Good afternoon, everyone, and thank you for waiting. Welcome to Rumo conference call to discuss the third quarter 2021 results. Today with us we have Mr. Ricardo Lewin, CFO and IRO, and Mr. Gustavo da Rosa, Investor Relations and Treasury Director. We would like to inform that during company's presentation, all participants will only be able to listen to the call. We'll then begin the Q&A session when further instructions will be given. In case you need any assistance during the conference, please request the operator's help by pressing star zero. We also would like to inform that the conference call will be presented in English by the company's management, and there will be simultaneous translation to Portuguese. This event is also being broadcast simultaneously on the internet via webcast.
Before proceeding, we would like to mention the forward-looking statements are based on the beliefs and assumptions of Rumo's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry, and other factors could also cause results to differ materially from those expressed in such forward-looking statements. I will now turn the conference over to Mr. Ricardo Lewin. Please, Mr. Lewin, you may proceed.
Good afternoon, everyone, and thank you all for joining us in this earnings conference call for the third quarter of 2021. I would like to start by providing some highlights on ESG initiatives. As part of our liability management efforts, during the third quarter we issued a sustainability-linked bond, in which we commit to reduce our CO2 emissions by 17.6% until 2026. The framework was endorsed by Sustainalytics, which appraised us with an ambitious KPI and target. The bond was well-received by the market, allowing us to price with only 25 basis points above the Brazilian sovereign bonds. On the social side, I would like to share with you the creation of Rumo Institute, where we seek to generate value through the interaction with the communities of the areas where we operate.
We will be focusing on encouraging youngsters to keep up with their studies. We will keep you informed about our progress as the project advances. On the next chart, the most important highlight during the third quarter was the regulatory approval to advance with the extension of our railways to Lucas do Rio Verde and Cuiabá. A bold achievement that will be a breakthrough in our competitiveness and therefore creating significant opportunities for growth and value creation as already presented. Although the already expected decline in volumes and EBITDA due to the failure in corn crop, Rumo has followed its strategy of focus on volumes, and thanks to its competitiveness when compared to other models, Rumo gained expressive market share in grains in Mato Grosso and Goiás markets. Also, the diversification of cargoes such as fertilizers, containers, and fuels helped to partially offset the lower availability of corn.
Finally, in the coming years, we expect to grow even more in the transportation of biofuels and pulp with new partnerships and contracts signed this year. On the next chart, we'll present the operational results. As already mentioned, due to the crop disruption, we saw a reduction of roughly 17% in grains that drove our volumes down both in south and north operations. On the other hand, the container operations, fuel and fertilizers, presented a double-digit growth. On the next chart, we will see results by operation. The EBITDA went down 90% on the back of lower volumes that brought lower fixed cost dilution. Additionally, the variable costs grew more than the revenues, while the fuel costs went up 42% year-over-year.
Although we did the pass-through in our tariffs, given the lower availability of corn and consequent excess of capacity, additional volumes negotiation became more difficult. At the same time, we had to serve grains coming from more distant places where typically we have lower tariffs. Fixed costs also went up on the back of additional costs year- over- year, given the entrance of Central Network and also due to the expansion of pricing and commercial structures that took place last year. On the next chart, we will see the highlights of consolidated financial results. Financial results came better than in the third quarter 2020.
Despite the increase in CDI and IPCA indexes that drove the costs of debt upwards, financial results came better than in the third quarter 2020 because we present significant reduction in other expenses given the prepayment of BRL 5.1 billion in concession fees that we did last year. Net income reached BRL 51 million on the back of a lower EBITDA performance. On the next chart, we will see more details of that. We have closed the third quarter with 2.4x net debt EBITDA. When we look at our debt amortization schedule, hey.
When we look at our debt amortization schedule and take into account our comfortable cash position, we can call the 2025 bond in January 2022, ensuring that Rumo will not have any significant amount to be amortized until 2027, therefore making easier the execution of the investment plan and the expansion to Lucas do Rio Verde. On the next chart, we have the market outlook for soybean and corn. When we look at 2022, it seems that the market will be very positive for grains. Soybean planting is well advanced in all the areas that we serve. Mato Grosso, for instance, already planted 95% this year, compared to only 84% in the same time last year.
Despite the increase in production costs over the past months, the level of profitability of soybean and corn is still pretty high, which is incentivizing farmers to expand planted area, that coupled with a better expected weather, should provide a significant increase in productivity. On the next chart, we will see soy outlook. Regarding the soybean market in 2022, according to Agroconsult's projections, Brazil should have a record harvest of 146 million tons, an increase of 9 million tons compared to 2021, of which 88 million tons should be exported, 4 million tons more than 2021. Mato Grosso state should also experience an increase of 1 million tons in exports compared to 2021, while south states exports are expected to rise 3 million tons. On the next chart, we will see corn outlook.
When it comes to the corn market, in 2022, according to Agroconsult's projections, Brazil should have a record harvest of 119 million tons, an increase of 37 million tons compared to 2021. Projections show an increase of 40 million tons in exports, 22 million tons more than in 2021. Mato Grosso and Goiás states combined should export 12 million tons more. Meanwhile, Paraná and Mato Grosso do Sul states should have an increase of 3.8 million tons in its exports when compared to 2021. On the next chart, we will talk about the outlook for Central Network. During 2021, we inaugurated two grain terminals that are operating in Goiás. We also present significant volumes and margins.
For 2022, we are going to have the entrance of a sugar terminal in the second quarter of 2022, a fertilizer terminal in the third quarter, and initiate the container operation during the second half of 2022. With that, we should see even further improvements in volumes and margins. Here, I conclude my presentation, and we can go to Q&A session. Thank you.
Thank you. We'll now begin the question and answer session. If you have a question, please press star one on your touch tone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing star two. Questions will be taken in the order they are received, and we kindly ask you to make it one by one. Please also pick up your handset to provide optimum sound quality so that when posing your question. Please hold while we collect questions. The first question comes from Rogerio Araujo with UBS BB.
Yeah. Hey, guys. Good afternoon. Thanks for the opportunity. I have a couple of questions for you. One is I would like to know if the negotiations with the trading companies have already started for take-or-pay and prices for next year. I think the expected volume right now for next year is pretty strong. Also, diesel price could potentially support the strong freight prices for next year. What is your expectations for these negotiations and if they already started? That's the first one. I can do the second one afterwards. Thank you.
Hi, Rogerio. This is Ricardo. Sorry, I'm late. Yeah, I was on mute. Well, first thank you for participating in the call. Good to have you here. Regarding the take-or-pay for 2022, you know that we start to negotiate this by the end of the year, so we are still negotiating with our customers. Like always, these are very sensitive information, and we will not be willing to disclose right now. What's important to say, Rogerio, is maybe I repeat this every single year, but it's important to reinforce is that what we are sure is that we are following our strategy. It remains the same.
We are trying to have the maximum amount of takeaway, but under the right level of price, okay? This is important. Regarding the pricing for 2022, we expect that the yields will be steady in real terms. Remember that what's a factor that could increase the yields in real terms would be the toll road in the BR-163. You know that it will be ready only by the end of 2022, in our opinion, beginning of 2023, okay?
Another thing that it's important in terms of of yields for next year and contracts, mainly contracts, is that our commercial area is trying and it's engaging with customers in long run contracts. You probably have heard about some of them, but I will just say one or two examples. We are negotiating with Suzano. Actually, we ended the negotiation with Suzano to transport their the volumes from their new plants. Andali that we already talked, it is a fertilizer seller that we negotiate our position in Goiás. This is also very important from the one that we engage with customer in contracts for products besides grains.
Marder, sorry I interrupted you in the beginning, if you wanna say anything else.
No, maybe just complementing on the volume side. We agree with you, Rogerio. We see a very strong outlook both for soybeans and corn. Brazil is expecting all-time high crops, so the market should be very strong next year. This is also something that enables us to price in a better way. Also, we have to take into account that once our strategy is to expand our market share, we are gonna go further in the state of Mato Grosso, and therefore, we are gonna be capturing cargo from more distant places, which offsets a bit of those pricing gains that we could have based on the market drivers.
As Ricardo mentioned, at the end, we are expecting to pass through inflation and fuel prices, but not gaining that much price in real terms, because we also have this challenge to go further in Mato Grosso to seek for higher volumes and higher market share next year.
Very clear. Thanks, Lewin and Gustavo. Another one is on new projects. If you could provide an update on Lucas do Rio Verde on the next steps, if there, as I understand now the environmental license is the major thing. Is there any potential bottleneck? What is the current expectations? Also on new projects, Rumo has asked two new rail lines to the government under that new regulation that they are trying to pass in the Congress, which includes Lucas do Rio Verde to Água Boa. My question is what's the status of those projects? Next steps, if there is an expectation from the company in terms of PLS 261 coming out and allowing those, you know, new projects to come out.
These two from Rumo, what is the timing expectation? What is the status and next steps? That's it. Thanks so much.
Rogerio, thanks. Good question here. Let's start with Lucas do Rio Verde. I think this is, as you said, we don't have yields. I think that we gave a bunch of information in our previous call. There is no bottleneck foreseen. We are waiting or we are working to get the environmental license. You know that it takes time in Brazil to have this license. It's not in the hands of IBAMA, but in the hands of the local secretary.
This is foreseen to be ready by the second half of 2022, more for the end of the year, okay? The year of 2022. It's going well. It takes time. You need to go through a dry season, a wet season. This is the reason that it takes time, it takes time. We don't foresee. We are already talking to suppliers. We are working on improving the project, so everything will be ready once we have the environmental license, okay? The other thing that we said about the two other projects. I think that we are waiting to see how things work. It's not that clear for us.
We applied actually for these two projects because I think they are important for us. It's a good option to have in our hands. You said you're talking about the Q2, okay? They are both of the ones that we applied are in our area, okay, in Mato Grosso. I always say that's our fiduciary obligation to understand everything that's happening in this influenced area. Obviously understand if you can have the optionality, and it's a project that generates values, we'll be studying. We still are waiting for the next steps for these projects.
Regarding PLS 261, we are following what's happening, how it's advancing. Also there is no news. We are following very closely the development of PLS 261. I don't know if there is anything else that you put in your question here.
No, that's all. It was very clear. Thanks so much.
Okay.
And, um-
Thank you, Rogerio.
Have a great rest of the day. Thank you.
The next question comes from Victor Mizusaki with Bradesco BBI.
Hi. I have one question here with regards to Rondonópolis. Apparently, ANTT or the land transportation agency confirmed that the initial works to cancel or reauction the toll road concession, Rota do Oeste. Can we say that maybe Rondonópolis terminal can gain market share if you assume that this concessionaire will likely need to reduce the toll tariff by, let's say, 50% until the reauction? I mean, at the end of the day, can we say that to be cheaper to move trucks to Rondonópolis terminal and then probably how much you gain market share instead of Mato Grosso?
Hi, Victor. This is Gustavo. Yeah. Arguably, any kind of reduction in toll road prices around Rondonópolis should benefit us in terms of market share, 'cause it reduces the cost for trucks to access the terminal. We are following this. We don't have control on these negotiations that the government is having with toll road operators. Arguably, it's something that could be positive if it happens.
Okay. Thank you.
The next question comes from Stephen Trent with Citibank.
Yes. Good afternoon, gentlemen. Thanks very much for taking my question. Just two for you, if I may. One, have you seen any disruption kind of global supply chain-wise in your own suppliers, you know, whether that's labor or locomotives or anything funny going on with pricing on that level? Two, could you just also refresh my memory on what pricing trends you're seeing in the container business? Thanks very much.
Hi, Stephen. This is Gustavo. Pleasure-
Hey, Gustavo.
To talk to you.
The same. Thank you.
We are not seeing any kind of disruption in our supply chain. If you look at, for instance, fertilizers, we had pretty strong volumes in the third quarter. That's a very important raw material that we need to plant the new crops. We are not seeing any kind of disruption, neither with locomotives or anything else in our supply chain. We are basically all set for next year. Of course, the demand of seeds, machinery and fertilizers is pretty strong because we are having a pretty strong crop. Also Brazil could still afford to increase the area planted. It's not only necessarily gains coming from productivity. We can also afford to increase the area.
There will be some kind of balance between the expansion of area and expansion of productivity that requires more raw materials such as fertilizers, seeds, among other things. It's something that doesn't worry us in terms of the next year crops. With regards to the container business, it's a business that is evolving quite well. Of course, the assortment of cargo sometimes creates some kind of variations in pricing. The container business has a broad assortment of cargos. As we are working to expand the footprint of our container business, sometimes we add other cargos that have a different pattern of tariffs.
When we look forward, we believe that the tariffs will continue to grow in the container business and the same will happen with the volumes. Next year, we should have, Stephen, the entrance of the container operations in the Central Network . We expect for the second half next year to start operating with containers in the Central Network. Then we're gonna be operating with a completely different type of cargos. For instance, today we have the opportunity to transport cargos, typically consumer goods from São Paulo and deliver in Goiás and maybe next year or 2023, even in the north regions of Brazil.
On the way back, we could collect cargo from Manaus, transport by trucks into the terminals that we are building around Anápolis, and then go all the way down to the São Paulo area. Containers should have a very bright outlook ahead as the volumes are growing, and we are also expanding our footprint to operate into the entire network with containers.
Okay. That was a super comprehensive answer, Gustavo. Really appreciate that and thank you again.
Thank you, Stephen.
The next question comes from Bruno Amorim with Goldman Sachs.
Thank you very much. My question is related to the outlook for the next year. According to, you know, the forecast you presented for corn and soybean on a consolidated basis, it seems that export volumes out of Mato Grosso will be 10% bigger next year when compared with 2020. The question is. Is it fair to say that your, you know, volumes next year should be around that, roughly 10% above 2020 levels out of Mato Grosso? Does it make sense? I know it has to balance that with the fact that maybe not all the regions within Mato Grosso are growing at the same pace. Also, you know, you mentioned earlier in this call that you would probably go further in the north, possibly impacting prices to some extent.
If you can provide us some color on, you know, what should happen with volumes next year, that would be great. Thank you so much.
Hi, Bruno. This is Gustavo. You know, that's a complicated question because we are not, as of now able to provide a guidance for next year. We'll be doing so probably in February. What we can mention is that you're right about the market outlook, so we are foreseeing a very strong crop for next year. We are definitely trying to increase our market share, so it's not only about the market growth. Rumo will try and will expand its market share next year. This will give us additional opportunities for growth. Also we have to take into account several factors such as seasonality. Those things could vary a bit depending even on our commercial negotiations that we are having with customers.
In order to get our final volumes for next year, we will have to understand how much the market will be growing, which kind of seasonality we're gonna have throughout the year. As of now, seasonality seems to be a bit better because we should have an earlier crop of soybean compared to last year. Especially the volumes in the first quarter, they should be stronger. That gives us an opportunity to grow a bit more our volumes. We have to still figure out what's gonna happen in the remainder of the year. There is the second corn crop, and to understand how early this crop would arrive could also interfere and could affect our volumes throughout the year. We are definitely gonna be pursuing additional market share gains.
That means that we are able or we are aiming to grow beyond the market to ensure that market share gains.
Thank you, Gustavo. Just if I may, a quick follow-up on where are volumes versus capacity right now. You keep on investing on growth. You mentioned, you know, some adjustments to the investment plan in the earnings release. If you could, you know, clarify where is capacity versus, you know, volumes right now, so we have a sense of, you know, by how much you could grow next year, assuming capacity will be fully taken. Is there any indication you can provide us with in that sense?
Hi, Bruno. Gustavo again. You know, during the last earnings calls, we have shared with you guys very important improvements that we did in the Port of Santos. There was very significant deliveries that were made in the couple of months ago. We are still investing in the Port of Santos to increase its capacity. We have to remember when we think about the efficiency of our network, that next year we're gonna be operating with 100% of the trains running with 120 rail cars. That also provides significant gains in terms of fuel consumption, capacity, and cycle time.
By reducing the cycle, we could reduce the recurring CapEx that we have. We could become more efficient in terms of profitability. Of course, it adds more capacity. Again, capacity is also a function of seasonality. If we have the demand very concentrated in a few months, we might not be able to serve all at once. If we have a more steady volumes throughout the year, that could potentialize our capacity and our volumes throughout the year. We believe that we are in a good position next year to once again afford to grow our volumes beyond market growth. We are trying to get more market share. How much more depends on some factors that are still being negotiated with customers.
Of course, it depends how the market will evolve in terms of also seasonality of the exports and how the price of the commodities will be behaving. All of this could interfere in next year's seasonality and therefore in our capacity. We are doing our homework in terms of both efficiency and capacity, and we believe that we are well equipped for next year to deliver our goals.
Thank you very much.
The next question comes from Regis Cardoso with Credit Suisse.
Hi. Good afternoon, everyone. Thanks, Gustavo, for taking my question. I'll maybe focus on one of the discussions, and I know you've touched a little bit on these topics before, but it's been a sort of a recurring theme, I think, in all of our conversations with investors that, you know, Rumo missed the guidance last year and now pulled the guidance this year again. Investors seem uncomfortable whether the company will indeed, you know, get into a sufficiently deep growth phase starting next year, so it would be able to reach the medium term 2025 and onwards guidance. You know, I know there is a lot that we can discuss, Gustavo.
If you could maybe provide some numbers or expectations you believe in terms of how the recovery in the crop for next year should play out in terms of Rumo's volumes specifically, and sort of build up how you believe that results would grow relative to this year. I believe, you know, this is a particularly big theme in the discussions because, you know, it seems the fourth quarter will be particularly weak, right? I think it would be worthwhile to provide that discussion so people can feel more comfortable with it. Thank you.
Hi, Regis. This is Lewin. Let me take this question here. This is a good question, and I think that we have been very transparent with the market during our calls since ever. Remember that 2020 we had some issues, external issues and internal issues. We had the hacker attack, we had COVID, we have the concentration of crop during certain months. We were changing our commercial policy. We already talked that we made some mistakes at that moment. We were very clear things that we were changing.
In 2021, we did a lot. We took some very good attitudes regarding mainly operational and commercial areas. We anticipated our sales. We signed a huge amount of take-or-pay in anticipation of the soybean crop and the corn crop. Everything went really well during the first half of the year. Operationally, the company was working pretty well. We were 100% aligned with what we planned. We had several records in the port, in the railway. What happened is obviously exogenous things that we could not avoid.
We are very dependent on the corn crop in the second half of the year, and we had a failure of huge part of the crop because of the dry weather, a result that was a result of La Niña, okay? I think that we are doing a very good job, even with the low volumes that we have. Gustavo already said about the market share that we gained. Okay? I will give you some numbers here and the global numbers are numbers that you'll not find here because we make some internal treatments in the numbers that you have in the market to make them more understandable inside the company.
I can tell you that what we gained in terms of market share during the second half of the year in grains, okay, in corn, in Mato Grosso and Goiás added to us 2.8 million tons, okay. Why I'm telling you that first thing that if we didn't have the right intelligence and remember that we recently decided to build up a stronger market intelligence area, and we disclosed this through the market. We made a stronger commercial area. If we didn't have the commercial skills, and if we weren't prepared, we knowing the market very well, we would have this 2.8 million tons of grains less this year, okay.
This is very important because this may represent something around BRL 300 million in our results this year. What happened that we missed the initial guidance. Okay, we don't have guidance in the market anymore that we release this year was not really the responsibility of the company, but it was a thing that happened to the market. Okay, i t was a complete exogenous issue. As I told you, we were 100% prepared if we had a very good corn crop commercially and operationally.
For the long-term guidance, we don't see any issue for reaching the up to now, at least up to now, Regis, regarding next years, okay? Remember that we do have factors that can support growth of the company, so capacity is increasing. We have been working for the bottleneck in the company, as Gustavo said, working on efficiency, trying to reduce CapEx as a result of working in efficiency, working in the terminals of Santos to improve efficiency and also capacity. We are doing everything to support the growth of the market, okay? Because as you saw, Gustavo already said also, we foresee a very good crop next year.
Finally, remember that not next year, but in 2023, we will have the two roads in BR-163, and this is a milestone for our results as going to the north will cost BRL 25 more than it costs today and it will cost in 2022. Part of these BRL 25 will be added to our price. Part of these BRL 25 will be used to gain additional market share to increase our competitiveness, okay? We, Regis, I don't see up to now any reason for being uncomfortable with the proposed guidance, okay? Obviously, every single year is a different year when you talk about agriculture.
Every single year we review our business plan. We see the positive points, the negative ones. If we do change our view on that, we will provide to you, to the market, beginning next year, okay? The company is working very well to reach the numbers that we provided.
Very clear, Lewin. Thanks so much for the detailed answer.
Okay. Thank you, Regis, for the question.
As a reminder, if you have a question, please press star then one on your touch-tone phone at this or any time. If at any point your question is answered, you may remove yourself from the questioning queue by pressing star two. Thank you. I would like to turn the floor over to Mr. Ricardo Lewin for his final remarks. Please, Mr. Lewin, you may proceed.
Yes. Well, thank you all for participating in the last call of the year. I would like to take advantage that we still have some time here to complement the answer I gave to Regis because his question is really important and I'd like to complement some additional points. Reinforcing, okay, the gain of market share that we are having is fully aligned with the strategy of the company, okay? Remember that I always say to investors, to sell side, that the marginal grain that we have, if we lost this marginal grain, it's a big loss. But if we gain, we have like almost 100% in terms of EBITDA.
Gain market share even in a market that's not good due to the failure of the corn crop is very important. That shows that we are following our strategy, doing a very commercial, operational and market intelligence work, okay? This is one thing that I would like to tell you. Another thing, just reinforcing what Gustavo already said, but that we are working on the optimization of CapEx. In the last years, we have reducing transit time, and we are working. By this year, we worked a lot, and we'll continue to work on the bottlenecking, very specific places in which we can gain a lot of efficiency. This together with 120 railcars per train improvements in Santos, and the optimization of investment in Paulista Network.
I'm sure that will come with much better optimization of the CapEx, mainly regarding when we talk about rolling stock. The efficiency and investments of rolling stock are directly related. You can wait for this. We'll come at the right time to the market. Also, we had Rogerio's regulatory question. Here I'd like to spend also a bit more time because I think that this year we completed a huge cycle of the company, okay, with the milestone of the approval of the extension to Lucas do Rio Verde. In my opinion, we closed very successfully this regulatory and growth cycle.
Remember that in 2019, we were the winner of Central Network in the bid. Winning the Central Network reduced a lot the risk of the company. We accessed new markets. In 2020, we renewed Paulista Network, bringing perpetuity to the North System. We also prepaid a huge part of the concession fee. What you can see that was a perfect step due to the inflation scenario that we are facing today. Right now in 2021, we approved the extension to Lucas do Rio Verde, Cuiabá. Recently I heard from my investor that we did everything we promised since the merger with ALL. This I'd like to reinforce.
Today, Rumo has an incomparable portfolio of assets, okay? Together with, in my opinion, a unique portfolio of growth projects and assets, okay? This will generate a high value for the company and for our shareholders. Finally, I just would like to talk about the debt. Nobody asks about that, but we have been doing a very huge effort to improve the profile of our debt. I always talk to investors about the liability management that we have been doing. I would like to provide you some numbers. We started January 2021 with an average cost of debt of 140% of CDI and with an average term of 3.8 years, okay?
In September, right now, we have an average cost of 110% of CDI with an average term of the debt of 5.8 years. Remember that we have enough cash, we have a very comfortable cash situation. As I told in the presentation, we can prepay the 2025 bond. Paying this in January next year, we will reach an average cost of 107%. Who follows the company remember the average cost of almost 150% of CDI. We will close January 2022 with less than 110% CDI. Prepaying this bond, we will have an average term of 6.1 years. Okay?
This is very important because we are in an environment of high interest rates, okay, and we are entering a high investment cycle before or after 2023 with the extension to Lucas do Rio Verde. That shows that we have been doing the right work to face this new cycle of the company. I think that these points are very important for the company. I'd like to thank you. This is our last call this year. Thank you for the support of all the investors. Thank you for the support of the sell side. Talk to you in a new call to the market next year. Thank you.
This concludes Rumo's conference call. Thank you very much for your participation. You may now disconnect your line. Have a good day.