Good morning everyone. Thank you for waiting. Welcome to Rumo Conference Call to discuss the Q2 of 2021 results. Today with us we have Mr. Ricardo Lewin, CFO and IRO, and Mr. Gustavo Rosa, Investor Relations and Treasury Director. We would like to inform that during the company's presentation, all participants will be only able to listen to the call. We will 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 that forward statements are based on the beliefs and assumptions of Rumo's management 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'll now turn the conference over to Mr. Ricardo Lewin. Please, Mr. Lewin, you may proceed.
Good afternoon, everyone, thank you all for joining us in this earnings conference call for the Q2 of 2021. I would like to start by providing some highlights on ESG initiatives. Recently, we issued our sustainability report, bringing once again advances in our ESG agenda. We would like to highlight the evolution on diversity, emphasizing that Rumo's board of directors reached 30% of women in its current structure. Furthermore, we included ESG indexes in the variable compensation of all employees. We also made significant progress in our public commitments and brought an even more ambitious goal to reduce CO2 emissions by 2030. We invite everyone to read the report and know even more about our progress in ESG results. On the next chart, we are going to go through the main highlights of this quarter. Rumo presented a good performance in all main KPIs in this Q2.
Consolidated volumes grew 9.1%. A better market outlook and higher fuel prices allowed a huge expansion of 13.8%. EBITDA reached almost BRL 1.2 billion, approximately 32% growth when excluding the non-recurring effects of Malha Paulista renewal. Net income in the Q2 of 2021 was BRL 314 million, growth of more than 200% when excluding effects of Malha Paulista renewal. In May, we had the first tests in Rio Verde terminal, and in July, the terminal was inaugurated, increasing even more our presence in Goiás. Also worth mentioning, the public call made in July by the government of Mato Grosso to enable the railway expansion from Rondonópolis terminal to Lucas do Rio Verde and Cuiabá. The deadline for choosing the winner is 45 days after the publication of the notice. On the next chart, we will present the operational results.
Our operational results in the Q2 presented growth in all the operations and segments, highlighting the container segment, which increased 32.8%. Looking to the assortment of cargoes, the highlight goes to the recovery of fuels volumes and containers, which had been previously affected by the pandemic. Pulp and paper segment continues presenting consistent growth. In commodity segment, the highlight was sugar, which grew 33%, while grains grew 5.5%. On the next chart, we will see results by operations. The EBITDA expansion of 32%, excluding the non-recurring effects of Malha Paulista renewal, was a reflection of gains in all operations, especially Southern Operation. Volume growth came with an expressive yield gain, which boosted net revenues. Fixed cost dilution also contributed to margin gain. On the next chart, we will see highlights of consolidated financial results.
When comparing the financial results, it's necessary to remember that in the Q2 of 2020, we had a recognition of BRL 131 million as non-recurring gains regarding the Malha Paulista renewal, affecting the comparability. The financial result came worse than the Q2 of 2020 due to increases in CDI and inflation indexes. With better operational performance, the net income reached BRL 314 million, a significant improvement in relation to the previous year when including the non-recurring effects of the Malha Paulista renewal. On the next chart, we will see more details of that. We have closed the Q2 with 2.1x net debt EBITDA. As I mentioned in the previous call, the prepayment of the bond 2024 has improved the debt amortization schedule with a lower concentration of short-term debt, allowing the execution of our long-term investment plan.
On the next chart, we have the market outlook for soybean and corn. Regarding the soybean market, in 2021, according to Agroconsult projections, Brazil should have a record harvest of 137 million tons, an increase of 11 million tons compared to 2020. Of this total, 84 million should be exported, two million tons more than in 2020. In the H1 of 2021, soybean exports were down 1.2 million tons compared to the same period in 2020 due to the delay in the soybean crop, suggesting that there is still an opportunity for an increase of three million tons in exports in the H2 of the year. On the next chart, we will see corn outlook.
According to Agroconsult, we had a new update on the corn scenario, showing an additional decrease of 13 million tons in Brazilian production and a drop of 11 million tons in exports volume when comparing to previous forecast. This crop failure is more severe in the states of Mato Grosso do Sul, Paraná, and Goiás. Although not so severe in Mato Grosso, the failure may result in lower exports, as part of the state production should be used to supply the domestic market in other states. The high uncertainty of the corn market makes it difficult to project corn volume for the entire H2, reason why Rumo decided to discontinue its guidance for 2021. On the next chart, we will talk about the scenario for 2022. For the next year, we remain confident and we expect a huge growth in exports.
Because of that, we are maintaining the long-term guidance for 2025. Farmers' profitability skyrocketed in last years, increasing 12 times for corn and three times for soybean. From a supply standpoint, we should continue to see crops improvement over the next years once farmers could expand investments in productivity and area expansion. On the demand side, China is recovering fast from the African swine fever, and the consumption of soybeans is going up. At the same time, China is becoming a relevant importer of corn, which increases significantly the global demand for grains. All of that points out that our investment thesis is stronger than ever, and we should continue to pursue the development of Brazilian logistics infrastructure. On the next chart, I would like to comment on the Port of Santos. In previous calls, we have been highlighting improvement in Santos Port infrastructure.
This time, I would like to highlight that we have completed the third line of Paquetá and the export corridor. The Macuco expansion is expected to be delivered on September 21st. Thereby, we are going to have a much better and more efficient port. On the next chart, I will comment on Central Network. As we had already disclosed, in July, we officially inaugurated the Rio Verde terminal. Thereby, we have two grains terminal operating in Goiás. The Q2 2021 results show a strong performance evolution, both in terms of volume and in margins. Thus, Rumo is positioned in a very competitive place in the grain market, what should generate relevant increases in volumes over the next few years. Here I conclude my presentation and we can go now to Q&A session. Thank you.
Thank you. We'll now begin the Q&A session. If you have a question, please press star one on your touch tone phone at this time 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 when posing your question. Please hold while we collect questions. Our first questions come from Andre Hachem with Itaú. Please, Andre, go ahead.
Hello, Ricardo. Hello, Gustavo. Thank you for taking my questions. My first question is related to the extension of Lucas. Basically, we'd like to understand a little bit more the judicial safety you have in going through with a state-owned model instead of the federal model. Still on this question, I'd like to better understand the BRL 12 billion CapEx, which was described within the project. I understand there's a new patch or the new railway, which would go to Cuiabá. I'd also like to better understand a little bit about these volumes, and what would be the potential demand there. That's my first question. I'll make my second question after this one.
Hi, Hachem. Good to have you in the call, and thank you for the question. Just to put everybody on the same page, we have limited things that we can say about the process, okay? There is still no winner of this process. Mato Grosso government did an announcement a few weeks ago requiring potential investors to apply for the authorization process to connect the Rondonópolis terminal in Mato Grosso to Lucas do Rio Verde and Cuiabá. Okay? What we can say by now, Hachem, is that Rumo already applied. Okay? We delivered very advanced studies regarding this. You all know that we have been studying this for a long time, we are well advanced in engineering project, environmental project. We've already provided everything for the local government. From the day of the announcement, we have 45 days to have the results of the requirement.
Okay. This is the first important thing. I'd like to reinforce before going to your point, that you guys know this is a very important project, not only for Rumo, this is a very important project for the producers from Mato Grosso, this is a very important project for the state of Mato Grosso, and this is a very important project for Brazil. Okay. Obviously for us, this is maybe the most important project in the pipeline. It's a project, as I always said, with a very high return. We are talking about double-digit real terms of project. Okay. Having said that, Hachem, regarding the CapEx, I think the value provided in the announcement is a reference. Okay. Regarding the government, we are studying this. There is things that we can save. We haven't advanced a lot in these last six years in engineering methodologies.
This is more a reference from the local government. Once we have the winner of this announcement or of this requirement of the government, and if we are the one chosen, we will provide details on CapEx. Regarding the stretch to Cuiabá. Okay? Obviously, it's necessary to say that the high return comes not from Cuiabá, but comes from Lucas do Rio Verde. Okay? It's important, and I always repeat in my meeting, Hachem, that there are two returns when you build a new railway. This is very clear in Manaus, for example. First thing is that you provide a better service for the people that is there. Okay? If there's a farmer already in the way of the railway, you improve the quality of service, you improve the cost, you bring efficiency.
The second thing, and I always refer here to Monteiro Lobato when you read his books, is that you bring development where the railway reaches. This you can see in Central Network, people are calling us, understanding what are the costs of railway, and investing more where the railway is closed. This will happen in Cuiaba. It's a very interesting state for containers, so general cargo, you can provide there. There is enough area in Mato Grosso, in the west of Mato Grosso, to support the return of this stretch. Okay? Obviously, the bulk of the returns of the project are in the north of the state, in the direction of Lucas do Rio Verde. Hachem, I don't know if there is still something to be answered.
No, that was very clear. If I could ask a second question on the Santos port.
Sure.
You guys have made them clear. There's already been a lot going on with the port. There seems to be a lot of new capacity opening up. When we think about the Central Network, it is diverting cargo that was going to other regions of the port into the main part of the port, right? My question is, do you see more opportunities to consolidate other players' terminals or to make more agreements to use other players' spare capacity? I'm thinking here specifically of CEPLAC and maybe the capacity on Baixada Santista.
Hachem, can I ask you to just make the question again? It is not very clear for me.
Absolutely.
With Baixada Santista. Yeah. Thank you.
When we think about the Port of Santos, you guys have already done a lot of things to expand more. You just mentioned the Macuco port. When we look into the future, we still see a couple of different areas of the port which are going to become underutilized, right? When we look into CEPLAC, when we look into the capacity on Baixada Santista, there seems to be more opportunity to consolidate or to do more agreements with other players. How do you see this going forward? How do you see the opportunity to consider doing more expansions within Santos?
Yes. You are right, Hachem. Not only Macuco, I said in the last call that we would be delivering a completely different port in the Q2, and we did that. I have been in some port last week. You can see the improvement of efficiency brought not only the Macuco, that is still in the finishing the project, but the third line of Paquetá and Ponta da Praia. There's a huge T-39, Caramuru, and ourselves together, we built another four million tons of capacity. It's a great first-class terminal, in my opinion. We are from now on building additional static capacity that will improve even more the efficiency of T-39. You are right. We had the first fertilizer, the loading of grains in the TIPLAM terminal. We do have an agreement with Vale. That's good for both parties.
There is plenty of room in the left margin. Mainly in the left margin, okay? In the right margin, we will have next year STS11. There is the opportunity of the deepwater, and these are things in the left margin, deepwater, that we are still working with them, advancing the project. There is plenty of opportunities for building new capacity, greenfield, brownfield, and improving the partnership that we have, both with, for example, Caramuru and Vale. That's very interesting for the railway, have different opportunities to load grains and unloading fertilizers, and we are working very hard on that.
Perfect. Very clear. Thank you for the answers.
Thank you all.
Our next question comes from Pedro Bruno with XP Investimentos. [Non-English content] , Pedro, you may proceed. Mr. Pedro Bruno, your line is open.
Can you hear me now?
Yes, perfectly, Pedro.
Okay. Thank you. Thanks for the question. First of all, congratulations on the transparency of discontinuing the short-term guidance, given the high level of uncertainty in the near term. I have a question regarding CapEx. We saw a high level of investment on expansion in the quarter. You disclosed in the release that it relates mostly to the Malha Central, right, to the Central Network, about BRL 300 million, if I'm not mistaken. If you could give us a bit more detail on the evolution of this CapEx going forward, meaning the Central Network, until when this high concentration will go? Overall, in terms of the long-term guidance, which you have kept unchanged of BRL 16.5 billion-BRL 18.5 billion, if you can give us a bit more clarity on the distribution on time of that CapEx, that would be great. Thank you very much.
Hi, Pedro. Thanks for your question. Let me start with this year. You're right, there was a concentration of investment in the H1, mainly to afford the operations of Central Network. We are not expecting as much CapEx in the H2 as we did in the H1. This is pretty much the seasonality that we came up with the plan for this year. We can say by now that the CapEx will be pretty much inside of the previous range. We are not expecting any additional CapEx for this year. With regards to the upcoming years, we might have to adjust the CapEx throughout the years. It depends a lot on how strong next year volumes will be. As Ricardo just mentioned, we are very excited about 2022. We are expecting huge volumes for grains.
Also we believe that Central Network is going to continue to grow fast, and therefore it's going to require some additional investments, it's pretty much on rolling stock to support and to afford the additional volumes. When it comes to infrastructure then, the investments will be much more spread, so it will be more steady over time because it has to consider our ability to execute all the CapEx. The only thing that might change from one year to other is how much more volumes we are expecting to have. I would say that on average, the CapEx should be close every year, maybe a bit more next year due to the ramp-up in the volumes in the Central Network.
Marcos, if I can just complement your answer here. Pedro Bruno. It's important to say, sometimes I repeat, but maybe these are things that investors and sales I don't see, but every single year we are improving. We are investing a lot, and we are improving our knowledge in the investment. Also our knowledge in the operations. I always say that we are still a baby. We are a very recent company, and every single year when we learn more about our operation, we are able to improve our cycle. We do have a lot of focus on the improvement of our cycle. At the end of the day, that means improvement. When I say improvement, in this sense, it's a reduction of CapEx, mainly in rolling stock.
We have been very disciplined in terms of CapEx, and every time we improve our operations, we see a reduction of CapEx that we first saw. We will see this year still a reduction compared to what we thought, and we expect to see also in the next year due to improvement of operations.
Perfect. Thank you very much.
Thank you, Pedro.
Our next question comes from Victor Mizusaki with Bradesco BBI. Please, Victor, go ahead.
Hi. I have two questions here. The first one is a follow-up on port capacity. Rumo, I mean, as you said, the company concluded two infrastructure projects at the Port of Santos. Based on your presentation, the company will conclude another two in the H2. I don't know if you can give any kind of color on capacity grades, or maybe even if you cannot precise the number, but if you can say, we are talking about here maybe 10%-15% of capacity increase. How important is this capacity expansion for Centro-Sul? The second question is related to the H2. Even though it's very hard to predict volumes for, especially for the Q4, I don't know if you can comment a little bit about volumes in July and August.
If it would make sense to compare the H2 of this year with the H2 of 2016. Thank you.
Okay. I will begin here. Gustavo and I, we are fighting here to answer this question. That's good. Victor, regarding port, okay, as I told you, just there are two ways to increase port capacity. One is improving the railway and the efficiency of the railway, and the other is creating capacity. We are doing both. As I told you, we just increased four million tons at T39. This is not in capacity. All the others increase a lot the capacity because you improve your cycle inside the port. Also, by our agreement with ALL, we can go to the left margin. You open room in your right margin to generate more efficiency because left margin is a margin with less traffic. I don't like to give a number here.
I can tell you, by what's public, that if you work, for example, it will be another eight million tons for grains, three million tons for fertilizers. What's important to say is that the port will not be a bottleneck for the growth of the north and the Central Network in the next years. Okay? When it becomes close to be, we'll be doing new terminals, the ones that we are studying are opening capacity. That's not a concern that the port will be a bottleneck for our growth. This is regarding the port. Sorry, the second one. What, Kudo?
Yeah.
In July and August. Gustavo, would you like to add this or?
I can take this one. Victor, we'll be releasing the numbers for July today as soon as the market closes. You'll be all having the data available. I can say so far that July was okay, in line with our expectations. We have been saying that for the Q3, we have a significant amount of take-or-pay that somehow protects us against any major loss in terms of crop failure. All the uncertainty lies on the Q4, which is hard to predict and where we have lower amounts of take-or-pay. We depend more on the market, and what we know right now is the market is not clear, and the crop scenario might be difficult to predict with this disruption that we have right now. We are not foreseeing any major losses for July and August.
We believe that any volatility might come from the Q4. As I said, it's hard to predict right now, and that's the reason why we suspended the guidance, because we don't have enough visibility on that right now to provide a new number. Numbers for the Q3 should be okay.
Okay. Can we compare this, I mean, the current situation with what happened back in the H2 of 2016?
Victor, there are some differences. I think this year, especially in the Q3, the amount of take-or-pay is higher than it was in 2016. Another important thing is that this year we have Central Network, and we didn't have that back in 2016. Another thing was that in 2016, also the sugar market, which is an important alternative for cargoes for Rumo, was also bad. This year, sugar is evolving well, we might try to transport more sugar and other cargoes. We are less dependent only on grains. In 2016, we didn't have much other cargoes to offset any losses from corn. That being said, the size of the failure, it's still not clear. It's still too early to compare with 2016 because things could get better or worse from now on.
We really need to have a better view on the Q4, and we believe that we're going to have only a better view as we approach the Q4. As of now, it's really hard to come up with any prediction about these numbers.
Okay. Thank you.
Thank you, Victor.
Our next question comes from Regis Cardoso with Credit Suisse. Please, Regis, go ahead.
Thank you, Lewin. Thank you, Gustavo, for taking my questions. One of my questions was very similar to the previous one. Wanted to make sure, the reason why you did not provide a new guidance, is it because you were, let's say, very uncertain about the volumes, or do you also feel very uncertain about the EBITDA? You sort of canceled the last guidance, we presume EBITDA could be below BRL 4 billion, but we don't know how low that could go, right? My question is that uncertainty mostly on volumes or is it EBITDA? On those same lines, whether you believe Q3 should be similar to this quarter, Q2 levels. I'll ask the second question after.
Regis, I will tell you very transparently that this is a bit tricky question because volumes and EBITDA are very correlated. What I can tell you is that there is a huge uncertainty in volumes, okay? That obviously can affect our results. The point here, Regis, that as we said, I think the first and second call, we have good levels of take-or-pay even in the Q3 when compared with previous years. By the end of the quarter and the last quarter, is very uncertain. Okay, if you see Mato Grosso, the failure of the crop was not that bad. However, there is a huge consumption of grains from the internal market. It's very unclear for us, first, if there any improvement or worsening of the scenario by the end of the year.
How much we stay in the local market, how much will be exported. There is something around three, four million tons of soybean that's in Brazil yet and can be exported. It's very unclear for us. The main point here are volumes, okay? Those that will stay in Brazil, that will be exported. The tricky point is that variables are correlated, okay? It's not easy to answer this question, but there is a huge uncertainty of still the scenario, mainly from September on, okay? September, October, November, and December. What will stay here in the country, what will be exported.
All right. Second question, and actually, if I may, just a quick one and then a more complete one. The quick one is yields on Central Network are declining, I think as expected because they come from a very high base. Is this a trend we should expect going forward? Whether you believe this should normalize, is it something like 80 or 90 for RTK or for TKU? The second question is, in regards to Lucas do Rio Verde, again, the expansion project. My question is whether you see any benefits, let's say, in potentially waiting for the federal government, who has proposed a provisional measure to accelerate the process in PLS 261 to create the authorization regime.
Do you believe, first, that that provisional measure will be successful in accelerating that discussion? If that will be an option, and if it is, if you see any advantages of going through the federal alternative as opposed to the state level.
Hi, Regis Cardoso. I will answer the first question, and then Ricardo will answer the second one. With regards to the tariffs in Central Network, it's pretty much a strategy. When we first started, we were operating only with a small terminal in São Simão. There was an excess of demand, so we could pretty much choose whatever cargo we would like to transport. Of course, we choose the ones that were paying more. Right now, as we open the capacity in Rio Verde terminal, the both capacities combined will be almost 10 million tons of grains. Therefore, we could be more aggressive in the market in an attempt to try to speed up the ramp-up in the volumes. That is something that we will certainly do. We are trying to get the volume as fast as we can.
Of course, when we have a different assortment, in the very beginning, we were serving only soybeans. From now on, we should be also serving corn and soybean meal, those other cargos might have different tariffs, and they could change a little bit the mix and the assortment of cargos that we transport. The most important thing about Central Network is that we were capable, as we've shown in the presentation, to increase our margin from 47 last quarter to 56% EBITDA margin this quarter. Tariffs is not the problem. The thing that matters most here is how fast can we capture all the volume that is available in the market. If we do that, margins could be even beyond this 56% level that we are today. Ricardo.
Regis, let me try to answer the second part. Regarding PLS, we are This was not the question, but to be clear here that we at Rumo is in favor of PLS. In our opinion, it's very transformational, okay. The only point here that we need to take care is that having two models that are together in the same moment, you need to take care not to harm the current one, okay. The current one is our, we have invested a lot. We just need to take care with this model, living together, okay. I don't know what's the right way, it's imposing or not imposing, voting, discussing to reach an agreement that brings safety, regulatory safety. I think this is important for the railway, this is important for the country.
The way the government does, that I will not comment, but it's important to reinforce here our points. Regarding having a federal extension or a state extension, I will repeat what I always say in my meetings, is that obviously we would prefer the federal one. I always say that because we know all the regulations and everything. The point is that we have been working both alternatives, okay? The local government, the Mato Grosso government, has been done a very serious work on that because this extension is very, very important for the state and very, very important for agriculture in the country. Now it doesn't matter, like, for us, it's a state, it's a federal. It's important that we have a solution for that. The winner of the announcement here, who is chosen by the government, start to build.
In our opinion, if we are the winner, we will be ready to start to build by the end of the next year. We are very excited. In my opinion, all the regulation of the state will be very similar to the federal one. It will work very well for everybody. The question now is not which one's better, which we prefer, it's what we have, what the Railway Brazil has in hand, okay?
Very clear, Lewin and Gustavo. Thanks for the answers.
Very good. Thank you, Regis.
Our next question comes from Bruno Amorim with Goldman Sachs. Please, Bruno, go ahead.
Hi, good afternoon. Thank you for taking my question. I have a follow-up question on what's expected for the H2. I appreciate you cannot provide a guidance. I wanted to clarify one point on the take-or-pay. Gustavo mentioned that you apparently have more take-or-pay now than back in the Q3 of 2016. I remember back then, you were under those three-year contracts where you seemed to be more contracted under take-or-pay for 2016, 2017, and 2018. I understood that even though you have been closing some take-or-pay contracts, short-term ones more recently, they were not as relevant as they used to be in the past. Just want to clarify if I misunderstood or the reason for you to believe you are more protected going into the H2 of the year, maybe not only the Q3, but also the Q4. Thank you so much.
Thank you, Bruno, for the question. Just to clarify, you were right. Back to 2016, we had those long agreements, but most part of the time, the volumes were steady throughout the years. We were not seeing volumes growing too much, at least the agreements, they were fixed. Every year we had to add up some volumes to the agreement. This year, we sold in advance most part of the volumes for the Q3 . If you look to the absolute volumes, we are far more sold than we were back then in 2016. The problem, as I said before, lies all in the Q4 . Q4 is typically a quarter where, even when we have normal market conditions, trading companies and farmers always struggle with the ideas whether or not they should carry over some inventories for next year.
We don't have full visibility, even in a normal year, what could happen in the Q4. For that reason, trading companies try to be more conservative with the volumes they have under agreement to have some kind of flexibility. Of course, this year we sold more, but at the same time, they never expect to buy everything in advance. We still need to sell more take-or-pay for the Q4. Of course, that's only going to happen if we have more availability in the market. One other thing, as I mentioned before, when we try to compare with 2016, is the entrance of Central Network. That brings a whole new market to serve. It was a market that we didn't have the ability back then to approach. This year we have.
Of course, the same that I mentioned for the North and the Southern Operation applies to the Central. Farmers and trading companies are not willing to engage with all the volumes for the Q4 because they always know that there might be some uncertainties there. The most important thing about those volumes that we sold in advance is that we not only secure the volumes, but also secure some pricing level. The price that we sold in advance, it's very good. The thing now is that, as the market conditions are worse off, of course, if we have to sell more now for the Q4, prices are definitely going to be lower than the prices that we have under the take-or-pay.
That's another reason why we have some uncertainty, because it's not only if we're going to have the volumes, but whether or not this price is going to be pressured by a lower demand that's going to be available in the market.
Thank you very much, Gustavo. Just to make sure that I understood you correctly. You said you have sold a higher volume versus Q3 2016. Is it as a percentage of the expected volume, or is it in absolute terms? It makes a difference because the company grew significantly since then, right?
Yeah. I don't have the numbers by heart, but I would say definitely in absolute terms, the volumes are higher. I'm not quite sure about the percentage, but at least from an overall standpoint, volumes are definitely higher.
Thank you very much.
As a reminder, if you'd like to ask a question, please press star one. Our next question comes from Lucas Barbosa with Santander. Please, Lucas, you may proceed.
Good afternoon, Lewin, Gustavo. Thanks for taking my question. I have a question on the BR-163 road. The road concession up until Miritituba was auctioned last month, and the toll collection should start in the first semester of 2022. I just wanted to hear what will be Rumo's strategy as a response to the start of the toll collection. In other words, is Rumo thinking about increasing prices next year as a response to the BR-163 toll collection, or will Rumo maintain prices stable and focus on expanding volumes? Thank you very much.
Hi, Lucas. Thank you for your question. I got a part of the question because I dropped the here, but let me if I got. What's important here is that it's not expected to have the tools ready until beginning of 2023, actually end of 2022. The winner of the BR-163 concession needs to do some improvements in BR-163 because they can charge the toll road fees. Okay? For next year, we still not have the. The R$20 or R$25 per ton additional going up. Okay? Having said that, this R$20 or R$25 per ton more can be used for both. For price improvements, or can be used to get additional market share to be more competitive. Okay? In this sense, we still need to wait closer to the moment that the two roads are ready, to know how is the market, to say where we'll use it.
Our strategy will be use part in price improvements, part in gaining competitiveness.
Perfect. I think that's very clear. Thank you very much.
Thank you.
As a reminder, if you'd like to ask a question, please press star one. Our next question comes from Bruno Amorim with Goldman Sachs. Please, Bruno, go ahead.
Thank you for taking my follow-up. I just wanted to follow up on the take-or-pay, on the profitability side. As you have always said, the profitability of the take-or-pay clause is never the same as transporting the grains themselves. Is there any color you can provide in terms of how to quantify how much protected you are? Not in terms of the percentage of volumes returned take-or-pay, but on the profitability of the terms of the take-or-pay contract. Any color you can provide, and maybe if you can provide anything concrete for the H2 of this year, maybe directionally, the terms that you are closing now, do they protect you more or less than in 2016 for each million ton under the take-or-pay? Thank you so much.
Hi.
Go ahead, Lewin.
Okay. If you look to the take-or-pay structure, probably the structure protects us a bit more this year, than what we had back then in 2016. The percentage of the fee is higher. That is a better protection for the Q3, where, as I mentioned, the most part of the volume is secured by take-or-pay. If you have any failure in volumes in the Q3, take-or-pay might offset well in terms of profitability, because either way, most part of the volumes are going to be there, because trading companies are not happy to pay take-or-pay. When it comes to the Q4, it's already a quarter where we have some idle capacity. We never sell 100% of the capacity, because usually the market's not high enough to do that.
The structure is still better. As long as we still have a significant portion of the volumes to be sold, that could arguably hurt our profitability. We can't deny that without having the volumes, especially when we are not fully protected with take-or-pay, that might hurt profitability because we depend a lot on fixed cost dilution. Of course, the company will do all the efforts in costs, also trying to get other cargoes to offset or to prevent any major drop in terms of profitability. As we have been saying throughout this call, we still have uncertainty, especially on the size of the failure in corn. We are working hard internally in the company to bring all the cargo that we can to the system in order to protect the profitability of our operations.
It is real hard as the same way it is to provide guidance for volumes and for yields. The same is true for profitability, because profitability is ultimately driven by the volumes. We'll do our best to try to get and to operate as much profitability as we can in the Q4. Very likely Q3, as I said, it's going to be okay with profitability. We are still predicting good volumes, and with our Central Network much more mature with higher volumes. The scenario seems much brighter for the Q3 than it is for the Q4.
Thank you very much. Thank you both.
Our next question comes from Alfonso Salazar with Scotiabank. Please, Alfonso, go ahead.
Yes. Thank you for taking my question. Suzano announced a big investment for a new port near in the state of Mato Grosso do Sul. What we have seen is a new wave of port investments. By different companies, CMPC, Bracell, Klabin, and now Suzano. Just wondering, what is the outlook for growth of transported volumes for pulp over the coming years? If you can comment on that.
Hi, Alfonso. You're right. We are seeing pulp producers growing a lot over the past few years, and also our volumes of pulp are growing fast. Last year, we had an important bottleneck at the Port of Santos. The government did the auction of two new terminals for pulp that have the ability to operate with railways. We have a couple of projects together with the pulp producers that very likely are going to boost our volumes of pulp going forward. We operate with all the major players like Klabin, like Suzano, and as those negotiations and those agreements advance, we are going to be able to capture most part of the volumes that we are seeing in that market.
Just to be clear on that, we are presenting sustainable growth on pulp over the last two years at least, and definitely going forward, we continue to expect large growth coming from pulp producers in Mato Grosso do Sul, which also brings more volumes to us in Mato Grosso state.
Yeah. Marder, just to complement here the question. Alfonso, Klabin, just to understand the difference, the volumes produced by Klabin is transported by containers, by Brado, okay? The agreement that we announced in the last call refers to 50% of the total volume of Klabin plant. Okay? Just to have an idea. In a usual year, Brado transports 90,000 containers. A Klabin contract represents another 30,000 containers. Okay? This is really expressive. In my opinion, it's transformational for Brado, mainly because we do have opportunity to increase from 50% to 100% of the capacity of the plant once we provide good service and the plant is 100% working. Regarding pulp production in Mato Grosso, maybe you have seen an interview from our commercial VP, saying that about our conversations on the new plant for Suzano.
Obviously, our strategy is to take the pulp to the most efficient concession that we have. That's through the North concession. What we are doing is taking a very stable volume and transporting in a much more efficient concession than we did in the past. The stability, the improvement of profitability is very important for us. We reinforce here the importance of pulp in our segments.
That's excellent color. Thank you very much for that.
Thank you, Alfonso.
Our next question comes from Guilherme Mendes with JP Morgan. Please, Guilherme, go ahead.
Hi, Lewin, Gustavo. Thanks for the question. A quick follow-up question here regarding the Lucas project. Can you provide more color in terms of the environmental approval? I recall that you filed for that back in 2019. Just wonder what your expectations for it to be concluded. Thanks.
Yeah. Thank you, Guilherme, for the question. We have started a long time ago, the analysis, and you know that in Brazil, this kind of approval, this kind of license, the environment license, is usually the bottleneck. We knew that, we have been working much before had any announcement of the government because we are interested in the expansion. The first important thing is that who is doing this analysis is the local government or the local environmental agents, not IBAMA. That is good because IBAMA has a lot of projects, and this specific is very important for Mato Grosso. I think that can be a bit faster, although they do the same requirements than IBAMA.
We are very advanced, and what I can tell you is that in the H2 of 2022, so H2 of the second year, we expect to have the license for start building the expansion once we are the ones chosen by the Mato Grosso government. It's very well advanced.
Very clear. Thanks, Lewin.
Thank you, everyone. That concludes our question and answer session. I would like to turn the floor over to Mr. Ricardo Lewin for his final remarks. Please, Mr. Lewin, you may proceed.
Well, you guys know that usually I don't do any speech by the end of the call, I think this is a good moment for a brief speech from my side. Guys, although we have the yields on the payoff, the corn crop for the next half of the year, I really would like to reinforce that we are in a very good moment for the company, Rumo has a bright future. Operationally, we have two months of records in this last half of the year, showing that we can increase our volumes even in the peaks of the harvest. Remember, guys, that we started to operate the 120 rail cars per train, here I'm confirming this is a very promising project.
Next year, 2022, we'll be fully operating both sides, going to Mato Grosso and going to Santos, reducing train crossing, reducing emissions, reducing consumption of fuels. Talking about fuels, this was another quarter of improvement in consumption of fuel. I reinforce what I always say, that we'll be improving the consumption of fuel for several quarters. There's a lot to do in this sense. I will not talk more about Santos. I think I have talked a lot of things about Santos this call. We delivered two terminals in Goiás. We already have double-digit market share in Goiás. It's really impressive. We've impressive efficiency and with impressive margins. We are supporting the agriculture of Goiás state. We have been improving our commercial skills by improving the knowledge of the market, by the proximity to our clients.
I think that this improvement is showed by the gain of market share that we had this year. If you see our competitors, volumes has been going down, and we have been gaining market share. Financially, I don't need to say, the company is very stable. Compared to 2020, every single month we have done better EBITDAs, unless on January, because of the postponement of the crop. We have the opportunity to do expansion. We may have the opportunity expansion if we are the winners of the bid. You know that this is really transformational for the company. This is the project that we foresee since the beginning of the company, is serving the middle and north of the state of Mato Grosso, bringing competitiveness for the Brazilian agriculture, for Mato Grosso. Brazil is improving in agriculture. The consumption of protein is continuing to grow.
You know, guys, that Mato Grosso will serve, Mato Grosso will support this increase of consumption of protein. We are there to serve this growth of consumption of protein. Just finalizing here my speech, I think that Rumo's thesis is stronger than ever. We are very optimistic with the next year and with all the next years of the company. I'd like to thank the support of all our investors of the sell side that understands very well the company, and talk to you during the next quarter. Thank you very much.
Thank you. This concludes Rumo's conference call for today. Thank you very much for your participation. Have a good day, and you may now disconnect.