Rumo S.A. (RAIL3) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Thank you for waiting. Welcome to Rumo's First Quarter 2025 Earnings Presentation. [Operator Instructions] This presentation is being recorded. [Operator Instructions] Before proceeding, I would like to reiterate that forward-looking statements are based on Rumo's Executive Board's beliefs and assumptions and information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and depend on circumstances that may or may not materialize. We recommend that you refer to the disclaimer on the second page of the presentation. Now I'll turn the conference over to Mr. Felipe Saraiva, Rumo's Head of Investor Relations, at Rumo. Please, Mr. Saraiva, you may begin the presentation.

Good afternoon, everyone, and thank you for joining Rumo's earnings call for the first quarter of 2025. Let's begin with the highlights on Page 3 of the presentation. Rumo showed resilience in the first Q of the year, keeping a strong focus on commercial discipline, operational efficiency and cost controls. These efforts helped us manage a challenging quarter with solid execution. The start of the year saw lower export volumes in key markets like Mato Grosso, adding pressure to an already competitive environment. We transported 16.1 billion RTK in the quarter, down 7% from first Q 2024, mainly due to low volumes in the southern operation. Even with this drop, we have delivered adjusted EBITDA of BRL 1.6 billion, only 3% below last year, showing the strength of our asset allocation and margin discipline in strategy. Adjusted net income reached BRL 188 million, and we closed the quarter with healthy leverage at 1.6 ratio net debt to EBITDA. We have also made solid progress on the railway extension in Mato Grosso, and the construction of the greenfield railway is occurring on budget and on scheduled. On sustainability, Rumo was once included in the Standard & Poor Global Sustainability Index and B3 ISE index showing our long-term commitment to responsible management. Our 2024 Sustainability Report was just released at the end of March, and I invite you to take a look. On Page 4, we present our market share performance this quarter. Despite a more challenging market with lower product availability in some regions and the stronger competition, Rumo stayed focused on commercial discipline. We aimed to balance volume and pricing to protect our contribution margin. This strategy helped us maintaining profitability, although it led to a decline in market share across the 4 operations presented here. Let's move now to the operational indicators on Page 5. We improved key operational efficiency metrics, a direct result of ongoing investments in infrastructure, technology and process optimization. I'd like to highlight the successful rollout of the 135 rail cars train design, which are now running consistently on import and export flows throughout our main terminals. This initiative is a key lever to expand rail capacity and improve the energy efficiency across our network. On Page 6, we show our operational results and volume performance. Total volumes were impacted by a reduction of roughly 1 billion RTK in the southern operation and 300 million RTK in the northern operation. In the south, the decrease was mainly due to a lower availability of agricultural commodities and reduced volumes of fuel and building materials due to the infrastructure damage on the Tronco Sul line. In the north, higher transported volumes of hardwood pulp and mining commodities have partially offset the drop in grain and sugar, showing the strength of our commercial portfolio. Turning to revenue and pricing on Page 7. Net revenue reached roughly BRL 3 billion in the quarter, driven primarily by lower volumes. Rumo remains focused on balancing volume and pricing to maximize system profitability. As presented in the charts, the pricing dynamics in our main markets remain healthy, supported by a balanced supply and demand for logistics. On Page 8, we present our adjusted EBITDA. Throughout the quarter, we have implemented commercial and operational initiatives that helped cushion the impact of a more challenging market. I'd like to emphasize our performance in managing fixed costs and expenses, a major area of focus across organization. Moving to Page 9, we present our financial results and net income. Net financial expense for the quarter was BRL 768 million. The increase of BRL 191 million in net debt cost was mainly due to higher interest rates and a larger net debt balance. Our operational performance, combined with the impact of a higher financial expense, resulted in an adjusted net income of BRL 188 million. On Page 10, we cover our leverage and debt position. Consolidated net debt was BRL 12.6 billion at the end of the quarter. Leverage remained at a healthy level of 1.6x net debt to adjusted EBITDA ratio. We continue to benefit from a strong access to capital markets and took advantage of favorable conditions during the quarter. We have completed 2 issuance, including a local debenture in Malha Paulista with maturities of 12 and 15 years and a cost below the Brazilian sovereign. These transactions helped to reduce our average cost of debt to 103% of the CDI, the local benchmark, and extend our debt duration to 5.9 years. Importantly, we have no significant debt to mature over the next 3 years, which reinforces our strong liquidity position. On Page 11, we show our investment figures. We have invested BRL 1.8 billion during the quarter. Recurring CapEx was BRL 468 million, and in line with our strategy to maintain assets and improve operational safely. Expansion CapEx, excluding the Mato Grosso railway project was BRL 959 million, mostly reflecting cash disbursement effects from projects accounted in previous periods. In the Mato Grosso extension project, we have invested BRL 353 million, and the construction remains on schedule and on budget. Let's now turn to our grain markets update, starting with soybeans on Page 12. Soybean crop figures have confirmed expectations I shared with you in February. Mato Grosso produced 50 million tons, and we expect exports from that region to reach 32 million tons this year, both record levels. On Page 13, I present the corn outlook. Estimates for corn production in Mato Grosso increased to 53 million tons, supported by a favorable crop development and improved yield assumptions. Export estimates remain stable at 28 million tons. It concludes my presentation. And now we open the floor for the Q&A session. Thank you.

We will now begin the Q&A session. Joining us today are Mr. Guilherme Machado and Mr. Felipe Saraiva. [Operator Instructions] Our first question is from Mr. Lucas Marquiori from BTG.

I have one question, please. Could you help us understand these dynamics in transportation grain from Mato Grosso? I think the pace of the grain leaving the state has been a bit different, even though the crop has been quite a good one. But the transportation of grains from Mato Grosso is taking a while. I don't know, maybe it's going through other avenues. Anyway, could you help us understand the dynamics, the timing? Is this going to be slightly delayed? Do you think we'll be seeing this grain in Q2 or Q3? If you could make things a bit clearer, that would be great.

Lucas, this is Guilherme. We always let the market know that each crop has its dynamics. And this year -- and a part of that, we had already captured in our budget. The curve had already predicted smaller volumes at the beginning of this year. So it was the late harvest window because the soybean was planted in September, and that affected in the way the grains are harvested. It was later than last year. So we had to delay the trade as well. So this happened slowly. January and February was slow. We have some signs in March. We can see a bit more pressure in this current quarter. Based on the information you saw during the presentation, the soybean crop in Mato Grosso has been the largest in the last 4 years. So very solid fundamentals that these volumes will be transported, these dynamics will take place, and we're already seeing the pressure on our system right now. So we believe the second quarter will be fuller, and we'll still have some soybean volume in the second half of the year. We don't know exactly when, but it will happen. And add to that, a very positive outlook for the corn crop. We believe once there's pressure on our system, this volume should be seen over the next quarters, according to our guidances, volume perspective. So it's a different dynamic to what we've seen before, and we've been adapting our operation to meet the market demand and client demand as the trade is available.

The next question is from Mr. Alberto Valerio from UBS.

Thank you for taking my question, which is about the guidance. I didn't see the guidance in the release, but it looks like you are going over it. What about the CapEx? It's still above the estimates. And as Lucas said, the volume seasonality should be different until the end of the year to deliver those volumes or will there be an increase in capacity?

Alberto, thank you for the question. Well, the CapEx in this quarter reflected the financial schedule of our projects and cash disbursements reflected previous period competencies. So it will be converging towards the levels that we announced. We'll be keeping to that interval, but it's not linear. Disbursements will take place as the projects move forward. So that will have an impact on the disbursements each quarter. What we can say is that, on recurring CapEx, we have a strategy to increase volumes and to use our assets, reiterating our operating efficiency and security. The Mato Grosso rail is on track. There were some rains at the start of the year, which we had predicted. So obviously, that slows down, relatively speaking, when compared to other quarters. But we will be keeping to the total financial volume for our full year CapEx. So that's the main explanation for the volume this quarter. Did you have another question? You had a follow-up question to the previous question, right?

Yes, about volume. Will the seasonality be different this year concerning volume compared to last year? Or will it be similar, but with greater capacity when compared to last year?

Well, we have record volumes until the end of the year to deliver on the guidance? Well, it's already a different seasonality compared to other years. It's been a weaker start to the year and -- but we are confident that we will be delivering on what was announced for the year. And we're basing that on facts that we have been seeing in our operation. We were successful in delivering the train with 135 cars. We've invested in the Santos terminal to increase capacity, investments in the Paulista Network, which makes that network more fluid. Some more rolling stock as well. All of that will increase our operating efficiency, as we highlighted in the presentation. So that will lead to better transportation, better transit time. So we believe that volumes will be increasing over the next quarters. And as a consequence, as there's more pressure on the system, which we believe will happen looking forward.

The next question is from Mr. Guilherme Mendes from JPMorgan.

I have a follow-up question, please. It's very clear that you've reiterated the guidance. But given April's volume, it still looks like it's a challenging guidance when it comes to volume, which has never been a problem. You delivered on the EBITDA guidance, which is more important. So given the current visibility, how confident are you that -- about reiterating your guidance? So what kind of take-or-pay have you already contracted for the second half of the year that's made you feel confident about delivering on your volume and EBITDA guidance?

Well, Guilherme, we've reiterated the guidance for volume, for CapEx and on the financial side, and that's a consequence of everything I've just explained, and the impact of the investments we've been making in our operations. That has enabled us to renew the principles on operating transportation, looking at our previous performance in past months and quarters. So there are other types of cargo coming into our system other than grains. We've had good performance with pulp. Also there's been considerable fuel volume, which should increase over the next few quarters, which -- a new operation which we didn't have before, which is bauxite. So it's a combination of elements. And when it comes to the finance side, as Saraiva said during his presentation, we'll always seek to maximize the company's margin by combining volume and pricing strategy. So given a challenging quarter in terms of volume, and if we recap, the dynamics was completely different to the same quarter last year. No carryover inventory, small volumes. But despite all that, in terms of yield levels, there have been no disruption in our commercial strategy. So we're in line, financially speaking, to deliver what we have announced to the market. So it's been a combination of factors. It's a consequence of the fact that we have been operating really well month after month, and therefore, guaranteeing that the return on our investment has been translated into operating efficiency for the company.

The next question is from Mr. Andre Ferreira from Bradesco BBI.

I'd like to hear more about CapEx, please. You've said that, because of the rains, you had to slow down on the CapEx. But your expansion CapEx increased. Could you explain what exactly you've invested in this quarter when it comes to expansion? And you still have BRL 2.53 billion outstanding balance, with regards to Lucas, so is that going to go back to what was missing in the fourth quarter?

Andre, thanks for the question. It's a great opportunity to explain the CapEx dynamics this quarter. What happened more specifically when it comes to expansion was we have a very important investment package, which will be translated into expanding capacity, especially in the Paulista Network. So that's been quite intense this quarter. We've also invested in rolling stock this quarter, as well as there have been other investments which are part of that package. It's worth mentioning that considering the whole guidance, I mean, it could be BRL 6 billion at the midpoint of the range or just over that. So BRL 2 billion will be invested in Mato Grosso railways, BRL 2 billion are recurring investments in the operation. And the other BRL 2 billion, I mean there may be a small variation, will go towards other expansion investments to make our operation more fluid. So I just want to reiterate that split, which I had already mentioned at our last call in 2024. So that split will remain the same, and we'll continue to make those investments looking forward.

The next question is from Mr. Pedro Bruno from XP.

I have a quick follow-up question on volumes. We talked a lot about the north operation. What about the south operation? In terms of performance since the events that took place a while back, volumes have been compromised. Do you think the recovery will help you increase volumes again? You've reiterated the guidance. So do you think those improvements will come from that? What do you expect from the south? And also, I'd like to hear more about costs. The fixed cost and SG&A performance was well below the inflation rate, going up less than 1% this quarter, whereas in the last couple of years there have been lots of investments, and you've explained it quite clearly, but they've gone up well above the inflation rate. So how does this first quarter performance translate into the rest of the year or looking forward in terms of cost?

I'll start with the volumes. Yes. We'll have a different comparison basis because up until May when we had the weather events that affected the Tronco Sul line, this year specifically, it's not the same comparison basis. As you say, there were disruptions, there was quite a lot of damage. So there are no volumes being transported there. So that will have an impact. But that's not the only thing. There's been challenging competition this quarter in the south operation, which has meant there have been less volumes. So the volume that was there to be transported didn't happen this quarter. Having said that, we have been taking measures and, in the south network, things are going as expected. There have been efficiency gains. But it is a market dynamic and it should be challenging for the rest of the year. Now to strike a balance and to meet our volume and EBITDA guidance for the year that will be based on the north operation where there have been investments, and we should see a volume recovery over the next few quarters, and that's where we believe we'll get our results from, and obviously, looking for opportunities to leverage volumes in our south operation as the market picks up again and we see what happens to competition. Now moving on to your second question about OpEx. In the last 3 or 4 years, we have adjusted the company structures to meet our challenges. That did happen so we could face our challenges. There were lots of projects being implemented. We were executing on the Paulista Network initiative, the Mato Grosso railway, so we had to mobilize teams and everything else we needed to do that. We believe we have reached a desirable level, so we should be running at that level. And we've captured efficiencies at the level we believe to be the company's new run rate. But the main thing is to leverage the structure that is in place by increasing volumes and decreasing unit costs when we consider reais per RTK. That's how we're going to reach a stable level. And obviously, we need to prioritize initiatives that make sense and in terms of structure, what makes sense for the company considering future challenges. We're not going to look at any future projects considering the strategy that we've implemented for the next few years.

The next question is from Mr. Felipe Nielsen from Citi.

I have one more about volumes, but about your soybean versus corn pipeline, and what might happen over the next 3 quarters. The corn harvest is about to happen. It's a bit late, but as the corn harvest comes closer and the soybean is not being sold as well as had been expected, do you see any overlap in the export windows? Did you plan for that in your operation? And what would be the company's strategy to that end? Would it be to consider phasing out the soybean overlapping the beginning of the corn harvest? Operationally speaking, I don't even know if it's possible to have an overlap. So how are you thinking about dealing with that?

Thanks for the question, Felipe. I think trading dynamics have been different. We could say it's late for soybean. So it could lead to an overlap scenario where products are transported in our system in the second half of the year. To give you a bit more visibility, and we had already said that for soybean meal, we've dealt with that in advance. So everything is on track for soybeans. And for corn, we will be filling our volumes as trade happens in the second half of the year. The fact is that we have already performed simultaneous volumes in previous years. It's nothing new to us. I mean it does mean additional challenges, but the company believes that, having invested in improving our operating efficiency, we are perfectly equipped to do it. And the company has to be ready to meet the trading dynamics needs as well as product sales as the opportunity poses itself. So we need to meet the market needs and client needs as they arise. So we'll have to face more challenges, but it's no news to us. We've done it before. We'll have a bit more pressure over the next 3 quarters. But that's our sweet spot. We work better with pressure and when there is volume available.

The next question is from Mr. Pedro Tineo from Itau BBA.

I have a follow-up question about the bargaining power between the different links in the chain. How do you see the storage capacity in the system considering producers, trading companies? And how has that affected the bargaining power of logistics, transportation? And also considering the CapEx that will be required to meet the needs of those clients that are a bit closer, it's going to have to be an on-time sale. There won't be time to plan it. Is that a change we can expect for the next years?

Pedro, thanks for the question. Well, what we have been seeing is that investments in storage infrastructure have been taking place. And infrastructure as a whole in all the markets we operate are a good thing because they provide more stability and they make producers more confident to increase their planted area, to increase volumes. In no way does that mean a change in bargaining power, as you say. In fact, it could, over time, create a different trading dynamics, which will lead to different scenarios. We just need to be ready to have a trading dynamics that can adapt to the market. Traditionally speaking, our trading dynamics tends to follow the crops seasonality. If the seasonality changes, we'll adapt our trading strategy to something that makes sense. And above anything else, we are an infrastructure player. We provide transportation capacity for these volumes year after year. That is what makes us stand out. That is what makes us competitive. We're the leading player in the market. Obviously, it's not going to grow beyond the capacity that is available. So we should be the most efficient player, and we believe to be that we are the most efficient player to capture those volumes and to provide excellent services to our clients. So we will adapt to many different trading dynamics that may arise.

The next question is from Mr. Bruno Amorim from Goldman Sachs.

I have a follow-up question about storage capacity in the field. You're closer to the operation. Did you see a considerable difference this year in storage capacity? I ask because this has been coming for a while, and it sounds like this year it's had a disproportionate impact, or maybe we're giving it too much thought when it didn't actually drive the results. So it would be great to hear from you because you're closer to the operation. I also have a question on the volume dynamics in the last few years, that volume that was below your potential and the fact that you had -- you were less contracted as the year turned, and that means less time to plan the operation. Up to what point did that have an impact or didn't it have an impact? It was just the fact that the grain that's being transported wasn't in your area of influence.

Bruno, this is Saraiva. I'll start with your second question about storage. In the last few years, there has been an increase in storage capacity in the main market that is Mato Grosso across the chain. There's been an increase in capacity by producers, at co-ops, middlemen, logistics operators. Our recent expansion in the Rondonopolis terminal, for instance, and capacity has mainly increased in plants, soybean crushing or ethanol in Mato Grosso. There's been considerable capacity increase. Now attributing the pace of commodity pacing only to capacity -- storage capacity, we don't think that's the case. We believe that, that gives producers the flexibility to sell a commodity slower or faster. But at the end of the day, the trading pace will be based on how producers see profitability. If they think prices are attractive to sell grains, whether it be soybean or corn, then that will happen. This year, we believe producers thought soybean prices will be higher, so they increased production and the strategy was to delay trade. Now looking at the last few weeks and how commodities were traded, as prices improved, producers started to trade. There have been more transactions. And we are seeing higher transportation in Mato Grosso. So storage creates flexibility. It allows producers to carry stock over. But it's not the main driver for trade. It depends on each crop. It changes from season to season. What we have to do is to be ready to meet market needs as they arise. If there are peaks, Rumo will be ready to deal with peaks. There will be a soybean carryover for longer, so we're going to have to distribute our operation, our maintenance program, and manage volumes to adapt to market needs. It's not up to Rumo to choose, but Rumo is ready to operate as the market develops.

When it comes to transportation and volumes, in the last few months, there has been more pressure on the system. In April, things were better than in March. March was better than February. And we believe there will be more pressure on the system, as Saraiva said. There will be more volumes and more pressure on the terminals in the countryside. That will be a gradual process over the next 2 years, and that's why we're confident that we will be delivering on our guidance for the year.

Can I ask a follow-up question, please? Considering the capacity increase initiatives at the Port of Santos that will go into operation this year, some initiatives for next year, is it reasonable to assume that this capacity will be used up quickly? Or will you need to make investments in the network to be able to bring this additional volume to the Port of Santos? I just want to understand how quickly this capacity increase at the Port of Santos might lead to an increase in volume for the company.

Well, Bruno, capacity will increase in stages over the next 2 years. The first investment stage will take place and we'll add more capacity in Santos. We have the commissioning process at the Cosco terminal. We also have our terminal at BR-070 going into operation next year, with the FLP in Mato Grosso, that will add about 10 million in capacity, grains. The second stage will be closer to the end of the decade, which is when we'll add more capacity through a combination of investments into FIPS and the Paulista network so that the trains can have a better flow in the port as well as terminals. We've announced the investment in partnership with CHS into a greenfield terminal at the DPW area, and the T-39. So that will also increase capacity by about 15 million tons. Now it should be said that, that additional capacity will be used up over time and it will depend on variables such as the crop, export demands. And that will be done gradually. It's a gradual process that will take place to use that additional capacity. It's not going to be overnight that we'll be using all that additional capacity, also because you need to take market dynamics into consideration, which we will be monitoring.

[Operator Instructions] The next question is from Mr. Guilherme Mendes from JPMorgan.

Thanks for taking my follow-up question. It's about the regulatory side of things. Do you have any updates on the West network and the South network to share with us?

Guilherme, thanks for the question. Well, in both cases, there have been some updates, but it's not much different to what we have been announcing to you and what we said in the last call. For the West network, there has been a joint report between us and the government. So the Court of Accounts is assessing it. The study group has assessed it. So now we're just waiting to hear back from the Court of Accounts about that. So there's nothing new. We're just waiting on the technical feedback. It will come when it does. About the South network, a working group was created by the Ministry of Transportation in November, so we are taking active part. We are making technical contributions and helping the government build a view about the South network. This year will be a year of discussions. The discussion group is in place. So there should be more interactions. But there are no specific updates to share with you about either of the networks. There are ongoing discussions.

The next question is from Mr. Alberto Valerio from UBS.

I'd like to hear about dividends, please. Cosan may need dividends from the subsidiary companies. What is Rumo's position about that?

The company's business plan is very clear. Our guidelines are very clear: to execute on our investment plan and our strategic business plan. So our contribution as Rumo to all shareholders, including Cosan, is to execute on our investment plan. Having said that, there are no specific demands on the part of Cosan with regards to that. Cosan, represented by Marcelo, was very clear in their last earnings release call. They said that they will be addressing Cosan issues in their own way. So I'm not going to comment on that. Having said that, the company is in a very good liquidity position, in a solid financial position. And if our strategy can be preserved and if our investment dynamics can be preserved, if the capital structure framework can be respected, then we could look into paying out dividends as an alternative return to all shareholders without it affecting our strategy. So we will and are looking into it. And when the time comes, if there is a conclusion, we will announce it to the market.

The next question is from Mr. Felipe Nielsen from Citi.

Thanks for taking my second question, which is quick. I'd like to hear from you about some new projects that are under discussion. They're still undergoing a public hearing. Will you be discussing with the community, other companies and the government about the feasibility and the attractiveness of these projects? So I just want to have an idea of your mood and the market perception about this new pipeline that's being prepared for new projects.

Felipe, thanks for the question. It's important to say that, as a relevant player in the rail segment and the infrastructure -- logistics infrastructure in this country, we do have a department that monitors what's happening in the market and what's happening in the government and on the regulatory side. So we have been monitoring it. We have been taking active participation and making our contribution. And to be honest with you, we haven't really seen anything concrete. To be more specific, what we have seen and monitored more closely was the public consultation on the FICO-FIOL project. And the results of that process was that this project is not very compelling. It's an integrated project, a single corridor. So the market agrees with us, and basically, it wasn't very attractive. There wasn't much demand for it. So each part of this project has its own specificities, its own challenges and its own opportunities. So we'll continue to monitor those. But the main thing to say is that the company is focusing on its own investments, which are ongoing. Our plate is quite full with our own projects and our own investments, and that's what we are focusing on and will continue to focus on.

This concludes the Q&A session. We will now turn it over to Mr. Guilherme Machado for his closing remarks.

Thanks, everyone, for joining us. It's a pleasure to be here with you to talk about the company's performance this quarter. We remain confident about our results for the year and everything that will happen in the market, and we'll continue to focus on execution, operating execution, to make sure that we meet market needs over the next few months and quarters and that we will implement our projects to ensure the right balance in our capital structure. And that will remain healthy for the rest of the year, which has been challenging, but we remain confident that we are fully able to face them. So we'll see you in the next earnings release calls, and thank you for joining us again.

This concludes Rumo's First Quarter 2025 Conference Call. Thank you for joining us, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]