Good morning, ladies and gentlemen. Welcome to the Orizon Valorização de Resíduos video conference call to discuss Q2 2023 financial results. This video conference call is being recorded, and the replay can be accessed on the company's website, orizonvr.com.br/ri. The presentation is also available for download at the RI website. We would like to inform you that all participants will be watching the conference during the presentation. After that, we will begin the Q&A session, when further instructions will be provided. Before proceeding, let me stress that forward-looking statements are based on the beliefs and assumptions of Orizon VR's management team and current information available to the company. These forward-looking statements may involve risks and uncertainties because they relate to future events, therefore depend on circumstances that may or may not occur.
Investors, analysts, and journalists should take into account that events related to the macroeconomy and also macroeconomic environment, industry, and other factors may cause results to differ materially from those expressed in such forward-looking statements. Joining today's video conference call, Mr. Milton Pilão, CEO, and Mr. Leonardo Santos, CFO and IRO. Now, I would like to hand it over to Mr. Pilão, who will start the presentation. Mr. Pilão, you can proceed.
Good morning, everyone. I would like to start by welcoming all of you. Thank you for joining us this morning. I am Milton Pilão Jr., I am Orizon's CEO. Leonardo Santos, our CFO, is joining me, and we will start now the presentation regarding Q2 2023 financial results. Before I turn it over to Leonardo, who will talk about the highlights, we would like to once again reinforce our business strategy, our renewable platform.
Today we have news, a material fact that was released yesterday in our renewable gas and energy. It is always important to highlight our renewable energy and gas. So we have 15 Ecoparks, BioE, where we have our SBS gas purifiers or biogas transformers and energy renewable. Also, circular economy, where we have our sorting facilities, and also regarding recyclables by also sorting solid waste. We also have our green fertilizers vertical that transforms sludge that comes from our assets in fertilizers and waste to energy, which is the vertical that builds plants for burning waste and producing energy. So let me turn it over to Mr. Santos, who will address the highlights of the period.
Good morning, everyone. The second quarter presented many news regarding acquisitions and organic growth. So we acquired a second unit. Many of you knew that we were considering that. CTR Santa Luzia in the state of Minas Gerais. In May, we were able to acquire 50% of this asset. We are already receiving waste in this region, 1,000 tons of waste per day at least.
Besides that, we also celebrated an amendment of our concession contract in João Pessoa, an Ecopark in which we bought 67% in 2014, and now we extended this contract by 2043, so we are adding 20 years. We will be able to benefit optionalities coming from this Ecopark as well. In the second quarter of 2023, at the end of June, we also announced that we executed a financing agreement with IFC, a member of the World Bank, focusing on private market, BRL 130 million, should be paid in eight years every six months.
We acknowledge IFC as a major stakeholder, a creditor, and we believe that you all know how much value they add to our business. It is not only funds, but also their social approach, environmental approach, very good credit approach as well. They enhance the quality of our business. We also concluded the follow-on of Orizon. We were the first to actually do that in 2023. It was a successful follow-on. A relevant stakeholder, [inaudible], actually left the business structure. We also had some collateral elements coming out of that. For example, the increase in stock liquidity. Now I would like to turn it over to Pilão.
She will go over operational highlights, and then I will be back to answer your questions. Let me address operational highlights. We always use this table comparing quarter after quarter. Let me start talking about waste volume. As I had already mentioned, last year, we acquired major landfill units, and when you go over second quarter of 2022, when those assets were already part of our business, you can see what we call. We sorted out the types of waste, and that is why you can see there was a decrease year-over-year, so 2.2 million- 2,039 million tons in 2023.
But that was, I would call, a cleaning process. When we talk about urban solid waste, we know that the quantity will always increase. Regarding the acquisitions, we had some waste that did not add much volume. For example, from civil construction that does not generate recyclables nor energy, so very low value added. That is why you can see this drop in waste volume.
I would say that this covers all units, so we do not expect to see any decrease in waste volume from now on. You will see in the next slide that average gain has been increasing. We just improved in sorting out waste related to its quality. We are managing high added value waste that can produce biogas and recyclables. As for biogas production, we keep on increasing that, and you can see in our expansion CapEx that we keep on investing on our networks to capture biogas in all landfills acquired. The curve will keep on increasing regarding biogas generation, and this is what we see in this table. Just an observation regarding carbon credits. It is usually aligned to biogas generation. Once you increase biogas generation, we see an increase in carbon credit.
For this quarter, we had a drop from 743- 702, but that happened because in some assets, we exceeded the production of biogas. We increased the production of biogas so that the flares of burns, so we did not use biogas for generating gas, so the flares had a limited capacity and biogas production was above burning flares. That is why you see this decrease in this quarter. But this is already being addressed by new investment on flares, while new purification facilities do not start operations, so that we do not lose carbon. But this is really something that happened only this quarter. Next slide, we can see now the financial highlights and the average price. Although we saw a decrease on the volume received between this first and second quarter, you can see that our revenue increased by 11%, and by 4% rather.
On the right-hand side, you can see that we significantly increased our average destination price. We would like to disclose that once you go over our numbers, the average price, BRL 72.71, represents a bigger increase, but we normalize that because part of that increase took place because of adjustments that happened this quarter. When we normalize, we go from BRL 64.73-BRL 70.42. Without the impact of previous adjustments, that certainly had impact on the average price in the second quarter of 2023. As for EBITDA, as we mentioned before, the company is now growing organically with regard to EBITDA and assets acquired. We can see this 10% increase from BRL 102 million- BRL 111 million regarding pro forma EBITDA. Analyze pro forma EBITDA.
Just as we mentioned in previous calls, and also during our follow-on, we will keep this level of organic growth thanks to efficiency by improving price, reducing costs, efficient operations, and profitability of the assets that were acquired last year. That will then happen this year. Also the ramp-up of assets that were acquired besides UPI, just as, for example, the Minas Gerais and Porto Velho that now started operations, and where we see the ramp-up regarding volume of residues of waste. Next slide, the financial highlights. Here I can see an increase in our gross profit. I would like to stress two points. First, the increase in the average price. That certainly improves our margin, has impact on our margin. Second, we also improved our operational costs. Regarding OpEx, actually decrease, he corrects himself, in our operating costs.
These two elements put together allowed us to improve our gross margin by 5%, from 49.4%- 54.4%. As for net result, we move from this loss of BRL 43.1 million to a loss of BRL 2.8 million. We have been improving, we have been reducing this gap quarter after quarter. In the second quarter of 2023, although we see this loss of BRL 2.8 million, we have non-cash impact. The depreciation in the second quarter accounts for some 41% because we have, for example, some elements that do not have impact on our cash. If we had left them aside, the result would be positive. Not to mention carbon credit that is not included. For this quarter, it accounted for BRL 21 million. If we had included them, the final number would be positive. I think it is important to stress these facts. Next slide, our CapEx.
Good news, just as our decrease in our OpEx. If you remember, in the last quarter, our CapEx was BRL 26 million, and for this quarter, we decreased that number further on to BRL 18 million, so minus BRL 8 million. As I mentioned, as we can see here in this table, major investment are related to biogas extraction in all landfills, as well as investment in our URE Barueri, where construction works have already started this quarter. Still regarding the expansion CapEx BRL 11 million, here you can see final disposal of solid waste. They relate to Maceió and Jaboatão dos Guararapes, which is for infrastructure, and that will also allow us to increase also this month progression for 10 and for years respectively. We will not need any expansion CapEx.
Seasonally, we will have this investment, but this CapEx increases a useful life or the cycle of life of these assets. Still regarding financial highlights, we see the leverage of our company. Just as we mentioned before, our leverage peak happened at the end of last year and beginning of 2023 because of acquisitions and also strong inorganic growth. But now from the beginning, we have been promoting deleveraging. Here we are comparing the first to the second quarter, and you can see deleverage net debt against adjusted EBITDA from 3.47x- 2.89x. The same regarding net debt to run rate EBITDA from 2.1x to 1.9x. We keep on generating cash, contributing to deleverage, increasing our organic growth, and also a very efficient cash management related to acquisitions carried out last year. On the right-hand side, we can see the amortization schedule.
The average tenure more than five years. And you can see a very robust cash position in order to keep on growing and investing in every single vertical. Now, let me talk to you about our outlook. I believe we have one slide that touches on carbon credits. This is a question that always come up. Many questions about this issue, and as we had mentioned before, São Gonçalo, Jaboatão, and João Pessoa projects, they have already been validated, so they are now undergoing final review before pre-registration. And we expect to have them registered in the next three months. And we will certainly have their registration in the next quarter, which will then allow us to benefit from carbon credits. We have already sold carbons. We have the earn-outs for 2021, 2022.
As soon as we have their migration, we expect also to sell the balance that has not been sold yet in the voluntary market, particularly Gold Standard, in the next three months. Which will then also have a positive impact on our cash position and our revenue in the third and fourth quarter. Finally, material fact that was released yesterday about the joint venture between Orizon VR and Compass. This is a landmark for our company in our BioE vertical, so renewable energy production. For those of you who were able to read what was released, let me explain and to give you more color about this transaction. We are putting together the expertise of our company. Orizon is a leader in waste management and also 8 million- 9 million tons of waste, and also production of biogas and methane.
And we are combining that to the expertise of Compass, which commercializes natural gas. This involves only the Paulínia Ecopark. For those of you who are already familiar with us, it does not involve Biometano Paulínia I, nor the UTE Paulínia. This is just for purifying the gas generated at Paulínia's Ecopark. And we believe that this will provide us five major benefits. First, we are working now with strategic partners such as Compass, expert in trading and distributing natural gas, which was not part of our specialties. With this joint venture, we aim to learning about this market and better understand it, considering that we are a major player in producing renewable gas in Brazil. It also strengthens this business vertical. Biomethane is a very appealing business, and by having Compass also participating in that, this strengthens, furthermore, our business vertical.
Value realization, considering that this will allow us also to set a price basis for future biomethane projects and liquidity anticipation. There is this potential of earn-out, actual potential, and we know that we have some other 15 parks in order to replicate this experience to all of them. Just as Copergás for our Jaboatão unit, we have a buy and sales contract for 10 years indexed by the IPCA, so it is a recurring agreement. That confirms our expectation regarding this type of agreement for selling biomethane. Finally, which is a novelty, green molecule price premium sharing with a trading company.
This is something I addressed yesterday when I talked to The Brazil Journal. The maturity of this market outside Brazil, and even for choosing the vendors for the plants that will be part of this portfolio, we visited many landfills outside Brazil, in the U.S. and in Europe, in order to learn about this business. We learned about how mature this is outside Brazil, when the renewable molecule has a value that goes beyond the molecule itself in Europe and in the U.S. We believe that Brazil will follow on this other countries' steps, and we are sure that this will bring benefits to us in the future. Finally, the last slide. We share some numbers regarding this joint venture. Compass will invest up to BRL 355 million , and they will then have a 51% stake.
Orizon will invest on biogas for 20 years from the Paulínia Ecopark for this joint venture. Out of this BRL 355 million, part will be paid BRL 120 million directly, which will be part of the equity necessary to build the plant with a CapEx between BRL 400 million and BRL 450 million . So considering the BRL 100 million that was already invested, and that will also support the building of the plant. The rest, secondary, paid by Compass, so that we can also use this resource in other activities.
There is also earn-out condition, in which BRL 120 million will be also paid as secondary payment to Orizon VR, but that tied to increased delivery of biogas. So right now is 18,500 cu m/h . But that is also applicable to five years after the plant starts operation. When Orizon indicates to SP that we have gone above that number, then we will receive this corrected earn-out over this period, up to BRL 120 million for 30,000 cu m/h . This is what I had to share with you this morning. Once again, I would like to thank you all for joining us. Now let us open for the Q&A session.
We will now open for questions for analysts and journalists. If you want to ask a question, please press the reaction button and please choose Raise Your Hand. Once your question has been answered, please lower your hand. First question from Rafael Nagano, Credit Suisse.
Good morning, everyone. I have two questions. Can you please give us an update regarding biogas extraction of the S3 plant and also the trading of such biogas? The idea was to sell as biomethane, but meanwhile, while you have just this contract for Paulínia and the flares burns that you mentioned. The second is about the outlook or the provision for closing landfills that had impact in the second quarter. Can you please add more color to these two questions?
Hello, Nagano. This is Leo. Let me address the two points. Please— Well, regarding biogas, I believe you can already see in our presentation that our initial CapEx for biogas this quarter, we are now implementing biogas projects also in the Estre acquisition, so Alagoas, Sergipe, also Itapevi, here in the southeast of the country. We will also invest on the plants in the third and fourth quarter. The company will be ready to start bearing the fruits starting the fourth quarter of 2023.
In 12- 18 months also to bear the fruits of optionalities, among them biomethane. Biomethane also depends on the timeline to implement that, some 14 and 16 months. It will take a little longer for us to start to see the revenue in this vertical, but carbon credit is immediate. Once we have the plants installed, we will start to benefit from carbon credits. What we intend to do regarding biogas is the same. We have our vertical regarding the transformation to biomethane or electricity. We will have the plants that will be installed in such Ecoparks. We are investing on that right now. We do not have any forecast. We expect to have a 100% Orizon's project.
Just as it happened with Compass, we created an— Our URE data is good for both parties, but we are now talking to some final customers that will buy biomethane in the midterm. With regard to closing landfills, well, this is something that was present since the third quarter of 2022. At the end of 2022, we saw that our Ecoparks were in some assets in which we did not own the land. When we had the government granting us its use. But when we acquired Estre and other units that are owned, we were able then to close them.
For example, regarding leachate, that needs to be treated, so that has no impact on our cash. You will still keep on having biogas, monetizing biogas, biomethane, which is more than enough to cover any cost regarding closing that. It has a non-cash impact. We also provided more details in our financial statement since the second half of last year. Thank you very much for your question.
Great. Thank you very much.
Our next question from Giovanni Rosa from Estrutura Investimentos. Good morning. Can you please comment on monetization of biogas? What is the selling price, and what is the outlook for the next contracts?
Hello, Giovanni. Thank you very much for your question. I see that you sent us this question after we answered Rafael's question. We expect to see this positive impact in the short and midterm as we develop projects to benefit from biogas. As for biogas and biomethane, it is a market price aligned to what we have been already practicing over the last quarters. Thank you.
Next question, Roberto Dumke, Banco ABC Brasil.
Good morning, Leo, Pilão. Kudos for the results. I have three questions. First, revenue from biogas and carbon credit. For this quarter, this revenue is approximately BRL 30 million, and last year it was approximately BRL 10 million. What produced this increase? Second question about material factor released yesterday. You mentioned that JV will produce 180,000 to 300,000 cu m, but what are the factors that will lead to that, and does that depend on CapEx? Third question, does Orizon invest any resource in this JV or just this BRL 100 million equity? That accounts already for the BRL 450 million.
Okay, thank you very much for your questions. If I skip something, please interrupt me. Regarding growth, biogas, and carbon credit, this year compared to last year, that is thanks to this thermal power plant and the first biomethane plant of Orizon in Paulínia. I do not know if you are aware, but we won an auction in which we were able then to implement a 15.7 mega plant in Paulínia, in order to meet the regulator regarding fossil fuel, and this unit started its operations in the third quarter of 2022.
When you compare the first half of 2022 to the first half of 2023, these are the elements that led to that increase. With regards to yesterday's material fact, when we talk about increased capacity of the biogas plant and if that depends on investment, just as Pilão mentioned, that is related to the increased production of biogas. We will see also more capture points. Paulínia is running at 200,000 c m/h . We expect to reach 300,000 cu m/h. Therefore, that also has impact on our biogas production. There is nothing relevant.
We know that investment on biogas is related also to energy itself. Last question about our capital structure regarding the joint venture. Compass is investing BRL 100 million in this project. We understand that is enough considering the equity that is necessary. The gap, we expect to also comes from funds from different agents, also investors and other activities that fit this project.
Once again, if you want to ask a question, please click on Reaction and then Raise Your Hand icon. Please wait while we poll for your questions.
Next question, [Arthur Kolovoski].
Congratulations for the results achieved. Should we expect this average price level for the next months?
Good morning, [Arthur]. Yes. As we had mentioned, we mentioned our price level was recovering, and as I mentioned, we also worked on the quality of the waste received. When we excluded low-value added waste and while focusing on high-value added waste, we also improved the average price of waste received at landfills, not to mention the production of recyclables and biogas. Second, we were also able to transfer that to customers. We know that landfills are being closed, so we eliminate unfair competition. By doing that, we also improve our price level, so the closing of open landfills. With that, we benefit of not having competition that do not comply with environmentally friendly activities. Short answer is, yes, we should keep on seeing improvement on the average price, more specifically gate fee of waste.
Next question, [Camila Bhuwakia]
About carbon credit. When are you going to announce new sales? What about credit that you have in stock and that are not present in the financial statement? What about amount already in your receivables that have been already accounted for in your receivables?
This is Leonardo . [Camila], thank you very much for your question. Regarding sales, we are paying attention to the market. We see some favorable scenarios. We expect to sell in the second half of the year. As for what is already in our receivables, we have already mentioned that, but we have 2.3 million carbon credits that were generated in 2022 that have not been accounted for. We have this pro forma stock plus 1.4 million from the first half of 2023, totaling 3.7 million carbon credits in stock that were generated this first half of the year and that are not still included in our financial results, always reported as pro forma.
What we have today in our receivables is the fixed part of what we sold in 2021, so approximately BRL 33 million. In the material fact of 2021, we also mentioned that we had an additional price, a kicker in the price if we delivered this carbon credit in the voluntary market. We should account for another BRL 12 million-BRL 15 million that are not part of our financial statements today. We have a positive balance pro forma that should be adjusted both in results as well as in receivables.
Just to add regarding carbon credit . Once again, we are on the right track regarding our strategy regarding selling this balance that Leo just explained. What is important to say is that price for projects and to non-CO2 projects, and today there are some platforms, they are open and you can check them, especially because we are in the voluntary market.
We see an increase in prices traded in the non-CO2 voluntary market, and we see an increase by 20% year-over-year. But for this month compared to same period last year. We see these improved or increased prices. In the voluntary market, we see increased interest in projects that are related to better carbon credits, especially those that provide social, environmental benefits, transparency, for example. We see a worldwide carbon credit as a quality credit. We all know that there were some issues with forest credits, so landfill credits is a trend that we believe will be increasingly valued. And the voluntary market, as we see today.
The volume of transactions is 65% above what we had in previous years. So a very large volume of credits being traded. That proves that there is a demand for this in the voluntary market. Even being in the voluntary market, we are also paying attention on the regulated market. When Brazilian government is migrating to regulating carbon market, and once that happens, we see another opportunity to take part in this worldwide regulated market. Today, the price is four times above what we find in the voluntary market. So good outlook, and we believe we are in the right path regarding strategy to sell these credits that are part of our current stock.
Question from Claudio Duilio.
Today, the Paulínia landfill has also some other activities. Will Compass take part in those?
No. As for the thermal power plant as well, the first biomass plant of Paulínia, they will be 100% managed by Paulínia. For thermal power plant, one third by Orizon and the other two thirds by two other companies.
Thank you.
With that, we close our Q&A session. We'd like to turn it over to Mr. Pilão for his final remarks.
Once again, thank you very much for joining us this morning. Our RI department is available to answer any other questions you may have, and we wish you all a very good day. Thank you.
With that, we close Orizon's video conference call. We thank you all for joining us, and have a great day.