Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Rimmu's First Quarter of 2018 Results Conference Call. Today, the conference call will be conducted 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 Ruma's remarks, there will be a question and answer session for industry analysts. At that time, further instructions will be given. 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 the Securities Litigation Reform Act of 1996.
Forward looking statements are based on the beliefs and assumptions of Ramon'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 Rumu 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 Lewin.
You may begin your conference.
Good afternoon, everyone, and thank you for participating in Rumor's Q1 2018 conference call. Let's start our presentation with Slide number 3. This quarter, we posted substantial growth in transported volumes, both of our agricultural and industrial products when compared to the Q1 of 2017. Green carryover inventories boosted volumes in January, typically a weak month and higher capacity as generated by our CapEx plan, increased volumes in February March. In addition, it's worth mentioning the growth of industrial products transportation, primarily via new pulp operation in our operation and a higher volume of containers.
Pollak loading volumes at Porto Santos decreased, driven by lower sugar exports in the quarter. Let's now turn to Slide number 4, where we can see Rumel's financial performance. Higher volumes and higher average yield as a result of a better mix of transported products contributed to an almost 20% net revenues increase in the quarter. In addition, good operational performance and greater cost efficiency enabled the beach that reached BRL650 1,000,000 in the quarter, up 30% year over year. Once again, we evidenced our capacity to increase volumes without raising fixed costs.
Variable costs lagged volume growth, mainly due to continued lower fuel consumptions, 5% less in liters per GTK. As a result, room's EBITDA margin reached 47% in the Q1 2018, growth of 6 percentage points when compared to the Q1 2017. Moving to Slide 5, we can see the performance breakdown of our business units. As explained in previous slides, soybean carryover inventory and increased capacity contributed to higher agricultural volumes in the North operation. Our new pulp operations benefited the industrial segment With higher volumes and continued cost efficient gains, the non operations of Ichiban significantly increased and its margin expanded.
On the next slide, let's look at our market share in the Port of Sensus. On Slide 6, we can see that in the Q1 'eighteen, Humu maintained its 48 market share in green transported to the Port of Santos even with a significant increase in exports in the period. This stability evidences our capacity gains. Moving to Slide 7, we look at South Operations performance in the Q1. Likewise, North Operations, South Operations has delivered high volume growth both in agribusiness and in industrial products.
Cost efficiency also helped to bring a significant margin increase, up 11 percentage points from 1% to 12% in the Q1 'eighteen. Moving on to the next slide, we discuss our container operation performance. The strategy of improvements in cargo assortment with higher average distances, a lowered increase in tariff and volume in RTK. This result coupled with cost dilution improved EBITDA and margin. Let's move to Slide 9 where we present the company's consolidated indebtedness position.
Our leverage was in line at 2.6 times broad net debt to EBITDA, an effect of higher net debt already expected for the Q1 2018 and EBITDA growth. Moving to Slide number 10, we look at consolidated financial results and cash flow. Q1 2018 financial results improved due to reduced cost of debt. The reduced cost of debt reflects the Moving to the next slide, we present the most relevant operating and financial performance indicator. From this quarter onwards, we will monitor new KPIs to gauge room of operational development.
We have introduced 2 safety KPIs, the rail accident index, which measures the number of accidents per 1,000,000 train kilometers and the personal accident index. These are internationally renowned KPIs that evidence how we have been reducing the number of accidents through investment and several other initiatives, always pursuing the highest safety standard in our operations. As a result, rail accidents decreased 8% in the Q1 'eighteen against the same period last year. In addition, concerning the number of personal accidents, Humu already performs at international standards. Looking at year over year variation, we have seen a reduction of 44%.
In addition, the transit time and railcars loaded per day indexes where this continued since the most efficient way of measuring RUMO's productivity is analyzing the cycle time of railcars and RTKs volumes. Operating ratio was up 7% in the Q1 'eighteen from Q1 'seventeen as a result of Rumor's successful strategy to increase volume and cost dilution. Diesel consumption measured in liters per JTK decreased 5% in the quarter from the Q1 2017 due to higher operational efficiency, especially due to the upgrade of our locomotive fleet. The railcar cycle time, both in the north and south operations, improved mainly due to greater operational efficiency at our terminals, gradually reducing railcars loading and unloading times. Moving to the next slide, we will discuss our most recent market projections.
Agro Consult revealed upwards their figures for 2017, 2018 soybean crop production in Brazil and the States of Mato Grosso with growth of approximately 4% and 5% year over year respectively, thereby benefiting volumes expected for the Q2 2018. In addition, the soybean trade and export environment remains favorable due to the crop failure in Argentina, which contributes to better international price levels. Looking at the 2017, 2018 corn crop production, we estimate a 13% decrease in Brazilian production and a 9% decrease in the state of Mato Grosso. However, most corn carryover inventory is still stored and this should contribute to additional corn volume destined to exports. Now, we will conclude with our guidance for 2018.
We are reaffirming the guidance for the year, maintaining the projections already disclosed. With this, I finish our presentation. I'm here with our team and we remain at your disposal for any clarifications. Thank you.
Thank you. We will now begin the question and answer session for investors and analysts. Our first question comes from Peter Gransino with Barclays.
Good afternoon, gentlemen. This is Peter Grishchenko with Barclays. Thanks for taking my questions. First, I wanted to get your sense on the market dynamics that we're seeing with sugar prices significantly lower over last year. On the other hand, higher oil prices should translate into higher gasoline prices in Brazil and full ethanol prices up as well.
This in theory shouldn't change incentive for the mills to produce more ethanol than sugar.
So I'm
wondering what would be impact on your business any color would be helpful.
Hi, Peter. Thank you very much for your question. Well, regarding the dynamics, you're right. There is the wheels here in Brazil are turning to ethanol production. But it's important to understand that the sugar market is not that important for us, at least at this point of our business plan.
Our focus has been the grain market that's much more profitable for us, okay. Although with increase of capacity, we have been transporting more sugar at least in this first quarter of the year, okay? So although what the dynamics is exactly what you said, Sugar has a lower importance at this stage of the business plan.
Got it. Another question on BRL devaluation that we've seen in the last couple of weeks. Can you elaborate on impact on your operations on whether that in theory maybe makes more profitable the operations for your customers, the exporter businesses. But I'm wondering if you guys are concerned, are you seeing any impact in your business?
Yes. The impact should be positive because it increases the willingness of the producers, the growers, the grain growers to export, okay? So this much probably will be positive
for us. Okay. Another question. I'm just looking at your kind of breakdown of cash flows. You have this kind of non cash effect on EBITDA, which you still subtract.
And just a footnote, it was not very clear. The BRL 336,000,000 impact on this quarter, can you provide more color on what it was?
Okay. So we are talking a bit about the working capital. Yes? That's BRL 336 million that impacted the cash flow this quarter. This is first, it's important to understand that this working capital is completely in line with what we have budgeted here in the company, okay?
And the effects included in this business plan From this BRL 336 million, something around BRL200 1,000,000 comes from suppliers, okay? More or half of this BRL200 1,000,000 refers to CapEx that has been done or contracted in the last quarter of 2017 and the disbursement happened in the beginning of 2018, okay? The other half is mainly a result of OpEx, mainly due to fuels that what happened is a mismatch between the lower volumes in the Q1 of 2018 when compared to the last quarter of 2017. So what we are doing now is paying fields that we use it in a period that is there's a lot of transportation, okay? Also included in this value, there is bonuses that has been paid in this first quarter related to the last year.
Last year, that was much better than the previous one. So we had higher bonuses in the company. The effect of this is something around the net effect is something around BRL40 1,000,000. And the rest, you have other effects that are much lower than the ones that I told you. Just to reaffirm that in the next quarters, the working this negative working capital should be reduced, okay?
So it's not something that's recurrent.
Yes, that's helpful. And last question, if I may. If you can provide any update on the Paulista concession as well as any update on BNDES financing and if there's been some changes, that would be very helpful. Thank you.
Yes, great. Regarding Mala Paulista concession, the process has been evolving very well. Recently, ANTP, who is the regulator, hired Accenture to help them with the analysis. That has improved a lot of the dynamic of the process. Also, ANTT has reaffirmed several times in conversation with us and with some investors that has been with them in Brasilia that they will be ready with their studies by June, okay, at least by the end of June.
And then they are supposed to send their studies to TCU, okay. I cannot affirm you that this will be approved this year. However, what I can tell you is that there is a very good environmental environment for the approval of the renewal this year, okay? So it's doing very well the renewal process. Regarding the MDS, when I'm asking about that, I always reaffirm that we are 100% funded to complete our business plan, okay?
We don't need the MDS financing for the continuity of the investment plan. However, we are still discussing with them the possibility of approving a facility of BRL2.7 billion for the south and north corridors. And we have been able to negotiate better conditions than we had in the past. The point here that we are still discussing that it's not a difficult discussion because BMS has been very flexible on that. The point here is that it's a bureaucratic discussion about some points that we want to have in the contracts with BNDES not to hurt our current bondholders and other banks that give credit for us.
So at least you want to have the BNDES facility in the same conditions we have with our bondholders.
Our next question comes from Bruno Amorim with Goldman Sachs.
Hi, good afternoon. So I have two questions. The first one is, should I expand or could you please give us an idea of by how much will capacity increase in the second half of the year on a year on year basis? As you have highlighted, volumes went up by 18% in the Q1, not just because of the capacity increase, but because of other factors. I guess, in the second half of the year, because you were operating close to 100% of your capacity in the second half of last year, the volume growth in the second half of twenty eighteen will be mainly driven by capacity additions.
So any color that you could give us in that sense would be great. And second, with the depreciation of the currency, do you think that we could eventually see an anticipation of exports of grains in Brazil, which could boost volumes in the Q2, but eventually present a risk for the second half of the year or not? Thank you very much.
Well, regarding the first, roughly saying we can you can consider 10% increase in the capacity, okay? So we will be transporting 10% an additional 10% because we will be at full capacity. Regarding the second question, actually, we are having a very strong soybean harvest, okay? It's difficult to anticipate the second half of the year because in the second quarter, we will have a very strong transportation of soybeans, okay? However, obviously, we think that the currency change in the last days or months can improve the exports of grains, okay?
But it's difficult to have anticipation when you have such a strong soybean production.
Our next question comes from Augusto Enzicchi with HSBC.
Hey, good afternoon, gentlemen. Thanks for the question. Just 2 for me. Firstly, can you comment a little bit on the fertilizer project? Has everything did it start operating?
If it has, how has it progressed? And when might we see this start to contribute to results? And secondly, on depreciation, at least for the quarter, it came down quite a bit sequentially. Is this kind of the rate that we can expect for the year? Or is there anything increasing going forward?
Thank you.
Hi. Well, regarding the first question, the fertilizer project started to operate last month in April. It has been actually, we have our first cargo, backhaul cargo last month, and everything went very well. So we received the 1st fertilizer cargo in a terminal called Termag, in which we are partners. And this fertilizer cargo already arrived in Hondonopolis.
So the first trip was very successful. You'll be feeling the first results of this project this year, okay, because now we start to make the backhaul transportation. There is no surprise for that. So I reaffirm that in the 1st 12 months, we will be transporting something around 1,000,000 tons of fertilizer. The second question about depreciation, The increase of depreciation regarding the Q1 last year is result of what we are the investments that we have been doing during the year.
And if this is the level of depreciation that you can be consider, yes, consider that you have additional CapEx that we'll be doing during the year, okay? So remember that last year and this year are the peak of investments, okay? We are investing something around BRL2 1,000,000,000. So don't forget to add the depreciation of these new investments.
The next question comes from Victor Mizusaki, Bradesco BBI.
Hi. I have two questions here. The first one, you had like BRL 1,700,000,000 short term debt. I'd like to know if you can talk about, I mean, how do you expect to refinance this debt? And if it's possible to reduce the average cost of debt?
And the second one, if you can just confirm if your dollar denominated debt is fully hedged?
First, answering the second question, 100% hedged, okay? Principal plus interest, okay, for the entire period of the debt. Regarding, we have been we have gone through a liability management through all last year, made and the bond is one of the steps of this liability management. But I will give you some numbers that may answer your question. If not, please, we can discuss a bit more.
But in the Q1 of 2018, we raised something around BRL2.1 billion in your debt, okay? From this BRL2.1 billion, BRL1.6 refers to the bond, 2025, and 0.5 on NCE, okay, that we raised with the bank. And we paid something around BRL700 1,000,000 of expensive debt, okay? I'll give you an example. We had a debenture that the price was 13% per year, Okay, we had another debt that was SEI plus almost 5% a year.
So we are paying the expensive debt. For the Q2 2018, we intend to pay another BRL1.7 billion, mainly that we refer to the 9 emission of the debentures of the North Corridor that we have been promised to the market that we would be paying debt for the last quarter. But what happened is that we have been a bit late in bringing the money from the bond because we were looking for the best structure to bring this cash. So we actually, we are going we have been through liability management for all these last maybe year, okay? And what you ask is part of this liability management that we are paying debt and we are raising new debt with the market and private banks.
I don't know if I answered your question. If you have some detail that you'd like to understand, let me know.
That was perfect. Thank you.
Okay. Thank you,
That does conclude the question and answer session for investors and analysts. I'll turn the floor over to Mr. Ricardo Levin.
I would like to thank everybody that participated of the call. And if you have any additional questions, we are 100% available to answer them. Thank you very much. Bye bye.
That does conclude the Rumor's Q1 of 2018 results conference call. Thank you very much for your participation and have a nice day.