Good morning, and welcome to ROMI's earnings call for the results of the second quarter of 2023. Before proceeding, I would like to clarify that this call is exclusively for investors and investment professionals, and that forward-looking statements related to the company's business prospects, operating and financial projections, and goals constitute near forecasts based on management's expectations regarding the future of the company. These expectations are highly dependent on market conditions, the general economic performance of the country, the sector, and the international market, therefore are subject to change. It is worth noting that this earnings call is being recorded and held in Portuguese with simultaneous translation into English. Slides available in the result center of our Investors Relations website at www.romi.com/investors. During the company's presentation, all participants will be on listen-only mode. We will then begin the Q&A session.
To ask a question, please type your name and the company you represent together with a question into the Q&A feature in the Zoom app. For spoken questions, further instructions will be given. Today, Mr. Luiz Cassiano Rosolen, Chief Executive Officer, and Fabio Taiar, our Chief Financial and Investor Relations Officer, with us. Initially, the executives will first present the results of the second quarter of 2023, and right after, they will be available to answer your questions. Now, I will hand over the floor to Mr. Luiz Cassiano.
Good morning, ladies and gentlemen. I would like to thank you for participating in ROMI's second quarter 2023 earnings call. It is important to highlight that the business environment in 2023 continues to present significant challenges, with Industrial Entrepreneur Confidence Index still at low levels, as well as gross fixed capital formation.
However, it is encouraging to observe that the use of the installed capacity remains at a satisfactory level, which may signal a possible improvement in the demand for machines in the domestic market in the future. At the ROMI Machines Unit, we were able to maintain a solid backlog in relation to the first quarter. Our margins remained solid, especially due to the greater concentration in the domestic market and the successful consolidation of the machine rental business. As for the Castings and Machined Parts Unit, we face significant challenges and are currently undergoing a restructuring process to adapt to the lower demand in the sectors we serve, especially the energy industry. We remain committed to improving operational efficiency and identifying new opportunities to drive revenue.
At the Burkhardt+Weber business unit located in Germany, I reinforce the importance of evaluating B+W's results in annual terms due to the longer production and revenue cycle. Our backlog is already full for 2023, and the evolution of the margin this semester in relation to the first semester of 2022 is mainly due to the higher sales of parts and services, as well as the greater operational efficiency of the production units in Germany. Now, Fabio will detail the results of this quarter, and then we will open for questions from participants. Again, thank you all for coming. Thank you very much.
Thank you, Cassiano. First of all, good morning, everyone. Thank you for taking part of the second quarter presentation slide now to highlight main points of the second quarter of 2023. EBITDA adjusted BRL 42.2 million, very solid with a margin of 13.4%.
We should also highlight the gross margin for the second quarter increase of 1.5% compared to the same period of 2022. This growth was driven by two business units, ROMI Machines and B+W Machines. We should also highlight that for ROMI Machines Unit for the second quarter, there was an increase of gross margin in 1% and also an expansion of net profit of 0.8% compared to the same period of 2022. This growth is due to machine rental business. This is the main point of the growth of this unit. Also to highlight, we have B+W in Germany in 2023 showed a significant increase in operating margins, mainly due to the improvement in operational efficiency, a more distributed operation over the year, and also an increase that is quite significant in sales of spare parts.
If we look a bit into the macroeconomic scenario indicators, we can see in the last two quarters is an industrial production slowdown, but mainly in terms of fixed capital formation, which has a certain impact on the volume of new investments that within our business units, the main one that is impacted by this indicator is ROMI Machines Unit. If we look a bit into the average installed capacity utilization, we can see that in 2023, it's much well aligned and very similar to what we had in 2022, where the industry operated at a level that was quite good initially, very smooth. For that reason, we see that this continues in 2023. We see that carries on.
This is also perceived when we check specifically for visits to customers, and we realize that the installed capacity utilization and the level of operation that we do observe, we can see it, that it has had a change. So now getting back here to the use that is still at a reasonable level, and we also perceive, related to visiting frequently customers, we can realize that clearly. Another indicator that we also have been checking on is to specifically. Sorry, just waiting for the audio to kick back. On slide number five, we also have Industrial Entrepreneur Confidence Index.
Waiting for the audio to return. We had a connection interruption. Please wait and we'll get back right away.
Slide number five. We have here the Industrial Entrepreneur Confidence Index, where we realize that by the end of last year, there was quite a significant drop in the last quarter. We also have a reduction on orders of machines for the fourth quarter of 2022. We see this index at a gradual recovery of the first semester of 2023, and now it's at 51.1, which means that the entrepreneurial market is relatively optimistic, but still reluctant in terms of being neutral and optimistic to bring on new investments. When we refer to our customer base, we have not had much significant change. Services provided, which has always been a significant part of our customers, are still representing around 30% of our sales for 2023.
Part of these services provided are also service providers for the automotive industry, mainly agricultural machines and equipment. Many segments of the industry represented an increase, automotive stable. For the automotive, mainly when it comes to the recent sales for either to spare parts or to commercial automotive line. For agricultural machine, there was a slowdown because of the season, and the other segments are stable. For B+W, we had the two equipment for the second semester, ones for heavy duty motors for the naval industry and the other one for the energy industry. For here, Rough and Machined Cast Iron Parts, there was a significant reduction for heavy duty parts for wind power industry. We clearly see here the reduction, which represented nearly 1/2 of the revenues of 2022 in the first quarter.
It shows that we are at 60% now, and that way we see all the other sectors at a good level of demand and were the ones that became more significant. Here we should highlight the agricultural industry for the first quarter. We see an important demand for Rough and Machined Cast Iron Parts. When it comes to the operating net revenue, we can see here ROMI Machines gaining participation, especially because the business unit of Castings and Machined Parts had a reduction for parts in the energy segment. ROMI Machines received 7% extra in B+W that had a bit greater than the first semester of 2022. Now had a greater share because of the significant reduction of Rough and Machined Cast Iron Parts.
Geographically, we have here the domestic market, specifically for machines, are stable for 2022. This makes Brazil, having kept its level superior to our track record of what we had before. The foreign market, we know that, in general, is more at a slowdown. The growth of Europe is represented by B+W for the first semester of 2022 of the machines delivered. Some equipment went to Asia. For this first semester, all the deliveries were within Europe, and that made an increase to 17% in the representation of Europe for consolidated revenue. Latin America is pretty much at the same level.
It is important to highlight that Latin America has a demand that is consistent, especially Argentina. There are bureaucratic aspects that to a certain extent delay some businesses and the specifically export to Argentina, but is still one with a significant demand for machines. The U.S. are still constant compared to the first quarter of 2022. In terms of order entry and backlog, for this first quarter, we have ROMI Machines reaching here BRL 213 million. This shows a drop of nearly 25% compared to the second quarter of 2022. Here, all this reduction is due to the reduction of demand in the foreign market. As I mentioned, the domestic market for 2023 is still at a level similar to 2022. The same is true when we analyze the first quarter compared to the first quarter of last year.
B+W brought important projects for the second quarter of 2023, where they are ready projects, already with a look into the backlog of 2024, since 2023 is fully set. We continue with a positive outlook for B+W in terms of net income and also in terms of backlog, so that we can still show a recovery in the operations. Here, Rough and Machined Cast Iron Parts with a significant drop, were basically represented by the other segments that are non-wind energy industry. Here with the wind energy, there was no order entry, and this made us have a new order for 2023 on Rough and Machined Cast Iron Parts, much lower than the other periods compared to this one.
In general, we have here a reduction of 41% for order entry represented here by Rough and Machined Cast Iron Parts and here ROMI Machines for the foreign markets, which also brought a reduction in the order backlog. Although it is still very solid related to March, there was a reduction of 6.2% and fully represented by Rough and Machined Cast Iron Parts as we in 2022 mentioned this number showing of what we have here because of the wind energy industry. The backlog by end of June is still solid when it comes to ROMI and B+W Machines for the next quarters. However, for the second quarter of 2023, we see a significant reduction and the main reason for it is specifically on Rough and Machined Cast Iron Parts.
A bit about some results and margins where we have the profitability here with an increase of gross profit and gross margin, which shows an improvement here because of ROMI Machines and B+W. However, the net operating revenue reduced here, and this was not enough to keep the gross income, which we are talking about BRL 30 million reduction if we compare 2023 to 2022 second quarter. With this reduction, and since there is more fixed characteristics, there was also an impact in the operating profit that went to BRL 40 million to BRL 27 million, reducing from 10.8% the margin to 8.7% for the second quarter. In terms of EBITDA, we see a quite similar performance where there is a reduction of the absolute EBITDA, and then here of EBITDA margin of 14.1% to 13.4%.
The net income and net margin goes from BRL 33 million to BRL 26 million if we compared the second quarter of 2022 to second quarter of 2023. Here, the net margin from 8.9% to 8.4%. Although there is a reduction of 0.5%, the second quarter presented a net income of BRL 26 million. In terms of performance per business unit, we can see here for ROMI Machines, a slight reduction here of net operating revenue, and it comes because of the reduction of exports. Part of this reduction was traded off by the growth of machine rental business. That way, we were able to have a growth here of gross margin from 39% to 42.5%, quite significant if we look into our track record for this business unit. This also allowed us to have a growth of nearly 4.5% for EBITDA margin.
ROMI Machines still shows a performance that is quite solid. For B+W, although there is a slight growth of revenue, as Cassiano said, they are very much concentrated for the second semester of the year. However, if we analyze the evolution that we were able to have in the second quarter in terms of operational efficiency and the growth of revenue that came from spare parts, we can see clearly a significant increase in gross margin. Although with a low revenue, which is still not enough for a positive EBITDA, but still a significant improvement for the EBITDA margin, giving us an outlook that is quite optimistic when it comes to B+W once we end the year 2023. For Rough and Machined Cast Iron Parts, the reduction of the revenue was quite significant, and this is due to the energy industry.
With the reduction of the operations, it was necessary to refit the structure, and definitely there is a cost to it, which is already considered within these margins. But in any case, this reduction of activity ends up having a less dilution in fixed expenses. The EBITDA margin and gross margin shows a reduction here for 2023 compared to the first semester of 2022. In terms of the net cash position, we have here an increase of the net debt, where we have from March to June here, and for a second quarter is a moderate consumption for cash. We know that for the second quarter is where we have a greater value generated, but still we see a reduction of inventory, of working capital to cash, and gives us a good outlook into cash generation for the second quarter.
The main transactions that we had for the second quarter, there was capture of BRL 84 million to finance innovation. This is for products and also for industrial processes. Financial rate that was quite interesting for financing, and this is all for the investments that we shall carry out for the next 24 - 36 months, which is a three-year grace period and another four years of payment. In terms of here, when we look at gross cash is BRL 284 million, which shows a solid position and with a positive outlook when it comes to cash generation. In terms of the share performance, it was under the Ibovespa Index in the last three years. If we go back to what happened in 2021 and for the first semester, where we came back to being part of many indexes that we were not for a date up to that point.
We got into four index for 2020 and then another one in May of 2021, and obviously, this made us have a volume of activity that was quite important. For the consideration of comparison, when we reached the peak of the share in 2021, the performance was under the same period compared to the performance of Ibovespa. Well, once again, I would like to thank you all for your participation, and we are open now for your questions that might arise. Thank you very much again.
Ladies and gentlemen, we will start the Q&A session. We would like to remind you that this call is exclusively for investors and investment professionals. To ask a question, please state your name and the company you represent, together with a question into the Q&A feature in the Zoom app.
For spoken questions, use the Raise Hand feature so we can enable your microphone. Please introduce yourself. The first question comes from Mr. Fabio Niel. He says, good morning. I would like to know if the company has already been able to evaluate what would be the impact of the tax reform in your operating segments, although this process still needs to be voted in the Senate.
Fabio, obviously, we are paying close attention to the whole process. We already have, without considering the future changes that might come, we already went through our initial analysis, but there are aspects that are very sensitive that are still not well defined in the current text. For instance, there are certain specific ones for machines. You have editing of IPI.
All that is still not clear if the rate will be horizontal or transversal for the whole segment or all segments, and if these reductions, mainly for the capital goods, will continue after the reform. In any case, it is important to mention, if the reform has any type of burden, and for capital good, it is never positive, as we know well. It will not leave, in terms of local competition, make the company less competitive, because this is an impact on everyone participating in this market. In any case, we believe that at this moment, there will not be significant impact, but we still do need to have the understanding and publishing of all the add-ons to the legislation, so that we can fully and comprehensively analyze and understand if there will be any additional impact that we still have not captured.
We believe there will not be a major impact when it comes to the tax burden we today hold. It is important also to say that the industry, when we talk about the GDP participation, is about 10%, and currently, it is nearly 1/3 of tax collection. So if we look at it broadly, mainly when we think about our customers, it is possible to have a certain reduction of tax burden, which could therefore impact positively the industry as a whole. Our business, especially the machine business, can be positively impacted. But still, we lack full information for a comprehensive analysis. Thank you.
The second question is from Marco Callegari. The third question also.
Is it possible to give more details about the restructuring that has been implemented in the Castings and Machined Parts area regarding this restructuring additional costs were recognized in the second quarter of 2023?
Yes. We are restructuring the reduction of the capacity because there is a lower demand, so there were expenses with that throughout the semester and also on the fourth quarter of the previous year. But on the second quarter was BRL 1.5 million with a restructuring.
The next question, the B+W's operating net margin 2023, how it should behave in relation to years 2020 and 2021.
It shall bounce back to a normal level. We have a backlog that is quite solid to deliver now in 2023, and most of the deliveries are concentrated at the end of the year.
But we will then have operating margin, net margins that are positive, aligned with what we had in the past.
The next question, the growth in the participation of service providers in the breakdown of a machine when associated with the rental of machines. Is it possible to give details of share growth and monthly revenue?
Well, the breakdown of the share of rental of machine, as Fabio showed, is related to the sectors that we deliver them to, being them sold or rentals. So you can fathom which sectors you have more buyers and which ones you have less. So within service providers, we are here referring to companies of a small size that provide service of machining to larger ones that deliver a machine for the first tier, second tier companies in the chain.
For machine rentals, we have been growing and getting more solid, and we do not have the full breakdown because it is still not relevant when it comes to machine and tooling. But we do that when it comes to the part of Order entry in terms of how are the new contracts and the prices that are being brought. When it comes to contract of rentals, there we have a second quarter of 58 new machines, about 72 new contracts. And we have about BRL 20.9 million of new contracts signed for the second quarter. And from our track record, we already have 536 machines rented, which is about 649 new contracts, because we have some add-ons to previous contracts, and we count as a new one when there is an extension of 12 months, for example, to 24 months. And this business already represents BRL 171 million of new contracts.
This is starting in 2020, and it has been gradually growing and now generating machines that are back from rentals, which we call internally MLs, that are sold, and this has been helping us greatly for market share.
The next question is from João Paulo Reis. Good morning, Fabio and Cassiano. Could you give an overview of the sales results in the last exhibitions and which were the most demanding sectors?
Yes, we did have in May, which is an important one, and in March, one for plastic. Both trade shows were important at a sales level, very similar to what we had in the previous year.
And definitely we would like to have more because we had a backlog for 2023 that was less than what we had in 2022, and we are being able to have a backlog filled, but not at the speed that we were at the end of 2021 and the first semester of 2022. And the most demanding sectors were many, especially for service providers. Also, we have the aeronautics, aviation that is demanding and also automotive.
And the next one, could you also comment on how the company wins or intends to recover revenues and margins in foundry, signs of recovery in the wind sector?
We have a plan that is a bit different now for foundry. We have the wind energy not showing any specific reaction. We are talking to new entrants to see if we can position ourselves.
SOPs for new spare parts takes months, so most likely we'll have revenue from the wind energy if it bounces back and if we're successful in our negotiations, only at the end of 2024, 2025, depending on the speed of it. What we are working on is focusing on operational efficiency margins in foundry, reducing the structure. We are making an alteration on the manual part for the heavy, specific machine cast and lighter for the automatic ones, and working together with our traditional customers for share and also of new businesses, which personally, I think we're working quite well with that at a good successful rate, where the new spare parts will start to bring in revenues for us in 2024.
If you have a question, please type your name and the company you represent together with the question into the QA feature in the Zoom app.
For spoken questions, use the feature Raise Hand so we can enable your microphone. Please introduce yourself right away. As there are no further questions, I'd like to hand the floor over to Mr. Luiz Cassiano for his final remarks, noting that ROMI's Investors Relations Department is available to answer any other questions. Please, Mr. Luiz Cassiano.
W ell, thank you everyone for your participation here with us for the second quarter of 2023, and we are here also ready for the third quarter, and we would like to invite you all to take part in the third quarter, which will be on October 24th. Thank you.
T his concludes ROMI's earnings call. We appreciate everyone's participation. Have a good day.