Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to Rumo'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 Rumo's remarks, there will be a question and answer session for industry analysts. 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 the Private 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 results to differ materially from those expressed in such forward-looking statements. I'll turn the conference over to Mr. Ricardo Lewin. You may begin your conference.
Good afternoon, everyone. Thank you for participating in Rumo's first quarter 2018 conference call. Let's start our presentation with slide number three. This quarter, we posted substantial growth in transported volumes, both of agricultural and industrial products when compared to the first quarter 2017. Grain carryover inventories boosted volumes in January, typically a weak month. Higher capacity as generated by our CapEx plan, increased volumes in February and March. In addition, it's worth mentioning the growth of industrial products transportation, primarily via new pulp operations in North Operation and a higher volume of containers. Port loading volumes at Port of Santos decreased, driven by lower sugar exports in the quarter. Let's now turn to slide number four, where we can see Rumo'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 EBITDA to reach BRL 650 million 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, Rumo's EBITDA margin reached 47% in the first quarter 2018, growth of six percentage points when compared to the first quarter 2017. Moving to slide five, 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. A new pulp operation benefited the industrial segment.
With higher volumes and continued cost efficiency gains, the North Operations EBITDA significantly increased and its margin expanded. On the next slide, let's look at our market share in the Port of Santos. On slide six, we can see that in the first quarter 2018, Rumo maintained its 48% market share in grain 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 number seven, we look at South Operations performance in the first quarter. Likewise, North Operations, South Operation 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 first quarter 2018. Moving on to the next slide, we discuss our container operation performance.
The strategy of improvements in cargo assortment with higher average distances allowed increase in tariff and volume in RTK. This result, coupled with cost dilution, improved EBITDA and margin. Let's move to slide nine, where we present the company's consolidated indebtedness position. Our leverage was in line at 2.6 times broad net debt EBITDA, an effect of higher net debt already expected for the first quarter 2018 and EBITDA growth. Moving to slide number 10, we look at consolidated financial results and cash flow. First quarter 2018 financial results improved due to reduced cost of debt. The reduced cost of debt reflects the amortization of certain high-cost debts, their replacement with lower cost debts. Selic decrease. Moving to the next slide, we present the most relevant operating and financial performance indicators. From this quarter onwards, we will monitor new KPIs to gauge Rumo's operational development.
We have introduced two safety KPIs. The rail accident index, which measures the number of accidents per million 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 first quarter 2018, against the same period last year. In addition, concerning the number of personal accidents, Rumo already performs at international standards. Looking at year-over-year variation, we have seen a reduction of 44%. In addition, the transit time and rail cars loaded per day indexes were discontinued, since the most efficient way of measuring Rumo's productivity is analyzing the cycle time of rail cars and RTK's volumes.
Operating ratio was up 7% in the first quarter 2018, from first quarter 2017, as a result of Rumo's successful strategy to increase volume and cost dilution. Diesel consumption, measured in liters per GTK, decreased 5% in the quarter from the first quarter 2017, due to higher operational efficiency, especially due to the upgrade of our locomotive fleet. The rail car cycle time, both in the North Operations and South Operations, improved mainly due to greater operational efficiency at our terminals, gradually reducing rail cars loading and unloading times. Moving to the next slide, we will discuss our most recent market projections. Agroconsult revised 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 second quarter 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. If you have a question, please press star one on your phone. Or 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 use the handset when asking the question, in order to maintain excellent sound quality. Please stand by while we collect the questions. Our first question comes from Pedro Grushenko with Barclays.
Good afternoon, gentlemen. This is Pedro Grushenko 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 still and pull ethanol prices up as well. This, in theory, shouldn't change incentive for the mills to produce more ethanol than sugar. I'm wondering what would be impact on your business and any color would be helpful.
Hi, Pedro. Thank you very much for your question. Well, regarding the dynamics, you're right. The mills here in Brazil are turning to ethanol production. It's important to understand that the sugar market is not that important for us, at least at this point of our business plan. Okay? Our focus has been the grain market that's much more profitable for us. Okay? With the increase of capacity, we have been transporting more sugar, at least in this first quarter of the year. Okay? Although 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? I'm wondering if you guys are concerned, are you seeing any impact in your business?
Yeah. The impact should be positive because it increases the willingness of the producers, the growers, the grain growers to export. Okay? This much, probably will be positive for us.
Okay. Another question. Just looking at your kind of breakdown of cash flows, you have this kind of non-cash effect on EBITDA, which you still subtract. Just a footnote, it was not very clear, the BRL 336 million impact on this quarter, can you provide more color on what it was?
Okay. We are talking a bit about the working capital, yeah? That's the BRL 336 million that impacted-
Right
the cash flow this quarter. First, it's important to understand that this working capital is completely in line with what we have budgeted here in the company. Okay? The facts included in this business plan from this 336, something around BRL 200 million, comes from suppliers. Okay? More than half of these BRL 200 million 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 happens is a mismatch between the lower volumes in the first quarter of 2018 when compared to the last quarter of 2017. What we are doing now is paying fuels that we used in a period that 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. We had higher bonuses in the company. The net effect is something around BRL 40 million. 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, this negative working capital should be reduced. Okay?
Okay
It's not something that's recurring.
That's helpful. Last question, if I may. If you can provide any update on the Paulista concession as well as any updates on BNDES financing and if there's been some changes, that would be very helpful. Thank you.
Yeah. Great. Regarding Malha Paulista concession, the process has been evolving very well. Recently, ANTT, who is the regulator, hired Accenture to help them with the analysis. That has improved a lot, the dynamic of the process. ANTT has reaffirmed several times in conversation with us and with some investors that have been with them in Brasília, that they will be ready with their studies by June. At least by the end of June. They are supposed to send their studies to TCU. I cannot affirm you that this will be approved this year. However, what I can tell is there is a very good environment for the approval of the renewal this year. It's doing very well, the renewal process. Regarding BNDES, when I'm asked about that, I always reaffirm that we are 100% funded to complete our business plan.
We don't need BNDES financing for the continuity of the investment plan. However, we are still discussing with them the possibility of approving a facility of BRL 2.7 billion for the south and north corridors. We have been able to negotiate better conditions than we had in the past. The point here that we are still discussing, it's not a difficult discussion because BNDES has been very flexible on that. The point here is that it is 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. At least we want to have the BNDES facilitating the same conditions we have with our bondholders.
Got it. That's very helpful and thanks for the color, and best of luck to you.
Thank you. Thanks for participating on the call.
Goldman Sachs.
Our next question comes from Bruno Amorim with Goldman Sachs.
Hi, good afternoon. I have two questions. The first one is, to what extent, 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 first quarter, 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 2018 will be mainly driven by capacity addition. Any color that you could give us in that sense would be great.
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 second quarter, but eventually, present a risk for the second half of the year, or not? Thank you very much.
Well, regarding the first, roughly saying, you can consider a 10% increase in the capacity. Okay? We will be transporting 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? It's difficult to have anticipation when you have such a strong soybean production.
Thank you very much.
Our next question comes from Augusto Siki with HSBC.
Hey, good afternoon, gentlemen. Thanks for the questions. Just two from me. Firstly, can you comment a little bit on the fertilizer project? Did it start operating? If it has, how has it progressed, and when might we see this start to contribute to results? 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. Actually, we had our first cargo, the whole cargo, last month, and everything went very well. We received the first fertilizer cargo in a terminal called Termag, in which we are partners. This fertilizer cargo already arrived in Rondonópolis. The first trip was very successful. You'll be seeing 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 first 12 months, we will be transporting something around one million tons of fertilizer. Okay? The second question about depreciation. The increase of depreciation, regarding the first quarter last year, is result of the investments that we have been doing during the year.
If this is the level of depreciation that you can consider, yes, consider that you have additional CapEx that we'll be doing during the year. Okay? Remember that last year and this year are the peak of investments. Okay? We are investing something around two billion BRL. Don't forget to add the depreciation of this new investment.
Perfect. That's very helpful. Thank you very much.
The next question comes from Victor Mizusaki, Bradesco BBI.
Hi, I have two questions here. The first one, you have like BRL 1.7 billion short-term debt. I'd like to know if you can talk about how to expect to refinance this debt and if it's possible to reduce the average cost of debt. The second one, if you can just confirm if your USD-denominated debt is fully hedged.
First, answering the second question, 100% hedged. Principal plus interest, okay? For the entire period of the debt. We have gone through a liability management through all last year, the bond is one of the steps of this liability management. I will give you some numbers that may answer your question. If not, please, we can discuss a bit more. In the first quarter of 2018, we raised something around BRL 2.1 billion in new debt, okay? From this BRL 2.1 billion, BRL 1.6 billion refers to the bond 2025, BRL 0.5 billion on NCE, okay? That we raised with a bank. We paid something around BRL 700 million 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 CDI plus almost 5% a year. We are paying the expensive debt.
For the second quarter 2018, we intend to pay another BRL 1.7 billion, mainly that will refer to the ninth edition 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. 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. Actually, we have been through a liability management for all this last maybe year, okay? 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.
No, that was perfect. Thank you.
Okay. Thank you, Victor.
Ladies and gentlemen, as a reminder, if you want to ask a question, please press star one. That does conclude the question and answer session for investors and analysts. I'll turn the floor over to Mr. Ricardo Lewin.
I would like to thank everybody that participated of the call. If you have any additional question, we are 100% available to answer them. Thank you very much. Bye-bye.
That does conclude Rumo's first quarter of 2018 results conference call. Thank you very much for your participation, and have a nice day.