Sao Martinho SA
BOVESPA:SMTO3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
24.24
34.06
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Sao Martinho SA
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and thank you for holding. Welcome to Sao Martinho S.A.'s earnings conference call to discuss the first quarter of the '23-'24 harvest. Today with us, we have Mr. Felipe Vicchiato, Sao Martinho's Chief Financial and Investor Relations Officer; Alessandro Soares, Investor Relations and New Business Manager; and the IR team.The audio and slides of this conference call are being simultaneously webcast on the Internet at www.saomartinho.com.br/ir.[Operator Instructions] We would also like to inform that the information provided during this conference call may constitute forward-looking statements. Such statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to not materialize or differ materially from the expectations.I will now turn the floor to Mr. Felipe Vicchiato, who will start the conference call. Thank you.
Good afternoon. Thank you for your attendance at Sao Martinho's conference call about the first quarter of the '23-'24 crop.Going straight to Page 3, we'll go through the quarter's operating results. Moving on to financial highlights, cash costs and the expectation to close this cash cost until the end of the fiscal year, the ethanol markets combined with the competitiveness of ethanol in line with what happened throughout the year and the expectation of the reduction in the price of fuels, sugar hedge, what our hedge position is at this time and then talk a little bit about our corn mill operation.So moving to Page 4, operational highlights. The company in the first quarter processed 7.6 million tonnes of sugarcane, 2.8% less than last year. Given to a climate condition, the beginning of the crop was very rainy, and the beginning of the harvest or the crop started 2 weeks later than when we regularly would start. On the other hand, TCH had a significant growth in this first quarter of the harvest going from 71 tonnes per hectare to 82 tonnes per hectare with an average TRS dropping minus 2%.In corn, we processed 103,900 tonnes with a production of about 37,000 cubic meters of corn ethanol. As we mentioned in the previous quarter, with our corn guidance, we'll be processing a little bit less this harvest than the total corn capacity, considering the conditions to begin crushing that was slightly more complicated than we expected.In terms of sugar operations production, we grew 1.9% in sugar production coming from 715,000 tonnes to 423,000 tonnes -- or 415,000 tonnes in the sugar mix of our units in Sao Paulo, and ethanol also growing 3.2%, considering the assistance of the participants of corn ethanol. We're talking about a decrease on sugarcane ethanol of around 8%. Since, as we already said, we migrated the entire production to sugar and less to ethanol. With this volume of sugarcane processed and considering the current field conditions, we understand that by the end of the harvest, we'll be able to reach the guidance of 21.5 million tonnes of sugarcane. Even if there's a little bit less sugarcane, it would be difficult to process all of it till the end of the harvest, considering the weather conditions that starting in September will probably be more rainier than usually.On the next slide, we see the financial highlights. Our net revenue went down 20%, coming from BRL 1.7 billion last quarter to BRL 1.3 billion in this first quarter due mostly to the drop in the price of ethanol of around 20% and a drop in the volume of ethanol sold of around 41%, offset partially by the higher volume of sugar sold of 21.7% and higher sugar prices of 22.6%. Considering lower revenue, our adjusted EBITDA went down 36% with a margin of 41% and EBIT of BRL 215 million with a margin of 15.9%. The accounting income was stable compared to last year, closing at BRL 220 million, and cash income dropped 45% quarter-on-quarter. When we look at the difference between net income and cash income, the main variations here are due to the biological asset of BRL 129 million. It's a positive markup this quarter mostly due to the better prices of sugar and better yield. It's also an adjustment of a swap item and IFRS adjustments. That's most of what comes from net income to cash income, both for cash, it's the best indication for the operation, and we have a drop in the quarter of 45%.Next, we see cash cost for sugar and ethanol that at this time, we can't see this quarter any reflection of the higher operating leverage that the company will have with more crushing. But quarter-on-quarter, we see an increase of the cash cost of sugar of 19.7%, getting to BRL 1,942 per tonne as well as an increase in the cash cost of ethanol from BRL 2,845 per cubic meter, 11% more than last year.To make it easier to analyze, we isolated Consecana from sugar and for the cost of sugar and Consecana for ethanol only for the cost of ethanol. That's with the margins of the projects. That's how we prefer to look at to better assess the mix. We estimate that this cash cost of sugar should close at around [ 1,956 ] million cubic ton at the end of the year, 3% higher than last year, especially due to the increase of Consecana for sugar. The product prices are quite high, 24.5%. But on the other hand, ethanol will probably go down 11% from BRL 2.7 to BRL 2.4 per liter. And as the explanation goes, what we're meaning is about 7% to 8% less cash cost for TRS. That's the operational leverage that the company will have with this higher rate of crushing. And there's also a smaller individual cost of some items. For example, fertilizers that on average from last year dropped 47%, some industrial inputs that went down around 18% to 20%. So that's the initial estimates that we have that will lead to close the cash cost at the end of this harvest.Next, we see a little of the ethanol market, how it behaved throughout the year. Hydrous ethanol, that's the hot debate for the pricing of anhydrous ethanol. Hydrous ethanol from Sao Paulo, we had a drop when compared January with August of around 26%. A series of changes happened during this year. In the beginning of the year, we had the refund of state and federal taxes followed by a sequence of drop and the prices of gasoline at the refinery and an increase that was announced today for the gasoline at refineries that offsets part of this drop, but not entirely.On the following slide, we have more details about this price movement of gasoline A and taxes. In January, producers were making something close to BRL 269 per liter. At the time, we had a gasoline at a refinery of around BRL 3.23 There were a series of changes in the taxes, making gasoline and ethanol exempt. And this was a return of what we had at the beginning of -- it was actually a resumption of tax collection of PIS/COFINS. The state was [Indiscernible] improving ethanol's competitiveness a little bit. And if we isolate the tax aspects, if there was no drop on the fuel, we would say that ethanol should go up around BRL 0.46 going to BRL 3.15 for producers. But during these months, the price of gasoline at the refineries went down close to 20%, 25%. With the increase today 16% that was announced this morning, we're talking about a drop of 9%. All of that combined added to lower parity because at the beginning of the year, the parity was of around 75% of the pump. And today, we're running at 64%, 62% of the pump. And that make prices or producers should stay. Today, it's BRL 2.11. And with the adjustment made today, it will probably be close to BRL 2.29, BRL 2.30. It's also worth noting that today, they also announced an increase on diesel for 25%. And at Sao Martinho, we have an important part of our costs in diesel. We buy today, more or less, BRL 400 million per year in diesel. And we will have a full impact of this increase on the diesel price now in our production costs. Remembering that we already bought almost 40% of the harvest in terms of diesel, most of the volume is during the harvest. So we have 60% to buy. That's the end of the crop, and the second crop that we use diesel for planting mostly.On the following slide, we talk a little bit about the sugar market. In June, the company had 68% of the volume of owned sugar that's still going to be built, projected close to BRL 2,600 per tonne. And for next year, we had almost nothing sold, only 30,000 tonnes. That's under 3% of our own gain. We have a very constructive view of the sugar market. Considering the climate conditions in India, the limitation in Brazil of having too larger harvest because of climate weather aspects that may occur in the second half of the year with an expected higher volume of rains. So we're being cautious and hedging to -- we believe there's still room for this price to be at a higher level, even considering of the lines in Brazil and turning the mix as much as possible to sugar. So that's our position at this time in terms of sugar, believing that prices will continue to be constructive.On the next slide, and to finalize our presentation and open for questions, we have a summary of our corn position. We've reinforced the guidance that we published in June of 420,000 tonnes of corn. We already have 100% of that volume purchased at a price of BRL 74 per sac of corn. As price is higher than the market price today, considering a surprise in the corn production in the Mato Grosso do Sol, Mato Grosso and Goias region combined to the difficult movement for export, the prices changed in the region and dropped. And we had already purchased a lot considering that crushing was below what we expected. We expect it to be close to 500,000 tonnes and we'll be at only 420,000 tonnes. When we bought this corn, this information was not available. And so today, we have it almost 100% purchased. We're making 160,000 cubic meters of ethanol. Ethanol there is predominantly anhydrous ethanol and 134 tons of DDGS.You must have seen in our release that the corn operation had a negative result this quarter, this first quarter. And the main reason was that we began very low crushing levels in some days, even less than 50% of the capacity with the DDGS a little bit outside of specification. So we had to sell at discount. But this has been normalized. And today, we are crushing slightly more than 1,200 tonnes of corn per day. We expect everything to be more constant considering that the current DDGS prices and current ethanol prices after this adjustment, that this will be an operation where we'll get a positive result at the end of the year between BRL 50 million and BRL 70 million. We started imagining it would be higher, but with these operational conditions that we faced, we believe it will be in that range. It's not going to be anything extremely relevant for this year. But next year, with the price of corn at a different level and our operation already smoothly in terms of crushing per day, we expect to get a very relevant share of the cash generation in the corn plant.These are my opening remarks, and we'll open for questions and answers.
[Operator Instructions] We'll begin today's Q&A session with a question from Guilherme Palhares, Bank of America.
Felipe, 2 quick questions from our side. Talking about corn ethanol still. I'd like to ask about this price hedging. And we see it starting even if a small volume for the next hedging seasonal crop, is it something coming from this harvest that will be carried over to the next one due to the lower volume produced in the start of operations or do we see the company starting to fix this in what you mentioned, the price levels now that we see that the levels in the region are depressed considering the basis?And my second point would be about crushing itself. We're seeing a strong recovery of TCH and crushing is still slow, and it will probably start to keep up from now on. But I'd like to understand a little bit more of how you're thinking the mix about your own sugarcane and third-party cane. If there's any difficulties to progress with crushing with what would be the full production capacity for the company? What would be the potential? What are you thinking in terms of the mix between own cane and third parties?
Guilherme, thank you for your questions. About corn, the small volume that was carried over to the other crop is due precisely to that operational aspect. We're initially expecting a crushing of 195,000 tons, and we were buying corn and signing contracts with suppliers and ended up to be slightly over necessary. We won't be able to push everything in this crop. So some of it is carrying over to the next crop. It's not hedged to the next crop. It's simply a matter of crushing that was a little bit more difficult in this beginning.Your second question about our own sugarcane and third-party cane, we will probably be around proportion of 70-30, 70% our own cane and 30% third-party. And in unit terms, we'll crush 100% of third-party sugarcane. If there's cane leftover, it's going to be our own. Today, we are obliged to crush third-party sugarcane, and we cannot leave our suppliers hanging with sugarcane on the field. So third parties are a priority. We crush what is contracted. But if it's not raining too much and we have sugarcane leftover, we will end up crushing it. It's going to be our own in the next crop. Usually, standover cane is our own cane.
Next question Leonardo Alencar from XP.
I wanted to get a little deeper in the information you gave us about the agricultural aspect, the TCH data. The recurring points of discussion in your guidance, that was being conservative. But now with this evolution in the beginning of harvest and TCH numbers being much better, I'd like to know if you're adjusting your expectations, if you're going to consider a more comfortable range. And in line with that, you said there was not so much effect of cost dilution in the first quarter. But if you get into more details, how fast would you believe this will happen in coming quarters, the cost dilution because of the yield or if the yields will be above what was expected in the beginning of the harvest if there's going to be a more favorable position than what was initially expected?
When we released our guidance, we had already mapped this good yield. And as it happens, the crushing guidance of 21.5% is for crushing, not necessarily sugarcane. So there will probably be sugarcane leftover in this condition on the field and carry over to the next crop. If for some reason the weather is drier than what we are expecting, if the El Nino phenomenon is not that relevant, then yes, we would be able to crush the standover cane in our field. So the guidance of BRL 21.5 million is for crushing.As for the fixed cost solution, this happens mostly in the second and third quarters. They're probably close -- and crushing in the third quarter, that's until November, December this year. So in the second quarter, you already be able to see the dilution of fixed costs in a more significant way.
Next question. [ Matteo Zingfeld ], UBS.
My first question is to understand the company's selling strategy. The volume of ethanol sales was very low, sugar was more in line with the fourth quarter. But what are you thinking about in terms of ethanol sales? How much ethanol can you hold on to with the potential of maybe having a longer offseason? How do you see that? And what are the triggers for you to sell more or less ethanol? And how do you see the exposure to exports in the second quarter of the harvest? And of course, the Petrobras factor changes the scenario a little, but if you can detail your expectation.In capital allocation, we had some projects being discussed. The company mentioned in previous calls about the second phase of corn ethanol, thinking about flexibility. So now what do you have as a priority in terms of the study for the company thinking about the next 6 months, 7 months until the end of the crop? And when does the company expect to make these decisions in terms of capital allocation?
As for the ethanol sales, actually, the first quarter, we sold less ethanol than last quarter because there was a point over the last 45 days of the quarter that the price of the product went down too much very quickly. And with that, we made a decision to hold on to it, not sell as much because effectively, it was well below parity of 70%, and at some point, even below cost. So, as I said here, our estimates for ethanol cash cost for this harvest, it's around BRL 2.4 per liter. If we look at [ data ] today, ethanol is below this value, hydrous ethanol, be it due to prices that until yesterday was well below parity, international parity, or be it for net ratio of 70%, that was running at 62% here in Sao Paulo, that's the highest consuming state. 0So there was a point of ethanol that the mills were selling the products below cost, and that was a big concern. Today, there was a significant correction with Petrobras closing part of that gap on the price difference. It increased 16%, and that is relevant for us.And then I'll go into your second question of capital allocation. Considering the current scenario, we understand that it's not the time to make any assessment to expand the corn at Boa Vista with the second stage producing more ethanol, even if the base is cheap. We are first going to wait for the operation to be leveled and balanced to have a full year, and then we'll make that decision. I don't expect to have any decision of doubling the corn plant, the corn ethanol plant until the end of the year.Biomethane, we're still looking into it. There's an aspect of the regulation of biomethane that's being discussed. That's also important to us to see with the CBIO and so on. And capital allocation is basically for payment to shareholders, dividends rather than making big investments in the expansion at this time.
Next question, Henrique Brustolin, BTG Pactual.
I'd like to start with a follow-up from crushing. Of course, the yield recovery this year is very relevant. There's even some sugarcane leftover. But the doubt is that in the base that you have a crushing at this time, do you see any risk to get to the 21.5 million tonnes for the year as you have been progressing until now? And at this point, with the weather conditions happening, helping agricultural management with the new sugarcane variety that you have and the adjustments in the field in recent years, how do you see the pace to get to those 24,000 tonnes that would fill the plant per day for crushing?And the second question about ethanol prices. Felipe, I'd like to hear a little bit more. Of course, now there will be a recovery with that increase at Petrobras. But I'd like to hear a little bit more about parity with gasoline. We saw that big lag the supply of ethanol growing this year mostly due to the recovery on crushing and the new offer of corn ethanol. But how do you see parity behaving throughout the crop? These are my questions.
Thank you for your question. For your first question, actually, the beginning of the crop was a lot more blocked or stiff because of the volume of rains, rainfall was higher. It didn't rain continuously, but it rained for a few days, then it stopped. Then it started again, and that really hinders the resumption of crushing. So when we look quarter-on-quarter, it seems that crushing is very slow. Since then from July onwards, weather is dry, and we've been able to crush as much as we can every day, maximum capacity. So I think it's unlikely that we would not meet the 21.5 million tonnes guidance. If it rains less and the effect of El Nino as a whole is not as relevant, we may be able to crush even a little bit more. But at this time, I believe 21 million tonnes, 21.5 million tonnes is guaranteed. And to get to 24 million tonnes, considering management and the varieties with a normal weather condition for the next 2 years, we believe we can get there in 2 years. Not next year, but for '26, the '26 harvest, we believe we would be able to be close to 24 million tonnes.About the price difference and the parity, if the call was yesterday, I would have been more concerned because until now, we've only seen the parity working down. The priced dropped until yesterday, 25% compared to gasoline that was, a parity in line with oil at the time. Since there's been this relevant increase, 16% increase all at once is relevance, we believe that at the end of the day, in Petrobras' mandates, I believe, the 12-month window and the price of the product will have international parity. So they're respecting that in this 12-month window. They're making their adjustments. So we believe that the -- if the oil prices remain as they are in the next coming months, we'll continue adjusting until they get to parity. So there is a 12-month window for that. But I would say that based on today's information and the 16% increase, I think they will follow the policy, not at the same speed that they did a few years ago. But in 12 months, we will see parity according to the international market.
Lucas Ferreira, JPMorgan.
My question is about sugar prices. Last time we were together that we met, I believe your view was that the market was tight. There was a little downside and a lot of upside in risk and price considering the scenario for the second half of the year. But since it's always unpredictable, the numbers came out better than expected in terms of rain volume on the past month. My question is, isn't it time to accelerate the hedging? The exchange rate is favorable, the price, maybe you can aim at a better margin. What's your idea for return at this level of sugar prices and the perspective looking forward if you feel more comfortable in hedging sugar prices more for this year and also for the next crop as well?
This year, we're doing that because we're already very close to the end of the crop. 68% of database in June, we are more advanced. We're close to 80% already hedged of the remainder of sugar. And for the next harvest, as much as it rains in India, I don't think it rained where they needed it, the main sugarcane producing region. So we still believe there's room for this price to remain strong. So for now, we'll monitor it a little bit longer. We believe there's more upside than downside. So today, we're around 3%, 4% production of next year. We'll see how the rains will be in September, October here in Brazil. It may greatly hinder sugar production, especially for mills that aren't as efficient as the best in the country, that takes too long to resume, and when they resume, it's predominantly with ethanol production and not sugar. So we believe there may be a disappointment in Brazil, the initial estimates with a very high volume. So we'll see. But right now, we're not setting it. We're waiting a little bit longer before we make that decision.
Next question. [ Joaquin Atlas ] Citibank.
Felipe, I just wanted to know if you can tell me a little bit more about your estimate for cost till the end of the year and then with the harvest if you're going to purchase or if you can break down just the aspects of the cost, if we can imagine if you can tell us what we can see what to expect for the future as well as maintenance CapEx and expansion. What you're thinking about your ahead of guidance and I'd like to know about it.
So in terms of cost, it's the number that I gave you during the presentation now. It's on Page -- looking here at the financial results, cash cost of sugar and ethanol. And this cash cost of sugar and ethanol includes maintenance CapEx. So, it's like my EBIT cost more or less. And this crop would have a drop of 11% for ethanol, and due to the improvement of the company's live operating leverage and a drop in the price of ethanol and a 3.7% increase in the cash cost of sugar. As for the guidance for investments, maintenance CapEx and so on is we maintain the same guidance that we provided 3 months ago in June or 2 months ago. There has been no change.
[Operator Instructions] We conclude the question-and-answer session at this time. I would like to turn the floor back to Mr. Felipe Vicchiato for his final remarks.
Well, thank you for your presence at our conference call. The IR team and myself are available for any additional doubts you may have. This has been a much better crop in agricultural terms than what we saw in the last 2 years. The first quarter was we harvested first sugarcane they'll be harvested from the second half onwards. So yields will probably increase more than what we saw in the first half.On the agricultural point of view, we're going back to what we used to be 3, 4 years ago. The challenge now is for price product, the price of products, especially ethanol considering that we have our position. But we have a concern with this position of Petrobras starting to close the price gap compared to the international market. It's very positive for us and makes us hopeful to continue growing in the near future. Thank you very much. Good afternoon.
Sao Martinho's conference call is now over. We thank you for your participation. Have a great afternoon.[Statements in English on this transcript were spoken by an interpreter present on the live call.]