Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Humu's Third Quarter of 2018 Results Conference Call. Today, the conference call will be conducted by Mr. Ricardo Levin, 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 Humu's remarks, there will be a question and answer session for industry analysts. At that time, further instructions will be given. The audio and the slideshow of this presentation are available through the live webcast at ir. 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 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, industrial 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'll turn the conference over to Mr.
Ricardo Levin. You may begin your presentation.
Good afternoon, everyone, and thank you for attending the call for Bouygues 2018 results. Let's begin our presentation on Slide number 2. Our transported volumes grew by 15% in the Q3 'eighteen versus Q3 'seventeen. In the 1st 9 months of 2018, we see a significant contribution from grains, fertilizer, pulp and containers. In the Q3 'eighteen, the record soybean crop extended the grain export period, mitigating lower production in a few states.
Pork load is volume declining due to unfavorable sugar export scenario. Moving to the next slide. Let's review yield and EBITDA performance. Volume and yield performance, together with cost discipline, increased EBITDA to BRL953 1,000,000 in the quarter, up 19% year over year. Once again, we evidenced our ability to increase volumes while maintaining cost efficiency.
This quarter, fuel consumption decreased 4.5% in liters per GPT versus the Q3 'seventeen and fixed costs were diluted. As a result, gross EBITDA margin reached 51% in the Q3 'eighteen, up 2 percentage points versus the Q3 'seventeen. Moving to the next slide, we can see the performance breakdown of our business units. The North operation posted another quarter of consistent results, reaching 60% in the store margin. High capacity allowed us to meet the higher demand for transportation of corn originated in the case of Patogors.
In addition, other titles such as pulp, fertilizer and containers also showed solid paper. Moving to the next slide, we see Humu's market share at the port of service. In the Q3 'eighteen, Kumbu's market share of reins transported to the port of service went up 6.6 percent. Besides higher generated capacity, which enabled room for the volume to grow by 13.9% in the quarter, Volume from other logistics sources decreased, demonstrating our competitiveness. In the 1st 9 months of 2018, the company's market share reached 49.5%, 1.2% of points higher than the same period last year.
Moving to the next slide, we will discuss South operations results. South operations volumes in this quarter were similar to those of the Q3 'seventeen. The record soybean crop allowed exports to extend to the second half, mitigating the impact of corn crop failures in the state of Parana. However, consolidated results were impacted by an unfavorable sugar and fruit scenario and a client neutral plant shutdown. The decrease in EBITDA and its margin occurred because in the Q3 '17, the result was affected by the recognition of tax credits.
However, in the 9 1st months of 'eighteen, results posted 15.3 percent EBITDA growth and 0.6% point margin expansion. On the next slide, we look at the rigs transported by our railway to the ports of Paragua and Sao Francisco do Sul. In the Q3 'eighteen, the South operation market share was up 5.2 percentage points in the green transportation to the port of Parana Guard and Sao Francisco do Sul. This gain reflects higher capacity, which enabled a 10% increase in Luma's transborder volume as well as our overall competitiveness since we saw a slowdown in the whole market during this period. In the 1st 9 months of 2018, we gained 5.8 percent of points market share, while volumes grew by 26%.
Moving to the next slide, let's review our container operation performance. Our container operation has started to show positive results. In the Q3 of 'eighteen, volumes grew by 20% year over year. And for the first time, digital transformation posted positive EBITDA. There is still a lot of work to be done, but we are on the right track to grow with profitability.
Now let's take a look at the company's consolidated indebtedness, position and consolidated financial results. With the increase of less 12 months EBITDA and reduced net debt, we decreased indebtedness to 2.3x net debt in EBITDA this quarter. This is the lowest level since the inception of our investment plan. Thus, we are in an optimal position to pursue cost of debt reduction and finance our investment. This quarter, our financial results significantly improved, posting a net expense of BRL 258,000,000 in the Q3 'eighteen.
The advance in the prepayment process and initiatives to reduce the average cost of debt contributed to the results. Moving to the next slide, we look at cash flow. It's worth pointing out that this quarter, for the first time, we reached BRL 222,000,000 of cash generation before funding and amortization. In 9 months 'eighteen, we can see a cash generation breakeven, reversing the cash consumption in the 6 1st months 'eighteen. Moving to the next slide, we present the most relevant operating and financial performance indicators.
This quarter, our operating ratio improved 3% versus the Q3 'seventeen, reflecting higher use and reduced fixed and variable unit costs. In the Q3 'eighteen, greater energy efficiency drove the 4.5% reduction in diesel consumption as measured in literate per CTP versus the Q3 in 'seventeen, mainly evidencing the gains from renovation of our locomotive fleet and a better mix of product transported. When we look at the rail safety indexes, we saw a 2% decrease in rail exits and personnel exits. It's worth mentioning that referring to the personal safety index, NUML already achieved the safety growth set by international railway benchmarks. The cycle time of rail cars improved in the North operation mainly due to higher attrition at terminals operated by the government.
Moving to the next slide, we discuss our most recent market projections. Agro Consul again revised its projections for the 2017, 2018 soybean crop, indicating a 4% increase versus 20 sixteen, 'seventeen crop season, both in Brazil production and in the state of macro growth. For the 20 seventeen-twenty 18 core crop, agroconsume foresees a 18% drop in Brazilian production and an 11% drop at agro gross production. From 2019, pernipional estimates indicate another record soybean crop with 1% growth in Brazil and 2% in the state of Mato Grosso. In addition, a solid corn crop growth is 14%, 18% in Brazil and 9% in the state of Mato Grosso.
Now moving to the next slide, our guidance for 2018. Our guidance for the year remains the same, reaffirming our already disclosed projections. Here, I finish our presentation and remain at your disposal for any clarification. Thank you very much.
Thank you, and analysts. Our first question comes from Bruno Amori, Goldman Sachs.
Hi, good afternoon. Congratulations on the results. So I have a question on yields. You have reported an average increase of 3% in yields. Diesel prices were up by 18% year on year as you have reported.
And I understand diesel is an important component of prices. So just wanted to understand if you could please shed some light on the reason why yield is not going up even further, maybe mix explains that trend. So any color in that sense would be helpful. Thank you.
Hi, Bruno. This is Ricardo. Bruno, this is Ricardo. Thank you for participating on the call and making the question. Bruno, the main factors for the increase in the yield are basically, you're right, one is steel and the other is a best mix of products, okay?
So we had high in vitro products in this quarter. And but basically, Adelixis is also important factor, not all the fields.
Okay. And it would also be great if you could give us some color on an update on the potential renewal of the take or pay contracts with the main customers. Anything in that sense would be interesting as well? Thank you.
Our next question comes from Felicia Barger, Kartika Management.
Good morning and congratulations on a great quarter. I was just wondering, Ricardo, could you give us some more color on any updates on the Enobres truck terminal and also the SORRISO and outer patio projects in the south?
Hi, SORRISO. First, it's an honor to have you in the call. Well, as you know, we will be very soon entering the new cycle of the company that we call the growth cycle. And one project that we intend to do is the expansion to Soareso, okay? The first phase of this expansion will be a terminal, not necessarily in Nordisk, but close to Nordisk.
And it will be a truck terminal there. We are still in study this terminal, okay? It's not already decided the location and when to start. But for sure, we'll give more color on that in our next call because it's too premature without the approval of police extension to talk about the sorry, the Polista concession to talk about the expansion. But much probably, the next call, we'll be giving you more color on that, okay?
Yes. Very good.
Thank you, Cristina.
Our next question comes from Josh Newburg, Morgan Stanley.
Hey, everyone. Thank you for the call. Two questions on my side. The first was and I think this was asked before, but the first was if you could just update us on the status of the negotiations with the grain trading companies. And then also related to that, Lewin, if you could just comment on the issue of the different contract structures that you're contemplating.
I think sometime back you talked about the possibility of a take or pay that might have a shorter duration and a higher penalty and then maybe also a second structure entailing a premium payment? That's my first question.
Jos, thank you. This is a very good question. I think everybody is curious about that. But the negotiations with the trading are going well, okay? We have several contracts already closed.
But I cannot give much more color or much more detail on that because we still have several contracts that are under discussion, okay? What I can give you some details is that you're right, there are some changes in the way that we are signing the corporate. And as you know, due to the change in the environment, in the commercial scenario, okay? As you know, tradings that are our main claims clients has been under pressure, squeezed between the people paying contracts and the farmers and truck drivers, okay? So what's changing due to this change in the scenario and the chain, commercial chain, is that we still have a relevant amount of pay for pay conference, okay?
Second thing is that this contract will be shorter than the ones that we are using. So they will not be 3 years anymore, but will be 1 year contract, okay? As we are reducing the term of the conference, on the other hand, we are increasing the penalties, the take or pay penalties in case of nonperformance. So there will be the minimum of 70% of penalty, okay? There are other benefits in this contract.
I'll give you one example here is that the flow of cargo during the year will be much better, much more uniform than it was in the past, okay? What's important here, I would like to reinforce, and I always reinforce in the meetings that I have with Southside and with our investors, is that these changes are not a consequence of the doubt of our clients regarding of which model is more competitive. We are cheaper. We are much more competitive and safe than the other models, okay? But this reflects this change reflects the situation of our clients that are squeezed between the take or pay, long take or pay contract and the farmers, okay?
So this is the reason it's alignment between the clients and the railway in the sense, okay? So hopefully, I answered your question. And I think this is the first question. That's right. You have another one?
Yes. Yes. One more, and Lewin, and that was very helpful. My second one is if you could comment a little bit on how you're seeing November December from a volume standpoint. We had understood that all of the volumes on take or pay contracts could be already transported by the end of November, perhaps giving customers a little more flexibility in terms of what they do with either shipping volumes in December or kind of deferring until next year, maybe awaiting better pricing?
Any color you could give there would be great.
Josh, we have guidance. What I can tell you right now that you are very optimistic about being in the guidance that we provided. So every month, you see in our website the volumes. So very soon, it will be the volumes of October. The only thing that are reinforced is something that we wrote in the report that remember that last year, the harvest was record, the 4th harvest, okay?
So the volumes were very high last year. So one thing that I just say is that don't expect to have a double digit growth comparing the 2 quarters, okay? But we are very specific that we will be in the guidance, okay?
Luen, I mean, very understood. You have difficult comps coming into the Q4. But I mean, can you say a little bit about what you think this today's kind of commodity price level means for the interest of grain trading companies and farmers to kind of go ahead and ship volumes on a more anticipated basis? Do you think that the pricing
is at a level where
it makes sense for the grain trading companies to do as much volume as they can? Or can you see them holding some volume until next year?
Our next question comes from Bruno Amorim, Goldman Sachs.
Yes, let me answer. Sorry, it took a bit longer to answer. So Josh, the point here is that there is a specific situation this year, that's the war, the commercial war between China and the U. S. And there is a huge corn storage in the U.
S. So it's not very clear still what will happen between these last months between China and the U. S. That cannot take the price. So it's not very clear for us to confirm anything regarding the price of the royalty and how this can affect us on that, okay?
Our next question comes from Bruno Amorim, Goldman Sachs.
Hi. Thanks for the follow-up. So I have a question on your market share. As you said, your unit costs are coming down. You're gaining market share, which makes a lot of sense.
Just like to better understand, to what extent this could continue to be the case and for how long? And in that sense, that would be great if we could have from you an indication on what's your market share currently out of all the grains that are transported from Mapogroso to the port of Santos, for instance, how much market share do you have in these routes? Any indication you could give us in that sense?
Bruno, you know, you have been forming the company, and you see that we have been increasing our capacity in the last 3 years, okay? So once we increase our capacity, it's a good way to increase market share, okay? So obviously, in the long run, we are fighting to gain market share, both in the south and in Mato Grosso, okay? And this will be more consequence than the increase of our CapEx and all the investments that we are doing. So being very direct, yes, we expect increase.
How much? This is not part of our guidance, but we do expect to increase our market share, and this is a consequence of our investment that we are doing. Sorry, I don't know if I lost. Asked about the market share. Did you ask something else?
Yes, yes. So I've asked in this route, Mato Grosso to the port of Santos, how much is your market share there? Out of all the grains that go from Mato Grosso to the port of Santos, how much is currently supported by Rumo as opposed to trucks?
Bruno, let me tell you about the market share of sports, okay, that goes from all that goes from Atagrosso to Santos. In 2017, that we have already closed something around 50%. So you can see that there is still a lot of room for growth in this, that's our most important route, Okay?
Our next question comes from Lucas Macchiore, Banco
the call. Ricardo, you mentioned it quickly on an earlier question regarding the Mala Polyester concession renewal. So I mean, could you give us an update on that? I mean, how are we today? What should we expect going forward?
What's the next steps on the renewing process? It would be nice to have a sight on that. Thank you. Lucas, well, all of you know me very well. And although I always say the same thing regarding this question is that I'm always optimistic that this should be sold by the end of this year, okay?
The point here, Lucas, is that the process, all of us being now 2 years that we have been discussing with NTP. NTP approved the postponement of the concession. And in September, it was sent to TCU. From then, from this last thing, we know that TCU is analyzing the process. They have been talking to some investors that we know about the amount of information that they have.
There's huge amount of information. They need time to analyze all the material that was sent to them, all these studies. And so formally, CCO has no time to approve that, okay? Although we still have a doubt to have this sold soon, as it's in the hands of CPU, it's difficult to make any kind of projection at this stage almost at the end of the year when it will be approved.
Our next question comes from Augusto Enziqui, HSBC.
Hey, good afternoon, guys. Thank you for taking the question. 2 for me. Firstly, on the fertilizer, it's kind of picking up for you guys. Wondering when it gets to where would the normalized run rate be like how much volume can it reach and by when will you expect to reach that?
And then secondly on and so
what's the question here? But
so sorry, first question on fertilizer and then I'll come back to the second question.
Okay. Well, regarding fertilizer, the operation has been evolved very well, okay? So in the 1st 5 months of operation, we have done something around £360,000 of fertilizers. What I promised in the past and I reinforced that, is that in the 1st 12 months, we'll be doing 1,000,000 tons of fertilizer. What's important to say that this 1st month, we increased our volumes.
In July August, we did something around 100 1,000 tons of fertilizers. And this is what to expect for the next month. So we will reach the €1,000,000,000 in 12 months, okay? In the long term, what we already said is that we can do something around 3,000,000 to 4,000,000 tons of fertilizer transportation, okay?
On an annual basis?
Annual basis, that's right.
Okay. Perfect. And then secondly, on the financials. So this quarter came down significantly. Is this kind of a normal or what we can expect going forward for financials?
Or is there more room for financials to come down?
Part of this is a result of the liability management that we have been done. And this also, CDI has been going down, okay? So you have these two factors in the results. Also, you have the hedging account. So you know that 100 percent of our 2 bonds are hedged.
So you have some noise that for some months, depending on the CDI curve, this can go up and down, okay? We don't have control on that. So there's a small part that can go up and down without our control. But our intention is to keep working in the part of liability management and reducing the cost
of our debt.
So the part that depends on us is expected to still going to go down.
Perfect. That's very helpful. Thank you very much.
Thank you.
Excuse me, ladies and gentlemen. 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.
Thank you very much for participating on this call. This is the last call of 2019. So I expect to see you and talk to you next year. Thank you very much.