Strategy
São Martinho seeks to implement the following strategies:
Grow organically and through strategic acquisitions or partnerships and new projects. To capitalize on the growing demand for ethanol both in Brazil and globally, and as the Company is currently operating at close to the maximum production capacity at its existing facilities, São Martinho has constructed a third mill, Boa Vista, in the city of Quirinópolis in the state of Goiás, which began operating during the 2008/2009 harvest. The additional mill will be dedicated initially solely to the production of hydrous ethanol, which is used as fuel for flex-fuel vehicles. The Company also closely monitors the Brazilian sugar and ethanol industries and may pursue selective acquisitions in Brazil that present opportunities to increase economies of scale, operating synergies and productivity gains. São Martinho also expects that its new Boa Vista mill, when constructed and operating, will generate electricity in excess, which electricity is planned to sell to third parties at market rates. As this electricity will be generated by burning bagasse and the electricity generated from bagasse is a clean, renewable energy source that complements Brazil’s predominantly hydroelectric energy generation, the expects that these electricity sales will improve profitability, as bagasse is a by-product of its production of sugar and that it produces without any incremental cost. The Company also plans to sell the excess Assigned Amount shares (AAUs, or carbon emission credits) generated by this process to companies in countries that are not in compliance with the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the Kyoto Protocol, emission levels.
Continue to reduce operating costs and increase operating efficiencies. São Martinho intends to continue to focus on improving the efficiency of its operations through additional investments in technology, including agricultural, industrial and logistical processes and information technology. As part of this effort, the Company intends to increase the level of mechanization of Iracema mill. In addition, the Company has planned its Boa Vista mill to be highly automated, with centralized control that will allow the Company to operate with relatively fewer employees, and expect that the majority of the planting and all of the harvesting for its Boa Vista mill will be mechanized. São Martinho also plans to use technology to continue to improve further Company’s management information and internal control systems, which should help to facilitate and accelerate its decision-making capabilities, while maintaining tight controls.
Expand participation in the international sugar and ethanol markets. The Company intends to use its existing production flexibility and its new Boa Vista mill to take advantage of additional export opportunities that the Group believes that will emerge over the medium- to long-term from the liberalization of trade and import restrictions that currently limit its access to certain large sugar and ethanol markets, and the growing use of ethanol as an alternative, renewable and clean fuel, including as a gasoline additive.
Competitive Advantages
São Martinho’s competitive strengths include:
Technological innovation and highly mechanized agro-industrial complex: The Company regularly seeks to implement technological innovations in its planting, harvesting and manufacturing processes, which has greatly improved its productivity and reduced operating costs in recent years. São Martinho is the most mechanized sugar and ethanol producer in Brazil and was the first major Brazilian sugar company to develop and use mechanized planting equipment. The Company has developed and implemented numerous technological improvements for its mechanized planting and harvesting equipment, which has significantly improved its productivity levels.
Expansive lands strategically located in the Center-South region of Brazil and close to the Company’s mills: The land on which São Martinho cultivates and harvests sugarcane benefits from favorable natural conditions in the Center-South region of Brazil, in which most of Brazilian sugarcane is produced. The Company’s expansive owned and leased lands are also strategically located within an average of 24 kilometers from its mills. This close proximity, coupled with the Company’s high level of mechanization, (i) reduces its transportation costs and (ii) allows São Martinho to begin processing its sugarcane within an average of nine hours from the time that it is harvested (as compared to an estimated average for the Center-South region of 36 to 48 hours), which enables the Company to maximize the extraction of sugar from the harvested sugarcane (as harvested sugarcane begins to lose its sugar content over time) and increase productivity.
Excellent logistical facilities lower operating costs: The Company mills are located in close proximity to railroad lines and Santos’s port terminals and warehouses, thus decreasing delivery time, increasing operating efficiencies, reducing logistics costs and facilitating responses to shifts in demand. São Martinho’s two mills, Iracema and São Martinho, are located in the state of São Paulo, close to the city of São Paulo and the port of Santos. The Company recently adapted the storage facilities at São Martinho mill to allow storing sugar in bulk (rather than in bags), which the Company believes that will decrease significantly the storage costs and will facilitate exports of sugar, which is exported in bulk.
Experienced and professional management team: The Company’s senior management has significant experience and knowledge in the sugar and ethanol industries and its production and operations and has been employed by the Company for more than 10 years, and São Martinho’s controlling shareholders have more than 40 years of experience in the sugar and ethanol industry. The Company’s management team and other professionals are highly trained, and have a results-oriented corporate culture that is focused on reducing operating costs and increasing revenues. The Company utilizes human resource management tools that focus on the integration and motivation of the Company’s management team and other professionals to help maximize their effectiveness.
