Rumo SA

BOVESPA:RAIL3

Earnings Call Transcript 2022-Q4

[Operator]

Good afternoon, everyone, and thank you for waiting. Welcome to Rumo Conference Call to discuss the Fourth Quarter of 2022 Result. Today with us we have Mr. Beto Abreu, Rumo's CEO; Mr. Rafael Bergman, CFO and IRO; and Mr. Gustavo Marder, 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 a simultaneous translation in English. This event is also being broadcast simultaneously on the Internet via webcast.

Before proceeding, we would like to mention that forward statements are based on the beliefs and assumptions of Rumo's management and on information currently available through the company. They involve risks and uncertainties because they relate to future events, and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that conditions related to macroeconomic conditions, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements.

I would now turn the conference over to Mr. Gustavo Marder. Please Mr. Marder, you may proceed.

[Gustavo da Rosa, executive]

Good afternoon, everyone. Thank you for joining us on Rumo's fourth quarter conference call. As usual, I will start the presentation with an update on our ESG agenda.

Rumo got important awards during the quarter. We highlight that in the second year in a row, we are part of B3 Sustainability Index. Moreover, we participate another year on the Carbon Disclosure Project with the final result of B+. Energy efficiency was one of our operating highlights in the year and it was key to sustain our strategy to reduce the company carbon footprints. These topics and other ones will be presented in further details in our 2022 sustainability report, which will be released to the market in March.

On the next page, I will present the highlights of the year. 2022 was an important year for us with several achievements and developments. I would like to highlight the consistency in our commercial strategy and a turning point in the competitiveness environment, that allowed a combined growth both in volumes and yields. We have strength our growth agenda with the recycle capital through the sale of the port terminals T-16 and T-19, which accelerates the reduction of our indebtedness contributing to the start of the Rumo extension works in Mato Grosso.

On the following page, we will present the market share. Rumo market share in Mato Grosso increased 1.6 percentage points in 2022. In the quarter Rumo lost 12.7 percentage points when compared with last year as a consequence of higher exports of corn after a crop shortfall in 2021. Despite the 45% growth in transported volumes, we end up losing market share in Goias state, given the higher market growth and considering that part of the capacity was used to serve East Mato Grosso region.

In the South ports, Rumo increased market share by 1.3 percentage points in the fourth quarter, and 1.6 percentage points in the year. High availability of grains in Paranagua in South Mato Grosso state coupled with a good level of competitiveness helped to offset the crop shortfall in [ Hublou states. ]

On the next slide, we'll see the operational performance. Rumo have been improving the efficiency of its operations that the real time at Santos have presented a material improvement in the quarter and in the full year with a decrease of 6% and 10% respectively. The relative fuel consumption have decreased 1% in the quarter and 6% in the full year, thus supporting our agenda to reduce CO2 emissions. Lastly, the higher concentration of maintenance works in the fourth quarter has driven as likely deterioration of the trends time figure. However, the accumulated result in the year was in line with the previous year even though there was an increase in the train flow in the system due to the higher volumes.

On the next page, I will present our operating results. Transported volume has grown 17% in comparison to 2021, driven by an increase in the North operation which delivered a 24% growth. The result has offset the South operation performance that was impacted by the soybean crop shortfall mostly in Hublou state. Breaking down our performance in segments, it's worth mentioning the 25% increase in grains, a 10% increase in fuel transportation, and a 13% increase in the container business.

On the next page, we'll see the results per business unit. Consolidated net revenue grew 39% in 2022, as a result of the 17% increase in both volumes and tariffs. Fixed costs and SG&A expenses have grown 12%, mostly driven by the enhancements on facilities and security staff and higher maintenance expenses. Variable costs have grown as a result of higher volumes and higher fuel prices, since diesel went up 42% year-over-year.

Adjusted EBITDA margin have increased 1.8 percentage points against 2021 and is on a positive trend reaching 46.1% despite the higher diesel prices. Adjusted EBITDA in the year was BRL 4.5 billion, an increase of 38% and in line with the guidance provided today.

On the next slide, we'll talk about the financial results. Net financial result was BRL 2.3 billion in the year, as a consequence of higher inflation and interest rates. Net income in the year was BRL 514 million and the figure was positively impacted by the capital gains in the divestment on the ports terminals and on the improvements on the operational performance. As stated previously, the divestment of the port assets has accelerated the financial deleveraging of the company. The net debt to adjusted EBITDA ratio was 2x by the end of last year.

We also closed the year with a high liquidity position which is adequate to the investment cycle we have just begun. At the end of the year, our cash balance was BRL 8.3 billion and debt maturing over the next 4 years is roughly BRL 1 billion per year.

On the next page, I will present the outlook for soybean and corn crops. Brazil should produce a soybean crop of 156 million tons, out of which 95 million tons should be exported. Mato Grosso may produce around 45 million tons out of which 27 million tons are designated to exports. Additionally, it is estimated a total production of 18 million tons in Goias with 11 million tons exported. The states in the South region of the country could deliver an increase in production of roughly 20 million tons, leading the Brazilian production to increase roughly 21% in the current crop.

On the next slide, we'll see the outlook for the corn crop. Estimates for corn crop suggests a total production of 128 million tons, out of which approximately 48 million tons might be exported. Mato Grosso state may produce 46 million tons and exports 28 million tons. And Goias state has an estimated production of 13 million tons and exports of 4 million tons.

Now let's move to the next page to follow up on the company guidance for 2022. We presented our operational and financial estimates for the fiscal year of 2023. It is expected a transported volume between 80 billion and 83 billion RTKs. Adjusted EBITDA is estimated in the range of BRL 5.4 billion and BRL 5.8 billion. On a fair basis comparison, adjusting the sale of the port asset, the mid-range of the guidance represents a 30% increase year-on-year. CapEx is estimated between BRL 3.6 billion and BRL 4 billion. The figure includes the investments in the first stage of Rumo's expansion in Mato Grosso state.

At this point, I finished my presentation. Thank you.

[João Alberto de Abreu, executive]

Hi. Good afternoon. Thanks everyone for joining our earnings release call. I would just like to recap 2022 very briefly and to talk about our prospects for 2023. With regards to 2022, I'd just like to talk about the operational progress we've made. We've reached a new volume delivery level 80 billion RTK highlighting Rondonopolis with over 20 million tons, Central Network. Also, these origins delivering over 500,000 cars through the Port of Santos. So in terms of volume, we reached a whole other operations level.

I also want to highlight the consistence of our commercial strategy. You have been seeing it over a long time for two years, we've been very consistent when it comes to pricing, and as a result of that in 2022 we have had considerable growth as Gustavo showed in his presentation. Also, with the volume growth that has been a market environment with an inflection in the competitive environment, we now have a very different infrastructure environment which should continue in 2023.

We have also sold terminals in 16 and 19 in part of our portfolio management work and along with the operating results. We have also speeded up our deleveraging purpose. That was an extremely important movement considering the current interest rate and to face upcoming investments. A couple of other highlights with regards to 2022. The first one was that we have started construction to reach Campo Verde in 2025, the first 220 kilometers of the North network should be done in the first 3 years and in 2023, which would be operational.

So the 2022 will be marked by the beginning of this transformational project, both for the company and for the country in terms of infrastructure. And in December 2022, we have signed a new regulatory although for the Port of Santos, FIPS, FIPS is the internal railroad, in the port, we have appointed a COO for that operation. It's a completely different independent governance. We will have a relevant participation in the Board, and that will be the main development driver for the port infrastructure. In terms market and the regulatory framework in my opinion, those are the main highlights to be considered in 2022.

Now looking to 2023, we continue to have a very constructive outlook in terms of the competitive environment. The figures mentioned by Gustavo show a potential new record crop of 90 million [Technical Difficulty] soybean and corn in the state of Mato Grosso and another opportunity to consolidate of sales strategy and within that context, we have made great progress in our sales agreements.

We have an environmental chart of fair price for our services and our clients have understood the value of our logistics solution in the geographies where we operate. We are also exploring a new geography which is the North of the state of Goias, and the state of Tocantins concluding in the second quarter of the central network. So that last missing stretch will be concluded in April and as of May, we should have a new geography to explore.

So in terms of the market, in terms of demand, and the competitive environment, again, we are very optimistic [Technical Difficulty] and there's an important operating challenge which [Technical Difficulty] take volume to another level and to continue with our growth agenda. We have been chasing a few challenges at the beginning of the year. The first was the delay in the soybean crop as you all know. In the last week, in our opinion, things have gone back to a normal level both the harvest and planting average of the last five years. So there might have been a considerable delay, but we are back to normal levels.

Results of a challenge at the Port of Santos in the last few weeks, there have been public security and violence events. We are working with state security, but we need to make sure that that doesn't get in the way of our operation and [Technical Difficulty] affected our February operations.

And [indiscernible] as you all know our operations came to a halt for a week, due to major engineering work, we had to rebuild rail stretch which has also affected our operation in January. Anyway, these are challenges that are common in operations the size of ours, but we are focusing on execution and that is what has allowed us to present you with this guidance with favorable increases in our results despite the challenges. So our priority for this year is to continue to move forward, improve efficiency to the overall growth, to optimize CapEx, to seek alternative, to improve our capital structure in an environment of high interest rates and to continue to be the best logistics solution to our clients.

So those are my opening remarks about 2023, and now we will open our Q&A session with Rafael Bergman and Gustavo Marder. Thank you.

[Operator]

[Operator Instructions] The first question is from Daniel Sasson from Itau BBA.

[Daniel Sasson, analyst]

Alberto, Marder. Congrats on the results. My first question is about fuel prices. Could you comment on that topic and potential fuel and fuel consumption and efficiency gains considering RTKs? You've had great efficiency at about 5% in third quarter, what is it going to be like in the fourth quarter? And in the mid-term, you have a margin gain driver in terms of efficiency gains for the mid and the long-term, what do you think is going to happen?

And my second question is about operations. In 2022, you had a very strong volume and yield. Your 30% EBITDA growth guidance for 2022, 2023, your gains will probably have more from yield than volume. Could you comment on that out of the strategy, your sales strategy, commercial strategy? What do you think you've got right for 2023? And looking back, do you think you made a mistake in the first half of last year, given that a large part of your yield recovery happened in the first half? Could you comment on that market dynamics, please?

[Rafael Bergman, executive]

This is Rafael. Well, let's start by your first question. Energy efficiency is a priority for the company and has been so for quite some time. I think we have shown to be consistent in delivering results and that includes more efficient processes, and also investments that have led to the RTK consumption gains.

The 6% reduction we delivered this year is obviously significant for us, but we still have whole way to grow, it won't necessarily be linear. So maybe one quarter will be the same as last year where the higher evaluation that was the case in this quarter in 2022, which goes to show the consistence I've mentioned. So we need to gain efficiency with the trains, gains where they are 120 car train was relevant.

We actually talked about a project to extend trains to 135 cars. We talked about that last year. That will lead to more efficiency gains we've been investing in communications and trying to get shorter licensing times. We're updating the stretches as well and that will lead to more efficiency and time as well. Even though rails are more competitive than roads, diesel is still a relevant cost lines. So payback is quick and it makes sense to us, both in terms of having the right margins, but also keeping a competitive solution to our clients.

With regards to '23 compared to '22, I think you're right to say we're projecting large margins, obviously, volume is also considered, I mean 80 billion RTK to 83 billion RTK, compared to 75 billion RTK in 2022 is quite relevant in terms of volume. But in 2022, we had to make the most of a constructive market and to show the value of our service to our clients. So we have the right commercial tactics and strategy. We're very transparent when we talk to our clients. Looking back we've talked a lot about that, right, Daniel?

The beginning of 2022 suffered by the competitive environment again from 2021 due to the crop -- the corn crop failure. But we want to continue to move forward with all of our processes including the commercial and pricing processes. So I think we need to continue to focus on progressing and that's what we're doing in our commercial strategy fostering partnership. So it's not just about contracts, it's also about joined interest, fostering investments in infrastructure, terminals to create a stronger relationship with our clients.

[Operator]

Next question is from Pedro Bruno from XP Investments.

[Pedro Bruno, analyst]

I have a couple. Beto talked a lot about short-term volumes, but I hear a bit more about your volume expectations for 2023 including short-term risks that Alberto mentioned. And please correct me if I'm wrong. But what I got from the message is that you will be restricting yourselves to January and February, given that you have confirmed that, that has been taken into consideration into strong guidance volume.

In the second half, [Technical Difficulty] due to rainfall and a delay in soybean harvesting, also because of the rain, but we're having a hard time understanding that reasons. First, planting level for corn had recovered relatively well and they're not that different from last year. I mean, they are different to last year, but to the historical average. So how do you see that risk? Is there a risk or isn't there a risk for the end of the year? Also considering, what [ Marder ] said about your commercialization, which is better hold -- you have secured a great deal, do you see any risk investment?

[Unknown Executive]

I'll comment on both points. The first one about [Technical Difficulty] has been over 45 days of operations. And I remember that last year you asked a lot about the crop failure for soybean in the South of the country. It was a significant soybean crop failure and we decided to keep our guidance even with the expectation of a crop failure. So every year has its own challenges.

This year as I said, there has been a delay in the harvest. There was a lot more rainfall than expected, but if we look at the figures for last week, Pedro, we'll see that the harvest is now in line with the average of the last five years. It's not been as fast as last year's, but if you look at the last five years, it is within the average. So corn planting should recover. In fact, it is already recovering.

So risks have been considerably decreased, and corn obviously will also need rain. Rainfall will be important for the expected corn yield. But so far everything is under control, that's why we made the decision to move forward more what than usual with our commercialization due to many reasons, our commercial strategy being one of them, and other variables that we monitor when we are making such decisions.

January was affected in terms of the unexpected works, I mean, interrupting operations for seven days, so 1/3 of January was completely stopped and obviously that affects operations. The same in February. We had an unloading loss due to operating issues because of the security problems as I mentioned in my comments, we are working with the state to try and solve the issue.

And hopefully, at the end of the month and beginning of March, which is a very strong month to start full steam ahead. Obviously, as you said, all of these elements have been considered in our guidance, which we announced to the market yesterday. So those are the main points, Pedro. I hope I've answered your questions.

[Pedro Bruno, analyst]

Yes. [Technical Difficulty] If I can have a follow up question, please. Could you talk about your CapEx? They came in below our -- and possibly the market's expectations which is great. What does that mean not only for 2023, but your guidance [ 15.5 to 18.5 ] for the next 5 years, most of which has already been executed. So when you're doing that, I think everybody knows that it looks overestimated, right? So [ Rafael ] talked a little bit about investments from maybe going up to 135 cars, so what are your priorities? This lower CapEx for 2022 and 2023, what kind of implications will that have including Lucas do Rio Verde and this question?

[Unknown Executive]

That's a great segue for our segue talk which we have been having with the market over the last few quarters, so let's recap 2022. We invested close to BRL 2.8 billion, just below what had been in the guidance with 2025 and that was based on a decision to rationalize our investment portfolio, because the cost of capital scenario is higher and also as a way to test the actual capacity of our operation. And results have been excellent in 2022.

I had also mentioned that other times that CapEx, and that does not include Lucas would not be kept at BRL 2.7 billion, BRL 2.8 billion in 2023 and that [Technical Difficulty] for '25 and '24, and that has not changed. Let me give you some round numbers for the purposes of this conversation. So let's use the BRL 4 billion which are in the guidance in terms of CapEx, BRL 1.2 billion in terms of recurring and our team has been working hard to keep net CapEx as efficient as possible despite the increase in volume that we have been transporting in our networks. So this is a success case for us.

We have roughly BRL 2 billion worth of investments [Technical Difficulty] into expansions, but that does not include Lucas. It's mainly about the Paulista Network, also increasing the Paulista capacity at the Port of Santos and that priority will remain. We're talking about updating some stretches in the Paulista Network, some of them are being doubled. We're also talking about PTC technology, it will be ramped up this year, but will continue over the next 2 years some rolling stock, and this year at the end of the first quarter beginning of the second quarter, we'll begin the third stretch of the Central Network as Marder mentioned in his opening remarks. So those are our priorities for 2023 with the exception of Lucas.

Now with regards to Lucas, we have announced the first stage, the CapEx for which is up to 2025. It should be operational at the beginning of 2026. This is the first year, even though [Technical Difficulty] works on top of the BR-163 that was an immaterial investment in 2022, we will really start in 2023 after all the rain. But it's still a ramp-up year, so it's not the most substantial part of our CapEx. We will conclude the works on that bridge. We'll start working a different project until Campo Verde saw -- the estimated investment will be BRL 700 million to BRL 800 million, depending on the fine-tuning of our contracting strategy, so that we are prepared for 2024, 2025 to conclude that stretch. So nothing has changed in terms of priority.

Now obviously, it's natural to expect an in-depth conversation about the right time to do the work considering the high cost of capital environment we have at the moment. So we did the pumping work and we'll continue to discuss the CapEx priority, but that will not affect the company's strategy in terms of capacity, so that we can continue increasing volume, increasing profitability, and the EBITDA as is in the guidance. And then including Lucas do Rio Verde starting Campo Verde as of 2026, it's a long answer to your question, but nothing has changed. It's only natural to expect this discipline when choosing the investments that make more sense in the right, and to be prudent so that we can do what's most important to the company.

[Operator]

Next question is from Guilherme Mendes from JP Morgan.

[Guilherme Mendes, analyst]

Alberto, Rafael, Gustavo, a couple of follow-up questions. First one is about margin and efficiency. You talk about volume, price and competitiveness. Now short-term efficiency, what can we expect for 2023 in terms of margin levels for very short-term efficiency? And my second question is about the return of the West network and the renewal of the South network, any updates on that regard?

[Gustavo da Rosa, executive]

So I'll start by your first question. Looking at our guidance as Rafael said, there has been a considerable volume increase and that allows us to dilute fixed cost and to increase our operating leveraging, which has an important effect in terms of EBITDA margin.

Our energy efficiency agenda, which is already up and running has brought good results in previous years. We'll continue to bring in additional gains in energy efficiency, so that will allow us to have some efficiency in [indiscernible] in terms of volume, and that's a positive lever for margin. And fair pricing reflecting the market dynamics and the company's commercial strategy, that also helps us to go back to a similar margin level to what we used to have in the past. Also, considering the fact that diesel which is a best group for us, sometimes can be a detractor when it comes to percentage margins. But in absolute terms, we will protect the margin, because we will pass that through in fuel.

So the effect is a consequence of these drivers I have mentioned in the company's operating strategy. We are very well positioned for 2023. I think Rafael Bergman will answer the second part of your question, so I'll turn it over to him.

[Rafael Bergman, executive]

Actually, Beto will answer, sorry. Go ahead, Beto. Do you want to answer about the West network, Beto?

[João Alberto de Abreu, executive]

Okay. I'll answer the second question. So that process is moving forward with 3 agencies, ABU, we have a rebalancing suit against the granting power and [indiscernible]. Secondly, we also have the need to [ engage ] and get approval from the agency, which is in [indiscernible] the Ministry of Transportation, now that there has been a change in administration. Everything is going well in regulatory agreements, but these agencies can be quite slow to [Technical Difficulty] in commercial terms and operating terms of the West network, it has a very small volume. It's a small old contract [Technical Difficulty]. So there is practically no volume all of [indiscernible] operation when we renewed the contract last year was transferred to the North network, which is much more efficient. So in terms of volume right now, [Technical Difficulty] operation.

So it's minimum maintenance until the regulatory process can be concluded. And that regulatory for us must take into consideration, the rebalancing process and the re-bidding process, the new bidding process. According to our plan, we hope to conclude that before the end of [ 2024, ] but again not all deadlines are in our hands. But in regulatory terms, it is within what we have planned.

[Operator]

The next question is from Victor Mizusaki from Bradesco BBI.

[Victor Mizusaki, analyst]

Congratulations on your results. I have a couple of questions. The first one is a follow-up to Pedro's question about the CapEx. So considering 2024 and '25, given that you are setting CapEx priorities, should we expect the '24, '25 that with Lucas your CapEx will probably go up? And will you be disclosing a guidance update then? Second question about goals which just started on 13 of February. Have you felt any changes? Has there been an impact on the cost of freight?

[Unknown Executive]

Victor. I'll answer your questions. Sometimes there is a slight delay because we are in different places, we're trying to coordinate the communication. So in terms of CapEx, you can expect a CapEx ramp-up because of the Lucas project. We need to invest BRL 4 billion to BRL 4.5 billion all the way to Campo Verde and now the heavier investments will start in the second quarter 2023. But obviously '24, '25 arithmetically speaking will be heavier investment years because of Lucas. But we don't expect to change the CapEx levels. Obviously, we'll also be discussing the company's strategic priorities, but it is natural to expect a total higher CapEx for '24, '25 because of Lucas, so that Campo Verde can be operational in '26.

In terms of the toll road, yes, it has started in two different locations in Mato Grosso on the 13 of February, according to the entity authorization it's happening, but we had already expected that when we started to sign the commercial agreements, which will be put into place in 2023. So no changes there. No surprise there. That's part of the competitive dynamics that was already being discussed and as part of the commercial negotiation environment for 2023.

[Victor Mizusaki, analyst]

About the toll road, did that go in as a trigger in the negotiation? So will there be an automatic readjustment or will it happen in the second half of the year?

[Unknown Executive]

Well, not to go into any detail, I'd just like to reiterate that when we negotiated volumes for 2023, the toll roads were already part of the negotiation discussions with our clients. So that was part of what we thought would affect margins in 2023 in general terms.

[Operator]

Next question is from Regis Cardoso from Credit Suisse.

[Regis Cardoso, analyst]

So you've covered most of the main topics, but just to make sure I got it right. In the guidance for 2023, for that range between EBITDA and volume, you've considered the crop uncertainty. So what does that mean exactly? Not because you've contracted your whole volume, but [Technical Difficulty] there is a potential yield, that's where the strategy comes from, right? Could you talk about the pace of your contracting? That was the first one.

The second one is considering the [ epitome ] for 2023, [ 4Q ] had a considerable yield reduction in sequence, obviously there is a seasonal [Technical Difficulty] that also brought a margin reduction, and I'm thinking those 2 variables are what explain the change in [Technical Difficulty]. So according to our expectation, which might or might not be [Technical Difficulty] you can get a great EBITDA for combination of [Technical Difficulty] 8% and an EBITDA margin that will grow by [Technical Difficulty]. So is that the right ballpark here? When we think about actual yielding, and does it make sense [Technical Difficulty] to the similar levels, what you had in the 3Q?

[Rafael Bergman, executive]

Regis, I will take your questions. [Technical Difficulty] volume EBITDA range does take into consideration. What we're still seeing as a reasonable range in terms of what still needs to be sold. Even though we have sold forward quite a lot, and what the price will be for that volume, because that hasn't been [indiscernible] yet. In our view, very lesser range due to the crop as a key element as Beto said during his speech. We are pretty confident that the soybean crop will be healthy and so the corn crop, well, that range doesn't include any unreasonable risk for that scenario. I would say that we're confident about that.

But obviously, our operations does have a pace, we need to observe that. In 2022, we reached major efficiency levels and going into internal and external factors, I mean, it range a little bit more in Santos which affected the unloading. Those will tell what the actual volume we'll be able to transport will be. So that range is reasonable, but not considering any upward or downward drastic changes. We're not expecting any of those at the moment.

And in terms of ballpark figure, yes, I think the 4Q as you said, there is seasonality and yields are usually a bit lower. And when you look at yields, it's important to look at what's happening to diesel as well, because that might affect the specific pricing, because contracts are pegged to the diesel. And in the 4Q, there was a drop in the diesel prices, I think 5% to 10%. We can give you the exact figure later. But that's normal for the 4Q, and will not affect our margin outlook at all. I think the figures that you have mentioned are within what we would consider to be a reasonable way.

[Operator]

The next question is from Bruno Amorim from Goldman Sachs.

[Bruno Amorim, analyst]

I have a couple of questions. The first one to Bergman. Going back to CapEx, just to make sure that we got it right. You mentioned that some projects have been delayed. It would be interesting to understand the objective of these projects that have been delayed. As you said, you will be spending BRL 2 billion to expand capacity, annual guidance [indiscernible] to the fact that the company believes [indiscernible] 10% this year again based on a good volume basis coming from last year. So [indiscernible] moving at the right speed. So what will you not be gaining by these projects that have been delayed? Are you taking on a bit more risk? And you mentioned, I would like to try and understand [Technical Difficulty]

I'd like to hear from Beto, what his opinion is for the mid to the long-term in a scenario where diesel prices drop considering oil and administration definitely close below priority in the future. I think if these operations are lower trucks, it will become more competitive compared to preparing to the current scenario. Obviously, rail will always be more competitive. But considering that diesel prices go down over the next two to three years, do you think truck drivers will become more competitive than Rumo or not? Or do you think there is a supply demand dynamic in the market and diesel isn't the only road transportation driver? I know that will be the case, but it would be interesting to hear your opinion about it.

[Rafael Bergman, executive]

I'll answer your first question and Beto can take the second. We've talked a lot about regulatory CapEx and we mentioned that as for the regulatory CapEx, because the challenges were quite hard to keep especially during the pandemic, the [ 14 to 73 ] allowed us to [indiscernible] because of those effects, but it's worthwhile mentioning that everything that has been happening in our operation is a test of adherence in a system where many elements need to be in line. We always test the actual capacity stretches bring in, an example of that and we were able to improve our efficiency. First, needing less rolling stock to achieve a specific level of volume and that can be replicated in many ways, so our mission is to continue to increase capacity and trying to use company's investment.

It's worthwhile remembering without going into any detail that we have the benefits coming back that will affect part of our investments with 80% of our [indiscernible] station, so we still need to do CapEx to follow to conclude the expansion of the terminals. That won't be Rumo's CapEx anymore, so those things will happen and we hope to continue to deliver volume with profit and making the right CapEx choices.

When we did the guidance from '21 to '25, which was presented two years ago, we had a specific outlook. In general terms, those are the amounts, but obviously we make decisions that affect the granularity of decisions. Some of the CapEx is there, but won't be used within that '25 window, but we make decisions to keep to regulatory requirements. And within conversations that I had and that are only natural in long-term concessions, we need to decide which investments make sense to achieve the actual objective of the concession agreement which is to increase capacity in the Paulista Network. That's a normal conversation that we're having with the agency and that's how we calibrate our investments.

So you shouldn't expect any great surprises in terms of how our business develops because we're calibrating the company's CapEx. Those are choices that we will continue to make in order to keep the company healthy and profitable, in a company that is growing with the purpose to offer more capacity to our clients. Now, I'll turn it over to Beto, so he can answer your second question.

[João Alberto de Abreu, executive]

Thanks, Rafael. Bruno, with regards to the mid-term outlook, considering diesel fluctuations, a couple of points first. In our opinion, the balance between supply and demand or logistics is much more relevant than the end price of diesel in the market. So those are the elements that affect the price dynamics and we saw the same thing when there was a crop failure at 2021. Also, when we had more supply in the market.

The second thing is that in our opinion and looking at the data, production increases have been taking place in a structural fashion and that creates the fundamental to keep this competitiveness in the long-term. Our thesis which we devised three years ago from Mato Grosso includes a production of 110 million tons to 120 million tons, so we're going to have to review that, because production should be higher in 2023. So structural production increases effective supply and demand, and in our opinion that is the main driver defining the competitive environment.

The second thing in the mid-term is that, we expect our competitive position to change with Rondonopolis to Campo Verde coming into operation. We'll increase volume, we'll decrease unit cost, and it will really be transformational by the time we get completely ready. Those are the main points, Bruno.

[Operator]

The next question is from Rogério Araújo from Bank of America.

[Rogério Araújo, analyst]

Beto, Gustavo, Rafael, I'd like to hear more about the new administration, especially with regards to authorization. In one of the interview, we are non-conceded, you said we wanted to help unlock those request for authorization. So first, I'd like to refresh my memory with regards to which authorizing you have was requested, what the administrator is saying? And if you believe they will be able to somehow [indiscernible] with this request. And with regards to new concessions, I think [indiscernible] those are the clearer ones. So given Lucas do Rio Verde, what is your level of interest in that?

And a couple of follow-up questions about the West network and the South network. Do you think that will still justify your branches that are closed to maturity? And on the West network, there is an account reconsolidation, there is a BRL 2 billion liability and assets about the changing legislation that had not been included in the agreement. Do you have any idea of what that asset is worth? If you don't, whose calculating it, whose responsibility is that? How are you going to establish that?

[João Alberto de Abreu, executive]

Actually, I think you've asked three questions, let me see if I can answer them. I'll start with the West network. I briefly said that asset is a rebalancing suit. We have one at the higher course and I won't make any forecast, but in the West network in our opinion, there won't be any impact of that liability that will have reconciled accounts. You're right about the South network as time goes by, the advantage changes, loses traction. But the company is not concerned about that right now. We will take as long as possible to make sure that renewal renegotiation happens in '23 or '24 or when the agreement expires that is done on acceptable basis in terms of profitability and cash generation.

So to be very objective, the matter of the advantage or not will not make the company speed up that process to renew it ahead of time. Our priority is to renew it according to what we believe to be healthy for the business. So that's the South network and the West network.

About the organizations, the authorizations and [indiscernible] comments. Yes, we have signed three agreements, one in Mato Grosso and two in Goias. So one on Lucas -- I won't mention that name, but we have signed those agreements, and [ 10 ] authorizations we have requested, and that discussion will take place within industry. Those agreements last five -- we have five years to start any construction work or any kind of investments. So it's almost like an optionality play. I think that's the best way to describe those agreements.

We have enough time to execute on them, if it makes strategic sense for us. As for cycle and fuel, we weren't interested when the bidding process took place. Fuel also has logistic challenges. There is no port that rail will [indiscernible] auction, but there is no way of moving the product from there. So it wasn't attractive to us. We didn't even look into it and we're still on the same page. Company is not interested in that asset and cycle, well, it's being built, at least they've started work. Let's see how it progresses in terms of engineering. And once it's been completed, we don't know when that will be, it will go back to the government. If the government decides to start a bidding process then the company will make a decision. But that's an asset we'll probably look into and assess. I don't know if I missed anything.

[Operator]

The next question is from Filipe Nielsen from Citibank.

[Filipe Nielsen, analyst]

[Technical Difficulty] which is about the financing plan for Lucas do Rio Verde. Considering all the different variables EBITDA is substantially higher than 2022 in your guidance for 2023. Your CapEx is relatively lower than what had been expected. But looking at '24 and '25, your CapEx is considerable as you said. So what are you thinking in terms of leveraging and financing for this year and next year?

[Unknown Executive]

Filipe, let's start with the EBITDA increase which is important both because of cash generation and also because of the main leveraging metric. EBITDA increased considerably in 2023, and we have subsequent increases until 2025 because of the capacity increase, and our ability to profit from transported volumes. So considering that dynamic and everything we considered before making the decision to approve the first stretch of the project until Lucas do Rio Verde, the first one was from Rondonopolis to Campo Verde will be very healthy in terms of capital.

The starting point being 2x net debt adjusted EBITDA, which we reported at the beginning of 2022. And considering the construction work period until the Campo Verde stretch goes into operation that leverage bill shouldn't change much from 2x to 2.5x, which seems adequate to us at a time when we're making considerable investments. Obviously, our shareholders shouldn't expect high dividend payouts during that time, because we are reinvesting in the company.

But we are doing a great job of balancing our capital structure. In terms of financing, Rumo has been trying to diversify its funding sources. Rumo has access to capital markets both in terms of domestic and international debt. Some agencies have shown an interest in supporting the growth of our operation and it will be no different for Lucas. We'll start -- we're starting 2023 with a healthy cash position, BRL 8.3 billion, so we have an opportunity to have access to different debt markets and bilateral funding sources, because we have strong liquidity coverage. So in a high cost of capital scenario, we will continue with our strategy to access the available sources in that market.

[Operator]

This concludes our Q&A session. I would now like to turn the floor over to Mr. Rafael Bergman for his final remarks.

[Rafael Bergman, executive]

I'd like to thank everyone for joining our earnings release call. Thank you for your questions. And I'd like to thank the shareholders for their trust. I'll see you again at our next earnings release quarter call.

[Operator]

Rumo's conference call is concluded. Thank you very much for your participation. You may now disconnect and have a great day.