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 standing by. Welcome to São Martinho's S.A's Fourth Quarter of the '19/'20 Harvest Earnings Conference call. Today with us, we have Mr. Felipe Vicchiato, CFO and Investor Relations Officer; and Mrs. Aline Reigada, Investor Relations Manager of São Martinho.
The audio and the slides of the presentation are being broadcast simultaneously on the Internet at www.saomartinho.com.br/investorrelations.
[Operator Instructions] We would like to clarify that some information conveyed during this conference may constitute forward-looking statements. And as such, they are subject to known and unknown risks and uncertainties, and this could lead the company's results to differ materially from those set forth in such forward-looking statements.
Now we would like to turn the floor over to Mr. Felipe Vicchiato, who will start the presentation.
You may proceed, Mr. Vicchiato.
Good afternoon, everybody. Thank you for participating in São Martinho's call about the fourth quarter of the '19/'20 crop year and the end of the fiscal period '19/'20. I would like to start with the agenda for the day. First, we have the financial highlights, and then we will talk about the cash cost of the company during this year and the debt and the guidance for production for the 2021 crop year, our hedge positions for sugar in dollar, and we will end talking about what we think about the sugar and ethanol market.
Let's go to Page #4, where we have a summary of the financial highlights for the quarter and for the year. Net revenue of the company in the quarter went up by 2% in spite of the volume, so the TR equivalent having dropped 15.8%. Adjusted EBITDA going up 13.7%. Adjusted EBIT 123% increase. And the reason why the volume sold dropped by 3%, it was because of the pandemic that occurred at the end of February, beginning of March. And during which, the sale of ethanol dropped quite steeply, especially in São Paulo. And this is the reason why ethanol prices dropped in the market, basically because of that.
In São Martinho, as we understand the market, we chose not to sell for a low price, and we decided to hold to our inventory of hydrous and anhydrous ethanol from 1 year to the other, and we should be selling now in the first quarter of this crop year. This is why we have a lower volume with a drop of 22% in ethanol, partially offset by a 9% increase in the volume of sugar. And in spite of the drop in the ethanol volume, the average prices of ethanol quarter-on-quarter went up by 15% once January and February, they are strong. And this helped the net revenue to grow by 2%, although the volume was lower. Adjusted EBIT has an important growth because in practice, I have a better price in both products, sugar and ethanol and less cost, EBITDA margin 50%, EBIT margin higher than 23%. And with that, for the year, we were able to get to an EBITDA close to BRL 1.857 billion and EBIT -- adjusted EBIT of BRL 792 million, growing by 32% year-on-year. In this quarter, we had 2 major items that had an impact on our results and they are noncash. I think you have all seen this in our financial statement. And the first item were BRL 30 million in mark-to-market of the biological asset as if it were an impairment of our biological asset. But the prices in March 30 were very low for sugar and ethanol. And this is the reason why we have this impairment of BRL 30 million. And this number, we are adjusting for adjusted EBITDA and cash. We had gains of BRL 25 million of the IFRS 16 in the fourth quarter of 2020. And the effect for the year was a loss of about BRL 20 million after the income tax, which is the effect of the adoption of the new IFRS rule that has noncash effect.
The net income for the company before these effects, 110% for the year increase. And for the full year, for the 12 months of the year, we have -- we received precatórios or the preorder credit notes. And in cash cost, we have 4% increase, BRL 158 million to BRL 164 million in this quarter. For the 12 months of the year, the volume sold was practically the same in TRS equivalent, 0.4% increase only. And the result of the fact that we had carried over more ethanol at the end of the crop year, as we said, and although we have crushed more sugarcane. And therefore, more products available to sell. There was a stoppage in the sales of ethanol in March. And because of that, for the full year, we showed the volume that was practically the same on a year-on-year comparison. And this volume will be sold now in the next year in the 2021 harvest, and we will have the whole volume of production in the 2021 build plus the carryover inventory that I mentioned.
We have a summary on the next page. We have a summary of the cash cost of sugar and ethanol, and we include the maintenance CapEx for the intercrop period and also for the planting of sugarcane. And we closed with BRL 108 per ton for sugar year-on-year, growing by 5%, with an average price for sugar of...
[Technical Difficulty]
The interpreter has lost the sound. Please stand by. There was a small technical problem. We're going to resume the conference.
We apologize, there was a problem with the audio of the conference. So I will go back to the cash cost that I was referring to. Okay. So the cash cost for sugar went up by 5.8% basically because of diesel and agricultural products that had an impact and also the cost of ethanol went up 2.7%, and we were able to decrease the cost a little bit because it was less sugar, 10.7% increase, going from BRL 1.7 per liter to BRL 1.9 per liter. So you have the margin of ethanol being 6.2%. On Page #6, we have the company's indebtedness. The company's indebtedness closed at BRL 2.8 billion, with a growth of 20% on a year-on-year comparison. And the main factors for the increase in our debt was the long-term exchange rate variation impacting our dollar-denominated debt as we had an increase of 30% in the exchange rate year-on-year.
Between dividend paid in the last crop year and the interest on equity and remuneration for shareholders, BRL 930 million disbursed. And interest on equity, it was the first year that we paid a considerable volume. And this has an impact on our net debt when we look at the comparison year-on-year as we didn't have a base for comparison to the previous year. And the last one was the expansion CapEx. Given the projects that we had already announced last Wednesday, the company's cash closed at BRL 1.9 billion in March with maturities and average term of close to 4 years and only a few maturities in the next month. So this gives us a lot of comfort to go through this crisis that we are living because of the COVID situation.
On the next slide, on Page #7, we have the guidance for production for the 2021 crop year. As we said yesterday, in our material fact, we will be processing 23.2 million tons of sugar growing by 2.5% vis-à-vis the past harvest and average TRS dropping by 1% as the basis of comparison was a very high one because of the very dry climate.
We put here 2 scenarios for sugar and ethanol between the maximum and the minimum because we do not have a magic figure for that. So we give you a maximum and a minimum. So if the company migrates to a maximum of sugar, we will have something close to 1.5 million tons of sugar. If we migrate to the maximum of ethanol, we will have 1.1 million liters of ethanol produced. Considering the prices of both ethanol and sugar today, given the premium that the sugar has vis-à-vis the ethanol, we -- São Martinho is producing more sugar and less ethanol. And of course, this can change depending on the market condition from today on. But we have to be 20% higher in sugar than ethanol. In the 3 units that produce sugar and ethanol, we are migrating the whole mix for the production of sugar.
On Page #8, we have a summary of our hedge position, as updated as possible because the database is yesterday, in fact. So for the 2021 harvest, we have 96% of our own sugarcane hedged at BRL 1,300 per ton going from 30% in March to today. So we took advantage of the prices of dollar in sugar. And for the '21/'22 harvest, the next one, we have already started our hedging. And today, we have about 260,000 tons with an average price of BRL 1,449 per ton. The current price is very close to that. Some screens are very close to BRL 1,500, and we are taking advantage of this moment in order to hedge, and the price in reals per ton already has -- already contemplate -- does not contemplate $10 per ton, which is the cost of increase. So if you compare the average selling price of the company back in last year, or in the fourth quarter, we saw on Slide #4 something close to BRL 1,209, this BRL 1,209 already include the deduction of approximately $10 per ton. So in order to compare this hedging explanation, we have to exclude $10 per ton, as you can see on Page 4.
On the next page, we talk about the prices of sugar and ethanol, and I will be talking about the prices of ethanol first for reasons that you are familiar with, the price of ethanol dropped very steeply as of March being about BRL 1.4 per liter in April and the price of oil dropped quite steeply because of the COVID at some negative screens, but it was close to $20. And there is also the issue of demand for ethanol because it dropped also very steeply, especially in the state of São Paulo because people are not moving as much as they did. And we have already seen a good recovery in prices in June. A little bit to our surprise because it's already around BRL 1.7 per liter. And we are more comfortable in terms of our forecast for the harvest and because a couple of months ago, we didn't have the necessary visibility. So let's see the evolution in the next few months about the ethanol consumption and also the oil prices to see if the prices of ethanol can go back to the average level that we had in the previous harvest. So this is a question that we cannot answer it yet.
On the lower part of the slide, you can see the prices of sugar and the exchange rate, although the prices of sugar dropped very steeply in April and May, and the movement in dollar is very similar to the movement of the oil and ethanol curves. But the price offset this, going to $41, $42 now. So the price in real is higher than the one that we saw in January last year. In January, it was something close to BRL 0.51, BRL 0.52. And today, it's close to BRL 0.63 when we combine sugar with exchange rate just to reinforce the strategy of sugar mix. And taking advantage of this moment and hedging sugar at this level because it remunerates our sales of sugar once we expect that the cost of production for sugar for the next year will not change a lot from the BRL 1,000 per ton, as I said about last year. So these are the initial remarks.
So now I would like to open for questions.
Thank you very much.
[Operator Instructions] Luiz Carvalho, UBS.
I hope everybody is well. Congratulations for the result. And I have a few questions. Taking advantage of your presence today, could you give us some visibility regarding the capital allocation of the company, buyback, dividends, the next projects for corn ethanol? How are you going to allocate your funds for the next few months because your leverage is at a very comfortable level. And as you said, you do not have any major debt maturities in the next, let's say, 24 months. So this is the first question. The second question has to do with crushing. How much is already reflected on the result of the company? What do you expect for the next 12 to 24 months? And just a follow-up. Looking at your guidance, when we look at the TRS per ton, it is slightly lower. I know that you talked about this in detail, but could you explain a little bit more about the reason for that?
Luiz, thank you for participating. Thank you very much. We are all very well, and I hope you are well too. Well, let me get your questions. I will start by answering the last one. Our guidance estimate now was slightly impacted by the dry season that we had as of April, May and part of June as well in the São Paulo mills and also the Goiás mill. Initially, when we opened the harvest, we expected to crush 300,000 tons more than we are estimating now. But given this drought, we had to reassess that with a more conservative guidance. And if we have some surprises along the way, the surprises will be positive and not negative because we have already seen this bad scenario for the very dry weather that we had. So this is the difference that you are noticing in the sugarcane crushing figures. Regarding the Meiosis, that was another question that you asked. For this current harvest, basically, the whole use of the seedling that I do not plant. And for crushing purposes, this is already happening. So the volume of seedlings that we had in the old methodology, I needed that in order to have conventional planting. However, today, I am already crushing fully because I am planting 80% of my area in the technology of Meiosis with PSS. But when we look at the harvest, doing this specific harvest between 15% to 20% of the harvested area, I don't have the exact figure now, but it was an area that was planted in the past with PSS plus Meiosis. And considering that the yield of sugarcane planted with PSS and Meiosis is higher than the yield of a sugarcane that has a conventional planting, the trend is that in the next few years, as I harvest more and more areas that were planted PSS with Meiosis.
[Technical Difficulty]
The sound has disappeared again. We apologize. Please stand by.
Transforming all the sugarcane that I'm harvesting into PSS with Meiosis...
There was a problem with the sound. And I no longer heard you when you were talking about the yield, that in the next few years, the yield should go up and that you are harvesting from an area that was planted with PSS and Meiosis. But then your sound disappeared. So could you resume where you stopped, or in the point that I described.
Okay. I think we are getting back. Can you hear me? Okay, going back. As I have today, approximately 15% of my area, which is PSS plus Meiosis. As I increased the harvested area of PSS with Meiosis, gradually, I increased the yield of our sugarcane. So it's not growing gradually. Today, I plant, for instance, 15% to 18% of my whole sugarcane field. And 80% of that is done with the PSS plus Meiosis technology. So if you envisage 7 to 8 years, in 7 to 8 years, I will have about 80% of the area harvested, that will be harvested from PSS and Meiosis. So I will be able to get an average yield that is much better than today because the sugarcane planted in this technology is more productive, and it has more TRS. So this is the rationale.
And what about your strategy for capital allocation?
Okay. So about our capital allocation. At the end of last year, we established a dividend policy, and we propose to pay 40%, at least, in dividends over the cash income of the company. If we were to apply this, this could get to BRL 208 million to BRL 300 million, if we were to apply this today. There was a debate about that with the financial committee and then the Board of Directors debated that and considering the whole crisis that we are living in Brazil and the rest of the world, the option for this year was to preserve our cash position and not decide about the payment of 40% over our cash income because the scenario is not clear for the next few months. So initially, Luiz, considering a normal status, let's say, our operations go back to normal and prices go back to normal prices and the demand for ethanol goes up and the prices of oil and ethanol go up to reasonable levels, then we will establish this policy, and we will be paying 40% minimum. So before deciding to make our investment in corn ethanol that you asked, I understand that the dividend payout would continue to be our priority, and there should be no change. But in the current scenario, it was very hard for us to decide anything about that because of the very little or no visibility for prices of sugar and ethanol.
Okay, I understand the dividend part, but how can we consolidate that with the project of corn ethanol in terms of your decision-making process? Have you postponed it? Or what about the buyback at this level of prices. Does it make sense? Does it continue to make sense or not?
Corn ethanol, Luiz, we hired a project for the detailing of the corn ethanol project with one of the companies that have a lot of experience. And we spent about BRL 8 million in CapEx in order to get a detailed project, 100% of the project and all the engineering part. And this was ready and delivered to us past month. And what we learned about the project was the following: the initial CapEx that we talked about is going to be higher, should we decide to go ahead with the project. And why is it going to be higher because there was an impact of the exchange rate because part of the equipment is imported. And secondly, because we will have to increase our storage of corn and maybe the storage of ethanol as well so that we can start. And in fact, the CapEx for the project, should we decide to go ahead with it, will be higher than the BRL 250 million that we mentioned. And besides, considering the oil prices and the exchange rate that we have currently, I would say that as soon as the oil goes to about $45 with an exchange rate close to 5.4, 5.5, from the revenue viewpoint, it's not going to change a lot in terms of the annual revenue coming from the sales of corn ethanol.
Nevertheless, we have to be more comfortable with that and see if the oil prices are going to stabilize around this level because the payback of the product will be in about 6 to 7 years. So I need to have a higher visibility of the oil prices in order to be able to make a decision about it. So all in all, we have to decide whether we are going to go ahead or not by the end of the current year. I cannot tell you whether it's going to be in October or in December. But we have already started to evaluate this and the investment committee of São Martinho has already -- then this is going to go to the Executive Committee in a couple of months or 3 months. And then afterwards, we are going to submit this to the Board of Directors. And then we're going to decide whether it is worthwhile to invest right now and what is the best way to finance the project.
Leandro Fontanesi, Bradesco BBI.
[Audio Gap]
The price recovery has surprised you. Have you been able to tap into this increase? When you look at the inventory, how does it compare to the previous year's inventories?
[Technical Difficulty]
The sound is very bad, we are trying to translate here.
No, it was -- no, we didn't hear your answer to the question to...
What I said was the following. As we had an inventory of ethanol from one quarter to the other and considering the low visibility of the ethanol demand for the remainder of the year, our option during this year was to participate in the market, and we are not going to carry over a very large volume of ethanol to be showed in the last few months of the year.
Thiago Duarte from BTG Pactual.
I hope you are well. I would like to ask 3 questions. The first one is a follow-up on the discussion about the corn ethanol. I think your answer was very clear. The decision based on revenue and the oil prices close to $45 -- and my doubt has to do with the -- first, when you announced the project, the basis does not necessarily represent the basis of the Goiás market, but the regional variations were bigger, I think. Well, the level was almost half of what it is today. Could you talk about the cost of the project because I understand the revenue part of that. The second question. We saw the first trade at the B3. São Martinho was one of the first ones to be certified and the market is starting to happen, so to say. Do you know already the tax side of that? That is to say what comes to the company because of the sale of the CBIO, I believe you will be selling start -- you will start selling. And we are following the market data and the demand is recovering in the last few months already vis-à-vis April. And I would like to know if you can share with us at what speed the recovery of demand is happening because it's not very clear for me if the price has to do with the volume or if there is no correlation. So these are my questions.
Thiago, thank you for the questions. I will start by the last one. Yes, it came with the volume. The volume is still a little bit lower, but it came with this volume in the local market and the foreign market with dollar up to BRL 5.8. For BRL 5.5 today and BRL 5.8 a few months ago, there was a demand from imports, and this happens, the price of ethanol in the domestic market. We can distribute a lot of ethanol this way.
In relation to the CBIO, we already have the units priced and there was a transaction at the B3, but the volume was very low. I would say that we have to wait for the mandate to be rather clear, I would say, in the public hearing that will be published in the next few weeks. I believe that the distributor will not come to the market as strongly as it should be. What I mean is that we have to know whether there will be a cut in the mandate and we have to see the demand on the part of the distributor and in our budget. In our budget, we do not have this figure very, very clear. And you asked about the tax side of that, but it's not very clear yet. And -- but we would have the PIS, the COFINS and the income tax on the earnings on the proceeds. And your first question had to do with the corn ethanol vis-à-vis the cost. Yes, it is true that cost of the corn went up very steeply. And when we look at the period that you analyzed, but the underlying assumption is that the Brazilian corn harvest had been growing and more corn being planted in the region where we are. And in this scenario, with the tax benefit, so we can take a little bit more. We were able to include the corn ethanol in the benefit of Boa Vista that was granted for the sugarcane ethanol, and we were able to include the corn ethanol under the same benefit. So the amount itself is basically the same future revenues up to 2042, and we were successful in the inclusion of the corn ethanol, so if we -- should we decide to build this plant or this mill. And the fact that we do have this tax exemption, this helps to minimize in a specific year, such as this one.
And one of the reasons why the cost is going to go up, it's because of the corn itself. We will have to invest more in storage for the corn itself, and we see that the price of corn from month A to month B, it can go up 30%, 40% from 1 month to the other. So if we are able to store more corn then we have a bigger guarantee, so to say. If we perpetuate the current price of corn in the project, then the project would be hindered. But if you bring it back to normal, and if you look 5 to 6 years and you imagine that there will be a lot of supply in the region because of the planting of soybean plus corn in which the corn is a marginal gain after the soybean is harvested, then the price should go down.
Christ Audi from Santander.
I had 3 questions. The first one was about dividends. So the discussion that you had led you to the conclusion that you would not be paying out dividend this year. Or will you continue to look at the market and look at the outlook for demand and you -- maybe you might change your frame of mind regarding the dividend payout depending on what happens still within this year?
And the second question has to do with the domestic market. Given the impact of the COVID and the financial pressure that this has on all players in the chain, those who are weaker, financially speaking, are suffering quite a lot. Does that mean an opportunity for M&A because you have a good liquidity, you have a low leverage and are you considering possibilities of M&As because of the current situation? Or doesn't it make sense? And the other question is the following. June, what have you been seeing globally in the main producers in the world? And how could this impact the prices of sugar for this year? What is going on in the rest of the world and the other producers of sugar?
Christian, thank you for your questions. In relation to dividends, the discussion was between paying a minimum dividend or close to the minimum and maintaining the remainder of our net income in reserves over BRL 100 million. And the situation of today, and let's say, it improves until the end of the fiscal year.
Let's say, the market goes back to some levels that it achieved in the past, the management and the Board could decide to pay extraordinary dividend or interest on equity or interim dividend. But first, we need to have this level of visibility. The money is there. It is in our cash.
Now regarding M&As. Well, it is true that many companies are facing bigger difficulty because of the COVID situation, but we have to think about our strategy vis-à-vis M&As. The last M&As were always focusing on increasing our crushing in our own unit. In 2012, we bought the biological asset of São Carlos, we increased São Martinho in 2014. We acquired Santa Cruz, adding São Martinho-Santa Cruz. In 2015, 2016, we acquired our share that we had sold to Petrobras in 2010. So we bought it back.
So I would say that an M&A for a new mill for São Martinho to operate this new mill. And with little synergy, it's not very probable. I would say, improbable, but I'm saying the probability is very, very small. It could happen. It would be a very small biological asset, let's say, we have the possibility of a brownfield. In this case, we could analyze it in depth.
But if we consider the increase in yield in the company because of the adoption of PSS and Meiosis, it would be nonsense to have a relevant acquisition of a biological asset today. So the funds to come from cash generation, they will go through dividends or for the corn project, if it does make sense. And the last question regarding the sugar market. Well, we do not have this level of visibility yet.
India will still have a strong sugar production and Brazil this year will come with a strong production of sugar as well. And next year, the scenario should repeat itself based on the prices that we see on the screens for next year, almost 10% higher than the current prices. So it does make sense to imagine that Brazil, next year, taking into account the prices today, should be going towards a more sugar mix. And this is the reason why São Martinho is adopting a strategy of accelerating this and having a reasonable margin. But of course, it depends on the ethanol market and whether the prices go up to $50, for instance, then it could be more profitable to produce more ethanol than sugar. But today, the base scenario is Brazil producing a maximum of sugar, India as well.
I believe that the major effect of COVID has to do with the price of sugar in dollars that dropped quite a lot. And Brazil has a relevant production of sugar. The company that have a very high leverage in U.S. dollars, they are financed by dollars, let's say. And this -- or they export a very big volume of their overall production.
They have a bigger impact because the price of sugar went from $0.14, $0.15 to $0.11. And these companies, with the dollar at 5 or 6 or 7, this is not very good. And when you look at the company's indebtedness, the São Martinho's indebtedness, you can see that we have only a handful of maturities concentrated in each one of the crop years. And the idea is, as time goes by, to migrate the debt to reals because of the cost of the CDI in Brazil because it's even lower than it was 1 year ago.
So this is the idea.
And one last follow-up, Felipe. Going back to CBIO. In your opinion, looking at what is going on, why do you think the process is taking longer than was expected? And what is the impact on São Martinho looking ahead?
Christian, this is a very atypical year. The whole sector was very hopeful regarding the program and the program really taking off during this harvest year, and we would have a better remuneration for ethanol. And this would lead to higher investment and getting into a virtuous circle for the Brazilian market of ethanol. And the shock caused by the COVID really shatters everybody, and everybody has to review and -- their positions, and this is a material event that happened. What I can say is that next year, should we go back to normal, we should go back to the target that we had before. I would say that in the long run, the plan should remain unchanged. And if you decarbonize the matrix from the environmental viewpoint, this is something very relevant.
So as I said before, this is an atypical year, and we know that this review has to be carried out, but I believe that next year or 2022, the latest the targets will go back to where they were so that the sector had -- can have a remuneration to the capital. In the financial statement, I put the ROIC of the company that was a reasonable year from the viewpoint of results, but still low in our opinion. Around 9% for this business is a very low return. It's very difficult to allocate capital to a business if you have this kind of ROIC. And with the very high volatility, you have to have a lot of labor. It's very labor-intensive. And if we do not have a consistent Renovabio program for the long run, I do not see this a very good change for the sector.
Congratulations for the result.
Thank you very much.
Isabella Simonato, Bank of America.
My doubt has to do with the ethanol side. And as you said, the recovery in the short run, recovery of prices, you draw everybody's attention. And when we have to project the carryover inventory, it depends on the recovery of the fuel recovery -- fuel market recovery and the whole industry carrying over their inventories, and this brings about a certain degree of debt -- of doubt about the recovery of prices vis-à-vis the availability of the products and the price of fuels.
So could you talk about the side of the industry and the carryover inventory of this harvest to the next one?
Isabella, thank you for the question. Well, the good side of the higher production of sugar that is happening is that the production of ethanol is going down. Brazil already has a harvest that is quite similar to last year's and everybody is making sugar now. Considering this lower production of ethanol and as prices have already recovered,
at the end of the year, we should have inventory carryover, which will not be very high, but as you say, it will be very balanced. So even if you consider the fact that the demand for ethanol does not recover, it does not go back to the levels of last year. So we are selling. We are taking advantage of the prices. We are participating in the market every quarter. The idea is not to carry a lot of ethanol because demand is unpredictable.
But on the supply side, you have less supply. And this is one of the factors why we believe that the prices went up very quickly.
Lucas Ferreira from JPMorgan.
My first question has to do with return. You said that the current return is low. And my question has to do with the CapEx. Your maintenance CapEx was something like BRL 1 billion. And now in the next -- in the current harvest, you talk about -- could you explain this increase of 17%? Why did it go up 17%? And what is the trend from now on, if you take into account the PSS Meiosis project. What will be the driver for return from this project? I know that we have already talked about this in the past, better yield, better TCH. And how could we think about the CapEx line? And how does it contribute to the bottom line of the company? And the second question has to do with the time line of the cogeneration project.
Lucas, thank you for the question. CapEx went 17%, in fact, during this period for 2 reasons. The first reason was the following: within the CapEx, we have the planting, you have the treatment, the crop treatment with a very high volume of impact because of crop protection products and fertilizers. and this becomes CapEx and this is activated and then it is depreciated. In the last couple of years, we had the cost of fertilizers and crop protection products. Crop protection products last year, for instance, had a correlation with the products in China -- well, a couple of years ago and last year, there was an impact of the exchange rate variation.
I don't know exactly how much each one of the factors represent of the 17%. But I would say that it represents, let's say, 1/3 and the remainder, 2/3 have to do with our strategy to increase our planting. And as I increase my planting, more hectares, a bigger area, then I accelerate the yield curve, and the implementation of the PSS with Meiosis. So the idea of planting more has to do with the fact that in the medium run or in a few years' time, I don't know whether it will be 6 or 7 years, but let's say, 7 years. I will have 80% of my harvested area harvested to have PSS with Meiosis. And what will be the result of that? It will be about BRL 25 million in sugarcane, that is to say, we'll have more sugarcane than the installed capacity that I have, which is our dream come true. Because then you can extend the harvest if you have a shortfall. You can fill your industrial capacity. So our target is to get to 25 million in the long run. And I have already said that in the past. But next year, it would be close to 24 million tons already. And the idea is to get to about 25 million tons, which is a very comfortable level.
So the CapEx is more or less that. There is no other relevant benefit in my operation yet, which is the investment or the benefits coming from the investment of the COA, that is to say, the automation project. This year, the COA is running in all units. During the first year, we started to reap the benefit from the middle of the harvest on because there is a curve, it's a learning curve. And we already have relevant benefits in São Martinho in terms of the availability of time in the machines. Just to give you an idea, today, as we speak, the group has already crossed 10 million tons of sugarcane. This is a record. This is the true record, unprecedented record for São Martinho because with COA, I became much more efficient. So my daily crushing, when I look at my indicators in the units, I get to 10%, 15% more than was initially estimated in our budget, in our estimate. And this is always done based on our past history. But COA, the automation project is helping us quite a lot. However, I do not have the necessary visibility of the figures. In next year or the next few years, we will spend much less in harvesting machines and in equipment in general.
And I will be able to improve my TRS for the full year because we have the peak between May and October. So this is when we have the best TRS.
So all the CapEx that we have been investing, we will be showing the results or the benefits over time.
And your second question about cogen time schedule. We initially intended to start our investments now in order to take advantage and having the plant operating in D plus 2 or D plus 3 tops. And we saw that the A minus 6 auction, and we have to deliver the energy as of 2025. And if the plant gets ready in '22, '23, I will have 2 years of prices at the spot market and considering that the GDP of Brazil is going to drop 7% this year, then there will be a recovery, but we don't know how fast it's going to recover. We are assessing when we should invest because if we invest our CapEx early and we miss or we have 2 years of very low spot prices, it would be nonsense to bring forward this investment. So giving you the short answer, we will probably start to spend this CapEx as of next year.
And this year, we had to preserve cash, and we really didn't need to invest right now. So we chose to preserve our cash and start our investments a little bit further on.
A follow-up of the third part. Considering the effect of the exchange rate and the raw material, the CapEx per hectare, maintenance CapEx should be stable or even go down.
Yes. Over time, it should go down. But I need to see when I will start to reduce the area. In order to go back to a lower percentage, then the CapEx will go down.
Fernanda Da Cunha. The interpreter is not hearing.
Could you talk about the new resolution regarding the quality of the gasoline that should start in August? What kind of impact do you have of that on ethanol?
Fernanda, thank you for the question. We were debating this here. And as far as I understand, regarding Petrobras, this will end up increasing the cost of gasoline production. So in order to keep the same margin in Petrobras, they would have to raise the price of gasoline at the pump. On the other hand, the efficiency of this gasoline is better than the current one.
I cannot quantify that, but it seems that it will be a little bit better. Ultimately, I believe that the higher price of gasoline at the pump could even have a positive impact on ethanol in the medium run. But we have to see exactly what will be Petrobras price policy, if they are going to transfer this additional cost and how efficient cars will be with the use of this new gasoline. But as far as ethanol is concerned, I think that it's going to be positive, at least at the first moment.
Werner Roger, Trigono Capital.
Felipe, congratulations for the results. São Martinho once again being the highlight of the market.
First, regarding the tax and the legal side. There are, I think, BRL 217 million in judicial deposits and what's your expectation? And is there any news about the IAA? And the second question has to do with the sugar market. Thailand dropped, their currency dropped as well.
The interpreter apologizes, but the sound is totally distorted.
In Brazil, many companies are resorting to bankruptcy protection because of the lack of capacity to invest, very bad prices and very bad harvest. In Brazil, these companies also do not have this capacity. And the market seems to be very negative in terms of sugar as if the demand would be determined. It's more on the supply side. In Brazil, keep the current levels. If you consider the situation of the market, the market is very pessimistic.
Interpreter apologizes, but the sound is totally distorted.
Thank you for the questions. The first one has to do with the judicial deposit. We have to collect the piece of fees our TRS, when we receive the precatórios or the preorder credit note, the precatórios and we are opening a discussion now at the judicial level to check if the IAA can be taxed. It's very difficult to give you a time line, but we believe that at least 5 years, this discussion will be going on so this asset will [indiscernible].
This year, we have the second parcel of the second precatórios and the first one to be deposited by the end of this year. And so far, this has not been deposited yet at Copersucar, so it's still pending. But the obligation on the part of the government is to have this deposit made by the end of this year. Regarding the sugar market, you are correct in some of your points, the point that you raised. India is a big question mark because of the lockdown, that is to say, how much the production of sugar will be in India because it's really a black box, and it's very difficult to understand. On our side, we believe that there is a reasonable price of sugar of around 1,500 in order to guarantee a good margin with hedging, but there could be a positive surprise from the viewpoint of a better production and higher prices. And also I believe that it's not very probable to have a very big difference in these 2 countries right now. But in Brazil, in spite of all the companies that are facing a lot of financial difficulties, a lot of dollar-denominated debt. I have been in São Martinho for 14 years, and it's very difficult to see sugar and ethanol producers in Brazil really shutting down because usually, what happens is that everybody does that rollover and the creditors are not able to take the mills and this [indiscernible], for instance, was crushing sugarcane, and they have been facing problems for a long, long time. So in Brazil, I would rather not risk an answer here. But time is against these mills because for a long time, many of them have been facing big difficulties, no investment in sugarcane field and production yield going down very steeply. And the harvesting cost does not really make it worthwhile to have the sugarcane harvested and sometimes the yield is 40 and then the harvest cost is 40. So there are mills in the region that have no money to buy tires for their equipment. And they all of a sudden are renting trucks, and they rent harvesting machines. And it is really a sign of despair. And it's very short-lived because it's not going to work in the long run or in the medium run because they will not have the necessary money to bear this cost. But sugarcane, as you know very well, is a perennial plant even if you do not have the right fertilization, et cetera, you may have some weed growing around it, but the sugarcane does not die. That is to say, it's very long-lived. But some companies will certainly shut down not all the mills are integrated.
The interpreter apologizes, but the sound is distorted.
Mainly São Paulo. I'm not saying Goiás or Mato Grosso, I would say that this is more regarding São Paulo. In soybean, we already see a beginning of this change, not in a very relevant area. But we already see this migration that you referred to, mainly in the north of São Paulo state.
Thank you for the questions.
Q&A session has come to an end, and we would like to turn the floor over to Mr. Felipe Vicchiato for his closing remarks.
Thank you very much for participating in our call. This was a very challenging year for the company in terms of operations. And with this whole crisis going on, but our operations are running very well. And as I mentioned before, we had a record crushing this month. And of course, all the employees that are working in the field, they have all the necessary conditions, all the necessary protections, all the IPEs. And in the first half of August, we will be coming back to you, and thank you very much for participating in this call.
São Martinho conference call has come to an end. Thank you for participating, and have a very good afternoon.