February 20, 2017 [OPIS] - Raizen Energia, the joint venture between Shell and Brazil's Cosan that focuses on sugar and ethanol production, recorded adjusted EBITDA of 826.1 million reals in the fourth quarter of 2016, representing a 26.6% drop versus the same period in 2015, Cosan reported Thursday.
Cosan said the earnings drop stemmed primarily from lower sugar and ethanol sales volumes, which offset higher average prices. Cosan also noted that a lower crushing volume hit net revenue from electricity cogeneration (see below).
Q4 16 represented the third quarter of the 2016/2017 sugarcane crop year in Brazil’s South Central region. For the first three quarters of the crop year (April through December), Raizen Energia recorded adjusted EBITDA of R$2.34 billion, representing a 2.2% increase from the same period in 2015.
Raizen Energia’s cane crush in Q4 16 totaled 11.3 million tons, representing a year-on-year drop of 31.2%. The decrease is explained by crushing operations being completed earlier than in Q4 15 at most mills.
Over the first nine months of the 2016/2017 crop year (YTD17), the cane crush totaled 59.4 million tons, down slightly (by 0.9%) versus the same period in 2015/2016. Cosan noted that drier weather in the 2016/2017 period resulted in the agricultural yield dropping by 10.7% year on year to 79.6 tons of sugarcane per hectare.
The lower yield in YTD17 was partially offset by higher sugar content, which rose by 0.8% versus the prior-year period to 129.4 kilograms per ton of sugarcane.
The production mix in Q4 16 — with 56% of processed cane going toward sugar production — remained aligned with the sales strategy for the year, i.e. increasing the share of sugar. For YTD17, 57% of processed cane went toward sugar production, up from 55% in the prior-year period.
Raizen Energia’s ethanol sales volumes in Q4 16 were down by 5.6% versus Q4 15, dropping from 1.039 million cubic meters to 980,000 cbm — 806,000 cbm into Brazil’s domestic market and 174,000 cbm into export markets. In Q4 15, ethanol sales into export markets had totaled 556,000 cbm.
Cosan broke down Raizen Energia’s Q4 16 net revenue into three areas: sugar, ethanol and cogeneration.
Sugar: Net revenue in Q4 16 amounted to R$1.4 billion, a year-on-year drop of 13.0%. The reduction stemmed from a 17.4% drop in sales volume versus Q4 15, which was partially offset by a higher average sugar price of R$1,325/ton (up 5.4% versus Q4 15).
Ethanol: Net revenue in Q4 16 was R$1.9 billion, up 1.0% year on year. The improvement reflects a better average price of R$1,918/cbm (up 7.0% versus Q4 15), which was partially offset by the 5.6% drop in sales volume mentioned above.
Cogeneration: Net revenue in Q4 16 amounted to R$118.6 million, down 29.0% versus Q4 15. The sales volume was down by 20.1% in Q4 16 to 673,000 MWh because of lower crushing, which decreased biomass availability. In addition, lower spot prices affected the average sales price, which was down by 11.2% versus Q4 15 to R$176/MWh.
Looking at where inventories stood at the end of Q4 16, sugar inventories were down by 7.5% year on year to 1.253 million tons, and ethanol inventories were down by 25.8% to 638,000 cbm.
