Itau's 4th Annual Brazil Conference

Transcription

1 Itau's 4th Annual Brazil Conference

2 DISCLAIMER Forward looking statements may be made during this presentation about the Company s business prospects, and operational and financial projections and targets, based on the beliefs and premises of the Management of Grupo São Martinho S.A, as well as information currently available with the Company. They are not guarantee of performance. They involve risks, uncertainties and premises as they refer to future events and hence depend on events that may or may not occur. The public must understand that general economic and industrial conditions and other operating factors may affect the Company s future results and cause them to differ substantially from these forward-looking statements. 2

3 SÃO MARTINHO S ACHIEVEMENTS CRUSHING CAPACITY Investments to achieve 13.2 MT crushing capacity were finished in March/09 Boa Vista Mill 1 st phase concluded reaching 3.4 MT 14.4 MT Cash Discipline Lower Capex Investments 13.2 MT IPO 10.3 MT Feb/2007 Acquisition Santa Luiza 11.0 MT 07/08 Harvest 1 st crop Boa Vista Mill 12.7 MT 08/09 Harvest 2 nd Crop Boa Vista Mill 13.2 MT 09/10 Harvest 10/11 Harvest 11/12 Harvest 15/16 Harvest : 22 MT 20/21 Harvest : 30 MT but the group decided to reschedule the timeline to reach 14.4 MT - Cash Discipline. 3

4 OVERVIEW Current Crushing Capacity 13.2 Million Tonnes in 3 mills (2009/10 Harvest) Low Cost Producer 60% Own Sugarcane (114,053 hectares in own and leased lands) 82% Mechanized Harvest Large Mills Flexibility Ethanol and Sugar Production (55% / 45%) Inventories Large Ethanol Warehouse Capacity (70% total crop production) Business Model Integrated and lower production cost 4

5 PERFORMANCE Sugarcane crushing in 09/10 harvest will be focused on sugar output in São Martinho and Iracema mill Operating Data 2007/08 Harvest 2008/09 Harvest 2009/10 Harvest (E) Crushing Thousand Tonnes 10,218 12,001 13, % +8% Sugar Thousand Tonnes % % 650 Total Ethanol Thousand M 3 +30% +4% MIX Sugar / Ethanol 38% / 62% 33% / 67% 36% / 64% but our total ethanol production will be higher than last harvest. 5

6 TOP PRIORITIES /10 FISCAL YEAR Cash Discipline Net Debt / EBITDA below 4.0 times Long Term Debt duration above 5 years; Shift Opportunity 17% YoY growth in raw sugar production São Martinho and Iracema mill will shift their output to sugar; Cost Control Boa Vista mill ramps up second phase crushing 1 MT more, will prompt G&A and industrial cost dilution ; New Projects Built up integrated projects that use ethanol as feedstock High Value Added Products (ex: Green Polyethylene) 6

7 FINANCIAL SITUATION EBITDA Margin has reached 29.2% in 3Q09 fueled by ethanol and sugar prices Net Revenues R$ Million Adjusted EBITDA 34.2% % R$ Million 22.2% Margin % % 20.0% 10.0% 0.0% % 20 Adjusted EBITDA 14.5% % 35.0 R$ Million Margin 29.2% % 30.0% 20.0% 10.0% 0.0% -10.0% % 0 06/07 07/08 9M09 06/07 07/08 9M09 1Q09 2Q09 3Q % Prices Sugar NY11 R$ / Ton Ethanol R$ / M 3 Sugar Hydrous Anhydrous /07 07/08 9M09 Prices Sugar NY11 R$ / Ton Ethanol R$ / M 3 Sugar Hydrous Anhydrous Q09 2Q09 3Q09 tight sugar supply /demand balance in FY10 should support EBITDA Margin above 25%. 7

8 FINANCIAL SITUATION Sugar and ethanol inventories in 3Q09 were equivalent to R$ 381 MM Inventories 3Q09 Average Price 4Q09 (E) Revenues 4Q09 Sugar 275, Tonnes Hydrous M 3 Anhydrous M 3 151, , Total Ethanol M 3 261, R$ 381 MM Net Debt R$ Million Net Debt Ex-PESA / Adjusted EBITDA 5.24 x 3.62 x x % 0.0% % % % % R$ 403 M R$ 740 M Short-term term Debt Long-term Debt 06/07 07/08 9M09 (*) (*) Considering the accumulated EBITDA from the last 12 months we expect to sell the entire stockpile up to June/

9 EBITDA BREAKEVEN Strong ethanol demand in the domestic market combined with higher sugar prices EBITDA Cost São Martinho (*) 1.000,0 800,0 600,0 400,0 200,0 SG&A Industrial Agriculture EBITDA Margin (**) 28,6% 12,9% R$ / M 3 126,4 R$ / Ton. 57,2 119,8 42,8 301,1 495,8 40,0% 20,0% 0,0 % -20,0% -40,0% -60,0% -80,0% -100,0% 614,1 Sugar NY11 R$ / Ton 619,7 424,7 409,0 480,2 582,6 649,8 05/06 06/07 07/08 1Q09 2Q09 3Q09 4Q09 HarvestHarvestHarvest Ethanol R$ / m 3 FX ,0 Sugar US$ /p Ethanol R$ / M (*) Considering an average exchange rate of R$ 2.10 / US$ and NY11 at US$ 0.16 (**) Considering 4Q09 market prices -120,0% 866,1 884,7 801,2 814,3 780,3 743,6 731,5 05/06 06/07 07/08 1Q09 2Q09 3Q09 4Q09 Harvest Harvest Harvest should support strong earnings growth in FY10 especially for integrated companies as São Martinho. 9

10 2008/09 CASH COST - BREAKDOWN 2008/09 Harvest - COGS Agriculture Cost - Breakdown 9% 8% Industrial 13% Others 10% 43% 6% 7% 27% Agriculture 77% Suppliers Leasing Fertilizers Workforce and Outsourcing Fuel Others 2008/09 Harvest Suppliers Supliers R$/Ton R$/Ton R$ 39.0 Own Cane R$/Ton Leasing R$/Hectare R$ 27.2 R$ Current Harvest (April 09) Suppliers Supliers R$/Ton R$/Ton R$ 42.6 Own Cane R$/Ton Leasing R$/Hectare R$ 27.2 R$ Leasing R$/Ton R$ 8.07 Leasing R$/Ton R$

11 VALUATION AND REPLACEMENT COST SMTO3 Price R$ Total Shares 113,000,000 Market Cap (MN) R$ 1,695 Net Debt (MN) (Dec-08) R$ EV (MN) R$ 2,693.5 Additional Capex UBV (2.2 MN T.) R$ 60.0 Adjusted EV (MN) R$ 2,754 R$ Million Replacement Cost Book Value Sugarcane Fields 381 Inventories 127 Mechanization 2,800 MULTIPLES FY10 Ex - Land EV / Ton R$ EV / Ton (*) US$ Industrial Equipments (*) Considering R$ 2.10 / US$ Land 11

12 CENTER SOUTH HARVEST OVERVIEW Almost all investment over the last 3 years were dedicated to building pure ethanol mills Sugarcane (mn tonnes) Sugar (mn tonnes) Anhydrous (Bi Liters) Hydrous (Bi Liters) 2006/07 Harvest 2007/08 Harvest /09 Harvest 2009/10 Harvest (E) % % +4.4 Mn T (*) Mn T Total Ethanol (Bi Liters) % Bi L TRS % MIX (% Sugar) 49% 44% 39% 42% MIX (% Ethanol) 51% 56% 61% 58% (*) About 95 Million tonnes from 2009/10 Harvest are exclusively ethanol cane (cane that fully dedicated ethanol mills demand to their production) Flexible mills should stay at 51% sugar / 49% ethanol in the CS region CS producers can increase about 4.4 MT of sugar in 09/10 crop if they change the mix to sugar. 12

13 SUGAR OR ETHANOL?? Current sugar price combined with FX devaluation will boost sugar production in Brazil in 09/10 harvest Price Sensitivity - Hydrous Ethanol / Domestic Market Excha ange Rate (R$ / US$) NY11 US$ (Cents / Pound) , , , , , , , , , , ,212.8 Current Hydrous Price (*) R$/M 3 (*) As of May 08, 2009 CEPEA/ESALQ NY11 NY11 - R$/Ton R$ NY11 - US$ - Cents/Pound R$ R$ R$ R$ R$ R$ R$ R$ NY11 - R$ / Ton Exchange Rate - R$/US$ R$ It might bring positive momentum for ethanol prices over the current harvest. 13

14 WORLD SUGAR BALANCE Sugar prices should be less affected by the economic slowdown since demand is less dependent on GDP growth Total Sugar Production 2004/ / / / / /10 P World - Total (Thousand Tonnes) 140, , , , , ,584 BRAZIL 28,175 26,850 31,450 32,100 31,611 35,748 INDIA 14,210 21,140 30,780 28,580 14,700 18,000 EU 21,707 21,471 17,757 17,740 14,614 14,471 CHINA 9,826 9,446 12,855 15,900 16,000 15,840 RUSSIA 2,250 2,500 3,150 3,000 3,100 2,999 THAILAND 5,187 4,835 6,720 7,820 7,900 7,268 USA 7,146 6,713 7,663 7,420 6,945 7,041 OTHERS 52,395 51,993 53,808 54,997 55,166 55,217 Total Sugar Consumption 2004/ / / / / /10 P World - Total (Thousand Tonnes) 142, , , , , ,378 BRAZIL 10,600 10,630 10,800 11,400 11,900 12,138 INDIA 19,500 19,785 22,113 23,200 23,780 24,375 EU 18,361 17,658 19,916 20,100 20,201 20,302 CHINA 11,400 11,500 13,500 14,800 15,900 16,695 RUSSIA 6,300 5,400 6,100 6,150 6,190 6,252 THAILAND 2,070 2,050 2,030 2,200 2,300 2,346 USA 9,329 9,321 9,075 9,592 9,880 9,880 OTHERS 65,029 66,706 67,326 68,651 70,001 71,390 Surplus/Deficit -1,693 1,898 13,323 11,464-10,116-6,794 Ending Stocks 26,214 28,112 41,435 52,899 42,783 35,989 Stock to Use - Ratio 18.4% 19.7% 27.5% 33.9% 26.7% 22.0% Source: USDA, Bloomberg p.p and we do not expect supply pressure from India since they will produce up to 18 million tons of sugar. 14

15 NEWSFLOW - SUGAR 17,00 A B C D E F A March/08 ED&F forecasting sugar production outpacing 7.5 MT sugar demand in 12 months ending in September ,00 15,00 B May/08 ISO forecasting sugar production outpacing 7.8 MT sugar demand in 12 months ending in September ,00 C June/08 LMC forecasting sugar production outpacing 2.2 MT sugar demand in 12 months ending in September 2009 and India production decreasing 5 MT to 22/24 Mt 13,00 12,00 D January/09 Maharashtra State Cooperative Sugar factories stating that Indian sugar production should decrease to 19.5 MT 11,00 10,00 E May/09 Czarnikow Group forecasting that Global Sugar Deficit would reach 9 Mt in the 12 months ending in September 2009 and Indian Sugar Production would achieve just 14.7 million tonnes 9,00 F May/09 Maharashtra State Cooperative Sugar factories reporting that sugar output in India s Maharashtra state, the country s largest producer, declined 50% (to 4.6 from 9.1 last Harvest) and forecasting that nation s production related to the next crop may reach 18 million tons 15

16 ETHANOL PRODUCTION AND DEMAND IN BRAZIL Ethanol domestic demand will keep strong Production - Brazil 70.0 Demand - Brazil FFV - Sales 3,500 Assumptions DEMAND Billion Liters , , ,308 2, , , , ,000 2,500 2,000 1,500 1, Scenario Flat YoY car sales in 09/10 5% YoY growth in car sales after 09/10 harvest 85% car sales FFV 70% FFV Ethanol Consumption Decrease/Increase in car sales 2009 vs FFV Fleet In March 2010 Ethanol Demand (***) Bull Case 10% 11, Base Case 0% 11, Bear Case -10% 10, / / / /10 P 2010/11 P 2011/12 P 2012/13 P 0 *** Billion Liters Implied Consumption of 185 liters/month/car Ethanol Inventories were 1.8 Bi Liters in March/09 even if we consider our bearish car sales scenario in

17 ETHANOL PARITY Hydrous ethanol consumption in São Paulo accounts for 54.6% of total demand in Brazil AMAZONAS = 71% Gasoline > R$2.583 Hydrous > R$1.823 ACRE = 71% Gasoline > R$2.933 Hydrous > R$2.090 RORAIMA = 80% Gasoline > R$2.690 Hydrous > R$2.160 AMAPÁ = 74% Gasoline > R$2.671 Hydrous > R$1.971 PARÁ = 75% Gasoline > R$2.741 Hydrous > R$2.065 CEARA = 71% Gasoline > R$2.408 Hydrous > R$1.702 PIAUI = 75% Gasoline > R$2.509 Hydrous > R$1.874 RIO GD N = 70% Gasoline > R$2.641 Hydrous > R$1.852 PARAÍBA = 70% Gasoline > R$2.374 Hydrous > R$1.671 Competitive Average Prices Non-competitive Average Prices Source: ANP Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (April, 2009) R$ / Liter R$ / Liter HYDROUS Average Price GASOLINE Share % São Paulo % Minas Gerais % Paraná % Rio de Janeiro % Goiás % Rio Grande do Sul % Others % Average Share Price % São Paulo % Minas Gerais % Paraná % Rio de Janeiro % Goiás % Rio Grande do Sul % Others % PARITY % São Paulo 53.5% Minas Gerais 66.6% Paraná 57.4% Rio de Janeiro 65.5% Goiás 61.8% Rio Grande do Sul 67.2% Others 68.4% if gasoline price decreases we believe that consumers in São Paulo will not reduce ethanol consumption. 17

18 GASOLINE PRICE SENSITIVITY BRAZIL S PUMP IMPACT Gasoline Price Oil Price (WTI US$ / Barrel) Exchange Rate (R$ / US$) 2.10 Fair Price (Gasoline R$/Lit.) 0.89 Current Price (Gasoline R$/Lit.) 1.10 (Discount)/Premium) 24% Current Situation R$ / Liter Gasoline Price (Refinery) 1.10 Gasoline Price (Distributors) 1.33 First Scenario Considering Gasoline Market price at the refinery (R$ 0.89 / Liter) and CIDE keeping at the current level (R$0.18 / Liter) R$ / Liter Gasoline Price (Refinery) 0.89 Gasoline Price (Distributors) 1.17 Second Scenario Considering Gasoline Market price at the refinery (R$ 0.89 / Liter) and CIDE changing from current R$0.18 / Liter to R$ 0.28 / Liter R$ / Liter Gasoline Price (Refinery) 0.89 Gasoline Price (Distributors) 1.25 Gasoline Price (Pump) 2.50 Gasoline Price (Pump) 2.20 Gasoline Price (Pump) 2.34 Ethanol Price (Pump) 1.51 Potential Impact on Gasoline Price (Pump) -11.9% Potential Impact on Gasoline Price (Pump) -6.3% Hydrous Cap Price (Pump) 1.54 Hydrous Cap Price (Pump)

19 NEWSFLOW - ETHANOL A B C D A May/08 Beginning of 2008/09 crushing period B June/08 Floods in US damaging initial corn crop and boosting Brazilian ethanol exports to U.S C August/08 Exports to U.S increasing and Strong Flex Fuel Sales in the Domestic Market D Jan/09 Financial Crisis forcing some mills to sell inventories at lower prices to meet short term cash needs; ESALQ Anhydrous ESALQ Hydrous 19

20 U.S. RENEWABLE FUEL STANDARD U.S. Renewable Fuel Standard Billion Liters Conventional Advanced Almost Half of Brazilian ethanol export last marketing year Billion Liters up to Billion Liters up to 2020 Draft Lifecycle GHG Emission Reduction Results Corn Ethanol (Natural Gas Dry Mill) -16% Soy-Based Biodiesel -22% Corn Ethanol (Biomass Dry Mill) -39% Sugarcane Ethanol -44% According to EPA (Environmental Protection Agency) calculations, the U.S. corn-based ethanol will not be able to meet the quota for Advanced Biofuels given its small contribution to carbon emission reductions According to the same EPA calculation, however, Brazil s sugarcane ethanol will be able to meet the quota To be qualified as advanced, the fuel needs to reduce pollution emissions by at least 50%, with tolerance of 10% The emission reduction of Brazil s ethanol was calculated by EPA at 44%, in comparison with the 16% calculated for U.S. corn ethanol Ethanol Produced by sugarcane will probably be considered as advanced fuel capturing a strong growth consumption by 2020 Source: EPA 20

21 CALIFORNIA LOW CARBON FUEL STANDARDS LCFS & Biofuels Grams of CO2 per megajoule Gasoline LCFS in 2020 Corn Ethanol Sugarcane Ethanol California Air Resources Board adopted a regulation that will implement Low Carbon Fuel Standard calling for a 10% reduction of greenhouse gas emissions from California's transportation by 2020; The regulation requires providers, refiners, importers and blenders to ensure that the fuels they provide for the California market meet an average declining standard of 'carbon intensity Grams of CO2 per megajoule Source: UNICA LCFS & Biofuels considering ILUC Gasoline LCFS in 2020 Corn Ethanol Sugarcane Ethanol Results show that Brazilian ethanol made from sugarcane is by far more efficient to meet the target when compared with Corn ethanol, especially when we consider Indirect Land-Use Changes (ILUC) 21

22 WORLD ETHANOL MARKET 22

23 IR Contacts Fábio Venturelli CEO João Carvalho do Val CFO and IR Officer Felipe Vicchiato Investor Relations Manager João Carvalho do Val - Diretor Financeiro e de Relação com Investidores Phone: Denise Araújo Francisco Gerente de RI ri@saomartinho.ind.br denise.francisco@saomartinho.ind.br Fone [11] Website: 23