Good afternoon, ladies and gentlemen, and thank you for holding. Welcome to São Martinho S.A.'s earnings conference call to discuss the first quarter of the 2023- 2024 harvest. Today with us, we have Mr. Felipe Vicchiato, São Martinho's Chief Financial and Investor Relations Officer, Alessandro Soares, Investor Relations and New Business Manager, and the IR team. The audio and slides of this conference call are being simultaneously webcast on the Internet at www.saomartinho.com.br/ir. We inform you that the participants will be able to just listen to the conference call during the company's presentation. Afterwards, we will begin the question and answer section for investors and analysts, and further instructions will be given. Should any participants need assistance during the conference call, please press star 0 for an operator. We would also like to inform that the information provided during this conference call may constitute forward-looking statements.
Such statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to not materialize or differ materially from the expectations. I will now turn the floor to Mr. Felipe Vicchiato, who will start the conference call. Thank you.
Good afternoon. Thank you for your attendance at São Martinho's conference call about the first quarter of the 2023, 2024 crop. Going straight to page 3, we'll go through the quarter's operating results. Moving on to financial highlights, cash costs, and the expectation to close this cash cost until the end of the fiscal year. The ethanol market, combined with the competitiveness of ethanol, in line with what happened throughout the year, and the expectation of the reduction in the price of fuels. Sugar hedge, what our hedge position is at this time, then talk a little bit about our corn mill operation.
Moving to page 4, operational highlights. The company on the first quarter processed 7.6 million tons of sugarcane, 2.8% less than last year. Given to a climate condition, the beginning of the crop was very rainy, and the beginning of the harvest of the crop started 2 weeks later than when we regularly would start. On the other hand, TCH had a significant growth in this first quarter of the harvest, going from 71 tons per hectare to 82 tons per hectare, with an average PRS dropping -2%. In corn, we processed 103.9 thousand tons, with a production of about 37,000 cubic meters of corn ethanol.
As we mentioned in the previous quarter, with our corn guidance, we'll be processing a little bit less this harvest than the total corn capacity, considering the conditions to begin crushing, that was slightly more complicated than we expected. In terms of sugar operations or production, we grew 1.9% in sugar production, coming from 715,000 tons to 423 or 415, and the sugar mix of our units in São Paulo. Ethanol also growing 3.2%, considering the assistance of the participants of corn ethanol. We're talking about a decrease on sugarcane ethanol of around 8%, since, as we already said, we migrated the entire production to sugar and less to ethanol.
With this volume of sugarcane processed and considering the current field conditions, we understand that by the end of the harvest, we'll be able to reach the guidance of 21.5 million tons of sugarcane. Even if there's a little bit less sugarcane, it would be difficult to process all of it to the end of the harvest, considering the weather conditions that starting in September, will probably be more rainier than usually. On the next slide, we see the financial highlights. Our net revenue went down 20%, coming from BRL 1.7 billion last quarter to BRL 1.3 billion in this first quarter, due mostly to the drop in the price of ethanol of around 20% and a drop in the volume of ethanol sold of around 41%.
Offset partially by the higher volume of sugar sold, at 21.7%, and higher sugar prices of 22.6%. Considering lower revenue, our adjusted EBITDA went down 36% with a margin of 41% and EBIT of BRL 215, 15 million with a margin of 15.9%. The accounting income was stable compared to last year, closing at BRL 220 million, and cash income dropped 45% quarter-on-quarter. When we look at the difference between net income and cash income, the main variations are due to the biological asset, BRL 149 million. It's a positive markup this quarter, mostly due to the better prices of sugar and better yield. There's also an adjustment of swap item and IFRS adjustments. That's most of what comes from net income to cash income.
For cash, it's the best indication for the operation, and we have a drop on the quarter of 45%. Next, we see cash cost for sugar and ethanol, that at this time, we can't see this quarter any reflection of the higher operating leverage that the company will have with more crushing. Quarter-on-quarter, we see an increase of the cash cost of sugar 19.7%, getting to BRL 1,942 per ton, as well as an increase in the cash cost of ethanol from BRL 2,845 per cubic meter, 11% more than last year. To make it easier to analyze, we isolated Consecana on sugar, and for the cost of sugar and Consecana for ethanol, only for the cost of ethanol.
That's with the margins of the projects, that's how we prefer to look at, to better assess the mix. We estimate that this cash cost of sugar should close at around BRL 1,956 million per ton at the end of the year, 3% higher than last year, especially due to the increase of Consecana for sugar. The product prices are quite high, BRL 0.245. On the other hand, ethanol would probably go down 11% from BRL 2.7-BRL 2.4 per liter. If the combination of both, what we're meaning is about 7%-8% less cash cost for TRS. That's the operational leverage that the company will have with this higher rate of crushing.
There's also a smaller individual cost of some items, for example, fertilizers, that on average from last year, dropped 27%, some industrial inputs that went down around 18%-20%. That's the initial estimates that we have that will lead to close the cash cost at the end of this harvest. Next, we see a little of the ethanol market, how it behaved throughout the year. Hydrous ethanol, that's the or the pricing of anhydrous ethanol. Hydrous ethanol from São Paulo, we had a drop when compared January with August, of around 26%. A series of changes happened during this year.
In the beginning of the year, we had the refund of state and federal taxes, followed by a sequence of drop in the prices of Gasolina A at the refinery, and an increase that was announced today for this Gasolina A at refineries, that offsets part of this drop, but not entirely. On the following slide, we have more details about this price movement of Gasolina A and taxes. In January, producers were making something close to R$2.69 per liter. At the time, we had a Gasolina A at a refinery of around R$3.23. There were a series of changes in the taxes, making Gasolina A and ethanol exempt. This was a return of what we had. It was actually a resumption of tax collection of PIS/COFINS.
The state was ad rem, improving ethanol's competitiveness a little bit. If we isolated tax aspects, if there was no drop on the fuel, we would say that ethanol should go up around BRL 0.46, going to BRL 3.15 for producers. During these months, the price of gasoline at the refineries went down close to 20%-25%. With the increase today, 16%, that was announced this morning, we're talking about a drop of 9%. All of that combined, added to lower parity, because in the beginning of the year, the parity was of around 75% at the pump, and today we're running at 64%-62% at the pump. That makes the prices for producers should stay today, it's BRL 2.11, and with the adjustment made today, it will probably be close to BRL 2.29-BRL 2.30.
It's also worth noting that today they also announced an increase on diesel for 25%. At São Martinho, we have an important part of our costs in diesel. We buy today, more or less, BRL 400 million per year in diesel, and we will have a full impact of this increase on the diesel price now in our production cost. Remembering that we already bought almost 40% of the harvest in terms of diesel, most of the volume is during the harvest, so we have 60% to buy. That's the end of the crop. The second crop that we use diesel for planting, mostly. On the following slide, we talk a little bit about the sugar market.
In June, the company had 68% of the volume of owned sugar that's still going to be built, protected close to BRL 2,600 per ton, and for next year, we had almost nothing sold, only 30,000 tons. That's under 3% of our own cane. We have a very constructive view of the sugar market, considering the climate conditions in India, the limitation in Brazil of having too high, larger harvest because of climate, weather effects that may occur in the second half of the year with an expected higher volume of rain. We're being cautious and hedging. We believe there's still room for this price to be at a higher level, even considering out the lines in Brazil and turning the mix as much as possible to sugar.
That's our position at this time in terms of sugar, believing that prices will continue to be constructive. On the next slide, and to finalize our presentation and open for questions, we have a summary of our corn position. We reinforce the guidance that we published in June of 420,000 tons of corn. We already have 100% of this volume purchased at a price of BRL 74 per sack of corn. This price is higher than the market price today, considering a surprise in the corn production in the Mato Grosso do Sul, Mato Grosso and Goiás region, combined to the difficult movement to, for export, the prices changed in the region and dropped, and we had already purchased a lot.
Considering that crushing was below what we expected, we expected to be close to 500,000 tons and will be at only 420,000 tons. When we bought this corn, this information was not available, and so today we have it almost 100% purchased. We're making 160,000 cubic meters of ethanol. Ethanol, there is predominantly anhydrous ethanol and 134 tons of DDGS. You must have seen in our release that the corn operation had a negative result this quarter, this first quarter, and the main reason was that we began a very low crushing levels in some days, even less than 50% of the capacity, with the DDGS, a little bit outside of specification, so we had to follow the discount.
This has been normalized, and today we're crushing slightly more than 1,200 tons of corn per day. We expect everything to be more constant, considering the current DDGS prices and current ethanol prices after this adjustment, that this will be an operation where we'll get a positive result at the end of the year, between BRL 50 million and BRL 70 million. We started imagining it would be higher, but with these operational conditions that we faced, we believe it will be in that range. It's not going to be anything extremely relevant for this year, but next year, with the price of corn at a different level and our operation already smoothly in terms of crushing per day, we expect to get a very relevant share of the cash generation in the corn plant.
These are my opening remarks. We'll open for questions and answers. Thank you.
We will now begin the question and answer session for analysts and investors. If you would like to ask a question, please dial star one. We'll begin today's Q&A session with a question from Guilherme Palhares, Bank of America.
Good morning, Felipe. Two quick questions from our side. Talking about corn ethanol still, I'd like to ask about this price hedging, and we're seeing it starting even if at a small volume for the next hedging season or crop. Is it something coming from this harvest that will be carried over to the next one due to the lower volume produced or in the start of operations, or do we see the company starting to fix this?
What you mentioned of price levels, now that we see that the levels in the region are depressed, considering the basis. My second point would be about crushing itself. We're seeing a strong recovery of TCH, and crushing is still slow, and it will probably start to keep up from now on. I'd like to understand a little bit more of how you're thinking the mix about your own sugarcane and third-party cane. If there's any difficulties to progress with crushing, with what would be the full production capacity for the company, what would be the potential? What are you thinking in terms of the mix between own cane and third parties?
Good afternoon, Guilherme. Thank you for your questions. About corn, the small volume that was carried over to the other crop is due precisely to that operational aspect. We're initially expecting a crushing of 195,000 tons. We were buying corn and signing contracts with suppliers, and it ended up to be slightly over necessary. We won't be able to crush everything in this, in this crop, some of it is carrying over to the next crop. It's not a hedge to the next crop, it's simply a matter of crushing that was a little bit more difficult in this beginning. Your second question about our own sugarcane and third-party cane, we will probably be around a proportion of 70/30. 70% our own cane and 30% third-party. In unit terms, we'll crush 100% of third-party sugarcane. If there's cane left over, it's going to be our own.
Today, we're obliged to crush third-party sugarcane, we cannot leave our suppliers hanging with sugarcane on the field. Third party is our priority. We crush what is contracted, if it starts raining too much and we have sugarcane left over, we'll end up crushing it. It's going to be our own in the next crop. Usually, standover cane is our own cane.
Excellent. Thank you.
Next question, Leonardo Alencar from XP.
Good afternoon, Felipe. I wanted to get a little deeper in the information you gave us about the agricultural aspect, the TCH data. There are recurring points of discussion in your guidance that was being conservative, now with this evolution in the beginning of harvest and TCH numbers being much better, I'd like to know if you're adjusting your expectations, if you're going to consider a more comfortable range.
In line with that, you said there was not so, so much effect of cost dilution in the first quarter, but if you get into more details, how fast would you believe this will happen in coming quarters? The cost dilution, because of the yield, or if the yield will be above what was expected in the beginning of the harvest, if there's going to be a more favorable condition than what was initially expected.
Well, Leonardo, when we released our guidance, we had already mapped this good yield. As it happens, the crushing guidance of 21.5 is for crushing, not necessarily sugarcane. So there will probably be sugarcane left over in these conditions on the field and carry over to the next crop.
If, for some reason, the weather is drier than what we are expecting, if the El Niño phenomenon is not that relevant, then yes, we would be able to crush the standover cane in our fields. The guidance of 21.5 million is for crushing. As for the fixed cost dilution, this happens mostly in the second and third quarters, so probably close and crushing in the third quarter. That's until November, December this year. In the second quarter, you already be able to see the dilution of fixed cost in a more significant way.
Next question, Matheus Enfeldt, UBS.
Good afternoon, Felipe, Alessandro. My first question is to understand the company's selling strategy. The volume of ethanol sales was very low. Sugar was more in line with the fourth quarter, but what are you thinking about in terms of ethanol sales?
How much ethanol can you hold on to with the potential of maybe having a longer off season? How do you see that? What are the triggers for you to sell more or less ethanol? How do you see the exposure to exports in the second quarter of the harvest?
Of course, the Petrobras factor changes the scenario a little, but if you can detail your expectation. Capital allocation, you had some projects being discussed, the company mentioned in previous calls about the second phase of corn ethanol, thinking about flexibility. Now, what do you have as a priority in terms of the splits for the company, thinking about the next six months, seven months, until the end of the crop? When does the company expect to make these decisions in terms of capital allocation? Thank you.
Thank you for your question. Well, as for the ethanol sales, actually the first quarter, we sold less ethanol than last quarter because there was a point over the last 45 days of the quarter, that the price of the product went down too much, very quickly. With that, we made the decision to hold on to it, not sell as much, because effectively it was well below parity of 70%, and at some point, even below cost. As I said here, our estimate for ethanol cash costs for this harvest is around BRL 2.4 per liter. If we look at ESALQ start up today, ethanol is below this value, hydros, ethanol.
Be it due to prices that until yesterday was well below parity, international parity, or be it for that ratio of 70%, that was running at 62% here in São Paulo, that's the highest consuming state. There was a point of ethanol that the mills were selling the products below cost, and that was a big concern. Today, there was a significant correction with Petrobras closing part of that gap on the price difference. It increased 16%, and that is relevant for us. Then I'll go into your second question of capital allocation. Considering the current scenario, we understand that it's not the time to make any assessment to expand the corn at Boa Vista, with the second stage producing more ethanol, even if the base is cheap.
We're first going to wait for the operation to be leveled and balanced, to have a full year, then we'll make that decision. I don't expect to have any decision of doubling the corn plant, the corn ethanol plant, until the end of the year. Biomethane, we're still looking into it. There's an aspect of the regulation of biomethane that's being discussed, that's also important to us to see with the CBIO and so on. Capital allocation is basically for payment to shareholders dividends, rather than making big investments in the expansion at this time.
Great, thank you.
Next question, Henrique Brustolin, BTG Pactual.
Good afternoon, Felipe, Alessandro, IR team. I'd like to start with a follow-up from crushing. Of course, the yield recovery this year is very relevant.
There's even some sugarcane leftover, but the doubt is that in the pace that you have a crushing at this time, do you see any risk to get to the 21.5 million tons for the year, as you have been progressing until now? At this point, with the weather conditions helping agricultural management, with the new sugarcane varieties that you have, and let's just until a few in recent years, how do you see the pace to get to those 24,000 tons that would fill the plant per day for crushing? The second question about ethanol and prices. Felipe, I'd like to hear a little bit more. Of course, now there will be a recovery with that increase at Petrobras, but I'd like to hear a little bit more about parity with gasoline.
We saw that big lag, the supply of ethanol growing this year, mostly due to the recovery on crushing and the new offer of corn ethanol. How do you see parity behaving throughout the crop? These are my questions. Thank you.
Thank you for your question. For your first question, actually, the beginning of the crop was a lot more blocked or stiff because of the volume of rains. The rainfall was higher. It didn't rain continuously, but it rained for a few days, then it stopped and it started again, and that really hindered the resumption of crushing. When we look quarter-on-quarter, it seems that crushing is very slow. From July onwards, weather is dry, and we've been able to crush as much as we can every day, maximum capacity.
I think it's unlikely that we would not meet the 21.5 million tons guidance. If it rains less and the effect of El Niño as a whole is not as relevant, we may be able to crush even a little bit more, but at this time, I believe 21, 21.5 is guaranteed. To get to 24 million tons, considering management and the varieties with a normal weather condition for the next two years, we believe we can get there in two years. Not next year, but for 2026, the 2026 harvest, we believe we would be able to be close to 24 million tons. The price difference and the parity, if the call was yesterday, I would have been more concerned, because until now, we've only seen the parity working down. The price had dropped until yesterday, 25%, compared to gasoline.
That was a parity in line with oil at the time. Since there's been this relevant increase, 16% increase all at once is relevant, we believe that at the end of the day, and Petrobras's mandate is, I believe, it's a 12-month window, and the price of the product will have international parity. They're respecting that in this 12-month window, they're making their adjustments. We believe that the, if the oil prices remain as they are in the next coming months, they'll continue adjusting until they get to parity. There's a 12-month window for that. I would say that based on today's information and the 16% increase, I think they will follow the policy, not at the same speed that they did in a few years ago. In 12 months, we will see parity according to the international market.
That's clear. Thank you.
Lucas Ferreira, J.P. Morgan.
Hi, Felipe. My question is about sugar prices. Last time we were together that we met, I believe your view was that the market was tight. There was a little downside and a lot of upside and risk and price, considering the scenario for the second half of the year. Since it's always unpredictable, the numbers came out better than expected in terms of rain volume on the past months. My question is: Isn't it time to accelerate the hedging? The exchange rate is favorable, the price, maybe you can aim at a better margin. What's your idea and for return at this level of sugar prices and the perspective looking forward, if you feel more comfortable in hedging sugar prices more for this year and also for the next crop as well.
Thank you for the question, Lucas. This year, we're doing that because we're already very close to the end of the crop. 68% of the database in June, we are more advanced. We're close to 80% already hedged of the remainder sugar. For the next harvest, as much as it rains in India, I don't think it rained where they needed it, the main sugarcane producing region. We still believe that there's room for this price to remain strong. For now, we'll monitor it a little bit longer. We believe there's more upside than downside. Today, we're around 3%-4% of pro- production of next year. We'll see how the rains will be in September, October here in Brazil.
It may greatly hinder sugar production, especially for mills that aren't as efficient as the best in the country, that takes too long to resume, and when they resume, it's predominantly with ethanol production and not sugar. We believe there may be a disappointment in Brazil, the initial estimates with a very high volume. We'll see. Right now, we're not setting it. We're waiting a little bit longer before we make that decision.
Great, thank you.
Next question, Joaquim Atie, Citibank.
Felipe, I just wanted to know if you can tell me a little bit more about your estimate for costs through the end of the year and then with the harvest. If you, if you're going to purchase, or if you can break down just the aspects of costs, if we can imagine if you can tell us so that we can see what to expect for the future, as well as maintenance, CapEx, and expansion, and what you're thinking about. You had a guidance, I'd like to know about it. Thank you.
In terms of cost, it's the number that I gave you during the presentation now. It's on page ... Looking here, the financial results, cash cost of sugar and ethanol. This cash cost of sugar and ethanol includes maintenance, CapEx. It's like my, EBIT cost, more or less.
This crop would have a drop of 11% for ethanol, and due to the improvement of the company's live operating leverage and a drop on the price of ethanol, and a 3.7% increase in the cash cost of sugar. As for the guidance for investment, maintenance, CapEx, and so on, we maintain the same guidance that we provided 3 months ago in June or 2 months ago. There, there has been no change.
Great, thank you.
Ladies and gentlemen, I'd like to remind you that to ask a question, please dial star 1. If you'd like to remove your question from the queue, start pressing the pound key. Please hold. We conclude the questions and answer session at this time. I would like to turn the floor back to Mr. Felipe Vicchiato for his final remarks.
Well, thank you for your presence here at our conference call. IR team and myself are available for any additional doubts you may have. This has been a much better crop in agricultural terms than what we saw in the last two years. The first quarter was. We harvested little first cut sugarcane, they'll be harvested from the second half onwards, so yields will probably increase more than what we saw in the first half. From the agricultural point of view, we're going back to what we used to be three, four years ago. The challenge now is for price product, the price of product, especially ethanol, considering that we have our position.
We have this concern, but with this position of Petrobras starting to close the price gap compared to the international market, it's very positive for us and makes us hopeful to continue growing in the near future. Thank you very much. Good afternoon.