Sao Martinho SA
BOVESPA:SMTO3
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Sao Martinho SA
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Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to São Martinho S.A. earnings conference call to discuss the results of the third quarter of the '17/'18 harvest season. Today with us are Mr. Felipe Vicchiato, Chief Financial and Investor Relations Officer; and Mrs. Aline Reigada, São Martinho's Investor Relations Manager.
The audio and the presentation of this conference call can be accessed at the website, www.saomartinho.com.br/ir. [Operator Instructions]
We would also like to inform you that any statements made 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 differ materially from those set forward in the forward-looking statements.
I will now turn the floor to Mr. Felipe Vicchiato, who will start today's conference call. Thank you.
Good afternoon, everyone, and thank you for participating in our third quarter earnings conference call related to the '17/'18 crop year.
I would like to begin this presentation moving straight to Slide 4, where I will go over the main highlights for the company, and I will start about -- talking about the end of '17/'18 crop year, as we have announced to the market in mid-December. We crushed 22.2 million tons, an increase of 15% vis-à-vis the previous crop year, accounting for growth of 13% in own and 19% third party. This increase came from the full consolidation of Boa Vista Mill once we did the acquisition by the end of 2015, the closing in 2016, and it was consolidated 100% in the crop year '17/'18. Together with increasing crushing, the company was able to have a better TRS in the '17/'18 crop year, arriving at 139.8 kilograms, 17% above the previous crop year, and that led us to increase the production of sugar and ethanol. Sugar was up by 8% and anhydrous, 33% (sic) [ 22% ] in this combination of higher TRS. The TRS produced was up by 23%, and that is the main item that boosted results of the company in this third quarter according to my further comments.
Moving to the next slide, Page 5, we have the financial highlights for the third quarter. Net revenue was up 21%, growing from BRL 739 million to BRL 899 million, and this was basically due to an increase in the volume of ethanol and sugar sales, as indicated in Charts 1 and 2. 15.8% accounted for sugar volume and 40% ethanol volume.
This sugar and ethanol volume occur due to increase in crushing, as I mentioned before. The average sugar price was stable when compared to the previous crop year, going up by only 2% and the average ethanol price was down by 12% comparing both quarters, quarter-on-quarter. In the case of cogeneration, it was up by 33%, the volume of cogeneration, and the average price was up 40% going to BRL 230 per megawatt hour. And this increase in cogeneration results from the full consolidation of Boa Vista, and increase in average price results from a PLD close to BRL 350 per megawatt hour in this quarter. Adjusted EBITDA was up by 45% going from BRL 341 million to BRL 497 million, with a increase in margin of 9.1 percentage point. Adjusted EBITDA was up by 48% going from BRL 151 million to BRL 277 million. Net income was up by 200%. And the cash income, according to Table 2, had an increase of 150%, reaching BRL 215 million. The difference between net income and cash net income appears on Table 2 because here, we have the reversal of the biological asset which is a noncash effect expenses and the variation of paid tax.
Going to Page 6. Here, we have a summary of our cash COGS. And this is one of the best indicators for margin improvement in the quarter. Cash COGS for sugar and ethanol had important figures. Part of the reduction was due to the reduction of sugar and ethanol from Consecana prices, which was down in the period, and also there was an improvement in operating leverage. If we exclude Consecana price increases on Chart 3 -- as demonstrated on Chart 3, we know also that the unit cash cost of TRS sold was down by 23.7% in the quarter. Year-to-date, and looking at the same indicator net of Consecana, excluding Consecana from the basic COGS to price was down in the period and then we see a drop of 2.9% when we look at COGS unit cost per unit sold. Looking at the total cost, including Consecana, there was a drop of 12% in the sugar cash cost and 12.8% of the cash cost for ethanol. So looking at the quarter, basically, we had an average ethanol cost which was worse when compared to the previous quarter. And the increase in operating leverage and a reduction in the cash cost let -- the company's margin, both EBITDA and EBIT, had improvement due to a tighter price control.
Now moving to the next slide on Page 7. We briefly talk about the company's debt position. Comparing March through December, debt was up by 14%. Net debt going from BRL 2.7 billion to BRL 2.9 billion. On Chart 3, we have a summary of the main indicators that were responsible for an increasing net debt. So our working capital comes up to BRL 693 million. CapEx for operating improvement, and then we arrive to BRL 1.2 billion of net debt. This net debt should come down considerably in the last quarter vis-à-vis the sugar and ethanol inventories that I still have to sell which currently is dwindling to about 25% of the production volume in TRS equivalent, which I will refer to further on. And this inventory will be sold maybe in full until the next quarter, putting our net debt to much lower levels, close to 1.3, 1.2 of net debt over EBITDA ratio. The gross debt of the company was BRL 4.1 billion in December, 25% of it was denominated in U.S. dollars and 65% denominated in BRL. The company was able to get real-denominated debt at a very competitive price and this allows us to reduce our U.S. dollar-denominated debt, allowing us to keep a good book value. And by the same time, have a good or better average price for sugar in reals.
Now moving to next slide on Page 8. Here, we have the company's inventories as of the third quarter of 2018, which ended in December 2017. The volume of sugar went to 430,000 tons, and this increase stems from the results of our production. The total -- totality of this sugar should be sold in the last quarter, between January and March. Hydrous inventory was up by 244%, going from 50,000 to 172,000 cubic meters. And this inventory of hydrous stems from the full consolidation of Boa Vista, which only contemplates ethanol in the company's portfolio. And also, if we look back to the last crop season, there was an important crop loss and that was mainly ethanol. And that's why we had less ethanol than anticipated in the '16/'17 crop year. So when you ran a year-on-year comparison, we see a significant improvement or increase in the volume of the inventory. Anhydrous goes from 144,000 to 235,000 in this current quarter, an increase of 63%. This inventory should be sold in full in this next quarter just as it will happen with the sugar inventories. But if we also look on Chart 1, in the chart down below, on the same page, we see that after July and August, the average ethanol consumption grew considerably or significantly in São Paulo going from 1.2 billion liters to 1.8 billion liters. We also understand that this consumption increase of around 20% when you run an average comparison between January '17, June '18 and so on also stems from Petrobras’ policy of placing gasoline prices in keeping with the ethanol prices. And also tax changes conducted by the government, which also brought about changes in taxes both for ethanol and gasoline. And that, in turn, drive to improvements in competitiveness between gasoline and ethanol. Hydrous and anhydrous had changes and that's why all of this inventory had this different behavior. And we expect to have a very strong quarter in the fourth quarter given the fact that my inventory volume accounts for 30% of production as prices, as you can tell, are quite high, and therefore, the company will realize inventory even before the crop year begins.
To conclude the presentation and then move to the Q&A session, we will talk about hedge. The hedge for sugar and ethanol for '17/'18 crop year and the '17/'18 crop year, the sugar hedge was almost finalized and the remaining sugar was about to be shipped. We had something close to 80% of our own sugarcane sold at a price of 1,260 -- BRL 1,273 per ton, and this is what we will post in the second half of the year. And for the '18/'19 crop year, we change the hedge and the average price is close to BRL 1,163 per ton, with an exchange rate of USD 3.35 for real. This hedge volume accounts for approximately 50% of my sugar exposure for the next crop year, considering a minimum -- maximum of -- minimum and maximum sugar and ethanol, so ethanol is much better than sugar currently given the consumption of ethanol as demonstrated in the previous slide, then we should expect that prices will not fall as much as they had fallen in their previous crop year, and that's why ethanol prices will pay off better.
The ethanol storage capacity is quite relevant. We get close to 70% of total production considering the maximum ethanol production in storage. So I think that we will pursue a strategy whereby we will preserve the product so as to sell it whenever the margins are better, considering this season and offseason just as we did in this fiscal year.
Currently, we do not have any guidance in terms of production. We are now collecting all the information and assessing the sugarcane field. The rainfall was according to our expectations. By the end of April and May, we should be concluding the assessment of the sugarcane fields. And so in early June, we will probably give a guidance to the market about TRS and how much we expect to crush.
So these were my initial remarks. And now, I would like to open the floor for Q&A, for questions and answers.
[Operator Instructions] Our first question comes from [ Denny ] [indiscernible] from Bank of America.
I have 2 questions. My first question is that I would like to know how do you see the mix of sugar and ethanol in Brazil. We noticed a migration towards ethanol, especially because of the fact that it is more -- it's financially more interesting, but there might be a removal of import taxes for ethanol. So I just want to understand whether you already see any impact, or whether you can anticipate a migration back to sugar. And maybe the news will be postponed. I just want to understand your views in that regard. And my second question is that I wanted to get a better understanding about this drop in cost. We've also noticed an increase in efficiency on your part, and how could that offset the impact of a lower sugar price in your overall result.
Thank you for your questions. The crop season mix, whether we will have more ethanol or sugar, the decision will be made when the crop year begins in the middle of April. But once we consider this stream sugar price and ethanol prices, the way they are right now, most mills will probably migrate their production to ethanol and less sugar because the price of ethanol is paying more than sugar. Now in January, in the middle of January, there was some news that related to the removal of import taxes that was levied a few months back. And that comment stirred up a lot of noise in the market. But right after that, the government issued a notice saying that -- it said that as part of a context and not -- that didn't mean that, that would necessarily be a measure to be taken immediately. This has happened about 1 month or 1.5 months ago, and we believe that the government will maintain the import tariff as it has been posted about 4 months ago. So we understand that this will be maintained. So we do not see that as posting a risk to the next crop year. Well, certainly, if that happens and if the import tariff is removed, maybe the mix will change from ethanol into sugar. But for now, we understand that the tariff will be maintained. Now in relation to better costs or cost improvement, what happened in [ until now ] if we compare year-on-year figures, there was an improvement basically due to the -- an operating improvement. Frost in '17/'18 was better in terms of cost because of a crop loss due to a frost and we lost some of our -- '16/'17, that's when we had a frost. Let me correct myself as we -- before, so we lost 10% of our production. With that, our unit cost increase was significant. But when we compare it to another normal crop year, which was this one, in that comparison, we see a significant cost reduction. And what am I saying? Why am I saying that? The main projects of the company in terms of cost reduction, which is the core project, we are still in the process of investment, and we haven't yet seen the benefits coming from these projects. And the benefits from those projects could be felt the beginning of the '19/'20 crop year then -- and from then on. So in the next crop year, we won't see the benefits from the project in the summer crop between January and March. The company is planting a lot. I mean, we planted in the middle of the year. We are doing meiosis. There is 18 months until the sugarcane grows, and this will be harvested in the '19/'20 crop year. So big jump in terms of cost reduction and better productivity and improvements in our operating costs will be felt more particularly in the '19/'20 crop year. And this will certainly be the crop where [ COA ] will be deployed in our largest mill, which is São Martinho mill, and that's when we will begin to reap part of the benefits coming from these projects. So all of these cost improvements we were able to have so far is just a result of what happened considering the results from '16/'17 crop, and then our next crop.
Our next question is from Lucas Ferreira from JPMorgan.
Felipe, I have 2 questions, very much in keeping with what we just talked about. About ethanol, do you see that there will be import risk even with this tax rate of 20% given the fact that the price is relatively high when compared to prices abroad? Also, I have a more theoretical question as whether you believe there is another risk. How do you evaluate the corn-based ethanol, whether this is coming back today? Maybe this may not seem like a big problem but maybe the numbers for import could increase once it comes into the market in the next 2, 3 years. And about cost, then also thinking about the other lines like diesel, fertilizers, how do you see this crop year? There may be some pressure, you think?
Lucas, thank you for your question. So let me begin by the end. In terms of cost pressure, we don't anticipate any cost pressure for the next crop year, except for diesel because there was a price increase year-on-year. So there should be an impact of around BRL 10 million to BRL 15 million in addition to the current prices because of diesel, and that's a reasonable impact. But when you look at the cost volume, the total cost volume for São Martinho is not very relevant when you look at the unit cost. In terms of fertilizers, we do not anticipate any relevant increase. Now thinking about [ COGS ] raised ethanol production. We ran an internal assessment at São Martinho to find out whether it would make sense for the company to invest in corn-based ethanol at Boa Vista Mill, which would be the most obvious location given the geographic location of the mill. But we came to the conclusion that, that would not be feasible because the CapEx of the industry is quite relevant. And you have to presume that the price of corn should be in x reals per bag. And I don't think this will be sustainable for a certain number of years that will be enough to pay for the products. Some companies are investing. And I think that corn-based ethanol production, I think, in Brazil was 400,000 cubic meters. I think that was it. It may increase a little bit in the next crop year, but I don't anticipate any major wave of corn-based ethanol in Brazil. I don't think that there will be any major wave so as to jeopardize prices of ethanol or impact prices of ethanol. Now imports of ethanol, despite the tariff what is happening today is that there are some anhydrous ethanol ships coming from the U.S. to supply the local market. But financially speaking, it make sense, especially to the northeast region, the north and southeast. There -- so I understand that there may be some volume coming now but that will not hurt the price because prices will not drop as much, particularly because of where the demand for ethanol is located. In the early crop year, prices should go down as it is natural in this business. And this should not motivate further imports of ethanol, which is quite different from the scenario seen a year ago because when we did not have the tariff, the price was down substantially, BRL 1.4 to BRL 1.5 per hydrous ethanol because of the fact that the product was coming without the tariff. Now things are different and you then understand that importing ethanol in the middle of the crop year is much more -- poses a bigger risk. I don't know whether I was able to answer all your questions, so if I haven't, please repeat them.
I just -- then I want to learn more about your corn-based ethanol production, but we can speak about it later.
Our next question comes from Gustavo Allevato from Banco Santander.
I would like to find out about the climate conditions in your mills in the offseason, if you can share that information with me. And the second question is what do you anticipate in terms of sugar prices throughout 2018? I think -- I mean, you should have 5 million tons. Do you think that the current price already reflects a reduction of production in Brazil to 31 million tons of sugar coming from somewhere south? Or do you think that this expectation has not yet materialized? And also, I would like to see whether you are also looking at a potential hedge for ethanol or whether that does not make sense to you.
All right, Gustavo. In relation to climate conditions, in the offseason, in the mills or in the sugar fields where we have a mill, the climate conditions were okay. Nothing so -- there was nothing particular that's why we should expect a production volume very much in keeping with the levels we had a few years back in terms of tons per hectare. So it is within the average. Now to answer your question about hedge, if I understood it correctly. We are still analyzing it. We still have to run some calculations but we haven't had hedged ethanol through oil. When we look at the price of ethanol per producer, it depends on the consumption volume at the gas station. So to run a calculation based on the price of oil to the gas station, there is a whole chain involved, distributors, taxes, and it's a very difficult calculation and difficult to calculate hedge close to the price of oil abroad. We are looking at it but we aren't doing it yet, not hedging ethanol.
What about prices of sugar for this crop year?
In terms of the sugar price for this crop year, this 5,000 ton of supply that is in the release, which is the consensus, is not yet considering a production in the Center-South of 31 million per ton. If everyone migrates to ethanol and then deliver a lower sugar production, then that sugar should probably see a recovery. But the price today, if we look at the same price today and convert it to reals, it's about BRL 1,100, BRL 1,100 per ton, which is still very competitive. But we will continue with the hedge because this is part of the company's policy. So in the next quarter, I will have about 100,000 tons in hedging. It's just a matter of policy. 1,100 gives me a reasonable margin, and I still have the exposure of ethanol, which is a major exposure in my revenue line.
Next question from Thiago Duarte from BTG Pactual.
I have a question on price, but I'll pose it differently, price of ethanol and sugar. It's very clear through the release you reported that you believe that sugar prices should see a recovery considering the spring prices now and the ethanol prices, it's natural, is expected to come down when you look at the crop year and the intercrop. What would be the relative prices? I mean, ethanol prices should go down and sugar prices should go up. So what -- how is that -- how is the behavior of that balance? And what would we do to maximize ethanol production vis-à-vis sugar production? How much sugar increase vis-à-vis ethanol, and how do you expect to maximize ethanol production in the next crop year vis-à-vis sugar? That's my first question. And the second question has to do with your presentation related to the landscape in the fourth quarter, considering your strategy to carry over ethanol inventories. And this will be a more successful strategy if prices continue to go up until there's -- everything indicates that your net debt over EBITDA ratio will be very low, very close to onetime net debt over EBITDA ratio and that's when we get to the point that eventually, we think that we will have to make a more assertive decision about how this cash will flow from the company to shareholders assuming that there will not be any relevant CapEx along the way. And according to our conversations with you, that seems to be the case. So how do you think that this cash will flow to shareholders? We've always said that buyback was a possibility that seems to make more sense. I just want to understand how this discussion is evolving.
Yes, thank you for your questions. In terms of the prices for sugar and ethanol, if you look at the sugar stream vis-à-vis SRP ethanol prices, there is a gap between 20% to 25%. So in order for São Martinho to decide to make more sugar or at least to balance our sugar production vis-à-vis ethanol, the sugar prices would have to go up by at least 20%, approximately. What is not true is that the ethanol prices would have to go down 20% in the beginning of the crop year in order for São Martinho to produce more sugar because if there is a drop of 20% in ethanol prices, and this is just a hypothesis, certainly, there will be more domestic demand. And this demand will be able to take care of that surplus ethanol. And São Martinho has a good capacity to storage ethanol, we will pursue a strategy to carry over the ethanol to sell in the third and fourth quarters, and so we will have a better margin for the product. In order for us to change the strategy and then increase our sugar production, sugar will have to go up rather than ethanol coming down because I can carry over ethanol for a longer period of time when compared to sugar given my storage capacity. And certainly, the ethanol market is more known because we are talking about Brazilian consumption. Whereas with sugar, there are other growers in the world because we also have crop season in Europe, in India. And sometimes, if they have an x amount of sugar, they may decide to increase export or import. And so the market can change substantially. In the case of ethanol, as we are dealing with the domestic market, it is easier for us to have a more assertive assessment of that market. Now in terms of how São Martinho will use its CapEx, I think that the main use of our cash will be through buyback and dividend. We have an open buyback for 8 million shares that I think you've seen in our reports that we already acquired 1.3 million shares approximately in the last quarter. And at this level of stock price, we understand that the buyback should be concluded very shortly. And I think that once I decide the dividend payback, which will take place in middle of June, assuming that my buyback is already concluded, I will have about BRL 180 million of stock buyback already realized. So assuming that I'll buy 8 million of shares, and the difference to pay out shareholders, it will be -- I mean, this dividend volume plus buyback, I do not have that exposure yet. We are running an evaluation in the company, something that we will suggest to the board. But we are not looking at accounting net income but more -- we're looking more at the operating cash. And as you said it yourself, the company does not have any relevant projects in the pipeline for next year. There are important projects in the cost point of view, but they are not that relevant when it comes to CapEx because the bulk of the investments have been already done 4 years ago when we started the project. And so now, investments are not so relevant. I may increase my acreage to expedite the MPB project but that will not impact CapEx substantially. This will not compromise cash returns to shareholders.
I just have a follow-up, and I know that the next crop year budget is not concluded, but could you give us an indication of your CapEx level, including maintenance of CapEx, small improvements and maintenance CapEx for the next crop year?
Well, we do not have anything to that end yet. What I can tell you is at least BRL 900 million will be maintenance CapEx because this is my recurring CapEx. This is for planting and increased acreage or even crop treatment. In the case of sugar, your opportunity cost for planting is better because once you plant more, you reduce your harvesting area, therefore, we are now evaluating whether it would be worth it to increase the MPB project. I have cane at '19/'20. But on the other hand, I would sacrifice the production of this crop year because I will be planting more sugarcane and reducing my harvesting area. And therefore, we are still running an analysis to see what would be best. I'm not saying that we'll be crushing less, maybe just 1% less than my initial expectation. And this is a lot of planting area that I could be doing, therefore, we are currently evaluating the budget. The opportunity cost is good. It is better to do that in a time where prices are bad because then you reduce your harvesting area when your opportunity cost is better and you would have more cane when the cycle turns, which is after the crop year '19/'20.
But can you talk about any additions?
The additional CapEx would be about BRL 35 million, not more than that.
[Operator Instructions] Next question is from Rafael Sommer from Bradesco Bank.
I would just like to understand whether you have any update related to the legal suit led by Copersucar against [indiscernible] and whether you have any update related [indiscernible]. It was approved at the end of last year. I just want to know whether you can give me an update on metrics or the impact that this will have on the '19/'20 crop year.
We don't have any update related to the Copersucar lawsuit because it belongs to them and their lawyers are taking care of it. In terms of [indiscernible], deal, at first, I think it's up to -- we have until June, if I'm not mistaken, until they conclude a very important phase of their project and that involves the stabilization goals of the location year-on-year. Once the goals are set up, we'll be able to understand how much ethanol the project will demand in the forward years. So I don't have an update about the prices, but I know that until June, we will have concluded an important phase. After the conclusion of this phase, it will be much easier for us to give you an idea about ethanol demand year-on-year in that [indiscernible] project.
Next question from Marcelo Inoue from Citi.
My question relates to the issue of the mix. How do you intend to adjust for this mix change because you have '16/'17 crop year for sugar and the mix sugar/ethanol for the next crop year, and whether you have any specific CapEx to increase that flexibility, be it on the industrial side or in terms of storage capacity?
Thank you for your question. We do not have any CapEx to change the mix. In fact, the company, in the last 4 years, have had a sugar mix in the composite plans. And with a more sugar-based mix, we have a very low use of our ethanol plant. So my ethanol mill is sitting idle. So it's simply a matter of changing the mix and placing more sucrose to produce ethanol rather than sugar, so this is a very simple process. It does not involve any additional CapEx.
Next question is from Márcio Montes from Banco do Brasil.
Felipe, you crushed 22.2 million tons. So what is the outlook we could anticipate for the crop year '18/'19? And when in the year you think that the rest of the world would start giving any signs in relation to this change in mix that is taking place in Brazil that it doesn't seem to have been captured abroad?
We don't have that information about how much we will crush, how much it will be we will crush in the next crop year. We will have better figures in the midst of June. Maybe I can give you a guidance that there will be an increase of more or less 10%, which is a guidance of nothing. So we would rather give you a more assertive figure when we get a better update and we will have certain figures about the behavior of the crop. I believe your second question was when do you think that the sugar market will react given the fact that most growers will produce ethanol. That's a difficult question to answer, but I believe that -- I mean, the crop year begins in April. So far, we just heard producers saying that they will just produce more ethanol. Others have said that they will produce more ethanol. São Martinho is now also saying that it will produce more ethanol considering the current prices of sugar and ethanol. So, so far, we don't have any firm action in terms of increasing ethanol production, except for hearsay from growers. So it's only in March or June that we will have a better outlook. But right now, this is a very unique situation because in the last crop year, Brazil produced a lot of sugar, and we still have a lot of sugar to ship. So sugar prices are under pressure. And now, you have the Northern Hemisphere producing a lot of sugar like India, the EU, Thailand, and they are putting a lot of sugar in the market, and this hampers the prices. The price is coming down, even breaking the [ barrier ] of $0.13, but it went down from $0.16 to $0.13 from December to now. And we understand that once Brazilian production begins and then we know that, for sure, that we will produce more ethanol, there should be a quick recovery. This is a very volatile market and so recovery should be quick. But we do not anticipate a price at $0.18 as it was in the crop year '16/'17, that's why we should expect a price range of between $0.15 to $0.16 as an average for the entire crop year.
Next question is from Antonio Costa Barreto from Itaú BBA.
I only have one question. With the meiosis project, can you give us an idea of the level of TRS per ton per hectare that you could reach in the crop year '19/'20?
In the '19/'20 crop year, crushing could be close to 24 million tons. This is the figure I have. Now TRS, it's difficult to anticipate anything. There should be an improvement in TRS, but I would rather not give you an estimate. And I think that crushing should be very close to 24 million tons.
And the [ COA ] project?
It will bring savings per ton of sugar crushed. In the first year, speaking about one mill, in the first year, we would have savings of around BRL 20 million, nothing more than that in the crop year '19/'20. But now, looking at our learning curve of the project, we understand that it should be between BRL 2 to BRL 3 per ton of sugar and combined results of the group.
Just one confirmation. During Lucas' question, you talked about BRL 10 million to BRL 15 million in addition for the cost of diesel, and I think that this is your cost, including maintenance CapEx plus operating costs, right? Including both effects?
Yes. The cash cost, BRL 10 million and BRL 15 million is when you look at diesel spending of BRL 300 million for all processes, harvesting, et cetera, et cetera.
Next question from Roberto Browne from Morgan Stanley.
I just wanted to learn about your cash flow expectation. I know it's still soon to talk about guidance, but a few months ago, you showed some cash generation scenarios. And despite sugar prices at the level they were, the company was able to generate an amount surpassing BRL 500 million. So I just want to know whether this increase in the inventory levels of sugar prices had an impact or maybe some one-off investments that could probably change the scenario could be anticipated.
Let me see if I understood your question. What we've been saying is that in the '15/'16 crop year, the average sugar price realized by the company was something close to BRL 1,000 per ton. From then on, from crop year '15/'16 until crop year '17/'18, the company improved its operating leverage substantially. I increased my sugar cane crushing and I had improvements in TRS as the figures reported to the market. And coupled to that, and even more importantly, the company did leverage from the '15/'16 crop year to '17/'18, and the cost of debt decreased because of drops in [indiscernible] rate and also credit perception of the company. In view of this landscape, what we try to convey to the market is that we give tools to the markets, so the market can [indiscernible] looking at the figures reported for the crop year '15/'16 at what would be the cash generation figures for the company in the following crop year as we are not yet giving you any estimate for crushing or production TRS, I cannot give you a number. But as an exercise, I think you should look at the crop year '15/'16, and look at the inflation rate in that crop year and then '17/'18 crop year inflation and how the company made improvements. Back then, it was a different company with different costs, so you have to do your homework. We do not give any guidance of cash generation or crushing. So somehow we try to help you do the math so that you can have a prediction of cash generation at the light of a pricing landscape for '18/'19 as we did with the '15/'16 crop year. But the price landscape for '15/'16 crop year for ethanol prices were even worse when we look at the '18/'19 crop year given the demand volume I mentioned for ethanol. And this could make slight improvements to my cash generations, but you have to do the math. But now, speaking about CapEx, like you said, I said that maintenance CapEx of the company is BRL 900 million, maybe we will intensify planting because of meiosis. And so we would be able to crush 24 million tons in the '19/'20 crop year, but it's not this CapEx that will impact the cash generation of the company, that's not the bottom line.
Next question from Lucas Ferreira from JPMorgan.
Felipe, my question has been partially answered, but if you think about a year where you will maximize sugar production and then the next crop year, you maximize ethanol production, what is the difference in terms of your working capital? I just want to have an idea.
One thing is if I maximize ethanol and if I carry ethanol over to the end of the crop year, that will have an important impact on my working capital during the crop year, there will be an impact of about BRL 200 million if I maximize ethanol. And addition to that, if I carry over ethanol to sell in the third and fourth quarters. Now it's not just because I changed the mix that I will increase my working capital. If I maintain a linear sale and the model of ethanol mix and if I would keep the same 1 12 sale of sugar, once ethanol is produced and sold, the cash conversion for ethanol generates more cash than sugar. But the mix of ethanol, I mean, we should have a strategy to sell the product when the margins are better. And this would lead to increases in working capital during that crop year and that increase should be BRL 200 million, at the most, if you consider my cost of debt in reals, which is about 96 for CDI, which is the last one I had. In financial terms, it's not very much because we're talking about carryover, on average, of 6 months. But if we look at the end of the year and the crop year as a whole, if you carry ethanol during the whole crop year, the conversion cycle of ethanol is much lower. And therefore, you should have a reduction in your working capital requirement. Yes, there will be a reduction in working capital requirement if I sell at near the same linearly as I would do it with sugar. Another important thing that I forgot to say related to our production strategy of producing more ethanol than sugar, ethanol is a product where there are other taxes like PIS/COFINS and ICMS. São Martinho has federal taxes, PIS/COFINS, ICMS, if I change my mix to produce more ethanol, and there is a large likelihood that it will have changes in my working capital because of the use of these credits in my asset line, so my P&L will count the net tax prices net of fiscal things. But when we look at the cash flow and considering the fact that I have a significant number of assets and taxes to collect, I should offset these taxes and convert these collectible taxes into cash. So my working capital applied in the business should improve year-on-year. And so the mix would be more towards ethanol.
[Operator Instructions] Next question from Antonio Barreto with Itaú BBA.
Sorry to ask you again, I just have a very quick question. When you said that you buy [indiscernible] and you estimate to crush 24 million tons, so I assume that the amount of third party sugarcane should be flat. Should we consider that and you can no longer buy sugarcane from third parties so your margin increase will come from increasing productivity or yield?
Yes, you're right.
We now conclude the Q&A session. I would like to give the floor to Mr. Felipe Vicchiato for his final remarks.
Thank you all very much for participating in our earnings release. The company performed quite well in terms of our results and probably the next results, given our inventory of volumes of sugar and ethanol should also post significant and strong figures. If you have any additional questions, we will be available -- our IR team will be available to answer them.
São Martinho's earnings release has now concluded. We would like to thank you for participating. And I wish you a very good afternoon.