JULIO FONTANA
Straightforward Business Model Agribusiness heavy haul Dominant on core export channels Booming agricultural market UNSERVED AGRIBUSINESS DEMAND STRATEGIC ASSET LOCATION High entry barriers EXECUTION Operational excellence COST REDUCTION CAPACITY INCREASE Debottlenecking Reliability Scalable operations Process redesign Efficiency gains
Heavy Haul Focused on Agricultural Commodities Rumo is the largest independent railroad service provider in Brazil ~ 80% of Rumo s volume from agribusiness Rondonópolis RUMO VOLUME BREAKDOWN 2016 Industrial 4% Container 4% Fuels 11% Other 2% Sugar 13% 80% Grains 66% Source: Rumo Cruz Alta Maringá Londrina Rio Grande Santos Paranaguá São Francisco NETWORK EXTENSION RUMO CONCESSIONS CONCESSION MATURITY VOLUMES 2016 (RTK MM) % VOLUME NORTH 754 km 2079 23,071 58% PAULISTA 1,989 km 2028 4,528 11% SOUTH 7,265 km 2027 11,873 29% WEST 1,945 km 2026 797 2% TOTAL 11,953 km 40,270 100%
Brazil is the World s Largest Market for Agricultural Expansion BIGGEST RESERVE OF ARABLE LAND ¹ Brazil 79 224 303 Planted area increased 58% in the last 20 years, but Brazil is still the country with the largest arable land potential Brazil has a lot of room to increase its grain production and gain share in the global trade US Russia India China EU 188 132 170 96 42 87 170 138 103 16 119 81 219 269 Brazil is #1 in arable land UK 47 36 83 Land in use Available land TOP AGRIBUSINESS PRODUCERS ² Soybean Country Production Exports Brazil 2 nd 1 st USA 1 st 2 nd Argentina 3 rd 3 rd China 4 th - India 5 th - Corn Sugar Country Production Exports USA 1 st 1 st China 2 nd - Brazil 3 rd 3 rd EU 4 th - Argentina 5 th 2 nd Country Production Exports Brazil 1 st 1 st India 2 nd 3 rd EU 3 rd 5 th China 4 th - Thailand 5 th 2 nd LARGEST RESERVE OF ARABLE LAND¹ 5% 34% 19% RUMO Operations 27% 15% (1) Source: Food and Agricultural Organization (FAO) (1) Source: Brazilian Statistics Bureau (IBGE) and CONAB. (2) Source: The U.S. Department of Agriculture (USDA)
Agricultural GDP consistent growth BRAZILIAN GDP GROWTH (Total and Agribusiness) ² 5.2% 5.2% Total Agribusiness 3.9% 1.9% 3.0% 2.5% 2.0% Average Agribusiness growth: 2.2% 1.7% 1.5% 1.2% 0.1% Average GDP growth: 0.4% -2.9% Soybean Crop Failure -3.8% -3.2% 2011A 2012A 2013A 2014A 2015A 2016E 2017E (1) Source: Brazilian Ministry of Agriculture (Agrosat). (2) Source: IBGE. Agriculture Sector based on academic studies of CNA ( Confederação Nacional da Agricultura ). and CEPEA-USP ( Centro De Estudos Avançados Em Economia Aplicada da Universidade de São Paulo USP ).
Rumo Dominance in Core Export Channels Santos and South Ports concentrate: BRAZILIAN MAIN PORTS BY PRODUCT (2016) SOYBEAN (mm ton) SUGAR (mm ton) 70% of Brazil s soybean and corn exports 14.5 9.7 8.2 4.0 3.9 22.3 5.2 1.0 0.2 0.1 90% of Brazil s sugar exports Santos Rio Grande Paranaguá S. Francisco São Luís 11.3 CORN (mm ton) Santos Paranaguá Maceió Recife Recife (Suape) FERTILIZERS (mm ton) 9.7 Imported Cargo 77% of Brazil s fertilizers imports 2.8 2.3 1.0 0.2 Santos Paranaguá Vitória S. Francisco Rio Grande 2.4 1.5 0.6 Paranaguá Santos S. Francisco Vitória RUMO PRESENCE OTHER PORTS Source: Rumo, MDIC, and CONAB.
Understanding Competition: Trucks More than 60% of total transportation in Brazil is made by trucks in spite of poor conditions of important roads. Railway DISTANCE COMPETITIVENESS (Km) Bulk Truck (28 tons of cargo) POSITIVE EXTERNALITIES Bulk Railcar (90 tons of cargo) Truck Competition 1.5 million trucks 5,500 trains 180 500-700 > 1,600 Capacity needed to serve Mato Grosso grain exports LIFETIME (years) DIESEL PRICE EXPOSURE 30 1 % diesel price increase + R$ 10 million EBITDA 10 Truck Railway Diesel represents almost 60% of total cost
Understanding Competition: Trucks Truck fleet expansion artificially boosted by subsidized credit over the last decade. NEW TRUCKS¹ ( 000 trucks) ESTIMATED TRUCK COST STRUCTURE (Rondonópolis Santos) CURRENT SCENARIO SUSTAINABLE SCENARIO Freight²: R$ 200/ton Diesel Cost: R$ 110/ton Freight²: R$ 200/ton Diesel Cost: R$ 110/ton Maintenance Cost: R$ 15/ton Leasing: R$ 20/ton Various costs: 70/ton Various costs: 70/ton EBITDA Margin: 10% EBITDA Margin: -8% Note 1: ANFAVEA figures for new trucks licensing. Note 2: Freight price for grain transportation from Rondonópolis (MT) to Santos Port (SP). FLEET SCRAPING IN 5 YEARS NEGATIVE MARGIN
Freight Competitive Environment Truck freight has to increase to be sustainable. Growing demand dilutes railroad fixed costs. RAIL FREIGHT (R$/ton) TRUCK FREIGHT (R$/ton) 170 200 VARIABLE VARIABLE VARIABLE FIXED FIXED VARIABLE MAINTENANCE & LEASING FIXED FIXED CURENT FUTURE CURENT SUSTAINABLE Note 1: Freight price for grain transportation from Rondonopolis (MT) to Santos Port (SP).
CAPEX (R$ BLN) It s all about execution Business Plan considers R$ 8.5 billion worth of investments targeting 70 bln RTK capacity in six years. % OF COMPLETION AS OF 1Q17 2015 2016 2017 2018 2019 2020 NEW LOCOMOTIVES (60%) NEW RAILCARS (64%) RAIL LINES REVAMP (27%) TECHNOLOGY INITIATIVES (10%) FERTILIZERS PROJECT (20%) NEW RAIL YARDS (18%) SANTOS PORT ACCESS (20%) 70 50 52 45 1.9 2.1 1.9 2.0 1.6 1.2 CAPACITY (BLN RTK) 2015 2016 2017E 2018E 2019E 2020E
Processes Redesign Investments combined with major processes improvement since merger. Zero Accident Program SAFETY FOCUS Compensation linked to accident targets reduction MANAGEMENT INITIATIVES New culture, new behavior Transformação Project Restore processual approach TECHNOLOGY INITIATIVES OCC real time information Chave na mão project Train driver scale optimizer HR INITIATIVES 1,046 FTE reduction Productivity focus Steep increase of training hours
Already Yielding Important Results. OPERATING RATIO (%) DIESEL CONSUMPTION (Liters/ 000 GTK) 77% 82% 76%¹ 75% 4.95 4.76 4.49 2015A 2016A 2017E Rumo 2016 Budget 2015A 2016A 2017E RONDONÓPOLIS-SANTOS CYCLE (days) 10.3 9.6 9.2¹ 9.1 MAINTENANCE COSTS (R$/ 000 RTK) 22.7 21.6 19.3 2015A 2016A 2017E Rumo 2016 Budget 2015A 2016A 2017E Obs 1: Recurring Capex + Maintenance Costs
EBITDA Expansion s Main Driver Grain production growth translates into higher exports driving Rumo s EBITDA expansion SOYBEAN PRODUCTION (million tons) CAGR 8.3% 57 69 75 66 82 86 96 95 108 Soybean Production Growth +6.4 million tons yearly average SOYBEAN EXPORTS (million tons) CAGR 9.7% 29 29 33 33 43 46 54 52 61 GRAINS (mm ton) Rondonópolis (MT) to Santos (SP) Route CAGR 51 CORN PRODUCTION (million tons) 56 57 73 7.2% 82 80 85 67 89 Corn Production Growth +4.8 million tons yearly average CAGR 8 11 CORN EXPORTS (million tons) 9 15.9% 20 27 21 29 22 26 Rumo s Additional Volume +1.0 million ton Rumo s Additional EBITDA +R$ 100 million
Tapping Unserved Demand Room to gain market share in the largest grain producing state. GRAIN TRANSPORTED VOLUME 2016 MATO GROSSO MT REGION EXPORTED VOLUME RUMO VOLUME % TOTAL RUMO MKT SHARE (2) CENTRAL 14,694 8,400 63% 57% (3) SOUTHWEST 5,362 4,313 32% 80% BR163 Sinop Sorriso BR158 TOTAL 32,409 13,335 100% 41% BR174 Diamantino Lucas do Rio Verde Nova Mutum Primavera do Leste Rondonópolis Source: IMEA and Rumo Itiquira Alto Araguaia
COST (R$ /RTK) Competitiveness: Widening Rumo s Area of Influence CAPACITY INCREASE DRIVING COST REDUCTION AND BOOSTING COMPETITIVENESS MATO GROSSO STATE 45 50 52 22.7 21.6 19.3 CAPACITY (BLN RTK) 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E Rondonópolis Notes : Using 2016/2017 budget with 100% capacity utilization.
Successful Funding Strategy Access to financing alternatives supporting investment plan. 2016 2017 Capital Increase Debt Refinancing Inaugural Bond BNDES Credit BRL 2.6 BLN BRL 2.9 BLN USD 750 M BRL 3.5 BLN Strengthen Balance Sheet Liability Management Tapping International Capital Markets Access to new credit lines
Performance and Guidance VOLUME (BLN RTK) EBITDA (R$ BLN) CAGR: +6.5% CAGR: +21.6% 43.0 44.5 40.3 51.9 1.5 1.9 2.0 2.7 2014 2015 2016 2017E 2014 2015 2016 2017E
Virtuous Cycle Execution Execution Execution Deleveraging and Increasing Returns Higher Operational Efficiency Fixed Cost Dilution and Margin Expansion Improved Relationships with Stakeholders
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