Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Rumo's third quarter 2019 results conference call, which will be led by Mr. Ricardo Lewin, Chief Financial and Investor Relations Officer. 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 Rumo's remarks, there will be a question and answer session for investors and industry analysts conducted by Mr. Ricardo Lewin. At that time, further instructions will be given. Should any participant need assistance during this call, please press star zero to reach the operator. The audio and slideshow of this presentation are available through live webcast at ir.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 Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Rumo's management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Rumo and could cause the results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Ricardo Lewin. Mr. Lewin, you may begin the conference.
Good afternoon, everyone. Thank you for joining us. I would like to point out that like our previous quarters, to facilitate the analysis, 2018 results presented in our earnings release refer to the pro forma figures, reflecting the impact of IFRS 16 to guarantee a fair comparison. On page two of the release, the impact on each line of our income statement is summarized. That said, we will begin our presentation on slide number two. This quarter, for the first time, we present our consolidated results, including the effects of Ferrovia Norte-Sul, North-South Railway, which we will name from now on Malha Central or Central Network. We will not present a specific session for Central Network as it is at pre-operational phase.
The signature of the sub-concession contract on July 31st resulted in BRL 2.9 billion referring to the auction value duly restated by contractual parameters and recorded as right of use, BRL 220 million in the leasing account as concession fee payments, BRL 75 million in the P&L. To facilitate the analysis and comparison of results, we present the chart on page three, considering the third quarter 2019 figures, but excluding the Central Network. It's worth noting that other sections of the release report figures including Central Network. On the next slide, I would like to remind you of the strategic relevance of the Central Network. As we mentioned in our last call, the Central Network brings opportunities for Rumo related to the transportation of diverse cargos, such as fertilizers, bulk sugar, biofuels, by-products, and containers.
It expands our agricultural products area of operation to the state of Goiás and Tocantins, regions with a strong growth potential, which today do not have efficient access to railway. Over the next months, our objective is to have this network fully operational. We will make the necessary investments to achieve this railway's potential, whose relevant results will be likely seen in 2022. On the next slide, we will discuss our operational results in the third quarter 2019. Volumes grew 7.7% in the third quarter 2019 to 17.4 billion RTK, highlighting the operational performance in July, which allowed transportation to hit our record of 6.2 billion RTKs. Segment highlights include fertilizer transported volume that grew by 42%, boosted by volumes in the north operation.
Grain volume that rose by 9%, highlighting corn transportation, which came in 24% higher than in third quarter 2018, and container transport that grew by 12%. Let's move to the next slide to discuss our financial performance. Rumo's EBITDA was BRL 1.2 billion and rose 18.5% this quarter compared to the same period last year. The consolidated margin stood at 58.6%, 4.44% points above third quarter 2018, reflecting the company's excellent operational leverage. We highlight the 4.6% yield increase, mainly due to seasonality, which got back on track. Yield increase from 2018 to 2019. Lower impact of fertilizer volume on the average price, since third quarter 2018 already had a track record of volume. Variable costs increased less than volume growth, mainly reflecting improvements of 6.2% on energy efficiency.
Fixed costs increased by 4.3% due to payroll exemption in the West and South networks, and higher maintenance expenses in the North operation. All operations recorded EBITDA growth with yield gains and positive performance of costs. We will now take a look at the financial results and net income. The financial result came in line with third quarter 2018, with a net expense of BRL 300 million. The factors that positively contributed to such result are the decreasing gross debt and average cost of debt. On the other hand, there was the recognition of the Central Network contracts that increased leasing charge due to the inclusion of interest on the concession installments. That said, we delivered a net income of BRL 369 million in the quarter. On the next slide, we will take a look at our debt.
Rumo's indebtedness decreased to 1.8 times broad net debt EBITDA compared to 2.0 times in the second quarter 2019. We emphasize our commitment to capital discipline, always striving to keep leverage at acceptable levels for the company. On the next slide, I'd like to discuss the market dynamics foreseen for the fourth quarter, referring to corn. According to AgRural, current record crop should result in record exports this year, with 35.8 million tons. Even so, final inventory should increase to 18 million tons. Thus, a positive corn availability, if combined with positive price conditions, may boost Rumo's volumes in fourth quarter 2019, a period which depends mostly on the market dynamics rather than in the company's capacity. Regarding 2020, despite a preliminary estimate, we expect production should come in line with the record of 2019, with 101 million tons.
We still do not have either data on Brazil's exports or exports by state. Let's move to the next slide to discuss the soybean scenario for 2020. Soybean projections for 2020 already consider planting preliminary data and indicate soybean record production in Brazil and in the state of Mato Grosso, and expectations of soybean exports in line with 2019. This estimate takes into account the effects of this African swine fever on consumption in China. At the same time, it foresees that China will not reduce its inventories at the same proportion of 2019, thus opening room for imports increase. Concerning uncertainties deriving from the trade war between China and the U.S., the soybean crop failure in the U.S. should slow down the U.S. inventories from 25 million tons to 12.5 million tons, reducing the probability of the U.S. exports increasing even more.
As a consequence, we believe there is room to increase soybean volume transportation in 2020, especially in the first three months of the crop, period when commodity price and demand for efficient logistics are higher. This concludes my presentation. I remain at your disposal for the Q&A session. Thank you.
Thank you. We'll now begin the question and answer session for investors and analysts. If you have a question, please press star one on your telephone. We kindly ask you that in case you have more than one, please announce it in the beginning and ask one by one to ensure conference flow. If you prefer to send your question over the Internet, click on the Ask the Speaker button on the webcast platform. If your question is answered during the session, you may remove it from the line by pressing star two. The questions will be answered in the order they are received. We ask that you, when you use the web handset, ask the question in order to maintain excellent sound quality. Please stand by while we collect the questions. Our first question comes from Mr. Steve Trent, Citi.
Yes. Hi, thank you for taking my question. It's actually Brian Roberts on for Steve Trent. How should we be thinking about the soybean volume growth in the northern network versus the decline in the southern network? Have you disclosed any potential margin or cost structure differences between the two networks? Thank you.
Hi, Steve.
Brian.
Brian, sorry, I saw Steve there. Thank you for the question. Giving you a very short answer. First, in the north corridor, the GTK is much higher in the north than in the south. That takes to a higher margin in the north compared to the south. In the south, being a smaller distance between the farms or from the farms to the port, you have more competition from the truck market. That makes the margin, it's an offender of the margin. The margins are also smaller due to this reason. Basically, this is a short answer. This is the huge difference between both.
Great. Thank you.
Our next question comes from Victor Mizusaki, Bradesco BBI.
Hi. Thank you. I have two questions here. The first one, when we take a look on your container operation, we can see a very high volume growth. We are talking about 25% over year. Can you give any breakdown in terms of how much of this growth is coming from your investments in the double-stacker? When do you expect to see this new volume or the growth to stabilize? The second one, if you can comment about your negotiations with the trading companies to set the new take-or-pay for next year.
Hi, Victor. Thank you for your questions. Answer the first one about containers. Basically, the growth comes from the backhauling, the increase of backhauling and increase of cargos, not necessarily due to the double stack. The double stack is very recent, and you will see improvement of margin, improvement of our volumes due to the double stack next years or so. Basically, the improvement of volumes come from backhaul. Remember that you bring from a very industrialized market, that's the market from São Paulo, to the interior of the country. Where Rondônia probably is, Mato Grosso, you bring several different products. These are commercial efforts that Brado is doing to increase the backhauling in this direction and improving obviously the margin of the business. The second question is about the take-or-pay. Is that right?
Well, regarding the negotiations, we have started the negotiations, but we are far from the final figures we could be in 2020. As I have, I think, already said in a previous call, this is a very strategic information for us. At this point, we cannot provide much information without compromising the agreements with the customers. We are seeking to have as much take-or-pay as possible, but remember that this take-or-pay is subject to market conditions. That's it. Thank you.
Okay. Thank you.
Our next question comes from Rogério Araújo, UBS.
Yeah. Hi, everyone. Thanks for the opportunity. A couple of questions here. First on Malha Norte Sul, can you provide some details on how the investment plan is going? Also on efficiencies in CapEx, if there was any versus what was expected in the original plan, and about timing as well, when this should begin generating revenues and when the major investment should be ready as well. It would be great to get some color here. I will make my second question later. Thank you.
Hi, Rogério. Thank you for the question. The second half of the year, in the third quarter. The first quarter with Norte-Sul or Central Network, as we are calling Tronco 1. We are investing right now on the diligence of the network. Also we are investing our time in starting to negotiate all the supply contracts. The huge CapEx on my Central Network will start from the next month and will take more or less two years to be operational. For being operational, the first operation will start by the end of 2021, beginning of 2022. Regarding efficiencies in CapEx, I think everything that we are seeing in the Central Network is being very positive.
You saw that we provided some information about the market in the way of the Central Network. You see that it's a very big market, larger than we expected. There is a lot of volume that can be transported by containers also, that by our last studies has been very positive, also better than we expected before. Obviously, efficiency in CapEx, you always have, because when you start a study and you go to the market to call the CapEx, you obviously start to get improvement. It has been very positive. We still cannot provide to the market any kind of number of CapEx, but a very positive thing that we can provide to the market is that, including the Central Network, we are not changing our guidance in CapEx.
That means that we will include the huge part of the CapEx in the North-South in our long-term CapEx guidance.
Yeah, perfect. Thank you. Second question is regarding the accidents that happened in September that prevented Rumo from transporting more volume. Could you provide more details on what happened and if operations already normalized by October? Also, if there is any sign of capacity constraints and if this could happen again. It would be great to get more color on what exactly happened and what to expect going forward. Thank you.
Well, Rogério, let me start by the end. There is no capacity constraints right now, and the operations are running okay. Basically, what we had, we had in September two derailments, one in Alto Araguaia and the other in São José do Rio Preto, that together resulted in 50 hours of operation interruption. We had one bump that happened when a tank truck crossed the tracks, not respecting the signals, and was hit by our crane. It also interrupted the operations for something around 15 hours. These were the accidents, but we work very quickly on that. The time that we lost, our pressures obviously, but we are ready to operate in defense, after these hours, operations are working perfectly well. Just so you can follow, during this week, we'll be presenting to the market the volumes of October.
You can see in our website, I think on Wednesday.
Thursday.
Thursday. Sorry.
Perfect. Thank you very much.
Next question comes from Felipe Vinagre, Credit Suisse.
Hello. Thanks for taking my question. I have two questions. First, a follow-up on the guidance comments when you said that the North-South CapEx already included in your long-term guidance. Can you quantify how much would be the CapEx just for North-South? On the EBITDA side, does it mean the same that the EBITDA from the North-South is also included in your EBITDA guidance? That's for the first question. The second, do you expect any impact from the completion of the pavement of the BR-163? I know the minister has been vocal about completing this year. Do you think that there's going to be some pricing pressure as a result of this completion? These are my questions. Thank you.
Hi, Vinagre. Thank you very much for the questions. Regarding the guidance, the point here is that we are not changing the long-term guidance because of North-South, at least by now. That means that by what you saw in the documents of the auction, there was something around BRL 3 billion to be invested in the North-South, BRL 1 billion was an obligation that will be invested in the network, and BRL 2 billion in rolling stock. The investment that we are doing the next three, four years, until 2023. We are not increasing the guidance. That means we are doing the BRL 1 billion, the network, and we are investing whatever we need in the rolling stock. To attend the volumes we have in Goiás and Tocantins. We are not increasing the CapEx.
On the other side, we are not changing EBITDA, but obviously, the EBITDA generated by the North-South is not included in the guidance that we provided. Once we have started to negotiate all the contracts for transportation, we have a better view on that, we will provide to the market. Remember that this is a pre-operational railway that still needs one year and a half to two years to be ready. The commercial contracts will be signed a bit earlier than that.
Thank you.
The second one is about the impact of BR-163. Much probably you're doing this question because you saw the volume that went up through the Arco Norte. Obviously, we are following BR-163. It's a competition for our railway, obviously, mainly once it's 100% paved. Important thing here is that remember that once the rail is paved, much probably government will pre-apply that, so you'll have additional cost in going up to BR-163. The other thing is that we lost part of volumes to the Arco Norte and to BR-163, not because the competition of BR-163, but because the growth of capacity that we had was lower than the growth of the market. You have a huge concentration of export of corn in three months.
This growth was much higher than the growth of our capacity, and that was the main reason to lose capacity or market share for the Arco Norte, and that includes the 163. Important to say that we keep investing. With these investments, we increase our capacity. That will allow us to take part of these volumes that export once we are more competitive than the other solutions.
Okay, thank you.
Once again, to ask a question, please press star one. Thank you. That concludes the question and answer session for investors and analysts. Now, I'd like to turn the floor over to Mr. Ricardo Lewin for his final considerations.
Well, this is the last call of the year. I'd like to thank you for our investors and for the sell-side analysts for all the support you gave us during this year. We hope to be with you in the next year. Thank you very much. Bye-bye.
That concludes Rumo's first quarter results conference call. Thank you.