Good afternoon, ladies and gentlemen. At this time, I would like to welcome everyone to Wilmot's 4th quarter and 2018 results conference call. Today, the conference call may be conducted by Mr. Is recorded and all participants will be notified only notes during the company's presentation. After the formal remarks, there will be a question and answer session available through live webcast atir.homolog.com.
These 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 19 96. Forward looking statements are based on the beliefs and assumptions of Wilmot'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 certain expenses 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 Enel and could cause results to differ materially from those expressed in such forward looking statements.
Now I will turn the conference over to Mr. Gilde Fontenas. Sir, you may begin your conference.
Good afternoon, everyone. I am Julio Conteña, CEO of Guillermo. First, I would like to turn the call over to Mr. Julio Conteña. First, I would like to turn the call over to Mr.
Julio Conteña. Our 2018 results in 2018. And let's start our presentation on Slide 3. 4 year turnaround and represent the achievement positive on interest of the fees defined when we made the leaving behind period of cash consumption while reaching a 44.2x net debt and EBITDA ready to support future capital plans. 2018 was not easy.
We moved to national cost of goods by controlling our terminal supply and we raised a loss of volume and EBITDA that quarter. At the same time, the corn crop fast growing in the 5 region fell short on expectation. Even so, we delivered very low 2.5 times net debt, EBITDA ready to support future CapEx plans. 2018 was not easy. In May, the national drivers tried confirming our terminals supply and results are lost of volume and EBITDA that quarter.
At the same time, the corn crop, particularly in the South region fell short of expectation. Even so, we delivered results very close to the guidance, feeling on the back of the strong soybean crop, efficient and capacity gains. Also for 2019, we maintain committed to delivering our long term plan announced to the market 3 years ago. The year had a very positive start with a soybean harvest beginning in early January, which is normally expected at the end of the month. Prospects for the corn crop in the second half of the year are favorable as well.
Our operations are ready to meet the growing demand of agro business and other sectors of Brazilian economy, which are expected to record growth in 2019. I am very pleased with our 2018 results as well as with the performance of the global team who executed the business trend with discipline as a result, Lumin had towards the end of the turnaround cycles to pursue a new one, the growth cycle. As announced, we started the succession process of the executive board and will remain active at room on a daily basis until November 2019. After this period, I will remain closed, but through the leadership of the women's operational community. In this new cycle, we will continue doing our best to pursue good projects and grow our business while delivering robust return to our shareholders.
I will now pass over to Ricardo Levy, Ruma's CFO, who will conduct our presentation. Thank you. Thank you, Julio. 2018 proved to be an outstanding year for Uvo. In a year that's credited numerous challenges, Umo delivered results very close to its guidance ceiling, evidencing our deep commitment to maintaining operations at a high level.
In this quarter, we booked a provision of BRL72.5 million due to the impairment in the West network. That's not recurring and has no cash effect, but led us to report an adjusted EBITDA according to instructions of the EMEA 5,000,000,000,000,000,000 in the next slides, we will be presenting numbers using the adjusted EBITDA. Due to the current public offering of local bonds, we will not disclose our 2019 guidance. In addition, the long term guidance that has already been announced is temporarily suspended. Please, let's move to the next slide.
Our transported volume grew by 13% in 2018, mainly due to a record soybean crop that boosted grains performance. On top of the harvest, Humu showed its ability to deliver other initiatives to afford volume growth. Wealth Operations recorded 127 percent higher volumes in fertilizer transportation. New contracts boosted both volumes by 83% and we continue to develop our container operations, capturing backhaul in the domestic market and imports. On the next slide, I would like to share with you a relevant change in our pricing model.
Over the last months, we have implemented change in our pricing system for the green chain. Previously, our green contracts were based on a long term 3 year contract considering an annual growth. With a change on the market chain dynamic, mainly the relationship between farmers and tradings, our clients realized that the high commitment and risk of decision could affect them. To address this new scenario, we have agreed to reduce contract terms to enhance trading visibility toward competition, while raising the penalty for the flow of volumes contracted from 50% to 70% of the net revenue. Another relevant change implemented by this new model is that the paper pay is now monthly and collected on a quarterly basis, making volumes recovery not a possibility.
This model represents a balance of further bonds and has been well received. Above all, it will help us in our growth strategy. Please let's move to Slide 7. In 2018, we achieved a very consistent EBITDA, which grew by 18% year over year. The EBITDA margin reached 49.2%, reflecting our company wide effort to dilute fixed costs and improve locomotive efficiency, decreasing fuel consumption.
Analyzing our individual business units, the North operation recorded continued high profitability. The South operation, even though ethylated constraints due to a reduced corn crop, continues evolving to deliver improved results. And the container operations delivered its 1st year of positive results by taking advantage of backhaul freight, increasing transportation volumes in the domestic market and import cargoes. Moving to Slide number 8, we will discuss our financial results and cash generation. As a result of 2018 efforts to cut net cost, we decreased its financial expenses by 27.4% and the cost of its broad net debt by 29%.
In the Q4 2018, we benefited from a yield curve drop, which resulted in a positive NPM effect of BRL129 1,000,000. Both financial result evolution, coupled with EBITDA performance enabled Humu to generate cash before amortizations and funding for the first time, leaving behind peers of cash consumption to ensure the deliver of our capital spend. In 2018, we also reported a net income of BRL273 million for the first time. Let's move to the next slide to discuss our quarterly basis indebtedness position. As a result of our operational and financial deliveries this year, we ended 2018 with a leverage of 2.2x net debt EBITDA.
This level is very close to the ideal net debt EBITDA for VUMO, which enable us to finance future projects and bring a higher return to shareholders. With this, I finish our presentation and remain at your disposal to provide any clarifications. Before finishing, I would like to reinforce that due to the current public offering of local bonds, we cannot answer any question related to future assumptions or any forecast. Thank you very much.
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 afternoon, Julio and Levin. Thanks for taking the question. I have two questions actually. The first one is on the yield year over year variation. If you could help us understand that negative effect on the yield.
I understand there is the fertilizer volume ramp up, which should explain part of it as it gains shares gains share within the mix with a lower tariff as it, of course, occupies a previously idle capacity in the backhauling. But if there is anything else that you can add to help us understand that movement, that would be the first one.
Hi, Pedro. Thank you for participating of the call. Let me give you a complete explanation about the yield. So it's clear for you and the market. I will give the explanation in 2 pieces, okay?
First one, I explained the North operation and second, the South operation, okay? In the North operation, there's a different mix with more pulp and fertilizer that brought both the 4th quarter and 2019 leverage yield down. As long as the tariffs for those cards are lower than the average for the operation, okay? It's worth to mention that although it has lower tariffs, margins are higher. Also, due to the high volumes, we also served more volume in other terminals besides 100 office, which in turn have lower tariffs.
On top of that two reasons that I explained, we also have changed the way we price the range throughout the quarters. So in 2017, we basically had one price for soybean in the first half and one price for corn in the second half. That's usually below the price of soybean prices, okay? In 2018, we decided to price differently by quarters. So there were 2 prices for soybean in the first quarter and 2 prices for corn in the Q2 following international prices for commodities.
For example, for corn, prices are typically higher in the 3rd quarter than in the Q4. While in the Q3, we have the beginning of the harvest and the 4th, the end of the harvest, okay? So this change in price methodology, added to the reasons that I mentioned in the beginning, caused a year to to year drop in the tariffs, okay? For the South operations, the lower yields in the quarter were caused by a mix with less sugar, sugar that has higher tariffs for that quarter and also because it's a lower crop of corn in Parana and south of Mato Grosso do Sul. In this sense, we served more volume in the region in the region of the state, which typically had lower tariffs than Parana and Mapucos.
But I'd like to reinforce that although we have lower yields, the margins are much higher than we presented in last year.
That's perfect. Thank you very much, leaving. My second question would be potentially for Giulio, a more strategic one in the context of turning the page from being a turnaround story towards being a growth story, as Rudolf mentioned. How do you see the north south network strategically within that context that should be coming to the market soon? That's the second one.
Thank you very much.
Pedro, sorry for the question. Yes, this is Ricardo, okay? As you live here on my side, but I will answer that because unfortunately due to the local debenture insurance, which the opening then was posted today in CPM and VIM's website, We are in the quiet period and we cannot commit to talk about future assumptions of the company, give any guidance or talk to future projects of the company. So we cannot disclose any additional information about this issue.
The next question comes from Bruno Amorim, Goldman Sachs.
Hi, good afternoon. Could you
please provide us with an update on the take or pay contract that you have probably closed in June December with our main clients. I understand you cannot provide guidance, but any color on the kind of agreements that you have closed could be helpful. Thank you very much.
Bruno, this is Ricardo. Thank you very much for the question. We gave in the call some explanation about the take or payer. We'll talk a bit more about that. We just we are not disclosing how the cost is going on, mainly because it is commercially very strategic, okay?
So just and repeating here a bit about what we told you in the presentation. Our previous main concepts, they have basically 3 they were 3 year last agreement that also represented a high commitment with all these growth by both sides, okay? We've changed the market dynamics. And what I tell this is mainly the relationship between the farmers and the tradings. Our clients realized that on top of the harvest, we had also a risk of higher competition among the ethylene companies, which created additional margin pressure for them.
So it's a great scenario. We have been studying this new price system for maybe the last 2 years. We have agreed to reduce contractual terms, so we enhanced the trading visibility towards the competition, while also raising the penalties for the 4th quarters. We that went from 50% in the past to 70% in these new agreements, okay, 70% of the revenues. And another relevant change that we can talk here that was implemented by the new model, what the take or pay is now monthly and collected on a quarterly basis, making the volumes recover not possible and so make less volatile for us.
This is what we can tell you by now about the take or pay contracts. Okay.
Thank you very much. Thank you.
Our next question comes from Lucas Barbosa, Morgan Stanley.
Good afternoon. Thanks for taking my question. In the release, you have mentioned that early exports of corn have given the they have mentioned early exports of corn given the anticipated soybean crop. I just want to hear your thoughts on how you see the grain inventory in the beginning of this year, if this corn export movement has triggered a large reduction in inventories for the beginning of the year, or if this something that doesn't worry the company. That's my question.
Thank you.
Lucas, and on the call, sorry, I'm being a bit boring about answering the questions. But I need to repeat that I cannot make any forecast in this call because the local debenture is insurance, okay? The only thing that I can tell you is about public information that we disclosed in the release. It's about that according to our new consultants, we estimate for positive 'eighteen, 'nineteen crops that indicates increased grain production in Brazil and Mato Grosso, except for soybean. Crop in Brazil, which should decrease by 2% due to unfavorable planting conditions.
On the other hand, the corn crop is expected to grow 18% in Brazil and 9% in the state of Puerto Bronco, which is the main region of region for being transported by the company, okay? Ruble continues to increase its capacity to be furthering demand out for the green transportation by Brazilian ports.
The next question comes from Alberto Valerio, UBS.
Hi, Ricardo. Thank you for taking my question. Just a quick note, I saw that there was a reduction in the finance expense for Ooma this quarter. I saw that there was a €1,000,000 to €9,000,000 non recurrence. And I'd like to know if you can take just this €1,000,000 to €9,000,000 or if the cost of debt will be back for 10% that we had on the previous quarter?
Alberto, thank you very much for the question. I think that the good news about the financial expense reduction, not only about the net quarter,
it
was that when compared to 2017,
the interest
expenses was 39% lower, what means BRL347 1,000,000 we are saving every year, okay? Regarding the last quarter, the point here is that the reduction due to the more than the curve, okay, the CDI curve that went down, okay? So there are clear effects here to the cost of debt and in the protection, we had protection that we have in the for the bonds. So in the hedges. So these were the 2 effects, okay, that we had that reduction in this last quarter.
Hopefully, this answers your question, Robert. Yes. Thank you.
The next question comes from Victor Mizusaki, Bradesco BBI.
Hi, thank you. I have two questions here. The first one will be I do not know if you can confirm this, but based on what you said about the new Parsonage model, you're actually reducing the volatility, volume volatility. Can you assume that at the end of the day, we are in a situation where if you're increasing your capacity without an additional investment? And the second question, now that you have like 10% of your capacity in the spot market, can you comment how the minimum growth rate price is the fact that it is spot
price? Victor, sorry, but we are not looking very well your preference. Could you repeat? I don't know if we are too close to the phone.
Yes. So the first one, how do you say that now that you have these monthly you track volumes on monthly days, I mean, the difficult pay contracts and the returning companies cannot move volumes from 1 month to the other, In the end of the day, if you think about your numbers, you don't see any I mean, the business such an attitude like to reduce a lot. So at the end of the day, can you imagine that you can increase your capacity without any additional investments. So returns could go up.
Well, because we give you a short question, the answer is yes. The level of volatility we have better for us, both for forecast the volumes and in terms of planning, okay, and in terms of using better the capacity. So the answer is yes, you're right. And the second part? Yes, the second part is in regards to
your I mean, when you take a look on the slide where you showed the new cost model, apparently 10% of your capacity would be available in the spot market. So I don't know if you can comment how the minimum growth price is affecting the spot market. So if a third price could go up.
First is I cannot tell that we are in the spot market. The point here is that we continue to focus in the take or pay. And what we as we explained, actually, the focus is to grow based in shorter term, okay? Once we do not close 100% of our capacity, then we will go to the spot market. That in the sense is what the market is paying for you, but it depends year over year what will happen with the crop situation, the price of the products of the grains, okay?
So it's difficult to forecast that. Okay. Thank
Thank you. That concludes the question and answer session for investors and analysts. I would like to pass the floor over again.
Thank you for our participation. We after the quiet period, we are here to clarify some doubts. Thanks very much. It was a pleasure to have all of you in the call.
That does conclude the Rumors Audio Conference for today. Thank you for participating. Have a nice day.