Good afternoon, everyone. Welcome to Jalles conference call to discuss the results of the second quarter of crop year 2023-2024. This conference is being recorded and has simultaneous translation into English. The replay will be available in both languages, English and Portuguese, at the company's website at ri.jalles.com. All participants will be in a listen-only mode during the presentation. After the presentation, we will hold a Q&A session when further instructions will be provided for you to participate. As we have limited time in this conference, any questions that are not addressed during the call will be answered later by the company's investor relations team. The earnings release and the presentation on the second quarter of crop year 2023-2024 can be accessed on the company's investor relations website and also at the CVM's website.
Before proceeding, I would like to mention that any statements that may be made during the conference related to the company's business prospects, forecasts, and operating and financial targets related to its growth potential are based on the company's management's expectations about the future of Jalles Machado. Such expectations are subject to change due to macroeconomic conditions, market risks, and other factors. Today with us is Mr. Rodrigo Penna de Siqueira, CFO and IRO. I would like to turn the floor over now to Mr. Penna. You may proceed.
Good afternoon, everybody. Thank you very much, Doris, for the introduction. Good afternoon to all of you who have joined us for another earnings call. Thank you very much for keeping your interest in us, in Jalles Machado. Now let me show you the highlights that we are going to address in today's presentation.
We're going to talk about operating and financial figures, what the quarter has been like, and also our expansion works. Also, we are going to talk about the increase in sugar in our mix. In 2Q 2024, we crushed 3,200 tons of sugarcane, 40.5% higher quarter-on-quarter due to a higher crushing at Santa Vitória. We had 16% more in TRS year-on-year. We also increased the production and sales of sugar with a higher inventory in comparison with other products in the company, and we're going to give you more details on that later. We're going to tell you what we have already sold in comparison to our production in the first two quarters in comparison with last year. You're going to see that over 50% of our TRS has been sold.
We worked to get the better mix as possible, the best mix as possible, and we have 6 percentage points increase in sugar in our production mix, going from 31.7 to 37.7% in the first 6 months of this crop year. And this number is growing. It is going to be a little bit more than we expected. Up until now, we were working with the assumption that we would get 36.2% as per our guidance, and right now, we are at 37.7. We also had a capital increase so that we can have dividends, and we just finished issuing the ventures in the amount of BRL 300 million. I apologize. I think I stopped sharing my presentation. Please bear with us for a second. I apologize. I stopped sharing my screen.
So crushing this quarter in the pro forma figure was a little bit higher. The harvested area was smaller because productivity is higher, so our harvested area was lower so that we can produce more because our productivity, our yield, is higher than last year. Year to date, we are in line year on year, and we have an 8% smaller area. Now, total sugarcane per hectare, or TCH, we had a significant increase. Year to date, we had almost 9% increase in our yield. We should remember that in the state of Goiás, where we are, the weather was normal. It was not exceptional, like in some other regions in the Center-South area. So we were able to recover a little bit less than the Center-South. And the highlight is Santa Vitória.
We went from 62.7 last year to 74 tons per hectare this year. So this shows the result of the efforts that we have made and the changes in our agricultural practices. We had very little time from the moment where we take over up to now, but with our practices and our renovations, we have been able to change a few things, and we can see now the positive impact of those actions. And we are now on our path to reach almost 80 tons per hectare, as we mentioned in our recent material fact, by 2026. Now, let's talk about our fields. I want to be brief, so I'm going to focus on the year-to-date figures.
Our GRS per hectare is 12,300 tons per hectare, and our average GRS is 141-142, a little bit lower than last year, especially because April was more rainy this year. In the quarter, you can see that the figures were in line, but in the year-to-date figure, we are 1% lower. This is the average age of our sugarcane fields. You can see that we are more or less in line with the previous year. Otávio Lage is a little bit lower than last year. Now, here I would like to highlight a major change that we disclosed to the market in communications and guidance and material facts about what the company is doing from this year to next year.
Considering the sharp increase in the price of sugar, which created a significant premium against the price of ethanol. As you know, the price of ethanol is a lot less advantageous than the price of sugar right now. So in the first 6 months of this year, we had 31.7% of sugar, again, 68.3% of ethanol. This year, we are increasing this number by 6 percentage points, so 37.7% of sugar in our mix. Our guidance was 36.6%, as per our guidance in the beginning of the year.
For next year, we are going to jump to 55% of capacity of producing sugar with the investments that have been announced, and that includes the sugarcane factory at Santa Vitória, and also the increase of sugar in our mix at the Otávio Lage unit, going from 45 to 50. We also made another investment that we announced in the amount of BRL 3 million so that we can reach 60% of sugar in the Otávio Lage unit. So we are going to see that jump from 36.6% to 55% from this year to next year. So we are going to have a lot more sugar because it brings better margins, and the fixed price for next year is much better than for this year. So this is a very important point that we would like to highlight.
It is a major change that we are doing. This year, our mix is a little bit lower than the average in the Center-South region. We are at 38%, but starting next year, that percentage will be higher. Just so you have an idea, we are increasing by more than 50% our capacity of producing sugar from this year to next year. This is not guidance. I'm just talking about our capacity. Our capacity will increase a great deal from this year to next year. Now, our sales. I'm going to be very brief in this part of the presentation because we have been talking about this for a while now. So I'm going to focus on the year-to-date figures because I think they are a better reflection of what the crop year has been.
Since our business is very seasonal, the quarterly view might be misleading. Sugar increased in prices and sales. We produced more sugar and ethanol was 21% lower than last year's price. Organic sugar, we have some shipments being made, and over the coming months, we're going to sell a big part, or actually, we're going to ship a big part of what we have already sold. And sanitizers, you can see that the price went down, just like ethanol, and the volume was lower as well. Now, CBIOs, in the quarter, we sold more of them, but in the year-to-date figure, we decreased by 29% because we have a higher inventory of ethanol to sell, and that increases our inventory of CBIOs as well.
We sold at 132 against 134 year-over-year. I think this is positive. I think that the company knew when to sell them in the best time. Now I would like to touch on one of the reasons why we had profitability this quarter, and also EBITDA that was a little bit lower. While last year we had already sold 61% of our produced TRS, this year we sold 46%. So our sales are lagging behind a little bit in comparison with last year, because in the last quarter, ethanol dropped significantly, as you can see on the chart.
This chart here on the right-hand side of the screen, you can see that a parity starting in August went down, and it is at the level of 63% until now, because the idea was to encourage sales of ethanol. And you can see that, that effect actually happened. And now, we had the results of UNICA. They sold 8 billion liters of hydrous ethanol, so it actually happened. The volumes of ethanol went up because of the parity that is lower. And we don't think that we're going to go back to the level of 75% or 73%, but it, it is for sure going to be better than 63%. It could reach 68% or 70%. I believe that the market can make that adjustment as ethanol is sold, is sold, especially corn ethanol.
So here you can see our ethanol inventory, 137% higher year-on-year, and the inventory of sugar is 13% higher year-on-year. So I think that now I've covered sales, so let's move on to the financial highlights. We finished the quarter with a revenue that was 29% lower than last year in the year-to-date figure. Our adjusted EBITDA was 59% lower year-on-year, and our EBIT margin was 16 percentage points lower at 21.7% because of lower ethanol prices. In the H1 of last year, the ethanol prices were very strong, as you saw earlier. Especially the first quarter of 2023, we were able to sell ethanol at a very high price.
Now, our EBITDA margin, we finished at 66% in the quarter and 63% in the H1 of 2024, in comparison with 75% last year. In this quarter, we had losses of BRL 47 million, and the main driver behind this is MTM and the hedge liquidations. It was all very much concentrated in this quarter, and that had a significant impact on our results. In the H1 of this year, we had a profit in the amount of BRL 1.9 million, which is, very much lower than last year's, where we had BRL 359 million. Now, I would like to cover SG&A very quickly. This is, the total six months last year, and you can see that we had a decrease in selling expenses and general and administrative expenses as well.
For G&A, the main driver behind this drop was that Santa Vitória had a corporate management structure. It no longer has that, so it is related to the synergy between our company and our acquired assets. We have a smaller office team, and we don't have the corporate team in São Paulo anymore, and we also had one in Bahia. Now, our CapEx. Our CapEx was stable from last year to this year, BRL 291 million. Now, I would like to highlight our recurring CapEx, which is stronger this year, because we intensified our renewals at the Santa Vitória unit, which increased the number of hectares that are being renewed in comparison with last year.
When it comes to crop management, we dropped by 29%, and that was the result of a lower price of inputs, fertilizers, and diesel, and also because the harvested area was a little bit smaller last year. The management practices are proportional to the number of hectares that you have. We have BRL 94 million in expansion CapEx, and that is related to the brownfield expansion that we defined when we went public for Jalles, and also expansion planting. We also disbursed only BRL 500,000 in Santa Vitória until September, but now we are going to highlight that line. We are going to have a significant CapEx investment here, as announced in our material fact, in the amount of BRL 170 million.
Now, our indebtedness, we finished with a cash of BRL 934 million, BRL 57 million more than the previous quarter, 1Q 2024. And last year, our cash was much higher because we needed to pay for Santa Vitória, but this cash is sufficient, and it is above our minimum cash requirements. Our net debt stood at 1.3 billion, and our leverage is 0.9x . I just wanted to highlight one point about our debt. You can see here that our debentures and CRA bonds that were issued, they were issued indexed to the IPCA inflation rate, but we swapped all of that debt, and now 81% of our debt is indexed to the CDI interest rate. And that was good. We swapped in a very good moment.
Our cost is a little bit above the CDI rate, less than half a point above the CDI rate. Our average tenor is 4.9 years, and it is well distributed across years, and 91% is long term, only 9% is short term. So the debt profile is very good. It's in a very good shape. And you can see that we have very little debt in the short term, and we had just a debenture disbursement, which also happened in a good year. We had a 7-year series and a 10-year series. Now, about hedge. At the end of September, we had BRL 2,143 per ton. It was not the average for the year. The average was about BRL 2,000. This is what's left.
But for next year, our price will be 15% higher, and 20% higher of what we are going to have for this year as a whole, including previous quarters. And another point about hedge is that for 2024-2025 crop year, we had hedged only 385,000 tons. And since we did not disclose any guidance for production for next year, you can see here only the production capacity. The total sugar for next year will be 600,000 tons, 610,000 or 620,000 tons in production capacity, and conventional sugar will be about 500,000 tons. That is the capacity of the company with the increases that we are doing in the production of sugar at Santa Vitória and Otávio Lage.
For 2025, 2026, we had already hedged a good part of our sugar at the price of BRL 2,324. Since we had some room with the capacity increase for next year, since September, we have been able to have higher prices, and this is the average price, and it has been increasing, both for 2024 and 2025, and 2025, 2026. This is our newly open biogas plant. It is already operating. We had the official opening of the boiler. It has been working since the beginning of the crop year. It was one of the most important investments that we made in our growth cycle at the Otávio Lage de Siqueira unit here in Goiás. This was another very important achievement for us. We obtained ISO 45001 certification. It is a very important point in our history....
Here I would like to give you some details about our expansion works at the Otávio Lage unit, so that we can increase crushing and increase our sugar, our sugar production in our mix. We finished the earthworks. We are now finishing the foundations, and the schedule has been moving on according to plan. We have already negotiated a number of machines, so everything is going great and fast, as it should be, so that our unit can start running at full speed by the beginning of the next crop year. I think that's it on our side. I think we've covered all the major points that we wanted to highlight.
Of course, it was a very brief presentation, but the main highlight is the increase of sugar in our mix to take advantage of higher prices, and also the impact of mark-to-market and the price of ethanol this quarter, and also productivity gains that we have obtained in our units in comparison with last year, especially at Santa Vitória. So those are the highlights. Thank you for your attention, and we can start the Q&A session now.
Okay, so let's start the Q&A session. To ask a question, please click the Q&A button at the bottom of your Zoom screen. If you wish to open your microphone to ask your question, please let us know in the Q&A field that you would like to ask a question, and your microphone will be activated when your name is called.
You can also use the Q&A field to write your question. Please type in your name and your question. We're going to read it out loud for you. In case you're using dial-in connection, please press star 9 on your phone to ask questions. After your name is called, you will hear instructions to press star 6 to activate your microphone. Please press star six only once. The first question comes from Gabriel Barra from Citi.
Hello, Rodrigo. How are you?
I'm great, and you?
Great. It's great to talk to you. Good afternoon, everybody. Well, first of all, I would like to know more about the ethanol dynamic. There are many players who are adopting that strategy of carrying more inventory over to the next crop year.
We can see that there's a high ethanol inventory in a crop year that might be a little bit longer, considering the amount of sugarcane that we have this crop year. With the dry weather, I think that you will be able to hold crushing for a little longer. I would like to know your perspective about the ethanol dynamic. For the long run, what are the opportunities that you think you have to monetize ethanol in different ways? We can see a lot of corn ethanol in the region of Mato Grosso, with projects with very significant productions, and that can compete with your ethanol, especially in Goiás. If you could talk about other possibilities, for example, exports and migrating to other regions with better parity. If you could give us more color on that, that would be great.
The second question is about the tax reform. We know that there are many discussions going on right now, and they are gaining traction, and one of the points that have been discussed recently is related to the taxation on farmers. Would that impact the company? What would be the financial impact of that? Would that be a problem for you? So those are my questions. Thank you.
Thank you, Gabriel, for your question. Now let's talk about ethanol, and I'm going to address your question about selling more ethanol later. Well, the issue is that parity reached a very low level, as I showed you in the presentation. It is at 63% right now in São Paulo, which is the biggest market, but also that is the level in other producing states, the main producing states.
We went from a consumption of 1 billion liters to 1.8 billion liters. So of course, our production going forward, while we still have to produce in our crop year in terms of, sugarcane and corn—you know, we don't have that pressure to produce BRL 1.8 billion in the off-season months, so that takes the pressure off. And when the market sees that, the parity will start going up. The mills will hold a little bit more, which has not happened yet, because we needed to get more consumption. So I think that's what's going to happen in the coming months, and we expect to see that improvement in parity. Now, about corn ethanol, as you said, it is going to grow this year. We believe that we are going to reach 6 billion liters because of the projects that have been announced.
We think that there's a potential to grow corn ethanol, and since production is growing, at the same time, the sugarcane sector decreased the production of ethanol. But there is a bright future ahead if you think of SAF, the sustainable aviation fuel, and other types of fuel. People are also looking into the use of ethanol in the maritime industry. So there's a lot of things that could happen in the long term, but in the short term, there's a lot of pressure right now for prices, and we think that corn ethanol is going to continue to grow. And that's why the company made such an important decision of increasing sugar, the amount of sugar in our mix. And sugar is going through a very positive moment right now, which has been sustained, by the way.
So to wrap up my answer, Gabriel, the strategy that we adopted when it comes to sales to the commercial department, we believe that there is room for improvement in the off-season. Now, about the tax reform, well, Gabriel, the biofuel sector will have a special tax rate, which is still going to be defined by law, but in the bill to amend the Constitution, there is a point related to that, to a special tax rate, and that was a win for the biofuel sector, and it happened last year. Now, when it comes to sugar, since it is part of the basic food basket, we would be exempt from paying taxes as producers, but there are many aspects that need to be defined by the law.
But when it comes to the main products of our sector, I believe that we will have a better conditions, and we are going to retain credits. So I think that will be the effect of the tax reform. So I think the competition environment will be more or less the same. So those are the two main points about the tax reform, but I believe that there's a lot to happen. There's, you know, 180 days after the bill to amend the Constitution is approved, and there are many points that still have to be defined by law after the approval of the amendment to the Constitution. And that's it, Gabriel. If you have any other questions, we can talk more about this.
Great, Rodrigo. Thank you.
The next question comes from Pedro Fonseca with XP.
Good afternoon.
Thank you for taking my question. My first question is related to this productivity catch-up that was very strong at Santa Vitória, even more so than the company was expecting. So I would like to know from you what the surprise was. Was it weather, or was it a micro measure that was taken by the company that helped you? And also, when it comes to the target for 2026 for Santa Vitória, do you think that there's room to increase that target? And the second question, Rodrigo, is about logistics. I believe that the belated grain sales has put pressure on freight, so I would like to know your opinion about the freight price dynamics for 2024 and 2025. It would be great if you could give us more color on that. Thank you.
Thank you, Pedro, for participating.
Well, about Santa Vitória, indeed, our yields have been better than we expected, and there are many drivers behind that. There was a weather effect that was very significant, and also we separated a larger area for renewal. We also changed a few practices, a few agricultural practices that we started last year, but that didn't have much of an effect this year. Now that we are renewing a larger area with the better practices that we use in the company, improving irrigation, for example, we are going to improve our yield for the coming years. I think, however, it is too early to change that guidance for 2026 that we disclosed to you, according to which we are going to reach 80 tons per hectare. So as I said, there were several factors behind that productivity increase.
Now, logistics, it is a very important point, a very important factor in our sector, and here at the unit in Goiás, the entire conventional sugar production is sold in the domestic market. Next year, we might export a part of that production in the middle of the crop year, but that is going to be a one-off situation. We sell the sugar from the Goiás units domestically. What we sell to other countries is organic sugar, and it is different from VHP sugar, because we ship conventional sugar in bulk, and we ship organic sugar in containers, so we don't have that terminal problem. At Santa Vitória, our focus will be on exports.
When we decided we were going to construct, to build the factory, we also defined that we were going to sell 70% of next year, of next year's production to the international market, and we closed the deal with Alvean and Dreyfus. Of course, there is a pressure, there is a limitation related to the terminals, which is concerning to us, and also there is a concern about the impact of larger shipments on logistics as a whole. The grain crop, which broke records last year in the crop year and the double crop as well, and there are some planting areas that can be affected, that can affect the double crop. Last year it was spectacular, but it can reduce the production of soybeans, which would mitigate the entire issue related to logistics in Brazil.
Of course, it's too early, the crop year just started, but I believe that there are some indications already that this could be an impact. It is a concern for us. The entire sector, I'm sure, will have to pay close attention to this for next year. But in our case, containers won't be affected in Goiás, and we also have the sugar production in Santa Vitória. And we also have an action plan to assess the storage conditions. What happened is that the entire VHP exports in Brazil would happen in the beginning of the crop year by the end of the year. And in the off season, India would supply the entire world with sugar. But this year, because of that problem and higher production, we are going to see more sugar being exported from Brazil in moments where that was not usual.
So what the company is doing right now is look at different ways to work around this in case there is any delay, so that we don't have to stop producing sugar to produce ethanol just because we don't have where to put that sugar. I don't know if I addressed your question, Pedro.
Yes, thank you. Thank you very much.
The next question comes from Thiago Duarte with BTG Pactual.
Hello, good afternoon. I have two questions, and I think that they are related. The first one is about yield or productivity, and I want to know more about the risk for your guidance in terms of crushing. Because the yields are great, as you mentioned, but in your guidance, we thought that your harvested area would be very similar to last year's harvested area, including Santa Vitória, but it is still a lot lower than that.
You had a gain in yield in a smaller area, so now we have basically only the next quarter for crushing. Would it be possible for us to consider that the total crushing is going to be higher or lower than your guidance? And when it comes to the unit cost, there was a significant improvement this quarter in comparison with the first quarter of this crop year. But when we look at the year-on-year comparison, we can see, we can see that costs are going up. I don't know if we have to wait for the crop year to be finished so that you can capture some operating efficiencies, or maybe should we wait for the costs to go down, and maybe that will happen in the third quarter of this crop year? So these are my questions. Thank you.
Thank you, Thiago, very much for your question. About our guidance, we are keeping the figures that we disclosed. If we put the three units together, we believe that we are very close to our guidance, and in the third quarter of our crop year, we are going to have October, and it should end on 15 November . So we are keeping our guidance. And the harvested area was small—was smaller because the yield was higher than last year. But when it comes to our guidance, it is very much in line with our expectations. So we are keeping our guidance. But what's more important about your question, Thiago, is, is something that you mentioned for next year. Next year, we are going to have a higher volume of sugar in our mix, and we are also expanding here in Goiás and also in Santa Vitória.
As we disclosed, we are going to reach 9 million by 2026, and in 2025 we are going to be very close to that number already, and that is the capacity. So we're going to have the increase of sugar in our mix, and also productivity because of the expansion. Now, when it comes to costs, Thiago, indeed, we have an accounting cost that is higher than last year. I'm sure that you have taken a look at the numbers. But our cash cost per unit, it is going to drop, and part of that will have an impact on next year's accounting cost. So we're going to have the effects from everything that we executed last year. So this is what we are estimating. A cash cost...
Due to the price of inputs, the cash cost will drop a little bit, but the accounting cost, we think, is going to be a little bit higher than last year. But we still have a month and a half of production to account for.
Okay, thank you very much. Now we have a question that was submitted in writing by Victor Kadowaki: "Considering sugar, what is your strategy for storage for the sugar factory, which is going to be more focused on exports?"
Can you please repeat the question?
What is the strategy for the storage capacity in the new sugar factory, the one that is going to be more focused on exports?
Thank you very much for the question. It's a good question. Well, the new plant at Santa Vitória is going to produce VHP sugar....
Storage is more simple because you have to store the product in a bulk fashion. It has to be covered, but it's not complex. Initially, but before that, you produce and sell, produce and sell. As you produce VHP sugar, you sell it. So we shouldn't even have any storage of sugar. We need to have it, however, because we might have delays in trucks, or it might be raining at the port, so we need to have a buffer, a cushion. And we were going to have a storage facility of 15,000 tons, but we want to increase its capacity because of the whole context that we mentioned for next year in terms of logistics. So we are assessing the possibility of increasing our storage capacity for next year.
Before you move on to the next question, Doris, we are going to build a structure. Actually, we're going to rent or lease a structure to store sugar, and we are going to lease it just for the crop year months. So we're not going to invest any CapEx.
Okay.
Now we have another question from Fernando Nakata, submitted in writing: "Good afternoon. Can you talk a little bit more about how the company has managed risks, considering the price volatility, the current price volatility?"
Fernando, thank you for your question. Well, we do it constantly at the company. We always consider the possibility of hedging our sugar. We discuss and assess those possibilities at the board level, at the C-suite level, and we took advantage of the higher prices, and we are very rigorous about our price protection policy.
As we showed in the presentation, we have already hedged a good part of the 25, 26 crop year production, and also the 24, 25 production, just so you can take advantage of this good price moment. India is going to have a smaller crop season this year because of the effect of El Niño. But this year, since it didn't rain so much, they cannot renew their sugarcane fields in India, and the cycle, therefore, is only two years. So if you don't renew it, you can compromise your next crop season. So the scenario for sugar, although we are still going to have good years, still the company is sticking to its risk protection policy, because we know that things can change. So we are very strict, very rigorous about prices and also FX exposure.
We keep a very strict control policy on price, and on prices, and also FX exposure.
I would like to turn it over now to Rodrigo for his closing remarks.
Well, thank you very much. I would like to thank you all for your participation in another earnings call. And once again, I would like to underscore the fact that we are going through a very special moment for sugar prices, and I believe that we made the right decision of building the sugar plant. And that construction is going according to plan, to increase the amount of sugar in our mix. It is very important to see that we made the right decision, and we did it fast to be able to capture the values and the gains of that movement in the coming years.
I would like to thank Doris and the entire global team. We are here to help you if you need us. I would like to thank the accounting and the financial departments for supporting us every single day and for supporting us in our earnings call presentation. Thank you all very much, and have a great day. This concludes the second quarter of 2024 Jalles earnings call. Thank you very much. Have a good day.