clients from resilient economic sectors. Contracts that we seek are always long-term contracts, and how we will increase the effect of predictability of our cash flow. Finally, we have a solid balance sheet which shows low indebtedness, low leverage. We always work with responsible capital allocation, especially in the operation with yellow line equipment. CapEx is applied ad hoc.
That is, each contract, each project from the moment we sign a contract, we'll go and take the equipment. We always seeking to do it in a sustainable way through our analysis. I'll turn the floor now to Carol to comment on the financial aspects of the quarter.
Thank you, Kariya. Thank you. Good afternoon, everyone. I would like to start on slide six, commenting on the results of the combined rental business unit, which represents 82% of our revenue and includes those light and heavy equipment. In the first quarter of 2023, we reached a total of 11,348 pieces of rental equipment, an addition of 967 pieces. The current replacement value of our fleet is equivalent to BRL 4 billion .
We are constantly analyzing the most appropriate mix of equipment, evaluating the potential rental market and the needs of our customers. We know the importance of productivity, efficiency and the safety of equipment, and therefore, we work with premium brand and differentiated service to better serve our customers. Organic growth can be accelerated by opportunities to acquire other companies as well. We have a dedicated M&A team that is always attentive to good deals that bring know-how, long-term contracts, and that add value in a sustainable way to Mills. Slide seven reinforces our diversification strategy, seeking greater resilience to potential economic cycles. The rental business unit serves customers from a variety of industries, as we demonstrate in the chart on the left of the slide. We can also see the distribution between the sectors improving in the last year.
It's worth mentioning the greater penetration in the agribusiness segment, a resilient sector of the economy, which increased by 5 percentage points. At the same time, we have reduced our exposure to the construction sector by 7 percentage point. I'd like to point out that when we talk about construction, we mainly refer to large works and infrastructure construction, while residential construction is of little relevance in the total result of the company. We are diligent as well with the distribution of our portfolio, which remains stable in the first quarter of 2023. The 20 largest clients represent 20% of revenue. We do not have a relevant concentration in any of them. We seek to increase customer base while seeking to increase the share of wallet through a consultative sale and differentiated long-term service with customers and suppliers.
I take this opportunity to reinforce that the heavy market is deep, and we have a robust pipeline confirming our thesis for the yellow line, reaffirming our expectation of growth in the coming years. On slide eight, we present the financial data for rental. Compared to the first quarter of 2022, our net revenue grew 29%, mainly due to the increase in the fleet. Prices remained stable year-over-year. The sale of new and semi-new equipment represented 6% of the company's net revenue in the quarter and 5% in the same period last year. Noting that the sale of semi-new equipment is part of the equipment cycle and optimizes the management of our fleet. Commercial negotiations are managed based on the supply and demand of each location.
With our unique capillarity, we are closer to our customers and can adapt the fleet mix to the needs of each region. Specifically for yellow line equipment, each contract is analyzed individually, seeking an attractive return in the analysis of the project, in addition to also focusing on long-term contracts, bringing greater cash predictability. In the chart on the right, we show that EBITDA grew 21% compared to the first quarter of 2022, mainly impacted by revenue growth in the period. Moving on to the results of formwork and shoring, as we had predicted in our last communications with the market, we see a good moment and relevant growth in the performance of this business unit, mainly due to the pipeline of infrastructure works and the resumption of the civil construction sector. Revenue increased 95% versus the first quarter of 2022, primarily due to the increase in rental revenue.
We also highlight that there was a strategic one-off sale of semi-new assets, generating sales revenue of BRL 10 million in this quarter. We look at the adjusted EBITDA, we see a number that is 2.5 x higher than the first quarter of 2022, with a bit up margin growth of 29 percentage points year-on-year. The better performance of the business is due to the increase in rental margins and the sales of semi-new equipment, with also a dilution of SG&A. On slide 12, we show Mills' consolidated earnings. Compared to the first quarter of last year, we can see growth in all business units, which generated a 38% increase in net revenue. Adjusted EBITDA was 45% higher compared to the previous year, margin was up 2.5 percentage points, totaling 50.2%.
We remain confident that our pillars and strategy form a solid foundation for Mills' growth. On slide 13, the chart on the left shows that our net income reached BRL 66 million in the first quarter of 2023, 63% higher than the first quarter of 2022. Net margin grew from 17.4% to 20.4%. The company's cash flow demonstrates the benefit generated by the investment in equipment of the rental unit. We grew 29% year-over-year in generation of operating cash flow. On the other hand, the outflow of BRL 245 million of the free cash flow of the firm demonstrate the disbursement amounts related to these investments. When we entered the yellow line segment in September 2022, we made an initial organic investment of BRL 225 million.
The other investments are made upon closing each contract, mitigating the risk of idleness of equipment. I'd like to emphasize, cash of BRL 540 million and BRL 342 million in net debt. Our growth set is composed almost entirely of the.
Thank you, Carol. To close our presentation, I'd like to highlight a few points from the annual report we released last week. As we always say, Mills is fully aware that the most relevant part of our work and its impact on society as a whole, and that this impact must not have a negative balance. That is why we closely monitor the indicators and targets that we have set out to meet. I'm proud to say that 73% of the targets were met or exceeded in 2022.
We offset 25% of our scope one and two greenhouse gas emissions. We have the largest fleet of electric platforms in Latin America. We invested in the first hybrid models of MEWPs in Brazil. We were the first company in the segment to provide a CO2 Emission Calculator. We continue to invest in diversity and social development. We have taken an important step towards the Pró-Ética when we joined the Instituto Ethos. The team has done great, not only on the story we have to tell. For doing such a good job spreading the story, I recommend that you access the QR code in the upper left corner of the slide by pointing your phone's camera at the image. Read our report to further explore each of the topics mentioned.
Thank you again for your attention. Let us now move on to the questions and answers session.
We will now begin the Q&A session. In order to ask a question, please click on the Q&A icon at the bottom of your screen. Write down your name, company, and language. A request to open your microphone will appear on the screen. You can then open your microphone and ask your questions. If you prefer, write down your question and indicate for the operator to read it. Our first question, Fernanda Recchia, Sell-side Analyst, BTG. Fernanda, I will enable your audio. Please, go ahead.
Good afternoon, Sérgio, Carol. Can you hear me? Great. I have two questions here on our side. First, about capital allocation. There's On the investment part of the release, you mentioned that you expect a slowdown of the CapEx for light equipment considering this demand that's weaker in the beginning of the year as expected at the end of Q4. If you can give us more details, we talked about BRL 780 million in CapEx should be deployed in this year, half of it on light equipment. How much should we expect in terms of a delay? That's my first question. Second, still on rental. Looking at rental revenue, we see a sequential drop quarter on quarter while the fleet has increased. There was a productivity impact.
I'd just like to understand if this impact was 100% related to the usage rate due to the seasonality, considering December that you have a lot of returns, or if there was any impact of the pricing. If you can, give us a view of what to expect for the coming quarters. That'd be helpful. Thank you.
Thank you, Fernanda, for your question. Let me start from your second question because I think it also answers the capital allocation a little bit. When you look in terms of our re-receiving of equipment, just to remind you, in July 2021, we had that request for the manufacturers of lifting platforms. For lifting platforms, we are still at a moment of restrictions in terms of supply chain of the manufacturers. It took us about a year and a half to receive those equipment.
That order plus the other, the 2022 were concentrated in the last month. Basically, it's all in December 2022, and the first quarter of this year, 2023. In the moment you get a high volume, all of our orders that were to be distributed throughout 2022, we received in four months. We had the branches open. The branches are still in the process of maturing in the J-curve in terms of growth and penetration of the concept of use of those platforms at our branches. At the same time, at a moment with more restrictions in the first quarter of this year, 2023, made us delay part of our orders for 2023. When you look, we mentioned it'd be around BRL 350 million of our investments, the organic CapEx for lifting platforms.
We push it to about BRL 140 million. Everything that we receive until the end of April of 2023, we'll have received. We delayed for the year 2024 until we get better stabilization and absorption of this additional offer we're providing the market. Once we get the stability, we'll start making new investments again. With that, I also answer part of the capital allocation question and what we're delaying. In terms of volume and price, we talked about volume. Our prices quarter-on-quarter. On the third quarter, fourth quarter of 2022, we already had a leap in terms of price. We had improved the price quarter-on-quarter, and we maintained it stable from the fourth quarter of 2022 and the first quarter of 2023.
We had an impact on the volume, but most of it due to this concentrated receiving, as I mentioned, from December of last year to April. All of the equipment that we ordered in 2021 that we should have received all 2022, 2023. Adding to Kariya's answer, Fernanda, about the heavy equipment, we will make investments for closed contracts. We have good opportunities with clients who have long-term contracts with an IRR that we consider attractive and sustainable. We'll continue making these investments. This anticipated purchase is only on the light equipment, and now we're waiting for the development of the situation so that we have more information and then release the orders that have been re-delayed. Talking about numbers last year, I think we acquired Triengel in September. As we talked about BRL 225 million was the CapEx intention.
Of this BRL 225 million of organic movement, we got almost BRL 90 million also in December last year. This year we also added a CapEx that was already made.
Just to mention, our strategy is for long-term contracts. We do not participate in any proposal shorter than 12 months. As Carol said, we consider an adequate internal return rate for the levels in Brazil. We already have 76% of leased equipment, so close to 80%. All investments to be made from now on, as I said in the opening speech will be ad hoc. That means as we close a contract, we bring equipment in-house.
That was clear. Thank you.
Next question, Luiz Otavio Capistrano, Sell-side Analyst Itaú. Luiz, we'll open your microphone. Please go ahead. Kariya, Carol, thank you.
Good afternoon. Congratulations on the results. My first question is a follow-up on Fernanda's question about CapEx. I'd like to know if you could break down for the rental CapEx in the first quarter, about BRL 320 million. What's heavy and what light equipment? Confirm the understanding from your answer about this annual expectation of BRL 780 million, what number would it become? Is it just a delay between quarters, less CapEx in the beginning of the year and more at the end of the year? Is there a reduction of this CapEx? I'd like to confirm this understanding. An additional question is about margins. I believe you mentioned some impacts, especially used that are margin detractors. Do you expect that the maturing of these branches occurred this year faster than the opening of new branches that you had planned?
I mean, this effect will be reversed and the margin will start going up this year as the quarters go by.
Answering your first question about the investment in the first quarter. We had BRL 125 million in CapEx of lights and BRL 187 million in the CapEx of yellow line. About the volume, it does not affect margin, okay? What affects the margin, of course, is price. What ended up happening is that with the machines came in, our volume goes slightly down also by the seasonality with Carnival and rains and off-season. The branches that we already opened, the 15 we opened last year are improving month by month. We're adjusting the pace of opening new branches as the macroeconomic scenario evolves in Brazil as well.
We're very confident that during this year, the volume of the new open branches will start to gain traction and increase. Therefore, considering that we are estimating a stable price, the margin remains relatively constant. What we're seeking very strongly in here in the company, and you could see in the first quarter of this year, are those captures of efficiencies in SG&A. We continue strongly working on that effort in the company so that we can seek margin improvement by contracting expenses.
Clear. Thank you.
Next question, Roberto Füllgraf , buy-side analyst, Legado Assets. Two questions in writing. The first, could you please talk about the use of equipment in the rental line? Number two, shall we expect new sales of equipment in the formwork and shoring for the next quarters? Those are Roberto's questions.
We aren't breaking down the details, but we did mention that the heavy equipment used, we have already a closed number. We don't see a reflection of that in the results yet. We're starting to mobilize it in the second quarter. We had a very big off-season period in heavy equipment. In the heavy line, we closed about 70% of what we closed at the agribusiness sector, but it's the off-season, so we started to move it now in the second quarter. It will gain traction during the second quarter until the third. On the third quarter, we will reach those 76% if we don't close anything new. Of course, we intend to continue closing something. In light equipment, we're around 62%, 63% in the first quarter.
There is a slight decrease compared to the fourth quarter, mostly due to the retrieval and the volume of more than 1,000 machines since December in the first quarter of 2023.
Considering the sales of formwork and shoring, it was a one-off scenario. We do not intend to sell, as I mentioned in the opening and Carol mentioned as well, the equipment that are depreciated. I think an important point for formwork and shoring, the duration of this asset is very long. It's more than 30 years. We will continue to improve return on invested capital, we are focusing greatly in the increase of volume. That means the usage of those pieces of equipment in our contract.
We are experiencing tailwind, especially from investment and auctions and so on, and concessions of the previous years that are starting this year of 2023 and 2024 onwards. This will positively benefit this business unit, but it will also affect positively the rental unit with heavy equipment. I will answer your question specifically. We do not intend. At the same level, with the same volume that we had, almost BRL 10 million of semi-new equipment sales in formwork and shoring to repeat over the year. We tend to increase these assets and increase volume to improve our return.
Next question, Gabriel Tinem , sell-side analyst, Santander.
Good afternoon, Sérgio, Caroline. Congratulations on the earnings. My first question is about your organic growth. How do you see this opening of branches this year?
Still on growth, thinking about diversification as well, I remember last time you mentioned with different market segments, different industries, how are you developing these conversations? Do you see one that's more promising than the other? There's the agribusiness industry. I'd like to hear from you about that.
Okay, Gabriel. We had already announced some openings for 2023. We had said about 8 branches. Our expectations still of around six to eight branches. As I mentioned, answering to Luiz from Itaú BBA, we will adjust this depending on the macroeconomic scenario and the volume of penetration. According to the penetration in these areas. The project remains. If we look, for example, in the business fundamentals does not change. We may be suffering some pressure from the macroeconomic moment in Brazil and so on.
In the long run, it's a compound in terms of the penetration of the concept, the platform. It's a change on concept of the use from stairs and so on to lifting platforms. Considering our leadership in the market, we do have this important role of continuing improving safety and penetrating this concept. I missed your second question, Gabriel. You talked about inorganic as well. About the M&As, we are still watchful. The positive side is our leverage. I believe we're at a very comfortable moment in terms of leverage. This brings us opportunities.
When you look at a scenario with a higher interest rate, potential credit crunch of small and medium companies not being able to access capital to have restricted access to credit in the moment where Brazil is renewing contracts, hiring or contracting more machinery, it may be an opportunity for us to look at the acquisition of those companies. We remain watchful always to the opportunities. We have not removed our focus in the company, and we understand that the moment the profile that the company has today in terms of leverage generates interesting opportunities for us to make this movement.
Very clear. Thank you. My other question about formwork and shoring is a follow-up on the previous question. We saw good performance, especially in terms of margins, the one-off sale of assets, the infrastructure scenario. I'd like to have a better vision of that because what can we expect for this sector in a more long-term view, if you can tell us.
Gabriel, we're very optimistic with this business unit. It is a unit where we have relatively long-term contracts. The characteristics of infrastructure in Brazil has contracted in recent years, of course, and the duration of the works as well. These were works that were infrastructure works but of a smaller size. We're seeing here a possible path of, again, having more robust infrastructure works, even for concessions that have already been made that will increase that number of contracts. Today, on average, we have 13, 14 months of the contract duration. A positive reflection of this business unit is that I contracted 12 months ago at a price that is much better than you can see today here.
That's why we're improving margins. It's a unit that's already contracted with price improvements, margin improvement for the coming months. It's what you saw on the reflection of the fourth quarter to the first quarter and what we see for the year of 2023. 2024 as well. I think there's tailwind for the works, the concessions that will be positive reflections from now on.
Excellent. Thank you. Very clear.
Next question, Andreas Santana, investor. A text question. Could you give us more detail about the strong results of the shoring? Was it pulled by the increase in price and volume on the segment?
Andreas, I think I've answered now on Gabriel's answer about formwork and shoring. It was a lot due to the hike on prices with the duration of the contract.
The contracts we closed on recent months, they are having a positive impact in this business unit. It was less volume so far, but much more due to the price. The volume is pretty much the same. We expect a volume expansion then throughout the year, and also price reflections as they renew these contracts. As the older contracts expire with worse prices, we'll start getting these new contracts at better prices.
Excellent. Continuing. Question from Carlos Suslik in writing: I'd like to ask about the investment already contracted by the government in concessions as of Infra Week of last year, specifically Nova Dutra Highway.
Carlos, I think it's a little bit in line with that. We're experiencing this tailwind with the concessions. Nova Dutra is two sections, two different contracts.
One is the Rio de Janeiro stretch, where there may be a more positive impact for us, and the contract for the São Paulo stretch separately. They were bidded and two different companies won, and they're renegotiating. It's a work that will occur. We do not expect this impact to be in 2024. Maybe the works will start in the fourth quarter of this year if all goes well. The positive impact of this work per se, specifically the road widening at Serra das Araras will be in 2024. That's the tailwind. There's a lot of works related to bids from previous years that will be a positive reflection for formwork and shoring, for Yellow Line. For example, duplication of the highway at Serra das Araras will rent a lot of equipment. It's also a target for lifting platforms. That's also important.
Our businesses will have a positive surplus of those investments that were already made, either at Infra Week or PPI or whatever name we give it, in terms of the infrastructure investments in previous years.
Excellent. Continuing with the next question, Guilherme, sell side analyst, Lumi. A written question. Two questions. One, I'd like to understand if the pipeline of M&As in Yellow Line will focus in any specific industry: mining, agribusiness, forestry, et cetera. Two,. Does the company intend to enter with service, maintenance service packages dedicated for some determined question, client?
Guilherme, we don't break down the industries we're focusing on. We're focusing on all of them, and not specifically on Yellow Line lifting platforms. We encompass all opportunities that make sense in terms of strategic alignment with the company.
The second question about the maintenance service, I give priority 100% of the maintenance. I do not rent equipment just to outsource my balance sheet. I provide maintenance services. When I rent an equipment, any of our pieces of equipment, the service, the preventive maintenance, corrective maintenance, all of that is actually a differentiator of what we deliver compared to our competitors. Obviously, what we constantly seek is customer satisfaction, better uptime. That's how we seek to stand out in the market. We want to continue to do that, and we will do that. We want to do that very well, and it's part of our service. 100% of our contracts have a maintenance.
Just to remind you, with the 56 addresses, at all 56 addresses, I have a mechanic, I have a technician, I have a team there with spare parts, with equipments available for our clients. That's also a huge differentiator when compared to the competition.
Thank you. We now close the questions and answer session. I'd like to turn the floor over to Mr. Sérgio Kariya for his final remarks.
I'd like to thank you all for participating on this video conference, and remind you that our investor relations team is available for any doubts or questions. Thank you very much. Have a good afternoon.
Thank you. Have a good day.