Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Humu's 3rd Quarter 2019 Results Conference Call, which will be led by Mr. Ricardo Lezin, 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 Rejumu's remarks, there will be a question and answer session for investors and industry analysts conducted by Mr.
Ricardo Levin. At that time, further instructions will be given. The audio and slideshow of this presentation are available through live webcast atir.rumulog.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 Humu'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 Humu and could cause results to differ materially from those expressed in such forward looking statements. Now I will turn the conference over to Mr. Ricardo Levin.
Mr. Levin, you may begin the conference.
Good afternoon, everyone, and thank you for joining us. I would like to point out that like Hawaii's previous quarters, to facilitate the analysis, 2018 results presented in our earnings release refer to the pro form a figures, reflecting the impact of IFRS 16 to guarantee a fair comparison. On Page 2 of the release, the impact on each line of our income statement is summarized. That said, we will begin our presentation on Slide number 2. This quarter, for the first time, we present our consolidated results, including the effects of Servia Noricel, North South Railway, which we will name from now on, Magal Central or Central Network.
We will not present a specific session for Central Network as it is at preoperational phase. The signature of the sub concession contract on July 31 resulted in BRL2.9 billion referring to the option value duly restated by contractual parameters and recorded as right of use. BRL220 1,000,000 in the leasing account as concession fee payments, BRL75 1,000,000 in the P and L. To facilitate the analysis and comparison of results, we present the chart on Page 3 considering the Q3 2019 figures, but excluding the central network. However, it's worth noting that other sessions 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 rumour related to transportation of diverse cargoes such as state license, ball sheet, biofuels, byproducts and containers. In addition, it expands our agricultural products area of operation to the state of 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. Therefore, we will make the necessary investments to achieve these railways potential, whose relevant results will be likely seen in 2022.
On the next slide, we will discuss our operational results in the Q3 2019. Volumes grew 7.7% in the Q3 'nineteen to RMB17.4 billion, highlighting the operational performance in July, which allowed transportation to meet our record of R6.2 billion. Segment highlights include fertilizer transported volume that grew by 42 boosted by volumes in the North operation. Grain volume that rose by 9%, highlighting current transportation, which came in 24% higher than in Q3 2018 and container transport that grew by 12%. Let's move to the next slide to discuss our financial performance.
KUM's EBITDA was BRL1.2 billion and rose 18.5% this quarter compared to the same period last year, And the consolidated margin stood at 58.6%, 4.4 percent points above Q3 'eighteen, reflecting the company's excellent operational leverage. We highlight the 4.6 percent yield increase mainly due to seasonality, which got back on track, yield increase from 'eighteen to 'nineteen, lower impact of fertilizer volume on the average price since Q3 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 huge gains and positive performance of costs.
We will now take a look at the financial results and net income. The financial results came in line with Q3 'eighteen with a net expense of BRL300 1,000,000. The factors that positively contributed to such results are the decreasing raw debt and average cost of debt. On the other hand, there was the recognition of the central network contract that increased leasing charge due to the inclusion of interest on the concession installments. That said, we delivered a net income of million in the quarter.
On the next slide, we will take a look at our debt. PULS indebtedness decreased to 1.8 times broad net debt EBITDA compared to 2.0 times in the Q2 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 4th quarter referring to COR. According to Agel Real, COR record crop should result in record exports this year with 35,800,000 tons.
Even so, final inventory should increase to 18,000,000 tons. Thus, a positive corn availability, if combined with positive price conditions, may boost Humu's volumes in Q4 'nineteen, 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 101,000,000 tons. We still do not have either baked on Brazil's exports or exports by stake. 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 flu on consumption in China. But 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 arriving 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 25,000,000 tons to 12,500,000 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 1st 3 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 and A session. Thank you.
Thank you. We will now begin the question and answer session for investors and analysts. We kindly ask you that in case you have more than 1, please announce it in the beginning and ask 1 by 1 to ensure conference flow. If your question is answered during the session, you may remove it from the line by pressing star 2. The questions will be answered in the order they are received.
We ask that when you use the web's handset, 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? And then have you disclosed any potential margin or cost structure differences between the two networks? Thank you.
Hi, Steve. Brian. It's Brian, sorry. I saw Steve there. Thank you for the question.
But giving you a very short answer, First, in the North quarter, okay, the GTK is much higher in the North than in the South, okay? So that takes to a higher margin in the north compared to the south. In the south, being a smaller distance between the farms or the from the farms to the port, you have more competition from the truck market, okay? So that makes the margin it's an offender of the margin. So the margins are also smaller due to this reason.
But basically, this is a short answer. This is the huge difference between both.
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're talking about like 25% year over year.
Can you give any breakdown in terms of how much of this growth is coming from your investments in the double stacker? And when do you expect to see this new volume or this new or the growth to stabilize? And 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. But I'll answer the first one about containers, okay? Basically, the growth comes from the backhauling, the increase of backhauling and increase of cargoes, not necessarily due to the double stack, okay? The double stack is very recent.
And you'll see improvement of margin, improvement of our volumes into the WESTAC next years or so. But basically, the improvement of volumes come from back office. Remember that you bring from a very industrialized market, that's the market from Sao Paulo, to the interior of the country, so where Rondo Dao plays, Mato Grosso, you bring several different products. So these are commercial efforts that Briado is doing to increase the backhauling in this direction and improving obviously the margin of the business, okay? The second question is about the take or pay, okay?
That's right. Well, regarding the negotiations, we have started the negotiations, but we are far from the final figures we could be in 2020, okay? But as I have I think already said in a previous call, this is a very strategic information for us. And at this point, we cannot provide much information without compromising agreements with the customers, okay? We are seeking to have as much take or pay as possible.
But remember that this take or pay is subject to market conditions, okay? And that's it. Thank you.
Okay. Thank you.
Our next question comes from Rogerio Araujo, UBS.
Hi, everyone. Thanks for the opportunity. A couple of questions here. First on Mala Norte Sul, can you provide some details on how the investment plan is going also in 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 investments should be ready as well. So it would be great to get some color here and then I will make my second question later.
Thank you.
Hi, Rosario. Thank you for the question, okay? This first half of the year, we are starting to first half of the second half of the year, in the third quarter. The first quarter with not too or central network, as we are calling from now on. And we are investing right now on the diligence of the network.
And also, we are investing our time in starting to negotiate all the supply contracts, okay? So the huge CapEx on my central network We start from the next month and will take more or less 2 years to be operational, okay? So for being operational, the first operation will start by the end of 2021, 2021, beginning of 2022. Regarding efficiencies in CapEx, I think everything that we are seeing in the central network has been very positive, okay? So you saw that we provided some information about the market in the way of the central network.
So you see that it's a very big market, larger than we expected. There is a lot of volumes that can be transported by containers also. That, by our last studies, has been very positive, also better than we expected before. And obviously, efficiency in CapEx, you always have because when you start a study and you go to the market to go the CapEx, you obviously start to get improvement. So 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.
Yes, perfect. And second question is regarding the accident the accidents that happened in September that prevented Rumu from transporting more volume. So could you provide more details on what happened? And if operations are already normalized by October? And also if there is any sign of capacity constraints and if this could happen again.
So it would be great to get more color on what exactly happened and what you expect going forward. Thank you.
[SPEAKER CANDIDO BOTELHO BRACHER:] Well, Roger, let me start by the end. There is no capacity constraints right now, okay? And the operations are running okay. Basically, what we had, we had in September 2 derailments, 1 in Alto Doraguaya and the other in Sao Jose del Puerto, that together resulted in 50 hours of operation interruption, okay? And we had one bump that happened when a tank truck crossed the tracks, not respecting the silence and was hit by our crane.
It also interrupted the operation for something around 15 hours, okay? So these were the accidents, but we work very quickly on that. The time that we lost our pressures, obviously, but we act very we are ready to operate in defense. And after these hours, operations are working perfectly well. Just to 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.
Perfect. Thanks very much.
Next question comes from Federico Vinagris, for Edi 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. So what's the so could you quantify how much would be the CapEx just for North South?
And 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 the first question. The second, do you expect an impact from the completion of the pavement of BR-one hundred and sixty three? 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, Denagu. Thank you very much for the questions. So regarding the North South, regarding the guidance, okay, the point here is that we don't we are not changing the long term guidance because of North South, at least by now. That means that by what we saw in the documents of the auction, there was something around BRL 3,000,000,000 to be invested in the North South. BRL 1,000,000,000 was an obligation that we would invest in the network and BRL 2,000,000,000 in growing stock.
The investments that we are doing the next 3 years until 2023, 3, 4 years, we are not increasing the guidance. That means we are doing the 1,000,000,000 in the network and we are investing whatever we need in the rolling stock, okay? So to append the volumes we have in Guayas and to continue, okay? So we are not increasing the CapEx. On the other side, we are not changing EBITDA.
But obviously, we 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, okay? So but remember that this is a preoperational railway that still needs 1.5 years to 2 years to be ready. So the commercial contracts will be signed a bit earlier than that, okay? The second one is about the impact of $1.63 Much probably, you saw you're doing this question because you saw the volume that went up to the bar, okay?
Although, we are following 163 is a competition for our railway, obviously, mainly once is 100% paid. Important things here is just remember that once the rail is paid, much probably the government will put aside that. So you have additional costs in going up to 163. The other thing is that we lost part of volumes to the North American to 163, not because the competition was for 163, but because the growth of capacity that we had was lower than the growth of the market, okay? Or you have a huge concentration of export of corn in 3 months.
So and 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 North Art and that includes the 163. Important to say that we keep investing, okay? We keep investing these investments. We increase our capacity that will allow us to take part of these volumes that export was, we are more competitive than the other solutions.
Okay. Thank
Now I'd like to turn the floor over to Mr. Ricardo Levin for his final consideration.
Well, this is the last call of the year. So 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. And we hope to be with you in the next year, okay? Thank you very much. Bye bye.
That concludes Humu's Q1 results conference call. Thank you.