Rumo SA

BOVESPA:RAIL3

Earnings Call Transcript 2023-Q1

[Operator]

Good morning, everyone and thank you for waiting. Welcome to Rumo Conference Call to discuss the First Quarter of 2023 Results. Today, we first, we have Mr. Rafael Bergman, CFO and IRO and Mr. Gustavo da Rosa, Investor Relations and Strategic Planning Director. [Operator Instructions] We also would like to inform that Rumo's Q&A session will be presented in Portuguese by the company's management and there will be simultaneous translation to English. This event is also being broadcast live simultaneously on the Internet via webcast. Before proceeding, we'd like to mention that forward-statements are based on the beliefs and assumptions of Rumo's management and on information currently available to the company. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. All participants should read the disclaimer available on the second page of the presentation. I will now turn the conference over to Mr. Gustavo Marder. Please, Mr. Gustavo, you may proceed.

[Gustavo da Rosa, executive]

Good afternoon and thank you for joining the first quarter 2023 Earnings Conference Call. As usual, let's start with ESG highlights on Page 3 of the presentation. Reinforcing our commitment to the ESG agenda, Rumo released the 2022 Sustainability Report on March 10, which presents among other highlights, advances in the carbon agenda, evolution in the levels of safety and engagement of our employees. The 2022 report is the second Sustainability Report we have published and an important document to disclose the development of this agenda and to monitor the evolution of our long-term goals. On the next Slide, we will present the highlights of the quarter. The outlook for the freight market remains constructive, driven by the record soybean harvest and a growth prospect for the corn crop. The higher demand for logistics has reinforced the competitiveness of rates with real term growth in the yields in the all the operations. Our operations close to the Santos Port were impacted by criminal activities, resulting in worst productive and lower-than-expected volume performance. By the end of the first quarter, the response of public health authorities became more effective and helped to reduce the problems in the region. Therefore, sustained perspectives of better volumes going forward. With regards to our expansion in the state of Mato Grosso, we have advanced with licensing process, achieving around 8 kilometers of installation licenses between [indiscernible]. We also made progress on other important fronts such as the land acquisition and the construction of viaduct over BR 163. As a sub sequential event in reinforcing the material fact we released on April 20, we are assessing a potential corporate reorganization that will promote greater efficiency in the management of Rumo and it's subsidiaries, reinforcing Rumo's liquidity. Rumo S.A. will be an important investment vehicle with the construction of the extension project in Mato Grosso. Therefore, it's important to maintain a robust liquidity condition in this entity. In addition, the simplification will optimize the corporate structure of Malha Norte, an entity that will hold only railway operations. The definition of the exchange ratio is being developed by an independent committees and we'll keep the market informed about any developments in this matter. On the next slide, we will present the market-share performance. The criminal acts around Santos region caused a deterioration in the railroads for deducted in the North Operation, directly impacting the volumes transported in the quarter. As a result, Rumo's market share fell to 38% in Mato Grosso and 19% in Goias and consequently 50% in the Port of Santos. In the South Operation having rainfall caused a land slide around Sao Francisco do Sul region, affecting the performance at the port, driving our market share of 21%. On the next slide, we'll detail the operational figures. Despite the improvement in efficiency in the recent years, in this quarter we saw a decline in operational performance, caused by the criminal acts around the Santos Port region. We expect to resume this trend of improvement in operational indicators with the normalization of safety conditions in the Santos area. On the next slide, we are going to talk about our operating results. The transported volume fell 11% compared to the first quarter last year. This drop was substantially driven by North Operation due to criminal acts around Santos port area. Consolidated volume for the quarter was 16 billion RTK. Regarding the performance by segment, the most significant loss was in the North Operation grains segment. I would also point out that in addition to the criminal acts in Santos region, there was a delay in the soybean harvest in January and 7 days of interruption of Malha Paulista at Santos region. With the record crop in the Midwest area and the improvement in traffic conditions around the Santos Port, we are expecting better volume performance in the upcoming months. On the next slide, we'll present the revenues and yields for operation. Net revenue grew in all operations an 8% in consolidated terms. Despite the drop-in volumes, there was a real term gain in yields in all the operations, reinforcing the margin recovery path that we began in the second half 2022. The competitive environment for 2023 remains constructive, allowing Rumo to continue to seek for a fair value for its services. On the next slide, we'll see the EBITDA per operation. EBITDA reached BRL 1.18 million, an increase of 18% with an EBITDA margin of 49.5%, growth of 26% on a like-for-like basis, due to the sale of T16 and T19 Terminals in the fourth quarter 2022. While we were in the North Operation on a comparable basis, EBITDA rose 18%, in the South Operation EBITDA more than double. Margins were 54.5% and 39% respectively. The variable costs were driven by lower transported volumes, an increase of 60% in fuel prices, worse than expected energy efficiency caused by the constraints in the Santos region and the recognition of approximately BRL 60 million in provisions for take or pay obligations. Fixed costs and SG&A expenses were impacted by approximately BRL 25 million in costs associated with the criminal acts in the Santos region. On the next slide, we'll talk about the financial results and net income. The net financial result was a loss of BRL 607 million in the quarter, driven by the interest rates and inflation. I would also emphasize that Rumo's debt profile is mainly exposed to CDI either contractually or 2 derivatives. Net income for the quarter was BRL 71 million, positively impacted by better yields in March. Moving to the next page, we will present our investments in the quarter in the progress of the expansion project in Mato Grosso. Local investment was BRL 928 million in the quarter, out of which BRL 324 million referred to recurring Capex. BRL 580 million to expansion projects and BRL 24 million to investments in the Rumo extension in the Mato Grosso state. The expansion in Mato Grosso project is currently on its first pace connecting Rondonopolis terminal to the new Campo Verde terminal. We are advancing according to the plan in the quarter, we highlight that we have began 80 kilometers of installation licenses and we are also advancing in the land acquisition front. As you can see in the right side of the chart, we have concluded the construction of a railway viaduct crossing the BR-163, close to our terminal in the Rondonopolis city. On the next slide, we will present our indebtedness. Our leverage was 2.2 times net-debt to EBITDA by the end of the quarter. For better illustration, the leverage calculation for the first quarter 2023 is on a like-for-like basis and it does not consider the results of the terminals T16 and T19 in the last 12 months. We ended the quarter with BRL 7.3 billion in cash and maturities in the coming years are less than BRL 1 billion BRL per year. The liquidity position is adequate for the investment cycles that we have just started. On the next slides, we have the market perspectives for soybean and corn. Brazil usual have a soybean crop of 156 million tonnes, out of which 95 million should be exported. Mato Grosso might produce about 45 million tonnes, out of which 28 million tonnes should be exported. Production in Goias state is estimated at 18 million tonnes, with 10 millions to be exported. On the next slide, we'll see the perspectives for corn. Corn crop estimates suggest the potential production of 126 million tonnes, out of which about 49 million tonnes are expected to be exported. Mato Grosso should produce around 50 million tonnes and export 29 million tonnes. In Goias, production is expected to be around 13 million tonnes with 4 million tonnes to be exported. With that, I conclude my presentation and we are available for the Q&A session. Thank you.

[Operator]

[Operator Instructions] First question is from Josh Milberg, Morgan Stanley.

[Joshua Milberg, analyst]

My first question is about April volume. What was the benefit from rescheduling volume in February and March? And related to that, what kind of reversal level do you have in terms of take or pay provision, out of the 60 million we can see for the next few quarters. And if you could also give us some color about the criminal acts and what the government has been doing about that? Do you see that problem as basically having been resolved or do you think things might go back to how they were before? So that's my first question.

[Rafael Bergman, executive]

Let's start with the criminal act. That problem became a bit more relevant at the end of January, February. We talked about that during the call in the fourth quarter when we also shared the guidance for 2023, that did affect our operation during February and March as we had reported. In terms of measures that have been taken, the company has reiterated measures that are relevant to the company in terms of [indiscernible] acts happen is obviously, if affects our productivity, but the train has to stop and it takes a while before we recover that. So we have implemented procedures to improve that, but as you've mentioned in your question, we did have the support of the government, the Secretary -- for security took some important measures because obviously, that's a matter of public security. So our role was to raise the issue, so that the authorities could implement the required measures, those measures are in place. They are still working on it and it's important that the authorities continue to work on it, so we can progress. But obviously as those measures become stronger, more robust and our ability to recover and improve our performance in April and also improved considerably. I wouldn't say there have been no effects, there have been effects, but the impact has been a lot less than in the last few months. So we're confident that we're on the right track and so as the government and in fighting those criminal acts and what they need to do looking forward. As for the sales volumes, this year has relevant volumes for soybean and/or as margin [indiscernible] niche. Normal market issues, we do have a challenge and an opportunity to deliver on our capacity for April. April has had historical records in the North Operation that is very important to us because it makes us confident that the capacity is there, so that we can deliver. That's our challenge in light of the opportunity, the market disposing. In terms of the take or pay, we did the provisions that were required, the market is very strong this year and we believe that economically speaking, our operations and negotiations prove, result in a good year for us. We will be able to make the most of the market as, but reversals are a lot less relevant, because we have the ability to perform based on what the market is offering with the margins that we have been showing, which had some very constructive result.

[Joshua Milberg, analyst]

That's great, Rafael. Thank you so much for the very detailed answer. That's very quick. If I might ask other question please. Could you talk a bit more about your share losses for dispose, I'm not talking, it's clear that you capped of a lot of that in April, but what about the oil effect you were not able to transport. Have you been seeing or do you expect to see any movements from traders that have their own terminals in the North are, do you think these trading companies might add more capacity not only based on your capacity limitation in the last few semesters, but also based on the very-high yields we see now.

[Rafael Bergman, executive]

Well, Josh, starting with market share, not circumstantial, it's not structural. Our productivity issues, the issue that we -- in February and March and also January, it was a tough month for us. We had to stop the North Operation for 7 day. That said is already showing our availability and capacity to provide good service to our clients. In terms of creating additional capacity, we trust that our solution is very competitive and we are offering the best we can to our clients, obviously, population is growing, the factory is growing and the demand for logistics also tends to grow. So we see it with naturalness and our position is to provide reliable and competitive services to meet our client and our partner needs.

[Operator]

The next question is from Guilherme Mendes from JPMorgan.

[Guilherme Mendes, analyst]

I've got couple of quick ones. First in terms of pricing, so performance in the first quarter was very strong and road freight should continue to increase and you closed I think [indiscernible] less than they are right now. So assuming that in the second quarter because you practically are a transporter, your negotiations for the end of this year and for 2024, is there any room for the company to bring forward the pricing negotiation and to make the most of higher levels especially considering the port side of things, that's the first question. The second one has to do with taxes. Will there be an immediate impact from what the government has been discussed. And do you see anything more relevant happening in terms of taxes in the second-half.

[Rafael Bergman, executive]

I'll start with the second one. I think too early to say anything about the tax reform and the impact that might have on the company. What I can say that we continue to focus on having competitive and efficient solution and that we are ready for whatever comes. Our business is about long-term investments in infrastructure. And there are still opportunities in the country with that. So this is a sector that we need to look at from that perspective. We need to continue to be a feeling for investments justify what we have been doing in terms of investments and obviously long term maturity investment, so that's the first answer. In terms of pricing, Guilherme, obviously, we're looking at trade prices on a monthly basis, road freight prices and we always say that looking at perhaps month-to month is not necessarily the best way to understand what pricing will be like for the next 6 to 12 months because those involve more structural discussions. We have a constructive view as we said and it has been materializing as it has in the first quarter and we are taking all the information available into consideration in our commercialization strategy and obviously, offering contracts that make sense to us in terms of profit and that makes sense to our clients. I think it's too early to talk about that for other periods of time. Obviously, this is the first semester of 2023. We still have the corn crop coming. We've progressed in terms of the corn crop sales already. And as you said, logistics have the opportunity to be appreciated right now and we are ready to meet our clients' needs.

[Guilherme Mendes, analyst]

Thank you, Rafael.

[Rafael Bergman, executive]

I'm sorry, I was going to go back to that point, how was your incentive for North network will come to an end at the end of the year, we're already going through a renewal process, that was a major investment we made in the extension of the -- to the Rondonopolis terminal and we are sure that, that rational will remain -- we don't see any changes in that sense.

[Operator]

Next question is from Daniel Sasson, Itau BBA.

[Daniel Sasson, analyst]

The first is about the corporate restructuring that you announced a few weeks ago was not a consequence, this was to make it easier to sell some of the remaining terminals that are of the holding company. Could you comment on your plans to recycle your portfolio? And why doing something like that would be more advantageous after the corporate restructuring considering the terminals under the holding company. Second question is about volume recovery. You mentioned that April volume were less affected by the Criminal Act to deliver on your guidance, you'd have to be closest to speak of the system, but you showed us halfway through last year for few months. How comfortable are you feeling about your volume guidance for the year? And how does that relate to the delayed soybean crop harvest this year? Will we be seeing higher volumes in months that seasonably are usually weaker, but maybe due to that delay, you might have volumes being transported closely to the end of the year, perhaps, thank you.

[Rafael Bergman, executive]

I'll start with your question about our corporate restructuring. Let me make it clear to everyone who is joined our conference. The 2 objectives of our corporate restructuring are to manage our liquidity, intercompany liquidity better, Rumo minority has a surplus, it generates cash on Rumo. S.A. is a holding company that only has administered different financial expenses. Rumo S.A. is a company that we have chosen to invest in the Mato Grosso extension project. When we have a corporate restructuring that leads to cash generation inside the company that will be making the investment, that means we will have more efficiency in our liquidity. The second objective is to simplify our corporate management. For sure we have shares in the port terminals. Before that corporate restructuring, our main issue in the 16 and 19 terminals is already with Rumo S.A. We have those 3 states at Rumo Malha Norte North network and that is a vehicle to concentrate those operations. This is being assessed by the independent agents and the idea is to have all of our stakes in terminal under one single vehicle. In terms of the capital recycling, it's our duty to look at opportunities. We talked about that when we announced we were going to sell Terminal 16 and 19. We said that we focus on investing in rail expansion opportunities. We still have some investments to make, we just had the Lucas project. And if we have the opportunity to recycle capital for partial or wholesale of other assets if they are attractive, of course, those and also and more importantly with the right partners, we will consider it, we'll look into it and that's what happened. We found the right partner to run the operation and they're doing a very satisfactory. So we will continue to do that. We'll continue to look at opportunities, but we haven't got any news at the moment to share with you. About your first question, I think that's it, in terms of volume, let's not forget that in February, when we announced our volume guidance, our EBITDA, our CapEx, we already had visibility of our productivity loss due to the criminal acts in the Santos region. The speed with which they were resolved could have an impact on the volume for the year. So April is making us confident that we do have the capacity. We have that ability. There is uncertainty in terms of volume -- more on the way there because this situation is still ongoing. I mean, we feel confident, but we don't have full control of the situation, but April has pointed at all, BRL 6.9 billion of RTP with soybean which was less density, but it's proof that the capacity business. Our team is highly focused on turning that into transported volume. So we will continue with the estimates that we disclosed in mid-February. With regards to EBITDA projections, we have the volume lever. We also have the margin lever, I think we have even more levers in that, maturely speaking, we feel very confident. What are challenges and there are also opportunities this year. So we're going to pursue value for the company when the market is favorable and make the most volume opportunities over the next few months to come. As you said, we do have the opportunity to recover anything that we didn't make the most of in terms of volume with some relevant value on the table that we want to pursue.

[Operator]

Next question is from Lucas Barbosa from Santander.

[Lucas Barbosa, analyst]

We heard about yields earlier. Could you give us some idea, the yield increase was obviously quite strong in the first quarter. How much of that was helped by a higher concentration of yields in margin, how much was that due to the market because of the pricing effect, how much was the effect versus toll roads. First of all, we can understand how long that's going to last in the second quarter and the quarters after that? Now in the mid-term, could you give us some idea about the supply and demand for the next 2 years? Have you mapped the competitors' capacity and how do you see yields in the mid-term?

[Rafael Bergman, executive]

I'll start with the first one. Your comment on the different months, it does make some sense, March. There's a peak demand, peak month, additionally there are good volumes at higher prices. And over the year, there will be reasonable affecting prices, both upwards and downwards. And a comparison basis for the first quarter 2023 is quite weak, that was the first quarter of 2022. We talked a lot about that in our previous earnings calls, maybe that high yield percentage or the yield revenue. I don't want to go into details about the quarter because it doesn't make any sense, but we will continue on the same track that we shared with you when we disclosed our guidance for the year. Looking at the -- as a whole, making the most of opportunities and price is a reflection of those opportunities. So we've seen yield increases across the board, the market is looking very constructive. And I think now is a time pursue the right value for our service, so that we can make the investment that we want to do and meet the growing demand. We want to provide good service to our clients, that's what we're here for. And I think that dynamics will remain over the next few years, production is increasing, yield are increasing, planted area is growing, the demand for our logistic solution is also growing, those we're working. There's a growing demand in Asia, in the Middle East, which justifies our investment view for us [indiscernible]. Right now, we're very focused and what matter is that we're ready to meet our client needs. We're doing our job to make sure we provide good service to our clients and to meet high production levels in the country.

[Operator]

Next question is from Regis Cardoso of Credit Suisse.

[Regis Cardoso, analyst]

I have a couple of thoughts. One is about new -- more about possibility [indiscernible] back calculation as you may now, you'll be able to obtain [indiscernible] as the first quarter [indiscernible] the volume between and it's quite low compared to the average monthly volume of the first quarter, so it suggests that looking at the lower end, the guidance is looking more conservative than aggressive. So my first [indiscernible] EBITDA per part would remain constant, is that reasonable because looking back hoping the other way around [indiscernible] RTK [indiscernible] profitability for the rest of the year average profitability for the rest of the year. And the other thing that we've been getting questions is about your cash flow dynamic, I know that there was some working capital, [indiscernible]. We didn't generate free cash flow, I mean it's a little bit about your CapEx level and your cash balance that you're thinking at this level of profitability.

[Gustavo da Rosa, executive]

First of all, about guidance and profitability, as Bergman said, we feel very comfortable about the numbers disclosed to the market. So what we have delivered is first quarter is compatible with what we expected for the year. Obviously, in February, we already expected to have some operational restrictions due to the criminal act in the central region. But in terms of profitability, it is in line with what we had projected. Now when we look at profitability over the quarters, there is a great deal of variation. In the first quarter, for instance, we're a bit cropped, for sure, as of April had the first sugar crop and the EBITDA per RTK of sugar is not as profitable as it is ingrained. We also had the operation mix in the South network with a higher contribution. So there are different fluctuations. The yield curve as we have said, isn't necessarily linear over the quarters. So again, I don't think the point is to try and determine how these dynamics will vary quarter-on-quarter, but to feel confident that the way we see things, we're in a great position to deliver on what we have proposed to the year. We have profitability, we are recovering volume and compared to what we saw in the first quarter. And there are new projects with new loads, we're working with fertilizer seeds, there isn't one single growth driver in the grains market. There are also some other ones that should help us deliver on the guidance that we've projected for the year. Again, I think it's too early to say during this first call to have any estimates based on what we have disclosed earlier. About cash flow and I can turn it over to Bergman to talk about our capital discipline afterwards.

[Rafael Bergman, executive]

Historically speaking, the first quarter usually shows some working capital loss versus some seasonal effects. One of them is the variable income pay that's in the provision for over the other quarters that you have cash concentration for that in the first quarter, but that's recurring, it happens every year. Obviously, last year, we had slightly better results, it also marginally reflects on variable compensation and probably the larger explanation for the difference in working capital is diesel. Our volume performance for the quarter was slightly lower and more diesel cost has a payment than that is higher. So this first quarter, we ended up having to pay for transported volumes and for the diesel that we used last year. And since last year's volume were higher than this year's, we get that asymmetry for the next quarter, specifically talking about the diesel, that trend will tend to be reversed because you will be recognizing in the result higher diesel levels because naturally we'll expect higher volumes in the second Q and you will be converting the diesel cost into cash of what we've performed now. So I don't think there are any major distortions there. But there are seasonal effects on the cash flow and those should normalize over the year.

[Gustavo da Rosa, executive]

If I can add to that, Regis, there are no structural changes in the mid-term in terms of payables and receivables will continue with the same types of contracts. So what we see for the year is to generate the EBITDA we had in the guidance, to deliver on the CapEx that we proposed to and with that our leveraging levels will also fall within the levels that we mentioned, which we see as adequate until the end of the year from 2 to 2.5x this quarter, it's 2.2x, 80% of port loading are recurring from the end of last year. So based on the projections and delivering on what we propose to deliver, that number tend to decrease from now to the end of the year. And that's our financial discipline commitment to cater for the investment that we are making in the Mato Grosso extension.

[Operator]

Next question is from Rogerio Araujo from Bank of America.

[Rogério Araújo, analyst]

A couple of questions. I'd like to go back to the yield outbreak from a different perspective [indiscernible] the magnitude of spot market compared to the negotiated average with the current crop and also [indiscernible] in terms of what's missing in terms of volume and what you expect for you to close the contract, especially with corn, how much have you sold? If you can give us a range, that would be great. As a follow-up question on yield in Q2, I think Rumo negotiated [indiscernible] volume at the time. And there was a price increase over the year and that affected the yield for financial year 2020. So I'm wondering it's now 2023 [indiscernible] if we can also expect some relevant volumes being thought forward instead of doing that end of the year negotiation, [indiscernible] the market a lot about that. Do you think there will be any forward negotiations? And very quickly, how about the BRL 25 million compensation payments. What were they about? Did it have anything to do with the criminal act in Santos. I don't what you're talking about that when you talked about the take or pay.

[Gustavo da Rosa, executive]

There are lot of questions. Let me try to answer all, about the spot market in order to understand how yields will behave this year, I'd say it's practically irrelevant. We've priced the yields we're delivering and have delivered in the first quarter last year based on what you described to us, it's always important. Given the Port of Santos limitations, we need to have some operational planning to do with our client, so that we can maximize the volume that we can operate within the port of Santos. Rumo always tries to sign those agreements with clients ahead of time to try and maximize our capacity at the port of Santos. I think somebody actually mentioned this in the previous question, we're at the peak of crop right now. So spot market prices are quite high. There's no point in trying to look at the market and make our self on big prices. Obviously, the freight market reprices will fluctuate until the end of the year. What matters to us is the market is constructive right now, which enables favorable margin that was for the company. In terms of sales percentage, we had already talked about that. We've done very well for the soybean and we've made great progress in terms of corn this year, there are seasonal aspects being steamed from one month to the next. And these were last-minute adjustments, especially in the fourth quarter. It's harder to get it right in the fourth quarter and to get a commitment from 100% of the volume ahead of time. That's perfectly normal. I'd just like to reiterate the fact that we're happy with the level of negotiations and profit that we have right now. We had never intended to have price as a target, but to be profitable for the level of investments that we've been making. As for '23-'24, we think you can expect the same thing we've been doing every year. We'll always favor planning volumes ahead of [indiscernible]. As long as the market continues to be constructed, negotiating volumes ahead of time doesn't mean giving up on yields. It means being able to come to a good firm with your clients at the right rate prices. And that -- and how healthy the market is when negotiations are going on. Rumo just wants to leave the table to not regard the best price, but a fair price. That's why we have our investment plan. As for the compensation payment, a lot of the criminal acts in the Santos region had to do with people opening our cars to steal cargo. Those BRL 25 million do not account for everything that was stolen over 100 new steel funds [indiscernible] these 2 quality issues, product losses, the product might spill out of the car and that needs to be replaced. It's not a recurring cost, but it is associated to security issues as Bergman said in his previous answer, they have been happening less frequently, so those compensation payments will reflect lower amount if the frequency of criminal acts decrease as we have seen in the first quarter.

[Operator]

Next question is from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

I have couple of questions, first one is also about yields with Rumo, looking at the first quarter, there's a huge difference between field and diesel price trends, as you said, you had the tariff recovery movement, soybean so thing at the next quarters, do you think this will remain at the same level? Will there be a pass-through for the second half of the year? And the second question is, about the take-or-pay contracts first quarter there were provisions [indiscernible] especially April, the North had record volumes. Considering your CapEx and capacity increase, if we consider April volume, can we consider that you will not have any more take-or-pay provisioning regardless of the problems in the Santos region?

[Gustavo da Rosa, executive]

With regards to diesel and profitability, that's irrelevant to us because it is a go-through in terms of margins, if diesel continues to drop as it has been, there will be a minimum impact on yield and the reduction of diesel costs. The way we like to look at it is always looking at the distribution merchant so that we can see the net effect of both variables. So to us, in the short term what happens to diesel prices doesn't really affect our profitability. As for take-or-pay contracts, as Bergman said earlier, the BRL 6.9 billion RTK in 30 days, if we do the equivalent calculation, I mean, that would be over 7.1 billion RTK. And since we transport soybean in the first quarter, there's a density difference of up to 5%. So you could be getting up to 7.5 billion levels in terms of equivalent capacity for the second half of the year. And Criminal Acts have not been completely resolved, in [indiscernible] we're still having to do with -- we're still having to deal with incident. So at the current level capacity is added. And obviously, for that reason, we have kept all the projections we make for the whole year. And we continue to be confident that we'll be able to deliver those results. Of course, things could change better or worse over the year and in performance to be even better in terms of capacity at the Port of Santos and we need to see what will happen to these criminal ads. But based on people results, I'd say that we have already reached capacity levels that we had expected. Of course, at that is not the cap of what we end do. If we address the issues, we could have even higher volumes before the end of the year. The take-or-pay provisions are mutual, obviously. This is a contract mechanism and this is an accounting treatment. But the main thing is the partnership and coordination with our clients. Our objective and our clients' objective is to make sure we meet volume needs. We have a joint schedule to make sure that the whole system is [indiscernible] across the year. What matters is that we're ready in terms of capacity to meet market needs. We have made progress in our sales, but we can still sell from the economic value from that opportunity we'll continue to happen over the year. But we can't say for sure when the reversal will happen during which month, I just wanted to make that clear.

[Operator]

Next question is from Bruno Amorim, Goldman Sachs.

[Bruno Amorim, analyst]

I have a couple of questions. The first one, we delivered great results in the first quarter, which suggests you keep the guidance even though volumes were low at the beginning of the year, which suggest to me at this point if I'm wrong that prices for the first quarter also price new. It'll be interesting if you could comment on what happened in the spot market, spot market prices come in higher than you had expected, maybe you had some capacity left over to be sold in the spot market, that's one question. Second question is in the long-term, road freight and rail freight as they did don't necessary go in hand, when we look at short-term [indiscernible] 5-month basis, over a long period of time, they didn't -- last year, we saw an increase in growth rate and have reflected in higher prices for you as compared to quarter last year -- the result of the first quarter to go there were some additional progress compared to the second half of [indiscernible] those recurring rate that will reflect the reality in both rates? Or do you think the [indiscernible]. If you look at an average for the last months between road freight and rail freight, is the gap still bigger than long term trends or do you think you can still close that gap? So that's my question.

[Gustavo da Rosa, executive]

As for the yields, we didn't -- as I said earlier, we agreed on those yields ahead of time last year. And also when we agreed on those view last year, we didn't think there would be lower volume levels in January in fact since March busy month for yields tend to be higher, that may have marginally noticed have a slightly higher percentage than we had expected in terms of market dynamics. But let's say that we were pretty much aware of what the yields were going to be. Now what will happen to them over the rest of the year, we didn't deliberately think we'd have and have been do that in the spot market. Obviously, when there are seasonal effects like at the end of the soybean crop, at the end of the corn crop, those are more uncertain month and it's harder to sell 100 percentage of the volume forward. There's room to sell, but it wasn't really a deliberate decision to try and play with the spot market to get additional yields. That effect was not part of the explanation for the new levels that we achieved in the first quarter. Could you repeat the second question, Bruno, please?

[Bruno Amorim, analyst]

Second question to do with where your freight prices are in comparison to growth rate price considering that there is a delay between what happens to road freight and rail freight last year beginning of the year, growth rate margins went up radically and you have to wait another 6 months for it to happen to you. So I just wanted to know if you'd be able to close the gap and [indiscernible] I mean road freight prices went up halfway through last year, but then it reached half, so your price in the first quarter, I think it's already reflecting the gap is closer to [indiscernible] or do you think your prices will go up further even though growth freight prices aren't going up anymore.

[Gustavo da Rosa, executive]

Obviously, the prices we negotiated have more to do with what we saw happening at the end of last year and our expectation for 2023. We can never get it 100% right? Everybody looked at 2023 and a very constructive market drivers. But you have to price that ahead of time. So it's very hard to 100% of the opportunities. As I said earlier, current freight prices, right, we can't even say that it will represent what we'll see for the rest of the year because there are seasonal effects that [indiscernible] 2024 till now. In addition to the freight dynamics, we also need to look at what will happen to the logistics supply and the logistics demand closer to the end of the year, we'll be able to understand what will happen to the crops.

[Operator]

Ladies and gentlemen, please hold. Ladies and gentlemen, please hold.

[Gustavo da Rosa, executive]

Sorry, we got disconnected. So as I was saying, it's not just road freight prices determine what will happen in terms of negotiations for 2024, there are the crops as well as other elements and in the second half of the year, we'll have more information.

[Operator]

Our next question is from Filipe Nielsen from Citi.

[Filipe Nielsen, analyst]

I have 2 very quick questions, one is about [indiscernible]. I'd like to understand from you, you talked about potential partnerships, how do you see partnership with foreign companies or are you considering more local companies as investment partners? Second question is about technology improvements, what do you think will be the next steps to improve profitability, considering technology? During the Investor Day, you talked about optimizing networks, optimizing fuel consumption. I'd like to hear more about those projects and what the next steps are in that sense?

[Gustavo da Rosa, executive]

Again, given the size of the investments, we are planning perfectly normal for us to talk about different things, but there aren't any magical negotiations about partnerships. We've been talking a lot about partnerships with clients to operate terminals, but those are more common partnerships, nothing too different from that. And at any point, there isn't a detector that we will let the market know. As for technology and operating efficiency, there are many initiatives going on, some of them are power of the investments we have committed to make to renew the Paulista network, IPPC, the licensing and signaling system will optimize their new network and to make caring traffic more intelligent. We're also looking into using artificial intelligence, artificial intelligence to improve train maneuvers in yards, train traffic, but the main driver in terms of productivity for us is to dilute fixed costs and to operate in this very high scale system at very high quality and efficiency level. We have a very robust investment plan and our technological agenda is consistently moving forward. As I mentioned, the first quarter has slightly moved away from the trajectory due to operating restrictions, but other than what we have been delivering very positive results on that in that regard.

[Operator]

The Q&A session has now ended. And I would like to turn it over to Mr. Rafael Bergman for his final remarks.

[Rafael Bergman, executive]

Thank you for joining our first quarter earnings release call and I'll see you next time. Have a great afternoon.

[Operator]

This concludes Rumo's conference call. Thank you very much for your participation. You may now disconnect. Have a good day.