Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Rumor's First Quarter 2020 Results Conference Call, which will be led by Mr. Ricardo Levin, Chief Financial and Investor Relations Officer and Mr. Berto Abril, Brumu's CEO. We would like to inform you that this event is recorded, and all participants will be in a listen only mode during the company's presentation.
After Rumu's remarks, there will be a question and answer session for investors and industry analysts hosted by Mr. Gustavo Roza, Investor Relations Executive Manager, together with Ricardo Levin and Mr. Beto The audio and slideshow of this presentation are available through live webcast atir.rumolog.com. The slides can also be downloaded from the webcast platform. Before proceeding, let me mention that forward looking statements will be made under the safe harbor of the Securities Litigation Reform Act of 1996.
All forward looking statements are based on the beliefs and assumptions of Romeo's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of rumors and could cause results to differ materially from those expressed in such forward looking statements. Now I will turn the conference over to Mr. Berto Abreu. Mr.
Berto, you may begin the
conference. Good afternoon, everyone, and thank you for joining us at Humu First Quarter 2020 Earnings Conference Call. This time, I take the opportunity to comment on our actions to manage the crisis, caused by the new coronavirus pandemic and also to discuss some strategic points regarding the constant milestone, which is the Paulista Network Renewable, post contract was signed yesterday. It's worth noting that the federal decree number 10,282 of March 20, 2020, categorized general cargo transportation as an essential service. Thus, PUM was strictly organized to work in 3 major fronts: the first one, internal protocols and conscientious actions social responsibility and institutional actions and third one, financial operations to preserve and ensure liquidity.
We executed several actions and protocols aiming to ensure the safety of our employees and those related to our business like clients, suppliers, truck drivers, terminals and ports. We also adopted measures such as social distancing and permanent sanitizations in facilities, vehicles, instruments and locomotives. Moreover, employees in the risk group were instructed to adopt specific care and monitoring measures. For Demisto achieved employees, we adopted the home office policy. Thus, with safety across all our activities, we have been able to continue operating.
We also acted jointly with governmental authority and promote social responsibility actions. We identified needs to fight against the pandemic along with health departments of 28 municipalities in 7 Brazilian states covered by our concessions. Donation compromised 26 different institutions. We also enter into partnership with MRS, VLI and Comunitas. We donated school meals to children in Santos Metropolitan region.
Besides that, joining with Cozhan, Humu made a public commitment not to dismiss any of its personnel. We were pioneering such initiatives, and we are very proud of it. We worked extremely with governmental institution, states and municipalities, and these engagement result in various formal acts such as decrease, provisional measures and ordinance to ensure the continuity of our business. We also adopted measures to preserve the company's financial health. In the Q1, we raised around BRL 850,000,000 to reinforce liquidity and approximately BRL 1,500,000,000 we raised in Q2 to ensure the continuity of our long term investment.
Our cash in May then is around BRL 5,000,000,000. On the next slide, we will discuss the continuity of our main investment during this pandemic. Our operations and ongoing investment at the Honolulu terminal remain uninterrupted. I point out that after concluding the investments, our terminal, which is currently Latin America's largest road and rail terminal, will have 50% more capacity with higher level of efficiency and safety. In the state of Boyares and Tocatins, investment at the central network continue advancing.
The photos on the slide illustrate the ongoing construction of Rio Grande Bridge in the boundary between Sao Paulo and Middle Jerais and the connection between Central and Paulista network. We expect this operation to initiate in the first half of twenty twenty one. On the next slide, I would like to talk about the Paulista network renewal. We continue to do the material fact disclosed on May 27, on the next forward slide, I will share with you the strategic relevance and the main numbers of the Paulista Renewable. It was a long process, but with no doubt, this is a great victory for Humu, for the rail sector and the entire country.
This is the first time a rail concession in Brazil received a renewable. This outstanding achievement demands a lot of effort from the entire team, who work very hard during the entire process and jointly with AMTT and TCU defined a solid framework to be a reference in the other renewables. We are immensely proud, and I'm sure that it will reinforce even more Humu's role in the Brazilian logistics. On the next slide, I highlight the strategic relevance of the renewable for Humu. Nearly 80% of our results derived from the Nord operation where we hold 2 concessions, North network that is worth until 2,079 and Polyester network now extending until 2,068.
This continuity for 2 of our main concessions is key for wealth creation once rails our long term business. As a condition to the renewable, Humu will make investment that will double this network current capacity, bringing even further efficiency and safety to our system. With that, we will be able to sustain long term volume growth coming from the state of Mato Grosso through the north network, allow the entrance fee of additional volumes via central network and enables an increase of cargo in Paulista network and other rail using this network. Let's see on the next slide some points of this extension agreement. For the right of the use of Paulista network from 2028 to 2,050 8, Humu will pay a concession fee of approximately BRL2.9 billion.
Initially, these amounts will be paid in quarterly installments over the next 38 years. Also, if volume achieved are greater than those projected in the MTK model, an additional concession fee may be defined. It's also included in the concession fee and the CapEx plan amounts referring to the return of unprofitable stress such as Cajaty and Vargina, a recovery of Panorama in Colombia, which could bring additional demand to Humu. Humu also assumed an investment commitment of approximately BRL6.1 billion over the concession period. On the next line, I will further discuss the mandatory investment.
So Humu committed on investment BRL6.1 billion on which we highlighted R2.1 billion dollars to acquire rolling stocks, R2.6 billion dollars to improve the permanent way and R1 1,000,000,000 in the earband conflicts. A entity mandatory investment consider approximately R1.7 billion dollars until 2023. The distribution of this investment over time may change due to home priorities, But so far, we do not see the need of changing our guidance to deal with regulatory commitments. Now I turn the floor over to Ricardo Levy, who will touch on other financial matters related to the renewal and will finally discuss the Q1 results. Yes, thank you very much.
Thank you, Berto. Good afternoon, everyone, and thank you for joining us. In the Q1 2019, we had approximately BRL1.9 billion in unpaid concession fees of the Paulista network booked in our financials. The agreement with ANTT allows us to settle unpaid liabilities in BRL468 1,000,000 that will bring important gains on EBITDA and financial results. The amount deposited in the court will also be used to be deducted from liabilities balances.
Also, a second part of the accounts offset in the estimated amount of BRL148 1,000,000 will be confirmed by experts report to then be deducted from liabilities balance. As a result, Humu should pay to the federal government approximately BRL 1,100,000,000 divided into 8 annual installments, starting on July 16, 2020, with the first two installments in the amount of BRL 50,000,000 per year and the rest in approximate amount of BRL 174,000,000 per year. On the next slide, I would like to demonstrate how the review affected this first quarter and will affect the second quarter. Besides the accounts offset, it was also conditioned to review the settlement of former regulatory controversies of approximately BRL109 million, which were paid in the Q1 2020 and will impact our EBITDA in BRL64 million and our financial result in BRL39 million, both considered one offs. As already said, the signed agreement will allow us to recognize in the Q2 2020, gain deriving from the write off of provisions totaling BRL 468,000,000.
We consider both impacts as one offs. That's why we will adjust our reports for a fair comparison with previous year. On the next slide, let's now talk about the Q1 2020 results. Now discussing our results, I would like to point out that to ensure comparison, we report consolidated adjusted result excluding the effects of the Paulista network renewal as already discussed and the costs and expenses related to the central network, given that the signature happening in 31 July 2019. So this Q1 and the Q2 2020 results won't be comparable.
All other sections of the earnings release considered central network consolidation and the effects of police and network renewal process, unless otherwise indicated. On the next slide, let's discuss the operational results. In Q1 2020, our volumes fell 7.6 percent to RKK 12,300,000,000. In the North operation, volume was impacted by: 1st, late start of the soybean harvest season compared to the Q1 2019 2nd, lower corn carryover inventory in January 3rd, rainfall on the Santos fuels and the point of Santos in March, 73% above the month's historical average and 4th, cyber attack we underwent in the second half of March, which hampered the recovery of volume in the month. In the South operation, the impact was from the late start of the soybean harvest season compared to the Q1 of 2019.
2nd, lower industrial volumes due to COVID-nineteen 3rd, soybean crop failure in the state of Fuego in Dussaud and 4th, the cyber attack. On the next slide, we will discuss our financial performance. Koo's adjusted EBITDA dropped 18.6 percent to BRL 653 1,000,000 with a margin of 45.9 percent impacted by reduced volume and lower yield in the quarter. In the month operation, yield trended 7%, reflecting: 1st, lower demand for freight in the market in January and in February 2nd, disappointing volume in March, among which usually records higher yield And finally, the signature of take or pay contracts in a moment of lower truck freight prices. In the South operation, yields grew by 3.4% and the container operation saw a decline of 3.8%.
Fixed costs, general and administrative expenses, excluding the central network, increased only by 0.7% less than inflation. Variable costs had a good performance, falling 12% on the back of efficiency gains. Fuel costs dropped 8%, in line with volume and the reduction of silitary steel consumption by 5.3 percent offset higher steel prices year over year. Despite good cost performance, lower operating leverage and lower tariffs decreased margin by 3.2percental points. Now let me discuss the financial results and net income.
This quarter result had a financial expense of BRL531 million, 63% above the Q1 2019. The following factors impacted the result. The first factor is the effect of CDI reduction that positively contributed to results. The second factor are 2 adverse effects. First effect is the review of the estimate to measure the fair value of financial instruments, which resulted in a nonrecurring non cash effect of BRL160 1,000,000,000.
This review results in lower NPM volatility in the next quarters. 2nd effect is the addition of central network financial expenses referring to the concession fee payment amounting to BRL70 1,000,000. We reported an adjusted net loss of BRL136 1,000,000 versus net income of BRL 27,000,000 in the Q1 2019 due to lower EBITDA and the nonrecurring impact of derivatives estimates by the review, as already mentioned. On the next slide, let's discuss our indebtedness. This quarter, as already mentioned by Berto, we carried out relevant funding to preserve the company's liquidity and financial health.
And in May, we achieved a comfortable position of BRL5 1,000,000,000 in cash. This quarter leverage reached 2.1x broad net EBITDA. On the next slide, let's talk about market dynamics. Concerning the soybean scenario, there has been significant changes since the beginning of this year. According to our consult, soybean trade despite the corona deers is likely to grow to 160,000,000 tons versus 153,000,000 in 2019.
Also, we estimate that China should increase its soybean inventory by 6,000,000 tons. And finally, the Brazilian held evaluation accelerated this commodity commercialization in the state of Mato Grosso, which achieves 89% for 2020 36% for 2021. Thus, we expect exports to reach approximately £76,000,000 a more positive scenario than initially projected for the 2nd quarter. This trend of higher exports already can be seen in the volume transported in April, with soybean volume growing 28% versus April 2019. On the next slide, we will discuss the outlook for corn in the second half of the year.
Regarding corn projections, we foresee favorable availability in the second half as the state of Mato Grosso should record a greater performance than Brazil's average. And also, considering that most of export expected reduction from 39,000,000 to 33,000,000 tons should take place in the first half, as you can see on the graph on the right side of the slide. Concerning supply, the United States will see greater corn availability due to lower demand for corn ethanol, While Brazil will see a decrease in availability as the planting window was shorter and the climate did not contribute to the productivity in the southern states. Despite the risk relative to the United States, Brazil has a great competitive advantage as the strong depreciation of BRL prompted the producer of smart grocery to anticipate the foreign commercialization, which had already reached to 80% in May 2020. We finished here our presentation on this quarter, which also gave details on the milestone of Polyta Networks' review approval.
We remain at your disposal for the Q and A session.
Thank you.
Thank you. We will now begin the question and answer session for investors and analysts. Our first question comes from Pedro Bruno Santander.
Hi, good morning, everyone. Congratulations on the important milestone. I have two questions. The first one regarding Maria Paulista and actually the implications going forward. Is it correct to imagine that the process or the regulatory process of approval for the Sojizo project, which is now Lucas project, right, should accelerate going forward given that you no longer had the regulatory discussions of Mariscalista?
And what would be the, let's say, timetable that you have in mind for that regulatory process going forward? That's the first question.
Thank you, Pedro Bruno. I think it's best to have Beto answering your question. So Beto, please, you may speak. Sorry, Pedro. I will repeat the question for Beto.
So Beto, Pedro Bruno is asking about the Lucas do Huverde project and how do you see the pipeline of this project going forward?
Can you hear me? Can you hear me?
Yes.
Now, Sorry, Pedro, I'm sorry for that. But just going back to your question, I think this is Pito. I think you're completely right. Since the beginning, we as a team have decided to put all the focus and to prioritize Mala Poly. So that was the idea.
It was a tough process with our
I think we missed Beto, so I'll try to answer this one. So after we accomplished Maria Paulista renewal, it's clear to everyone that Boca de Rubezhia is the most important project for the company. So we are going to make all the efforts to start this process with the regulator. It's worth mentioning that last year, we already applied for the environmental licenses, allowing us to gain some time in this process. Meanwhile, we don't have the regulatory approval.
But there is a huge pressure for this project in the state of Mato Grosso. We are very excited about the profitability that Humu can have with a project like this. So we think we have all the means necessary to advance with the project now that we've accomplished the Male Paulista renewal. What is your second question, Bruno?
Martin, if I can complete the question, the word of this Levin, Remember that we already advanced in the project in part of the project in Novo Mato, where we already bought a piece of land there and we are starting the project for the Novo Butunt truck terminal, okay? So this is already a first step in the development of the plant. If you can go again to the second question, please.
Perfect. Thank you very much. The second question also relates to the to Mario Paulista in the sense that you announced also 2 financial impacts from the signature, negative one and a positive one as you explained with a net positive. Just to make sure it's actually twofold the question here. Did I understand correctly that net impact when you imply 1st quarter results and second quarter results will be a positive of approximately BRL370 1,000,000, which is the net of the negative BRL100 1,000,000 and the positive €470,000,000 in rough numbers.
That's the first part. And if yes, if that impact is included in the guidance that you provided for 2020 or not?
Thank you.
Ricardo Reven will answer this question. So please, Ricardo.
Hi, Pedro. Let me go through all what we said before because this is a good question and needs to be very clear. One of the conditions imposed by PCU was for the concessionary settle all the fine spending payment in legal or administrative appeals, okay? In this regard, in January 2020, so in the Q1, Humu paid the amount of BRL 109,000,000, of which BRL 63 affected our EBITDA, okay, and the rest affected the P and L, the bottom line through financial expense. So these are the only effect in the Q1.
And this was not in the guidance, okay, because we didn't know frequency that we would need to pay that. It was an agreement by the end of the negotiations. Now talking about the effects on the second client, okay, there will be a settlement, okay, that will be a result of the accounts offset. And RUMO will reverse at first something around BRL470 1,000,000 accounted today as liabilities, which will bring corresponding gains in EBITDA and in financial results, okay? And but this second part that I said, just reinforcing, will affect the financials on the 2nd part of 2020.
Is that clear for you?
Yes, no, it's perfectly clear. So net positive impact overall when you put 1st quarter and second quarter together? And then the other question was if that was the net impact was included in the guidance and I understand it
is not. Is that right? You're right, it's not. And yes, it's a net impact but affecting in different quarters.
Our next question comes from Alex Faucon, HSBC.
Nice. Good afternoon. Can you share with us what's the IRR of the Mario Paulista renew, if that's possible? That's question number 1. And question number 2, it seems like you guys are extremely confident on BTD guidance even with low numbers in Q1, you commented on the second half of corn.
Can you share just April May what you have so far? What makes you that confident? If you can share a little bit how volumes are going? How you guys are seeing the at least second quarter, that would be awesome. Thank you.
Thank you for your question, Facon. I will answer the first one. Then I think Ricardo Leving may comment on the second part of your question. So with regards to the IRR of the renewal, this is not a typical project like the ones like we have in the toll roads. So 282058.
To accomplish that or to ensure that, we'll have to pay a concession fee of BRL 2,900,000,000 and on top of that, we have committed to invest BRL 6,000,000,000. It's worth mentioning that this BRL 6,000,000,000 is something that the company was already willing to invest not to just increase the capacity in Polyista, but mainly because we do have a lot of cargoes in the northern network. And once we are we aim to increase our volumes there, we need to provide the capacity. So when you think about the IRR, I would argue that these investments,
they don't matter at all
because they are investments that we would be willing to do either way. And of course, they pay off based on the returns that we can have on the north network, which is pretty high. So it's very hard to come up with a number, but I would say that 30 years of this concession that is very strategic in our view works much more than BRL 2,890,000,000, which is the exactly amount that we paid for. So it seems a pretty accretive project for the company, and we really believe that we will be able to extract all the value in the long term from this renewal. Regarding the second part, maybe Ricardo Levin can clarify for you.
Thank you, Maribel. Just, Falcone, good to have you on the call also. Just complementing Gustavo's answer, remember that as said today in the live by Berto earlier, Vale Paulista is important to have a good operator. It's important to have investments and increase efficiency of Paulista because Paulista is the support for the group in the North and the central network. So there is a mix in the IRR, but as Stavros said, for sure, the value is much higher than the DKK2.9 billion in that we're paying.
You asked about our confidence in the guidance and about volumes in April, May. Unfortunately, in May, it's not disclosed to the market the volumes. So I will talk a bit about April, okay. You know that we have already disclosed the April volumes to the market. And it's very possible to foresee some trends for the Q2, okay, for soybean.
There was increasing 70% increase in volumes year over year and '17 is all the volume of the company. Only soybean, we increased more than 28%. Unfortunately, we are suffering in other products, okay? But we are talking about 28% of increase in soybean. That shows that we have expanded our capacity from 1 year to the other, okay?
We also expect to have a very second a very good second half of the year with Quorum, and we expect to have good availability as we talked during the presentation, okay? So that being said, the short term guidance is maintained, okay? In case we foresee during the year any change or we don't get so confident, we will share with you and the entire market, okay? Thank you for the question, Franco.
Okay. Thank you. Can you very quick follow-up on this because on the first point, everyone is going to make their own calculations, right? And it's all Merrill. The best way to do for what's the IRR is just to take the revenues or the EBITDA from Paulista, whatever that is that you guys published, get the $3,000,000,000 These are the investments and see where that lands.
Is that a fair assumption to do?
It's a fair assumption. I think you may have to take into account also how much more value can we extract from the northern network and also from central network by having the control of Publico. Clearly, there is a synergy between those 2 concessions with Publico. So our understanding is that the value of this renewal is much beyond the financials of Paulista itself. It produced positive effects in central and in northern network as well.
Our next question comes from Victor Mizusaki, Bradesco
BBI. Hi, good afternoon and congratulations for the revenue of Managolista. I have two questions here. The first one, let me take a look on your press release. You mentioned a little bit about the drop of freight price at Maria Norte, something around 2% to 7%.
And one of the reasons is because of the take or pay contract. So I'd like to know if you could quantify, I mean, how much of this drop is related to the take or pay? And the second question, when we take a look on your cash flow, we can see an increase in accounts receivables. And so I'd like to understand if that may be because of the cyber attack and then in the coming quarters, you're likely to see accounts receivables going down a bit? Thank
you. Thank you for your question, Victor. I will take the first one and maybe Ricardo, I think, can complement and try to answer the second one. So with regards to yields, what happened during this Q1 was that, first of all, we had a late crop of soybean compared to last year. And on top of that, we also had lower inventories of corn in January because if you remember last year, there was carryovers from 2018 to 2019 allowing good volumes on January.
So this was something that we were already accounting, we were expecting. But with this lower demand in the market, the truck price was slightly lower than we were expecting. So that brought an additional pressure to prices and also delayed a bit the negotiations of additional take or pays that right now we have in place for the Q2. But because of this seasonality issues and because of a lower truck price, especially in January February, we end up having we had lower yields in those months. When it comes to March, we saw an improvement in the freight prices in the market.
But at the same time, we had the operational constraints preventing us from having more volume. And as you may know, March is a month where we have higher tariffs. So we didn't take advantage as much on this because we had the operational constraint. Another important thing to think about the yield is the fuel price. So we saw a lot of volatility in fuel prices, and there was significantly reductions throughout the quarter, which also helped the truck drivers to afford lower prices in the market.
But hopefully and luckily, this process is improving. So we are seeing better prices right now in the second market. And it will be always very tough to forecast what could happen with prices because it will depend a lot on the market condition. We are confident about our ability to price. In the long run, remember, we believe that there will be some structural things that will help to boost our competitiveness.
One of them is the improvements that we are implementing in Honda NOPOLIS. This will certainly improve the cycle of trucks in our terminals and mainly this will allow them to lower prices because today, they somehow charge a premium to go to Hondanopoli because the terminal operates very close to the cap of capacity. And therefore, it's very likely that they're going to that they could have to wait to unload in the next day. So this additional cycle time for trucks caused them to increase a bit their prices. Another thing is regarding the toll road fees in DBR163.
We expect these VR to be auctioned. And just after this auction, there might be some additional costs with toll road fee. So we definitely expect our competitiveness to improve. And in that scenario, so far, we can say that we advanced well in terms of the Cartier negotiation. We cannot disclose the numbers, but it's safe to say that most part of our volumes in the second quarter were already negotiated with customers.
So we are now much more we are looking forward to negotiate the volumes of the second half, which are also well advanced, but we still have some room to sell more transportation, and this is evolving well. So I don't think it's a concern. And luckily, we should have good news in the upcoming months.
Regarding the second question.
Yes, to
So just to follow-up here. So based on the scenario that you comment, I mean, think about March, Mikael has assumed that so yields in the Q2 would likely improve quarter over quarter?
I would say that, but remember, we have, again, a lot of things to take into consideration. One of them is the take or pay. So all the take or pays that we set during the Q1, the pricing of those take up pace is pretty similar to the prices that we had in the Q1. Of course, now with a higher truck prices in the market, we have the ability to ask for more price in the market. So it will be a blend between take or pay agreements negotiated before during the Q1, which might have lower prices and additional volumes with higher pricing based on the market opportunity.
That right now is very clear. But remember, other things might happen. So right now, recently, we have a fuel adjustment, a fuel price adjustment. So if fuel prices goes up, this could be positive to the company because very likely truck prices will be also higher.
Okay. Martin, I will tell you the second part of the question about the accounts receivables. And a bit earlier, right, huge part of these receivables comes from the cyber attack. So we will much probably fix that during the year, okay? Let me just complement one thing, Victor, because probably you are seeing in other countries, we have no problem of non payment by our clients, okay?
So I don't know if your question had something related to that. Remember that huge part, I mean, say 80% of our clients are AAA clients, okay? That means very good risk. And our payment term is very short, something around maximum 10 days or the average 10 days. And there was an increase because of the cyber attack.
So your question, the answer, yes, the increase of cost receivable, huge part was due to the cyber attack. Thank you.
Thank you.
Our next question comes from Roger De Araujo, UBS.
Yes. Hi, guys. Gustavo Le Vimpato. Congratulations on the renewal of Maria Paulista and the resilience during this process. I think, is a relief to all of us.
So we've been traveling to Brasilia since 2015 to speak about that, and that's definitely a relief. And I suppose we won't stop going to Brasilia because now we have Luca del Rio Verde and perhaps Maria Surinil. So let's see. Congratulations. So my question is regarding the terms of the concession renewal.
So I have 5 quick points here that I think is going to be very helpful. And the first one is regarding the concession fee, BRL2.9 billion. I assume this is NPV using the 11% regulatory walk. So can you confirm that? And if there is going to be something around BRL327 million a year by 2,0.58, so is that correct?
That's the first from the five points. Let me go 1 by 1, and I think it's going to be clear that way. Thank you.
Sorry, Mario. Just say it's correct. It's around December, okay. There is a small adjustment 2,000 December 2017 value. But it's barely that that you said, something a bit more than BRL 3.10 billion.
Okay. Sounds good. So second point is investment in urban areas around BRL1 1,000,000,000. So what's the period for which it should be invested? And is this also a NPV based using 11% walk?
That's the second point.
This is BRL 1.21 billion that will be has a long term, okay. The amount to be invested until 2023 is something around BRL 250,000,000, okay? The rest is long term. And in regard, it's not 11.045. Could you confirm that the Yes, yes.
Most part of the urban contracts will be deployed after 2023. So it's it was discounted in the cash flow by 11.04%. But indeed, what matters here is the inflation. So this is the net present value of those investments. How much we're going to pay for them, it depends on pretty much inflation.
We don't have to deliver the money to the government. We must accomplish the investment that we commit with. So you have to adjust pretty much those investments through inflation to see how much we're going to expand to accomplish the project.
Okay. So not an 11% walk? This is not an NPV based on 11% walk. This is based on inflation on Yes.
It is not. But on the other hand, my point is, of course, if you reduce the conflict urban conflicts, you would end up having a higher concession fee, which is also discounted by 11.04. So in this case, what we must do is to deliver the project. It doesn't matter how much it's going to cost. We have to accomplish the project.
Okay. Sounds good. So third point is on CapEx. Also same question. Is it an NPV using 11% walk?
And in Valor newspaper today, there is a breakdown of BRL 1,700,000,000 by 2023, the rest by 2,0.58. So I would like to know also if this includes what you consider as maintenance CapEx currently, which is BRL1,000,000,000, BRL1.2 billion. Does it is it considered as well in that number? And is it an NPV using 11% walk or not?
No. This is not an NPV. This is the total investment that we expect to do in the upcoming years beyond going beyond 20 23. And once again, it's the same. We have the value of the project.
How much we going to end up spending depends on inflation and the efficiency of the project. And yes, you're right, we have all the CapEx that embedded. So we have expansion CapEx and also sustaining CapEx. But of course, there is a concentration where the expansion CapEx is probably concentrated in the next 8 or 10 years. And meanwhile, the sustaining CapEx is throughout the concession.
Okay. So and also the EUR 6,000,000,000, I suppose you already you've done part of that already. So can you say how much you've done already?
Of course, we did a bit. We will not be disclosing by now how much we did because we have to receive the approval of the regulator. So they will have to check whether or not the investments that we did fit in their standards. So they have to accept that investment. So only after that, we can say that the investment is done.
But is this more like 10% or 50% of the EUR 6,000,000,000? Just for us to have a broad idea in order to get the assumption?
Jose, it's really hard to say by now. Of course, we don't want to disclose an exactly number without having the endorsement of the regulator. So that's the reason why we will not disclose further information on this.
Okay. No worries. And then in the indemnification fees for the abandoned rail stretches, I think this has to be defined in 18 months, right? You're going to have to pay a fee to the government, E NTT. And I think also you're going to have invest part also in making those rail lines operational again.
So any idea how this will how much this will cost?
We have 2 different things here. So first of all is regarding the unprofitable strategy of Vargina and Cajaty. Those ones, we are agreeing to return the strategy back to the government because it's not profitable. And the cities, they pretty much took over the railway. It's not possible to have railways there by this time.
It's impossible to license it. So the only thing that we can do is to give it back to the government. It's already embedded in the current concession fee, a value, an indemnification to give it back to the government. So this is already embedded in the current concession fee. On top of that, we took our commitment with the government to recover Panorama, which is a stretch that starts in Mauro region and goes all the way to Panorama and close to the South Mato Grosso border.
And the other one is Colombia, which passed through Barreto's city. So those areas, we know that we have a lot some significant demand there, demand for grains, for sugar, sometimes even for fuel. So we took the commitment to recover those strategies. This will be a long term plan. It's not for 2023.
It goes beyond that. And we have a CapEx of roughly BRL400 million to accomplish this, which is also embedded in the BRL6.1 million.
Okay, perfect. Last point, the net BRL1.3 billion of the unpaid concession fees and the credit that you had as labor lawsuits. So this is going to be paid in 2 installments of BRL50 1,000,000 and BRL6 of about BRL 200,000,000, right? What is the rate here to be adjusted? Is it inflation?
Is it an NPV based on the walk?
Okay, inflation. It's all inflation. We have an agreement. And from now on, what
Actually, it's not inflation. It's Felicchi.
Felicchi. Okay. Perfect. Okay, guys, I'm going to go back to the end of the line if no one answered my other questions. Thank you very much.
Okay. Thank you, Rogerio.
Our next question comes from Regis Cardoso, Credit Suisse.
Hi, guys. Good afternoon. Thanks for taking the questions. 2 from my side, Levi and Berto. One of the topics that I've been curious about in the results was the conversion between EBITDA to cash flow operating cash flow, which seemed particularly weak.
You mentioned the cyber attack on the receivables. That's about EUR 100,000,000 in increase in receivables. I'm not sure if entirely related to the cyber attack. If you could comment, I mean, why did working capital consume so much cash? Is this something reversible?
That would be very much appreciated. And then my second question is more on a medium term view, whether you have any concerns about the corn harvest in Brazil this year, especially because of the competition with the U. S. Given the low oil prices affecting ethanol? Thanks.
Hi, Hershey. This is Ricardo. Let me start with the second question, talking a bit about corn, okay? It's important to give you an entire overview and I will talk also about the U. S.
But expectation for Rimmato Grosso, that's our most important market, is above the country average. In Mato Grosso, we have already 80% of the corn already commercialized, while in Brazil, we have less than 60% of commercialized corn. If we compare with 2 piles in 'nineteen, there will be significantly less export of corn in the first half of the year, okay, especially because impacted by January, because in 2018, we have inventory that were sold in January and in June volumes because these years, there's no early harvest of corn. So most part of the reduction in export for corn will happen in the first half of the year, okay, but we will ensure good volume for export in the second half of the year. So it's important to understand all the picture.
Now talking about your question that U. S, okay? You're right, there will be higher availability of corn in the U. S, as you said, due to the lower consumption of corn ethanol. But Brazil, it's a very good position, mainly because of the FX rate.
The BRL is very depreciated, okay? And this makes our corn that's already competitive even more competitive, even more than it's today, okay? And moreover, Martin Grosso, it's really well positioned in this competitiveness, okay? As I said, there is almost 80% commercializing against 58% in the country. Just to see the level of competitiveness of the Brazilian corn, For 2021, okay, I'm not talking about second half of this year, I'm talking about 2021, Mato Grosso has already conventionalized 28% of the crop.
So not that we expect 2020 being a very strong
year, but
also 2021, we expect to have a good year. Talking a bit about your first question, the conversion. If you take 1st quarter of 2019, we have the same question at that period, okay, at that time. And as you said, the conversion to the EBITDA through cash flow was also weak at that point. So it's recurrent what happened in our not sector, but in the company and reinforced this year by the cyber attack.
But basically, this is something that happens from 1 year to the other and that involves both recurrent fees or even very, very things that are onetime. For example, you have expenses on Mala Paunitza that we needed to pay. We have suppliers' payments. You have some judicial demands that happened that increased the conversion, okay? So it's not something controlled.
And like last year, during the year, this conversion will increase until the end of the year. As I said to Peter in the previous call, we every year we reduce the working capital investment during the year. Okay?
Very clear. Maybe just to follow-up on the last one to see if I got it correctly. Do you think this working capital investment is something that will be reverted, as in you will generate cash from working capital from removing working capital? Or is it just that the conversion will be better for the next quarters, but the investments in working capital you needed to make now are permanent?
Conversion will be much better. It's not that we reverse that we have a positive working capital. It's more improvement of conversion. Very clear. Much better improvement, okay?
Very clear. Thank you.
Okay. Thank you.
Our next question comes from Rogerio Araujo, UBS.
Hi, guys. Thank you for the follow-up. One more from Maria Paulisto Reneeo here. So the TCU, they required in their report 2 requirements here. 1, it was like a return review cycle for Maria Paulista consisting of sharing the income in cases in the case it's above official assumptions.
So how did this go? Is there already a model like a tariff model? How will this work? And also, they required clear guidelines for indefinite rail operators to use Malia Paulista. So is this regulation out already?
How this evolved since then? Thank you.
Thank you, Roger. I will answer the first one. So you're right, as that we explained also in the presentation, we'll have a variable concession fee, which may be charged if we overcome the volumes forecasted in the AMEPT model, okay? Those volumes will be splitted in 2 types. The first one, it's on cargo performed by Paulista, which arguably has a higher tariff because when we transport for Paulista, in average, we transport for 700 kilometers and very likely will charge a tariff around SEK 70 per ton, SEK 80 per ton.
So if we do more volumes of cargo in Paulista, of course, they will have to review the model to see how much more concession fee they would have to charge to rebalance the agreement in 11.04. On the other hand, we have pass through cargoes, which, for instance, includes the volumes that we have in the northern network. So those cargoes, we don't have to pay based on the tariff that we charge from the customers. But instead, from the pass through fees that we charge in Paulista to the Northern network, which is much lower than the average tariff that Paulista charge from its customers. So for instance, today, this pass through fee is around BRL 20, BRL 25 per ton.
So when we try to put those things together, I would say that maybe and hopefully we'll overcome the volumes of pass through cargoes in Paulista. That means we'll have much more revenues in the northern network, which is something good. And as a side effect, we might have to pay a bit more in concession fee. But this adjustment in the concession fee will only happen based on the BRL25, which is the pass through fee. So we are not as much sensitive to pass through cargoes to change that much the concession fee.
On the other hand, we think that the volumes forecasted by the regulator for the cargoes, the own cargoes of Mala Paulista are already pretty high. So it's very difficult to overcome those volumes. It is possible, but it's not likely. So we don't expect to have any kind of major adjustment in terms of concession fee throughout the concession period. But again, the business, it should be perceived as something good because if we have more volumes, definitely we have more revenues.
And then the methodology to share these revenues, it's only based in the volumes. And it depends if we are talking about pass through volumes or volumes that we are serving the cargoes from Paulista network. There is a very complicated Sorry
to interrupt, yes. Sorry to interrupt.
What do you mean share is fifty-fifty? So 50% of the extra revenue?
No, no, it's not that. It's much more complex than that. They pretty much bring this volume to the model and try to understand what will be the advantage in terms of fixed cost dilution. And then they realize how much more they have to charge to rebalance. But there isn't a way to establish.
Instead, there is a methodology to reveal the whole thing. But again, it makes a lot of difference if we are overcoming the volumes in past due cargoes or in cargoes served by Paulista, which have higher tariffs. And for Paulista, we don't see as likely. And when we talk about grains coming from the north, okay, if we have to pay a bit more because we overcome the volumes, it's not a big deal. And it won't be as much because it will be only calculated based on the tariffs, the pass through tariffs that we pay in the North.
Okay. Yes, that's the indefinite operator. Rogerio, just well, at the end of the day, nothing changed compared to the current regulation, okay? In practice, the concept that's defined by the regulator is difficult to be put in place in large distances, okay? The IRO, that's the regulatory operator, it's difficult for them to be able to have like train drivers to replace the shifts of train drivers after 8 hours, to stay in overnight, like the overnight that we have already built to have fuel stations.
So it's difficult for them to have the infrastructure that we as operator have, okay? So it's not only acquiring the right of way, but need to have acquired all the other services, okay? Just to today, we have a structure in place like the one we have with Clavin, for example, that the definite railway operation, they buy some assets, okay, and we make the service for them. So this is exactly what we have in the South. If you go to the South operation, you will see that nice clubbing trends.
They did the investments and we operate for them. And in my opinion, actually, in Rumo's opinion, this is even this is not a threat for Rumo. On the contrary, this is an opportunity that Rumo has in case we want to reduce the need for CapEx, okay, and we want to guarantee the volumes. So at the end of the day, it's even positive for us.
Okay. Sounds good. Just confirming on the first, on the return review cycle. So you charge about BRL170 per ton from Ranganopoli to Santos. So can we think that from this BRL170, everything that goes above the expected volume, the official volume, you would have to pass through about BRL 25 to the government.
So it's like providing a 15% of your charge fees to the government above a certain level, a certain threshold that you have as official estimates? Is that a good way to think about it?
No, no, Rogerio. It's slightly different. You're right about the tariffs that we charge in the north. They are around BRL 170. And out of that, we have roughly BRL 25 per tonne as a pass through fee.
What I mean is we only have to share a piece of this BRL 25 per ton if we overcome the volumes, not the $25 per ton. Okay. Perfect. So it's even less.
Okay, perfect. It's very clear
on that. Thanks so much again and congratulations for this conclusion. Thank you.
Thank you. That does conclude the question and answer session for investors and analysts. Now I would like to turn the floor over to Mr. Ricardo Levin for his final considerations.
Well, once more, I would like to thank you all the investors and Teleside for participating of the call. This is a very important moment, not only for Aruba, but for the entire country. The milestone of the renewal of Paulista is the first time in the country that we have anticipated renewal. And we were able to set a model, I think, for the all other renewals in the country. So it's very important for us.
We are commemorating this moment. It's very important, as I said. And I'd like to reinforce that we are very positive regard to the rest of the year. So we intend to have a very good second quarter as well as a very good second half of the year. So I'd like to thank all of you for the support, always support, have you always supported the company during the last 5 years that we fight for the have fought for the renewal.
And please, all of you stay safe. Talk to you in the next quarter. Thank you. Bye bye.
That concludes Rumor's 1st quarter results conference call. Thank you very much and have a nice day.