SAO PAULO (Reuters) - Biosev SA, the sugar and ethanol unit controlled by commodities trader Louis Dreyfus, is taking measures to cut costs and investments to be better prepared amid an outlook of low sugar prices, its chief executive told Reuters on Thursday.
The company announced earlier in the day the closure of a mill in the center-south cane belt as a way to optimize cane processing in two neighboring plants and reduce operational expenses.
It plans to lay off around 500 people, partly due to the mill’s closure, and has reduced investments by 12 percent in the six months of the 2017/18 crop cycle ended in September.
“These actions are part of a plan to make the company more resilient to a scenario of potential low prices,” Rui Chammas, Biosev’s chief executive, said in an interview after the firm released quarterly earnings.
Benchmark raw sugar prices have fallen from a peak around 23 cents per pound late last year to around 14 cents currently, as the world shifted from a supply deficit to surplus.
Biosev reported a net profit of 33 million reais ($10.12 million) in the quarter, 39 percent more than a year earlier.
“There is nothing we can do regarding the future of sugar prices. What is in our hands is costs,” Chammas said.
Biosev’s mill closure comes as other large sugar groups in Brazil are expanding. Raízen, the joint venture between Royal Dutch Shell Plc and Cosan SA Industria e Comercio, reactivated a mill that had been idled for a couple of years and bought two plants from distressed group Tonon Bioenergia.
Glencore Plc bought a mill from another heavily indebted company, Unialco.
Chammas said he was not aware of the strategies of other companies, but added the move to idle its Maracaju mill will result in a net reduction of the firm’s operational expenses.
The latest Louis Dreyfus [AKIRAU.UL] earnings report showed an increase on its advanced payments to Biosev for sugar yet to be delivered to $587 million, a detail noted by auditors.
Chammas said pre-payments are a normal operation in the market.
Biosev remains heavily indebted after years of losing money in Brazil due to low sugar and ethanol prices, a period when some 80 mills shut doors. The firm ended the quarter with a net debt of 5.21 billion reais, 3.8 times its earnings before interests, taxes, depreciation and amortization (EBITDA).
Reporting by Marcelo Teixeira; Editing by Bernadette Baum