UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2023
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-40155
COSAN S.A.(Exact name of Registrant as specified in its charter)
COSAN INC.(Translation of Registrant’s name into English)
Federal Republic of Brazil(Jurisdiction of incorporation or organization)
Av. Brigadeiro Faria Lima, 4,100 – 16th floorSão Paulo – SP, 04538-132, Brazil+55 11 3897-9797(Address of principal executive offices)
Rodrigo Araujo Alves
+55 11 3897-9797
ri@cosan.com
Av. Brigadeiro Faria Lima, 4,100 – 16th floor
São Paulo – SP, 04538-132, Brazil
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
American depositary shares, each representing four common shares, no par value
CSAN
New York Stock Exchange
Common shares, no par value*
New York Stock Exchange*
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
The number of outstanding shares as of December 31, 2023 was:
Title of Class
Number of Shares Outstanding
Common shares, no par value
1,874,070,932
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP
☒ International Financial Reporting Standards as issued by the International Accounting Standards Board
☐ Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Page
We present our consolidated financial statements in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or “IASB."
The consolidated financial statements are presented in Brazilian reais, the functional and presentation currency of Cosan S.A., or “Cosan” or “Cosan S.A.” and is the currency of the primary economic environment in which Cosan and its subsidiaries and jointly-controlled entity, located in Brazil, operate and generate and expend cash. The functional currency for the subsidiaries located outside Brazil is the U.S. dollar, British pound or the Euro. Cosan S.A. and its subsidiaries are collectively referred to as the “Company,” “we,” “us” and “our.”
Financial Statements
Prior to the Merger, which was completed in 2021, Cosan Limited was the parent company of the group composed of Cosan Limited, Cosan S.A., Cosan Logística and their respective subsidiaries, or the “Cosan Group.” The combined effect of the exchange of shares in Cosan Limited for shares in Cosan S.A. and of Cosan S.A. becoming the sole holding company of our group as a result of Merger is that, in terms of financial presentation, it is as if Cosan Limited changed its name to Cosan S.A. with no further changes other than certain non-controlling interest amounts. The Merger was accounted for using the predecessor method of accounting, through which, the historical operations of Cosan Limited are deemed to be those of Cosan S.A. prior to the Merger. We believe that the presentation of the consolidated financial statements of Cosan Limited, as the predecessor entity of the Cosan Group, provide investors the necessary financial information regarding the Cosan Group both before and after the Merger.
We have included in this annual report our audited consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021.
All references herein to “our financial statements,” “our consolidated financial statements” and “our consolidated financial statements” are to our audited consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021 included elsewhere in this annual report.
Reclassification by Compass
Our subsidiary, Compass Gás e Energia, or “Compass,” performed a reclassification affecting its consolidated financial statements in IFRS for the years ended December 31, 2022, and December 31, 2021. Specifically, its subsidiary Comgás - Companhia de Gás de São Paulo S.A., or “Comgás,” reclassified the effects of the regulatory current account (conta corrente regulatória), or the “CCR,” on its gross profit. More specifically, the State of São Paulo Public Services Regulation Agency (Agência Reguladora de Serviços Públicos do Estado de São Paulo), or ARSESP, through Deliberation No. 1,205 dated August 18, 2021 (NTF-044-2021), published a new regulatory accounting manual and chart of accounts for the piped gas distribution sector applicable to companies subject to its regulation and effective as of fiscal year 2023. According to this rule, ARSESP set forth that the accounting of variations (positive and negative) between the price included in the tariffs and the price actually paid by a concessionaire to a supplier, which are periodically passed on to users through graphical accounts, must be recorded as net operating revenue. The accounting policy under IFRS that we usually applied is consistent with our understanding of the essence of this transaction. We classified the effects of the CCR in our gross profit, but with allocations in the cost of products sold and services provided. In addition, the ARSESP rule states that the classification of expenses and costs may vary in relation to commonly adopted practices in which part of the administrative expenses are also admitted as costs of operations related to piped gas distribution services. These reclassifications do not impact the main indicators, such as profit for the year and equity, used by our indirect subsidiary Comgás and other Compass gas distributors.
As a result of the foregoing, we voluntarily reassessed the way in which we present the classification of the effects of the CCR and general and administrative expenses under IFRS. Accordingly, we assess the adjustments in accordance with IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) treating them as a change in accounting policy and we reclassified the relevant balances in our consolidated statement of profit or loss for the fiscal year ended December 31, 2022, and December 31, 2021, in order to reflect the reclassification performed by Compass. For more information, see note 3.4 to our consolidated financial statements included elsewhere in this annual report.
Certain Corporate Events
Our Corporate Reorganization
On January 22, 2021, the shareholders of Cosan Limited (the former parent company of Cosan and Cosan Logística S.A., or “Cosan Logística”) and the shareholders of Cosan and Cosan Logística approved an intra-group restructuring, consisting of a merger of companies under common control, pursuant to which Cosan Limited and Cosan Logística were merged into Cosan, or the “Merger,” as part of an effort to streamline our operations and to simplify our corporate structure. Cosan is now the sole holding company of the “Cosan Group,” which consists of Cosan and its consolidated subsidiaries.
Interest in Raízen
On June 1, 2011, we and Shell Brazil Holdings B.V., or “Shell,” formed two joint ventures, or the “Joint Venture,” for a combined 50/50 investment, under the names Raízen Combustíveis S.A., or “Raízen Combustíveis” and Raízen Energia e Participações S.A. (currently Raízen Energia S.A.), or “Raízen Energia.”
On June 1, 2021, Cosan and Shell contributed all their respective common shares, as well as class A and D preferred shares issued by Raízen Energia, in a capital increase of Raízen Combustíveis (with the exception of two common shares, each held by one of Cosan Investimentos e Participações S.A., or “CIP,” and Shell Brasil Holding BV). On this date, Raízen Energia also redeemed all of its own class B preferred shares. As a result, Raízen Combustíveis became the holder of the entire share capital of Raízen Energia, and it subsequently changed its corporate name to Raízen S.A. Following this corporate reorganization, Cosan S.A. and Shell terminated the Raízen Energia shareholders’ agreement and amended the Raízen Combustíveis shareholders’ agreement in order to adapt its terms and conditions to the new corporate organization. After the above-mentioned corporate reorganization, Raízen completed its initial public offering whereby its preferred shares with no voting rights were listed on the Nível 2 segment of the São Paulo Stock, Commodities and Futures Exchange (B3 S.A. – Brasil, Bolsa, Balcão), or “B3.”
This reorganization and such initial public offering did not by themselves affect the combined businesses of Raízen Combustíveis and Raízen Energia nor did they affect the respective voting rights of Cosan and Shell in Raízen’s share capital. Accordingly, references to “Raízen” refer, (i) prior to the corporate reorganization as a result of which Raízen Energia became the direct wholly-owned subsidiary of Raízen Combustíveis, to Raízen Energia and Raízen Combustíveis collectively, together with their respective consolidated subsidiaries; and (ii) following the corporate reorganization as a result of which Raízen Energia became the direct wholly-owned subsidiary of Raízen Combustíveis, to Raízen S.A. (the current corporate name of Raízen Combustíveis), together with its consolidated direct or indirect subsidiaries.
Cosan’s total interest in Raízen is made up of a 5.02% direct interest and a 39.15% indirect interest through Cosan’s interest in its subsidiary Cosan Nove S.A., or “Cosan Nove.” We therefore report an equity interest of 25.90% in Raízen, which is calculated by reference to Cosan’s 66.16% equity interest in its subsidiary Cosan Nove multiplied by Cosan Nove’s 39.15% equity interest in Raízen.
For further information, see note 4, “Segment Information,” to our consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021 included elsewhere in this annual report.
Acquisition of Significant Influence in Vale S.A., or “Vale”
During the fourth quarter of 2022, we completed a financial investment in Vale in a series of transactions that allowed us to finance, and hedge against certain risks relating to, the acquisition of Vale’s shares. The acquisition was financed by a combination of new indebtedness and derivatives. Vale is a Brazilian mining company that operates in 20 countries, has investments in energy infrastructure projects and conducts logistics operations through its railroads, ports and terminals.
On October 14, 2022, our subsidiary Cosan Oito S.A., or “Cosan Oito,” completed the R$16,425.4 million investment in the shares of Vale. The investment was comprised of several transactions starting in September 2022, which included: (i) the acquisition of 1.55% of Vale’s shares in the open market for R$4,918.2 million, which exposed us to the risk of changes in the price of Vale’s shares; (ii) the purchase of 3.31% of Vale’s shares in a private placement transaction for R$11,117.8 million, together with derivative financial instruments (from which we received a R$499.2 million premium) that partially hedge our exposure to changes in Vale’s share price; and (iii) the acquisition of a call spread, which consist of a synthetic economic exposure (“forward”) to an additional 1.6% of Vale’s shares in the open market at a predetermined price per share (for which we paid a R$1,134.9 million premium), together with derivative financial instruments that partially hedge our exposure to changes in Vale’s share price, from which we received a R$246.3 million premium (with the option, subject to satisfaction of certain conditions, to negotiate with the derivative banks in good faith to convert this synthetic exposure into outright ownership subject to the same cap and floor prices). Except as otherwise specified herein, all percentages of Vale’s shares as used in this section are based on 4,535,617,099 Vale shares outstanding as of October 31, 2022.
The net cost of the investment in Vale of R$16,425.4 million in the year ended December 31, 2022, was financed through new indebtedness in the aggregate amount of R$16,569.7 million.
A summary of the loans we entered into for the financing of our investment in Vale is set forth in the table below:
Creditor
Issue Date
Aggregate Amount (in millions of reais)
Maturity Date
Interest Rate
Itaú Unibanco S.A.(1)
September 16, 2022
R$4,000.0
September 16, 2023
CDI + 1.35%
Bradesco BBI S.A.(1)
September 27, 2022
September 27, 2023
J.P. Morgan S.A.(2)(3)
October 14, 2022
R$5,141.8
October 1, 2027
3.28% p.a.
Citibank S.A.(2)(3)
R$3,427.9
0.25% p.a.
For protection against the risks involved in the acquisition of a 3.14% of the total outstanding shares of Vale by Cosan Oito, cash-settled derivatives were structured with J.P. Morgan S.A. and Citibank S.A. consisting of a combination of call and put positions that mitigate the risk associated with a decrease in the share price of Vale below certain thresholds, while also allowing Cosan Oito to participate in future share value increases up to a certain threshold. These call and put positions are scheduled to expire periodically between October 2024 and November 2027. At the inception of the transaction, a net premium of R$499.2 million was received for the difference between the put and call options.
In order to secure our right to make an additional financial investment of 1.6% stake in Vale at a later date, cash-settled derivatives were structured consisting of an equity forward plus a combination of call and put options that mitigate share value depreciation risk, while also allowing Cosan Oito to participate partially in future share value increases. These call and put positions are scheduled to expire periodically between October 2024 and November 2027. In the equity forward transaction, we paid the amount of R$1,134.9 million to J.P. Morgan S.A. and Citibank S.A., and in the synthetic collar transaction we received from J.P. Morgan S.A. and Citibank S.A. an amount of R$246.3 million upon entering into these structured derivatives, totaling a net payment by us of a premium of R$888.6 million. We have the option, subject to satisfaction of certain conditions, to negotiate with the derivative banks in good faith to convert the synthetic economic exposure under the equity forward into outright ownership subject to the same cap and floor prices.
On December 23, 2022, Banco Bradesco BBI S.A. invested R$4.0 billion in preferred shares representing 23.2% of the share capital of our subsidiary Cosan Dez Participações S.A., or “Cosan Dez.” As part of the transaction, Cosan S.A. contributed to Cosan Dez its investment in Compass and certain commercial notes issued by Banco Bradesco BBI S.A. Cosan Dez redeemed these commercial notes for a total aggregate amount of R$4.0 billion (including principal plus interest until the redemption date) using the proceeds from the issuance of its preferred shares. As a result of the transaction, Cosan Dez now holds 88.0% of Compass’s shares, and, as the holder of preferred shares in Cosan Dez, Banco Bradesco BBI S.A. has a preferential right to the receipt of dividends or other distributions from Cosan Dez. We have also entered into a shareholders’ agreement with Banco Bradesco BBI S.A. with respect to Cosan Dez. In addition, on December 28, 2022, Itaú Unibanco S.A. invested R$4.1 billion in preferred shares representing 26.9% of the share capital of our subsidiary Cosan Nove Participações S.A., or “Cosan Nove.” As part of the transaction, Cosan S.A. contributed to Cosan Nove its investment in Raízen and certain commercial notes issued by Itaú Unibanco S.A. Cosan Nove redeemed these commercial notes for a total aggregate amount of R$4.1 billion (including principal plus interest until the redemption date) using the proceeds from the issuance of its preferred shares. As a result of the transaction, Cosan Nove now holds 39.1% of Raízen’s shares, and, as the holder of preferred shares in Cosan Nove, Itaú Unibanco S.A. has a preferential right to the receipt of dividends or other distributions from Cosan Nove. We have also entered into a shareholders’ agreement with Itaú Unibanco S.A. with respect to Cosan Nove.
We initially recorded our shareholding in Vale as a financial asset accounted for at fair value in accordance with IFRS 9. On April 28, 2023, at Vale’s general shareholder’s meeting, our then-chief executive officer, Luis Henrique Cals de Beauclair Guimarães, was elected as a member of Vale’s board of directors, and, on May 16, 2023, was appointed coordinator of Vale’s capital and projects allocation committee, or the “CACP,” and a member of Vale’s people and compensation committee, or “CPR.” From January 1, 2024, Mr. Guimarães left his position as our chief executive officer, while remaining a member of our board of directors.
During the year ended December 31, 2023, we monitored the factors that could indicate our having significant influence in Vale, given Mr. Guimarães’ participation in Vale’s CACP and CPR. On November 30, 2023, we obtained sufficient evidence that demonstrated our ability to exert significant influence on Vale’s policies and operations, given that Mr. Guimarães was able to participate in policy-making processes, including decisions relating to dividends and other distributions. From this date, we began to consider Vale as a related company over which we have significant influence and to account for our investment in Vale using the equity method in accordance with IAS 28. As of December 31, 2023, we had a 4.65% interest in Vale, reflecting the sale of shares equivalent to 0.21% of Vale’s total share capital since we started accounting for Vale using the equity method. For more information, see note 1.1 to our consolidated financial statements included elsewhere in this annual report.
As shown in the table below, in the fourth quarter of 2023 and the first months of 2024, we accelerated the settlement of the indebtedness tied to the acquisition of Vale shares, as well as the collar financing derivatives tied to this transaction.
Reference Date
Direct Interest
Interest through Collar
Total Interest in Vale’s Share Capital
Aggregate Amount (in millions of reais) – Principal Debt Settlement
Inception date (October 2022)
1.47%
3.14%
4.61%
8,569.6
August 2023
1.65%
3.21%
4.85%
(275.9)
October 2023
1.75%
3.11%
(252.5)
November 2023
2.45%
2.40%
(1,844.0)
January 2024
2.62%
2.03%
4.65%
(1,698.6)
February 2024
3.91%
0.74%
(2,068.0)
April 2024
—
(1,918.8)
On April 19, 2024,we concluded the sale of a further 33,524,185 shares of Vale, equivalent to 0.78% of Vale’s outstanding share capital, and also repaid the remaining indebtedness assumed in connection with our investment in Vale. With this final advance payment, we settled all of our indebtedness tied to this transaction and the collar financing derivatives.
Additionally, in May 2024, we carried out the early settlement of the first tranche of the call spread derivative structure equivalent to 10,786 million shares of Vale, or 0.24% of Vale’s outstanding share capital. This had the effect of settling the obligations due in 2024 under the call spread derivative structure and of reducing our direct interest in Vale from 1.58% to 1.34% of Vale’s outstanding share capital.
Special Note Regarding Non-GAAP Financial Measures
This annual report presents our Net debt, which is a non-GAAP financial measure. A non-GAAP financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.
We calculate Net debt as current and non-current loans, borrowings and debentures plus preferred shareholders payable in subsidiaries plus cash and cash equivalents plus current and non-current marketable securities plus derivatives on debt. Our calculation of Net debt may differ from the calculation of similarly titled measures used by other companies.
Our management believes that disclosure of Net Debt is useful to potential investors as it helps to give them a clearer understanding of our financial liquidity. Net Debt is also used to calculate certain leverage ratios. However, Net Debt is not a measure under IFRS and should not be considered as a substitute for measures of indebtedness determined in accordance with IFRS. For a reconciliation of Net debt to the most directly comparable IFRS measure, see “Item 3. Key Information—A. Selected Financial Data.”
Market Data
We obtained market and competitive position data, including market forecasts, used throughout this annual report from market research, publicly available information and industry publications, as well as internal surveys. We include data from reports prepared by LMC International Ltd., the Central Bank of Brazil (Banco Central do Brasil), or the “Brazilian Central Bank,” the Sugarcane Agroindustry Association of the state of São Paulo (União da Agroindústria Canavieira de São Paulo), or “UNICA,” the Brazilian Ministry of Agriculture, Livestock, and Supply (Ministério da Agricultura, Pecuária e Abastecimento), or “MAPA,” the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or “IBGE,” the Brazilian Ministry of Development, Industry and Foreign Trade (Ministério do Desenvolvimento e do Comércio Exterior), or “MDIC,” the Brazilian Ministry of Infrastructure (Ministério da Infraestrutura), or “MI,” the Food and Agriculture Organization of the United Nations, or “FAO,” the National Traffic Agency (Departamento Nacional de Trânsito—DENATRAN), the Brazilian Association of Vehicle Manufactures (Associação Nacional dos Fabricantes de Veículos Automotores—ANFAVEA), Datagro Publicações Ltda., F.O. Licht, Czarnikow, Apoio e Vendas Procana Comunicações Ltda., the B3, the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM,” the International Sugar Organization, the Brazilian National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES,” the New York Board of Trade, or “NYBOT,” the New York Stock Exchange, or “NYSE,” the Brazilian Agricultural Research Corporation (Empresa Brasileira de Pesquisa Agropecuária), or “Embrapa,” the Brazilian Secretariat for Foreign Trade (Secretaria de Comércio Exterior), or “Secex,” the National Supply Company (Companhia Nacional de Abastecimento), or “Conab,” the United States Department of Agriculture, or “USDA,” the London Stock Exchange, the National Agency of Petroleum, Natural Gas and Biofuels (ANP – Agência Nacional do Petróleo, Gás Natural e Biocombustíveis), or “ANP,” the Brazilian Antitrust Authority (Conselho Administrativo de Defesa Econômica), or the “Brazilian Antitrust Authority,” the National Union of Distributors of Fuels and Lubricants (Sindicato Nacional das Empresas Distribuidoras de Combustíveis e de Lubrificantes), or “Sindicom,” the Sanitation and Energy Regulatory Agency for the state of São Paulo (Agência Reguladora de Energia de São Paulo), or “ARSESP,” the Brazilian Gas Distributors Association (Associação Brasileira das Empresas Distribuidoras de Gás), or “ABEGÁS,” the Agriculture School of the University of São Paulo (Escola Superior de Agricultura Luiz de Queiroz), or “ESALQ,” the National Waterway Transportation Agency (Agência Nacional de Transportes Aquaviários), or “ANTAQ,” the Brazilian Transportation Authority (Agência Nacional de Transporte Terrestre), or “ANTT,” Estação da Luz Participações Ltda., or “EDLP,” the National Electric Energy Agency (Agência Nacional de Energia Elétrica), or “ANEEL,” and the Chamber of Electric Energy Commercialization (Câmara de Comercialização de Energia Elétrica), or “CCEE.” We believe that all market data in this annual report is reliable, accurate and complete.
Terms Used in This Annual Report
In this annual report, we present information in gallons, liters and cubic meters (m³ or cbm). In addition, we also present information in tons. In this annual report, references to “ton” or “tonne” refer to the metric tonne, which is equal to 1,000 kilograms.
All references in this annual report to “TSR” are to total sugar recovered, which represents the total amount of sugar content in a given quantity of sugarcane.
All references in this annual report to “RTK” mean revenue ton kilometer.
All references to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references in this annual report to “U.S. dollars,” “dollars” or “U.S.$” are to U.S. dollars. All references to the “Euro,” “Euros,” “€” or “EUR” are to the official currency of the European Union. All references to the “Yen,” “¥” or “JP¥” are to the Japanese Yen, the official currency of Japan. All references to the “Pound Sterling”, “Pounds”, “£” are to the British Pound, the official currency of the United Kingdom.
Rounding
We have made rounding adjustments to reach some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
This annual report contains estimates and forward-looking statements, mainly under “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects.” Some of the matters discussed concerning our business and financial performance include estimates and forward-looking statements.
Our estimates and forward-looking statements are mainly based on our current expectations and estimates on projections of future events and operating and financial trends, which affect or may affect our industry, market share, reputation, businesses, financial condition, results of operations, margins and/or cash flow. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties, are made in light of information currently available to us and should not be considered a guarantee of the results of operations we may achieve. Many significant factors in addition to those stated in this annual report may adversely affect our current estimates and forward-looking statements, and whether these estimates or statements may be realized. Our estimates and forward-looking statements may be influenced by the following factors, among others:
The words “believe,” “should,” “may,” “might,” “could,” “seek,” “aim,” “likely,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and other similar words used in this annual report are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.
Not applicable.
The following tables present selected historical financial and operating data for the Company derived from our consolidated financial statements. You should read the following information in conjunction with our consolidated financial statements and related notes, and the information under “Item 5. Operating and Financial Review and Prospects” in this annual report.
The financial data as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021 have been derived from our consolidated financial statements using the predecessor method of accounting prepared in accordance with IFRS as issued by the IASB and included elsewhere in this annual report. See “Presentation of Financial and Other Information—Financial Statements.”
As of and for the fiscal year ended December 31,
2023
2022
2021
(in millions of reais, except where otherwise indicated)
Consolidated Profit or Loss Data:
Net sales(1)
39,468.5
39,322.8
26,093.2
Cost of sales(1)
(28,549.9
(30,556.8
(20,263.2
Gross profit(1)
10,918.6
8,766.0
5,829.0
Selling expenses
(1,350.6
(1,276.3
(723.4
General and administrative expenses(1)
(2,528.0
(1,758.1
(1,401.6
Other income, net
3,924.4
1,752.2
382.6
Total operations expenses
45.8
(1,282.2
(1,724.4
Profit before equity in earnings of investees, finance results and income taxes
10,964.4
7,483.8
4,087.6
Equity in earnings of investees
2,046.3
326.7
4,720.9
Finance results, net
(7,897.0
(5,157.9
(2,557.6
Profit before income taxes
5,113.8
2,652.6
6,250.9
Income taxes:
Current
(1,645.1
(1,247.0
(787.6
Deferred
1,370.6
1,365.4
1,233.2
(274.4
118.4
445.6
Profit for the year
4,884.7
2,820.9
6,696.5
Profit attributable to non-controlling interests
3,790.4
1,644.8
384.3
Profit attributable to owners of the Company
1,094.3
1,176.0
6,312.1
Consolidated Statement of Financial Position Data:
Cash and cash equivalents
14,658.5
13,301.7
16,174.1
Marketable securities (current and non-current)
3,504.0
22,099.8
4,388.0
Inventories
1,792.7
1,869.1
1,149.3
Right-of-use assets
9,513.5
8,012.9
7,947.3
Property, plant and equipment
21,240.0
18,948.4
16,648.6
Intangible assets and goodwill
22,650.3
22,121.9
17,781.5
Total assets
139,865.4
134,485.0
97,842.0
Current liabilities
16,158.8
15,798.2
12,957.0
Non-current liabilities
72,725.4
70,517.4
56,015.0
Loans, borrowings and debentures (current and non-current)
56,904.7
52,987.2
45,659.0
Preferred shareholders payable in subsidiaries
Provision for legal proceedings
1,714.4
1,801.2
1,644.1
Equity attributable to owners of the Company
20,955.3
20,653.2
14,740.9
Equity attributable to non-controlling interests
30,025.9
27,516.2
14,129.1
Total shareholders’ equity
50,981.2
48,169.4
28,870.0
Consolidated Other Financial Data:
Depreciation and amortization
3,364.9
3,014.5
2,504.4
Net debt(2)
39,733.0
18,814.7
21,463.5
Working capital(3)
12,451.4
9,779.7
14,336.1
Cash flow provided by (used in):
Operating activities
10,276.4
9,972.2
5,147.2
Investing activities
(4,303.1
(20,726.6
(5,446.8
Financing activities
(4,516.6
8,286.3
2,319.4
Basic earnings per share from continuing operations(4)
0.58
0.62
3.44
Diluted earnings per share from continuing operations(4)
3.43
Number of shares outstanding(4)
1,867,556,421
1,866,638,100
1,868,630,160
Declared dividends (millions of reais)
2,375.6
1,237.8
2,031.3
Declared dividends (millions of U.S. dollars)
475.1
237.2
503.4
Declared dividends per share (reais)(4)
0.5778
0.6631
1.0858
Declared dividends per share (U.S. dollars)(4)
0.1156
0.1271
0.2694
Other Operating Data:
Crushed sugarcane (in million tons)
83.5
73.4
54.2
Sugar production (in million tons)
5.8
4.8
3.7
Ethanol production (in billion liters)
3.1
3.0
2.2
Volume of fuel sold (in million liters)
35,295.4
34,820.7
33,178.2
Volume loaded (Rumo) (in million tons)
10.8
12.5
Transported volume (Rumo) (in million TKU)
77,258.4
74,944.0
64,028.0
Natural gas (Compass) (in million m³)
4,926.7
5,295.0
4,859.0
Volume of finished goods and base oil sold (in million liters)
665.5
524.7
388.7
The information in the table below presents a reconciliation of Net debt, a non-GAAP financial measure, the most directly comparable IFRS financial measure. Our calculation of Net debt may differ from the calculation of similarly titled measures used by other companies. Our management believes that disclosure of Net Debt is useful to potential investors as it helps to give them a clearer understanding of our financial liquidity. Net Debt is also used to calculate certain leverage ratios. However, Net Debt is not a measure under IFRS and should not be considered as a substitute for measures of indebtedness determined in accordance with IFRS.
As of December 31,
Current loans, borrowings and debentures
4,882.4
4,542.2
4,241.4
Non-current loans, borrowings and debentures
52,022.3
48,445.0
41,417.7
Total
(14,658.5
(13,301.7
(16,174.1
Current marketable securities
(3,407.9
(2,422.5
(4,372.7
Noncurrent marketable securities
(96
(19,677.3
(15.3
(18,162.5
(35,401.5
(20,562.1
Derivatives on debt, net (1)
990.8
1,228.9
(3,633.4
Net debt(1)(2)
This section is intended to be a summary of more detailed discussion contained elsewhere in this annual report. Our business, financial condition or results of operations could be materially and adversely affected by any of the risks and uncertainties described below. As a result, the market price of our common shares and ADSs could decline, and you could lose all or part of your investment. Additional risks not presently known to us, or that we currently deem immaterial, may also impair our financial condition and business operations.
Summary of Risk Factors
The following summarizes the principal factors that make an investment in our company speculative or risky, all of which are more fully described in the Risk Factors below. This summary should be read in conjunction with the Risk Factors below and should not be relied upon as an exhaustive summary of the material risks facing our business. The following factors could result in harm to our business, reputation, revenue, financial results, and prospects, among other impacts:
Summary of Risks Related to Our Businesses and the Industries in Which We Operate Generally
Summary of Risks Related to Our American Depositary Shares and Our Common Shares
Summary of Risks Related to the Countries in Which We Operate
Risks Related to Our Businesses and the Industries in Which We Operate Generally
The expansion of our business through acquisitions and strategic alliances creates risks that may reduce the benefits we anticipate from these transactions.
We have grown substantially through acquisitions and intend to continue to grow by acquiring, or investing in, directly or indirectly, from time to time, businesses considered suitable by our management that are consistent with our values and which we believe are conducive to generating results. Additionally, we may enter into strategic alliances to increase our competitiveness in the markets in which we operate.
Despite our recent expansion, our management is unable to predict whether and when any new acquisitions or strategic alliances will occur or the likelihood that any particular transaction will be completed on favorable terms and conditions. Our ability to continue to expand our business through acquisitions or alliances depends on many factors, including its ability to identify acquisition opportunities or access capital markets on acceptable terms. Even if we are able to identify opportunities and obtain the resources necessary to do so, financing these acquisitions could result in an over-commitment on our part.
Acquisitions, particularly those involving sizeable enterprises, may bring managerial and operational challenges, including the diversion of management’s attention from existing operations and difficulties in integrating operations and personnel. Any material failure by us in integrating new businesses or in managing any new alliances may adversely affect our business and financial performance. Additionally, some of our major competitors may pursue growth through acquisitions and alliances, which may reduce the likelihood that we will be successful in completing acquisitions and alliances. In addition, any major acquisition we consider may be subject to antitrust and other regulatory approvals. We may not be successful in obtaining required approvals on a timely basis or at all.
Acquisitions also expose us to the risk of successor liability-related actions involving any acquired entity, their respective management or contingent liabilities incurred before the acquisition. The due diligence investigation conducted in connection with an acquisition, and any contractual guarantees or indemnities that we may receive from sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. Material liabilities associated with an acquisition, such as labor or environmental liabilities, could materially and adversely affect our reputation, business, operating results or financial condition, and reduce the benefits that we expect to result from such acquisition.
On October 14, 2022, our subsidiary Cosan Oito completed the acquisition of a noncontrolling interest in Vale. For more information about the risks related to the acquisition of the interest at Vale, see “—Since the consummation of our significant financial investment in Vale in the fourth quarter of 2022, we have been exposed to risks affecting Vale .”
We may not successfully acquire or develop additional production capacity through greenfield projects or expansion of existing facilities.
We may explore growth opportunities in the future through the acquisition or development of greenfield projects or through the expansion of our existing facilities. We may be unable to complete these projects on a timely basis or at all, and may not realize the related benefits we anticipate. The factors which may prevent us from doing so include, among other things, (i) our failure to obtain environmental and other licenses; (ii) our inability to obtain supplies of appropriate equipment or raw materials; (iii) increases in costs and/or decreases in revenue; (iv) a lack of qualified workforce; (v) lack of service providers; and (vi) our inability to obtain any required financing on satisfactory terms, or at all.
Our greenfield projects and/or expansion of existing facilities require a significant number of service providers. Any inability on our part to enter into contracts with duly qualified service providers who are able to provide the technical services that we require may prevent us from completing our greenfield projects and/or expansions of existing facilities on a timely basis, or at all. In addition, the integration of greenfield projects or expansion of our existing facilities may result in unforeseen operating difficulties and may require significant financial and managerial resources that would otherwise be used for our current operations. Planned or future greenfield projects or expansions of existing facilities may not enhance our financial performance. Any failure in the implementation of growth projects and/or expansion of existing facilities may have a material adverse effect on our business, financial condition and results of operations.
We may be unable to implement our growth strategy successfully.
Our future growth and financial performance depend, in part, on the successful implementation of our business strategy, including (i) our ability to maintain our existing client base, increase volume from existing clients in specific markets and locations and attract new clients, (ii) our capacity to finance investments (through indebtedness or otherwise), or (iii) our ability to increase our operational capacity and expand our current capacity to supply to new markets, among others. We cannot assure you that we will be able to achieve these objectives and/or strategies successfully or at all. Our failure to achieve any of these objectives and/or strategies as a result of competitive difficulties, cost increases or restrictions on our ability to invest, among other factors, may limit our ability to implement our growth strategy successfully. We may need to incur additional indebtedness in order to finance new investments to implement our growth strategy. Unfavorable economic conditions in Brazil and in the global credit markets, such as high interest rates on new loans, reduced liquidity or reduced interest of financial institutions in granting loans may limit our access to new credit. Furthermore, failure to achieve our expected growth may have a material adverse effect on our business, financial condition, results of operations and ability to repay our debt obligations.
The ongoing war between Russia and Ukraine and conflicts in the Middle East may have a material adverse effect on the global and Brazilian economies as well as on us.
Russia’s invasion of Ukraine on February 24, 2022 marked the beginning of an ongoing war between the two countries which has materially affected the global economy and international relations. The conflict has already caused strong reactions from the United States, the United Kingdom, the European Union (“EU”), and other countries around the world, notably the members of the North Atlantic Treaty Organization (“NATO”), which have applied broad economic sanctions against Russia, including financial and trade measures. The United States, the EU, and the United Kingdom have taken measures against Russian businesses and governmental entities, the Russian central bank and others, such as sanctioning individuals with close ties to the Russian president, imposing visa restrictions on several oligarchs, as well as their family members and close associates, and blocking or freezing assets. In addition, several countries have already provided support to Ukraine, with the supply of financial resources, weapons and equipment, as well as other humanitarian aid, which may lead to the internationalization of the conflict.
The war has already resulted in significant volatility in the financial markets, depreciation of the Russian ruble and the Ukrainian hryvnia against the U.S. dollar and other currencies, and rising energy and commodity prices around the world. If the conflict continues or escalates, markets may face continued volatility as well as economic and security consequences, including but not limited to supply shortages of different products, further increases in commodity prices, including piped natural gas, higher energy prices, higher prices of foodstuffs, and market volatility, among others.
The potential consequences of the war for us include, without limitation:
Other potential consequences include, but are not limited to, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by the conflict or economic sanctions, increased cyberterrorism activities and attacks, an exodus from regions close to the areas of conflict and an increase in the number of refugees fleeing across Europe, among other unforeseen social and humanitarian effects.
In addition, on October 7, 2023, Hamas launched an attack on Israel killing hundreds of Israeli civilians. In response, Israel declared war against Hamas, targeting the Gaza Strip. The war is causing a humanitarian crisis and could lead to an escalation of the conflict in the region, rise in oil and gas prices, more inflationary pressures and market volatility, among others. In the aftermath of the conflict, there have been a number of attacks elsewhere in the Middle East, prompting fears that the conflict may spread. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on global political and economic conditions in the long term.
The effects of the war between Russia and Ukraine and the conflicts in the Middle East are ongoing, and its continuation or escalation could precipitate or aggravate the other risk factors identified in this annual report, which in turn could further materially and adversely affect our business, financial condition, liquidity, results of operations and profitability, including in ways not currently known or considered by us to present material risks.
We may engage in hedging transactions which could have material adverse effect on our results.
We are exposed to market risks arising from the conduct of our business activities—in particular, market risks arising from changes in commodity prices, exchange rates or interest rates. In an attempt to minimize the effects of the volatility of prices and exchange rates on our cash flows and results of operations, for example, we engage in hedging transactions involving commodities and exchange rate futures, options, forwards and swaps. We also engage in interest rate-related hedging transactions from time to time. These transactions expose us to the risk of financial loss. In particular, Raízen enters into hedging transactions against market price fluctuations by fixing the prices of our sugar export volumes and exchange rates. Any fluctuations in market prices could therefore have a material adverse effect on our business, financial condition and results of operations. Alternatively, we may choose not to engage in hedging transactions in the future, which could have a material adverse effect on our financial performance during periods in which commodities prices decrease.
Climate change can create transition risks, physical risks and other risks that could adversely affect us.
Climate risk is a transversal risk that can be an aggravating factor for the types of traditional risks that we manage in the ordinary course of business, including without limitation the risks described in this “Risk Factors” section. Based on the classifications used by Task-Force on Climate-Related Financial Disclosures, we consider that there are two primary sources of climate change-related financial risks: physical and transition.
Physical risks resulting from climate change can be event-driven (acute) or long-term shifts (chronic) in climate patterns. Acute physical risks include increased severity of extreme weather events, such as drought, hurricanes or floods. Chronic physical risks include changes in precipitation patterns and extreme variability in weather patterns, rising mean temperatures, chronic heat waves or rising sea levels.
Especially in Brazil, rainfall patterns have been constantly changing, causing certain regions to experience rainfall volumes far above historical averages, resulting in floods and inundations and landslides in hillside and mountain regions. Such changes in rainfall patterns could have an adverse effect on our production and distribution capacity, affecting crop harvests as well as our ability to produce sugar and ethanol, generate energy, distribute our products and provide services to our customers.
In May 2024, the state of Rio Grande do Sul, located in the southern part of Brazil, was impacted by extreme weather leading to severe floods that caused damage to the region’s railway assets, significantly disrupted logistics in the region and caused damage to the “Malha Sul” network operated by Rumo which resulted in a material adverse effect on Rumo. The extent of the damage raises uncertainties about the process of renewing the concession which is scheduled to expire in February 2027. In this context in the quarter ended on June 30, 2024 and in accordance with Circular Letter No. 01/2024-CVM/SNC/SEP, Rumo provisioned the amount of R$2.4 billion for impairment losses arising from a possible failure to renew this concession and recorded a provision for asset write-offs of R$182 million.
During the flooding period in the state of Rio Grande do Sul, Sulgás, a direct subsidiary of Compass and an indirect subsidiary of Cosan, was mostly able to maintain regular supply of natural gas to the region, but as a safety measure, it suspended the supply intermittently to approximately 2.0% of its customers.
The occurrence of storms and floods may also influence the cost to insure our assets, especially those in high-risk regions, where storms, tornadoes and other extreme events are more pronounced. In periods of scarcity of rain, water deficiency occurs because of the decrease in the levels of water reservoirs, with an influence on the availability and costs of electric energy, considering the dependence on energy generated through hydroelectric plants, as well as on crop harvests. The scarcity of rains combined with low levels of reservoirs can lead governments and authorities to restrict industrial activities and direct water for human consumption. The increase in average temperatures may have an impact on our operating costs due to the greater demand for cooling and air conditioning to produce, store and transport some of our products. Historically, in periods of water scarcity, the Brazilian government authorizes an increase in the energy prices as a measure to stimulate the reduction of consumption, which can create inflationary pressure, with impacts on the income levels of the population in general, on production costs and on the final price of products, which consequently affects our revenues and results. Extreme and prolonged changes in rainfall patterns and an increase in temperatures can influence production cycles in certain regions, and droughts can influence the increase in fires and devastation, which may adversely affect our facilities. Additionally, they can also cause a reduction in revenue and an increase in costs due to negative impacts on our employees and suppliers, such as increased absenteeism and issues involving health and safety.
The impact of climate change poses tangible physical risks to the operations of certain of our subsidiaries, as follows:
These requirements may increase going forward as a result of the increasing importance of environmental matters, which could expose us to increased compliance costs and limit our ability to pursue certain business opportunities and provide certain products and services, each of which could adversely affect our business, financial condition and results of operations.
The impact of climate change poses tangible transition risks to the operations of certain of our subsidiaries, as follows:
We may face conflicts of interest in transactions with related parties.
We engage in business and financial transactions with our controlling shareholder and other shareholders that may create conflicts of interest between our Company and these shareholders. Commercial and financial transactions between our affiliates and us, even if entered into on an arm’s-length basis, create the potential for, or could result in, conflicts of interest. See “Major Shareholders and Related Party Transactions—B. Related Party Transactions.”
Technological advances could affect demand for our products and services or require substantial capital expenditures for us to remain competitive.
The development and implementation of new technologies may result in a significant reduction in the costs of the products and services we provide. We cannot predict when new technologies may become available, the rate of acceptance of new technologies by our competitors or the costs associated with such new technologies. Advances in the development of alternatives to the products and services which we currently sell could significantly reduce demand or eliminate the need for them.
For example, the development of alternative products to sugar, ethanol and natural gas may reduce the demand for our products or materially reduce the demand for ethanol or natural gas to be used as a source of energy, and the use of alternative sweeteners may adversely affect the overall demand for sugar in Brazil and abroad, which could have a material adverse effect on our business, financial condition and results of operations.
Any advances in technology which require significant capital expenditures to remain competitive or which otherwise reduce demand for our products and services will have a material adverse effect on our business and financial performance. Any other alternative products or technological advances which reduce demand for the products of our subsidiaries and joint ventures may have a material adverse effect on our results of operations and financial condition.
Any failure of our information technology systems could adversely affect our operating results and make us more susceptible to cyber threats, adversely affecting our business.
We depend on information technology systems for significant elements of our operations, including the storage of data and retrieval of critical business information. Our information technology systems are vulnerable to damage from a variety of sources, including network failures, malicious human acts, and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses, and similar disruptive problems. Failures or significant disruptions to our information technology systems or those used by our third-party service providers could prevent us from conducting our general business operations. Any disruption or loss of information technology systems on which critical aspects of our operations depend could have an adverse effect on our business, results of operations, and financial condition.
Furthermore, we store highly confidential information on our information technology systems, including information related to our products. If our servers or the servers of the third party on which our data is stored are attacked by a physical or electronic break-in, computer virus or other malicious human action, our confidential information could be stolen or destroyed. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of our suppliers, customers, or others, whether by us or a third party, may (i) subject us to civil and criminal penalties; (ii) adversely impact our reputation; and (iii) expose us to liability to our suppliers, customers, other third parties or governmental authorities, among others. Any such developments may adversely affect our business, financial condition and results of operations.
In addition, any failure of our information technology systems to operate effectively or integrate with other systems, or inadequate performance of, or breaches of security regarding, such systems could result in interruptions in the availability of our online resources, delays in delivering products or services and reduced efficiency in our operations. Each of these factors may adversely affect our businesses as well as their financial condition, results of operations and reputation. We also hold certain highly confidential personal and financial data relating to our customers in our information technology systems. Any failures in the information technology systems on which we depend or any breaches resulting in the unauthorized disclosure of the personal or financial data of our customers may adversely affect our business, financial condition, results of operations and reputation.
We were the target of a cybersecurity incident which disrupted our systems, and we could be the target of attempted cyber threats in the future, which could adversely affect our business.
We face various cybersecurity risks, including but not limited to penetration of our information technology systems and platforms by ill-intentioned third parties, infiltration of malware (such as computer viruses) into our systems, contamination (whether intentional or accidental) of our networks and systems by third parties with whom we exchange data, unauthorized access to confidential customer and/or proprietary data by persons inside or outside our organization, cyberattacks causing systems degradation or service unavailability that may result in business losses, and risks associated with the use of emerging technologies such as artificial intelligence.
In addition, we may be subject to potential fraud and theft by cybercriminals, who are becoming increasingly sophisticated, seeking to gain unauthorized access to or exploit weaknesses that may exist in our systems. We continuously monitor and develop our networks and information technology infrastructure. We also conduct annual tests to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have an impact on our security. However, we cannot guarantee that these measures will be effective in protecting us against cyberattacks and other breaches related to our information technology systems. Techniques used to gain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems, due to constant evolution, can be difficult to detect quickly and are often not known until used on a target. Unauthorized parties may attempt to gain access to our systems or facilities through various means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems to disclose usernames, passwords, financial information or other sensitive information, which may in turn be used to access our information technology systems. Certain efforts by third parties to access our information technology systems may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. We have seen in recent years computer systems of businesses and organizations being targeted not only by cyber criminals, but also by rogue activists and states. Cyberattacks can cause the loss of significant amounts of customer data and other confidential information, as well as significant levels of liquid assets (including cash). In addition, cyberattacks could cause the shutdown of our information technology systems, including systems used to service our customers. We may also be subject to the effects of cyberattacks against critical infrastructure in Brazil and other countries in which we operate, and we have limited ability to protect our technology systems against such attacks.
If we fail to effectively manage our cybersecurity risk, for example, by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of customer compensation, regulatory penalties and fines and/or the loss of assets. Furthermore, upon a failure to comply with applicable laws and regulations, we may be ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.
Moreover, critical infrastructures that our information technology systems rely on in Brazil and other countries in which we operate may be the target of cyberattacks, which could negatively affect our ability to service our customers.
Further, we store highly confidential information on our information technology systems, including personal data, financial information, and other types of information related to our products and customers. If our servers or the servers of the third parties on which our data is stored are the subject of a physical or electronic break-in, computer virus or other cyber risks, our confidential information could be stolen, rendered unavailable, devalued or destroyed. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of our suppliers, customers, or others, whether by us or a third party, could (i) subject us to civil and criminal penalties, (ii) have a negative impact on our reputation or (iii) expose us to liability to our suppliers, customers, other third parties or government authorities.
We cannot assure you that our information technology systems will not be attacked in the future, that we will be able to adequately protect the confidential information we maintain. If we are the victim of successful cyberattacks or experience cybersecurity incidents in the future, we could incur substantial costs and suffer other negative consequences, such as remediation costs (liabilities for stolen assets or information or repairs of system damage, among others), increased cybersecurity protection costs, lost revenue from unauthorized use of proprietary information or the failure to retain or attract customers after an attack, as mentioned above, litigation and legal risks, increased insurance, reputational damage affecting the trust of our customers and investors, as well as damage to our competitiveness, stock price, and long-term shareholder value. Any failure by us to adequately protect our information technology systems and the confidential data which we hold could have a material adverse effect on our business, financial condition and results of operations. Importantly, even when a failure or disruption to our systems or facilities is resolved in a timely manner or an attempted cyber incident or other security breach is successfully prevented or thwarted, substantial resources are typically expended to do so, and we may be required to take actions that could negatively affect customer satisfaction or behavior and could pose a threat to our reputation.
On March 11, 2020, our subsidiaries and jointly controlled companies suffered a cyberattack by ransomware that caused a partial and temporary interruption of our operations, as widely disclosed by the Company at that time. Following the incident, we have taken certain additional precautionary measures to reduce cyber risks. We cannot assure you that our security frameworks and measures will be successful in preventing future cyberattacks. In addition, we expect that the cost to obtain cyber liability insurance in the future should we wish to do so (we do not currently have cyber liability insurance) will be higher than they would otherwise have been as a result of this incident.
Any of the above developments could adversely affect our business, as well as its financial condition, results of operations and reputation. See “Item 16K. Cybersecurity” for additional information regarding our cybersecurity risk management.
Failure to comply with the Brazilian General Data Protection Law may adversely affect our business.
Until the entry into force of Law No. 13,709/2018, or the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados Pessoais), or the “LGPD,” the processing of personal data in Brazil was regulated by a series of rules scattered throughout legislation such as the Brazilian Federal Constitution, Law No. 8,078/1990, or the Consumer Protection Code, and the Brazilian Civil Framework for the Internet. The LGPD, which came into force on September 18, 2020, regulates practices related to the processing of personal data in Brazil, through a system of rules that impacts all sectors of the economy and establishes, among other measures, protection rights for the holders of personal data. In cases where the processing of personal data is permitted through legal bases, there are obligations and requirements related to information security incidents, such as leakage of personal data and transfer of personal data, as well as sanctions for non-compliance. In addition, the LGPD authorized the creation of the National Data Protection Authority (Autoridade Nacional de Proteção de Dados), or ANPD, which is responsible for developing guidelines and applying administrative sanctions in case of non-compliance with the LGPD. The administrative sanctions provided for in the LGPD (art. 52, 53 and 54), came into effect on August 1, 2021, under Law no. 010/2020; if we are not in compliance with the LGPD, we will be subject to the following sanctions, in isolation or cumulatively: (i) warning, with an indication of the deadline for adopting measures; (ii) fines of up to 2% of the revenue of the group’s last fiscal year, excluding taxes, up to an overall amount of R$50 million per violation; (iii) daily fines up to the limit referred to in item B; (iv) an incident disclosure obligation; (v) temporary blocking and/or deletion of personal data; (vi) partial suspension of the database to which the infraction relates for a period of up to six months, extendable for the same period, until the personal data processing is regularized; (vii) suspension of the exercise of the personal data processing activity to which the infraction relates for a period of up to six months, extendable for the same period; and (viii) partial or total prohibition from exercising activities related to data processing.
In addition to administrative sanctions, failure to comply with any provisions set forth in the LGPD has the following risks: (i) the filing of legal, individual or collective actions seeking compensation for damages arising from violations, based not only on the LGPD, but on sparse and sectorial legislation on current data protection; and (ii) the application of the penalties provided for in the Consumer Protection Code and the Brazilian Civil Framework for the internet by some consumer protection agencies, since they have already acted in this regard, even before the validity of the LGPD and the effective structuring of the ANPD, especially in cases of security incidents that result in breaches of personal data. Therefore, failures in the protection of personal data processed by us as well as failure to comply with the applicable legislation, including those related to cybersecurity incidents and other events of failures in our information technology systems, may result in high fines, disclosure of the incident to the market, elimination of personal data from the base and even suspension of activities, resulting in costs that may have an adverse and negative effect on our reputation, results, the value of our ADSs and our common shares.
Our performance depends on maintaining functioning labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs could adversely affect our business.
All of our employees are represented by labor unions. Our relationships with these organizations are governed by labor agreements or collective bargaining agreements which we negotiate with labor unions. Upon the expiry of such agreements, we are required to renegotiate new agreements with the applicable labor union. As part of these renegotiations, new terms and conditions may be established. In certain cases, these agreements may not be renewed, which could lead to strikes and/or stoppages in our activities and have an adverse impact on our business, financial condition and results of operations. Furthermore, since the enactment of Law No. 13,467/2017, labor agreements and collective bargaining agreements prevail over certain provisions of labor legislation, as stated in items I to XV, of Article 611-A, of the Consolidation of Brazilian Labor Laws (Consolidação das Leis do Trabalho), such as working time arrangements and the manner in which these are recorded, work breaks, and certain employer-specific internal rules, among others. As a result, employers may expand or reduce certain labor rights, provided this is done pursuant to the terms of labor agreements negotiated with unions and/or individual agreements negotiated with the respective employees.
Failure to comply with, obtain or renew the licenses and permits required for each of the sectors in which we operate may have a material adverse effect on us.
We are required to obtain specific licenses with respect to our terminals from the applicable environmental authorities, which are required in connection with the emission, ejection and emanation of products and by-products resulting from distribution activities. We are also required to obtain specific licenses and permits from governmental authorities for rural producers in order to carry out certain of our operations. Similarly, we are also required to obtain applicable licenses and comply with regulatory obligations for operations involving fuel and energy sectors. The laws and regulations which govern these licenses may occasionally require us to purchase and install costly pollution control equipment or to make operational changes to limit our impact on the environment and/or the health of our employees.
Any failure to comply with the terms of such laws, regulations and licenses and permits may result in significant financial penalties, criminal sanctions, revocation of operating licenses and permits, and/or the prohibition of certain of our activities. In addition, we may not be able to renew licenses that are currently in effect or obtain new licenses necessary to operate new ventures, which could affect our results or impact the development of our business plans, growth and expansion.
Contamination of our products and other related risks could adversely affect our reputation, leading to judicial and administrative proceedings and/or resulting in the closure of our production facilities.
Certain of our products may have adverse effects on consumers (including certain components, raw materials and supplies used to produce these products), including as a result of product contamination or subsequent errors in the production or distribution chain. Contamination of any of our products may result in a need for recalls or the beginning of legal and administrative proceedings against us, which may adversely affect our reputation, our business, the operation of our production facilities, our financial condition and our operating results. Any damage to our reputation could have a material adverse effect on us.
We are exposed to the possibility of losses related to natural disasters, catastrophes, accidents, fire, political, social and economic events and other events not in our control, which may have a material adverse effect on our business, financial conditions and results of operations.
Our operations are subject to certain risks that affect our properties, facilities, permanent passageways, rail banks and inventory, including, among others, fire, which may destroy machinery, equipment and facilities as well as client cargo being transported, explosions, fuel leaks and other flammable products as well as other environmental events, cargo loss or damage to railroads or cargo loading and unloading terminals, accidents, business interruptions due to political, social or economic events (whether local or international), civil unrest or other conflicts, labor claims, demonstrations by social and/or environmental groups or associations, strikes or work stoppages (of our own employees or of those linked to entities with which we have a relationship, such as port operators) disease outbreaks, pests, adverse weather conditions, and natural disasters, such as floods, may result in the loss of revenues, assumption of liabilities or cost increases. We are also subject to stoppages and blockades of highways and other public roads. Stoppages and blockages of highways and other public roads may adversely affect our business and results. Moreover, our operations may be periodically affected by crop shortfalls, landslides and other natural disasters.
Our transportation and handling of cargo exposes us to risks relating to catastrophes, mechanical and electrical failures, collisions and loss of assets. A portion of our freight activities involves petroleum products and other flammable materials, and the presence of such products may aggravate the effects of any catastrophe.
As our insurance does not cover all potential risks and losses we may incur, the occurrence of a natural disaster of large proportions, catastrophes, cyberattacks, pandemics, mechanical failures, loss of assets or any other of the events referred to above, and any resulting damage to our business, may have a material adverse effect on our business, operating results and financial condition, including as a result of civil, administrative and/or criminal sanctions relating to environmental liability.
We are exposed to credit and other counterparty risks of our customers in the ordinary course of our business.
We have various credit terms with various types of customers, including fuel distributors, wholesalers, retailers, trading companies and consumers of the energy which we generate or trade. Our customers have varying degrees of creditworthiness and are subject to different rules and regulations, which exposes us to the risk of nonpayment or other default under our contracts and other arrangements with them. In the event that a significant number of material customers default on their payment obligations, our cash flows, could be materially and adversely affected.
We are subject to restrictive covenants under our financing agreements.
We are subject to certain restrictive covenants based on certain financial and non-financial indicators which are set forth in the majority of the indebtedness and finance agreements to which we are a party. The majority of such covenants relate to requirements to comply with certain predetermined levels of leverage. A failure by us to comply with the restrictive covenants in our credit agreements as a result of adverse conditions in our business environment may trigger the acceleration of part of our indebtedness, limit our access to new credit facilities and adversely affect our business.
Failure to work within our financial framework could impact our ability to operate and result in financial loss.
Failure to accurately forecast or work within our financial framework could impact our ability to operate and result in financial loss. Trade and other receivables, including overdue receivables, may not be recovered, divestments may not be successfully completed and a substantial and unexpected cash call or funding request could disrupt our financial framework or overwhelm our ability to meet our obligations. An event such as a significant operational incident, legal proceedings or a geopolitical event in an area where we have significant activities, could reduce our financial liquidity and our credit ratings. Credit rating downgrades could potentially increase financing costs and limit access to financing or engagement in our trading activities on acceptable terms, which could put pressure on the group’s liquidity. In the event of extended constraints on our ability to obtain financing, we could be required to reduce capital expenditure or increase asset disposals in order to provide additional liquidity.
We may raise additional capital in the future, including by issuing securities, which may result in a potential dilution of equity investors’ stake in our shares, or by taking on additional indebtedness.
We may need additional funds in the future to implement our business strategy and may choose to raise them through the public or private placement of shares and/or other securities convertible or exchangeable into shares. Any such issuance of our securities may result in a decrease in the price of our common shares and/or ADSs and dilute our existing shareholders’ interests in our share capital. The raising of additional funds by means of the issuance of shares or securities convertible into shares may, under the terms of the Brazilian Corporation Law, be made to the exclusion of the preemptive rights of its shareholders, including investors in our shares, and may therefore dilute the financial investment of investors. We may also opt to raise additional capital by taking on additional indebtedness, which may require us to expend a significant additional portion of our cash flow on servicing indebtedness.
We are not insured against business interruption of operations and most of our assets are not insured against war or sabotage.
Our operations are subject to a number of hazards and risks. We maintain insurance at levels that are customary in our industry to protect against these liabilities; however, our insurance may not be adequate to cover all losses or liabilities that might be incurred in our operations. We do not maintain insurance coverage for any type of business interruptions of operations, including business interruptions caused by work stoppages. If, for example, our workers were to strike, the resulting work stoppages could have a substantial and adverse effect on us. In addition, we do not insure most of its assets against war or sabotage. Therefore, an attack or an operational incident causing an interruption of our business activities could have a material and adverse effect on our performance. Moreover, we will be subject to the risk that we may not be able to maintain or obtain insurance of the type and amount desired at reasonable rates. If we were to incur a significant liability for which we were not fully insured, it could have a materially adverse effect on our business, financial condition and results of operations.
We are highly dependent on our chairman and other members of our management to develop and implement our strategy and to oversee our operations.
We are dependent upon the ability and experience of a number of our key personnel who have substantial experience with our operations. Such key personnel include our chairman and controlling shareholder, other members of senior management and certain members of our board of directors. Many of our key personnel have worked for us for a significant amount of time or were recruited by us specifically due to their industry experience. It is possible that the loss of the services of one or a combination of our key personnel could have a material adverse effect on our business, financial condition and results of operations. In particular, our business is particularly dependent on our chairman, who is also our controlling shareholder. We currently do not carry any key-man insurance.
Our controlling group holds 672,312,942 or 35.9% of our common shares and voting rights.
Our controlling group, led by our ultimate controlling shareholder, has the power to indirectly control the Company, including the power to:
Currently, because of our share capital structure, our controlling group is able to control substantially all matters submitted to our shareholders for a vote or approval. The concentrated control will limit your ability to influence corporate matters and, consequently, we may take actions that our shareholders do not view as beneficial. Moreover, our controlling group may make decisions that are contrary to the interests of our other shareholders, and diverge from those of our minority shareholders. These may include actions to conduct acquisitions, divest assets, engage in new business partnerships and engage in new financings or similar operations. As a result, the market price of our common shares and ADSs could be adversely affected.
We may not be able to access the capital markets or secure bank financing in the amounts necessary to meet our financial obligations, investments objectives and execute our business strategy.
We rely on obtaining financing and refinancing of existing loans in order to operate our business, implement our strategy and grow our business. We need bank guarantees to obtain credit facilities and we typically need insurance guarantees in order to participate in court proceedings to which we are a party.
Our ability to obtain funding to finance our growth or operate our business depends on several factors, including our level of indebtedness and market conditions. Substantial volatility in the global capital markets, high interest rates, high inflation, unavailability of financing in the global capital markets at reasonable rates, the ongoing banking crisis in the United States and Europe, and credit market disruptions have had a significant negative impact on financial markets, as well as on the global and Brazilian economies. In particular, the cost of financing in the global debt markets has increased substantially, restricting the availability of funds in such markets. Substantial volatility in the financial and capital markets, the unavailability of financing at reasonable rates, recent and ongoing increases in inflation and interest rates in Brazil and globally, and disruptions in the credit market and increasing inflation in Brazil and the world’s largest economies may have a significant negative impact on overall conditions for fundraising.
If we are unable to obtain new financing or refinance existing loans when required, obtain or renew insurance guarantees on reasonable terms or at all, we may not be able to honor our financial obligations or exploit business opportunities.
Our governance processes, compliance policies and internal controls may not be sufficient to prevent regulatory penalties and reputation damage.
Our compliance and governance policies, which include the review of internal controls over financial reporting, may not be sufficient to ensure that we are able to comply with existing and future legal, regulatory (including applicable anti-corruption and antitrust laws), accounting and other corporate governance requirements and standards. Accordingly, we, our subsidiaries and our affiliates may be subject to violations of our code of conduct and anti-corruption policies, and cases of fraudulent behavior or corrupt or anti-competitive practices by employees, contractors or other agents.
In particular, given the complexity and breadth of our business, and the particular sensitivity of the industries in which we operate to anti-competitive practices, we cannot assure you that our processes, such as our governance and compliance programs as well as our internal controls, are sufficient to avoid risks of investigation of illicit or irregular conduct and possible penalties. Despite the existence of our internal procedures, we may be subject to, among other things, litigation, investigations, expenses, fines, administrative and criminal sanctions and penalties by different authorities (including arrests and coercive conduction of its representatives, employees, contractors or other collaborators), in addition to the loss of licenses, permits or other regulatory instruments necessary for its operations, search and apprehension, and damage to its image and reputation. The fuel sector, in particular, has been the subject of investigation by the Brazilian authorities, especially by the Brazilian Antitrust Authority and the Brazilian Federal Public Prosecutors’ Office. There are allegations of cartels involving price agreements in the fuel distribution sectors, and the Brazilian Antitrust Authority has been monitoring participants in these sectors in different regions of Brazil. Our fuel operations are subject to continued supervision and regular inspections, so there is a risk of being charged in administrative proceedings or notices of infraction (autos de infração) by the National Petroleum, Natural Gas and Biofuels Agency (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis or “ANP”).
Failure to comply with the applicable rules and legislation may subject us, our subsidiaries, our affiliates, our employees, contractors or other agents, to, among other things, litigation, investigations, expenses, fines, loss of operating licenses, reputation damage, preventive arrest warrants, coercive measures and other applicable sanctions, penalties and damage, each of which may adversely affect our business, financial condition and results of operations.
We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations.
We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations. We are required to comply with the laws and regulations of Brazil and various jurisdictions where we conduct operations. In particular, we are subject to the Brazilian Anti-corruption Law No. 12,846, to the U.S. Foreign Corrupt Practices Act of 1977, or the “FCPA,” to the United Kingdom Bribery Act of 2010, as well as economic sanction programs, including those administered by the United Nations, the European Union and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control, or “OFAC.” The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may deal with entities and employees which are considered foreign officials for purposes of the FCPA. In addition, economic sanctions programs restrict our dealings with certain sanctioned countries, individuals and entities. Although we have internal policies and procedures designed to ensure compliance with applicable anti-fraud, anti-bribery and anti-corruption laws and sanctions regulations, potential violations of anti-corruption laws have been identified on occasion as part of our compliance and internal control processes. When such issues arise, we attempt to act promptly to learn relevant facts, conduct appropriate due diligence and take any appropriate remedial action to address the risk. Given the size of our operations and the complexity of the production chain, there can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our employees, directors, officers, partners, agents and service providers or that such persons will not take actions in violation of our policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which we or they may be ultimately held responsible. Violations of anti-bribery and anti-corruption laws and sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition. In addition, we may be subject to one or more enforcement actions, investigations and proceedings by authorities for alleged infringements of these laws. These proceedings may result in penalties, fines, sanctions or other forms of liability and could have a material adverse effect on our reputation, business, financial condition and results of operations.
Government policies and regulations could have a material adverse effect on our operations and profitability.
Government policies in Brazil and elsewhere, in each case whether at the federal, state or local level, may adversely affect the supply and demand for, and prices of, our products or restrict our ability to do business in our existing and target markets, which could adversely affect our financial performance.
Agricultural production and trade flows are significantly affected by Brazilian federal, state and municipal, as well as foreign, government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies and import and export restrictions on agricultural commodities and commodity products, may influence industry profitability, the planting of certain crops versus others, the uses of agricultural resources, the location and size of crop production, the trading levels for unprocessed versus processed commodities, and the volume and types of imports and exports.
Pursuant to the Brazilian Federal Constitution, gas distribution services are the responsibility of the state government of each Brazilian state. Our natural gas distribution operations are currently concentrated in the states of São Paulo and Rio Grande do Sul. Our activities are regulated, respectively, by the ARSESP and by the State Agency for the Regulation of Delegated Public Services of the State of Rio Grande do Sul (Agência Estadual de Regulação dos Serviços Públicos Delegados do Rio Grande do Sul or “AGERGS”). Any changes affecting governmental policies and regulations regarding natural gas in these states (at the federal, state, or municipal level) may have a material adverse effect on our business, financial condition and results of operations.
In addition, oil and oil products have historically been subject to price controls in Brazil. Due to the increase in fuel prices in 2021, a legislative bill was introduced in the Brazilian Congress proposing to establish guidelines for the selling prices of gasoline, diesel and liquefied petroleum gas, or “LPG.” In addition, the legislative bill seeks to establish progressive export tax rates on crude oil. The legislative process related to such legislative bill has not progressed as of the date of this annual report. Moreover, because Petrobras is the only supplier of domestically produced oil-based fuels in Brazil, and a government-controlled company, prices of oil and oil products are subject to the influence of the Brazilian government, resulting in potential inconsistencies between international prices and internal oil prices, which could adversely impact our business, financial results and results of operations.
We are subject to extensive environmental regulations and may be exposed to liabilities in the event we fail to comply with these regulations.
Our business activities in Brazil are subject to extensive laws and regulations concerning environmental protection, which impose on us various environmental obligations, such as environmental licensing requirements; standards for the release of effluents, management of solid waste, emission and discharge of hazardous materials, sugarcane burning and health and safety of our employees; protection of certain areas (including the Legal Reserve, areas of traditional indigenous and quilombolas communities, conservation units, archeological sites and permanent preservation areas); and the need for special authorizations for the use of water, among others.
Failure to comply with such laws and regulations (including a failure to obtain or maintain relevant environmental permits, as well as to comply with technical conditions imposed by environmental permits) may subject the violator to administrative fines, mandatory interruption of activities and criminal sanctions, in addition to the obligation to remedy and pay environmental and third-party damage compensation. In addition, Brazilian environmental law adopts a strict liability system for environmental damages, in connection with which a polluter is liable irrespective of whether the polluter was at fault or engaged in intentional misconduct, resulting in our joint and several liability for the obligations of our suppliers or customers, for example.
Brazilian law provides that separate legal personality may be disregarded where it would otherwise prevent the repayment of environmental damages. In such a situation, shareholders may be held personally liable for environmental liabilities.
If we become subject to environmental liability, any costs we may incur in connection with the indemnification against potential environmental damage would lead to a reduction in the financial resources that would otherwise remain at our disposal for current or future strategic investment, which may materially and adversely affect our business, results of operations or financial condition.
As environmental laws and their enforcement become increasingly stringent, our expenses for complying with environmental requirements are likely to increase in the future. Furthermore, the possible implementation of new regulations, changes in existing regulations or the adoption of other measures could cause the amount and frequency of our expenditures relating to environmental preservation to vary significantly compared to present estimates or historical costs. Any unplanned future expenses could force us to reduce or forego strategic investments, and as a result, could materially and adversely affect our business, results of operations or financial condition.
The occurrence of environmental damage may lead to the need to make significant financial resources available for both containment and repair of these damages. The occurrence of such events may also lead to a disruption in production due to intervention by government agencies. In either case, financial and/or image impacts may be significant. In addition, the creation of new regulations may lead to the need for greater expenses for environmental preservation. Furthermore, extensive environmental regulation can also lead to delays in the implementation of new projects as bureaucratic procedures for obtaining environmental licenses from various government agencies may take considerable time.
We are party to a number of administrative and judicial proceedings for alleged failures to comply with environmental and health laws, which may result in fines, shutdowns, obligations to remedy or contain the environmental damage caused or other adverse effects on our operations. Claims that give rise to administrative proceedings may also lead to civil or criminal claims against us and our subsidiaries. Our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future claims, could adversely affect our business or financial performance.
Raízen, Moove, Compass and WX Energy are subject to the application of regulatory penalties in the event of noncompliance with the terms and conditions of their respective authorizations, including the possible revocation of such authorizations.
Raízen performs generation activities in accordance with the regulations applicable to the energy sector and with the terms and conditions of authorizations granted by the Brazilian government through ANEEL. The duration of such authorizations varies from 20 to 35 years.
ANEEL may apply regulatory penalties to Raízen in the event of noncompliance with the authorizations or with the regulations applicable to the energy sector. Such penalties may include, depending on the seriousness of the infraction, warnings, fines (in some cases up to 2% of our revenues for the last 12 months), restrictions on Raízen’s operations, temporary suspension from participating in public bidding procedures to obtain new permissions, authorizations and concessions, prohibition from contracting with ANEEL, and revocation of its authorizations.
In addition, Raízen conducts its fuel distribution activities and Moove manufactures and distributes lubricants and base oil in accordance with the rules and regulations applicable to the oil and gas sector in Brazil as well as with the terms of the licenses and permits granted to them by the Brazilian government acting through the ANP. Failure to comply with the applicable rules and regulations or with the terms of the relevant licenses and permits may result in fines and other penalties (including confiscation or destruction of products, cancellation of product registrations, bans on certain facilities, and revocation of existing licenses and permits, among others). The applicable fines vary between R$5 thousand and R$5 million, depending on the gravity of the infraction, the economic capacity of the noncompliant party and recidivism.
Furthermore, the electricity trading operations of WX Energy Comercializadora de Energia Ltda., or “WX Energy,” which Bioenergia Barra Ltda., a wholly-owned subsidiary of Raízen Energia, acquired on July 5, 2018, and Edge Comercialização S.A. (formerly known as Compass Comercialização S.A.), or “Edge Comercialização,” which was acquired on January 31, 2020, are highly regulated and supervised by the Brazilian government, including through ANEEL as well as other regulatory authorities. Such regulatory authorities have discretionary authority to implement and change policies, interpretation and rules applicable to different aspects of WX Energy and Edge Comercialização’s businesses, especially their operations, maintenance, safety, compensation and inspection. Any significant regulatory measure implemented by the competent authorities may impose a significant burden on both companies’ activities.
We cannot assure you that Raízen, Moove, Edge Comercialização and WX Energy will not be penalized by ANEEL, ANP or other federal, state or local regulatory authorities, as applicable, nor can we assure you that they will comply with all terms and conditions of their authorizations and with the regulations applicable to their respective businesses, which may have a material adverse effect on their and our business, financial condition and results of operations.
We face significant competition, which may have a material adverse effect on our market share and profitability.
The ethanol and sugar industries in which Raízen operates are highly competitive. Internationally, Raízen competes with global ethanol and sugar producers in the United States, India, Thailand, Australia and Europe, among others. Some of Raízen’s competitors are divisions of larger enterprises and may have greater financial resources than Raízen has or than we have. In Brazil, Raízen competes with numerous small to medium-size producers. The Brazilian ethanol and sugar industry remains highly fragmented. Raízen’s major competitors in Brazil are Tereos - Guarani, Bunge, Santa Terezinha and São Martinho, among others. Each of these producers markets ethanol and sugar products through the Cooperative of Sugarcane, Sugar and Ethanol Producers of the state of São Paulo (Cooperativa de Produtores de Cana-de-açúcar, Açúcar e Álcool do Estado de São Paulo), or “Copersucar.” Copersucar consists of producers in the states of São Paulo, Minas Gerais and Paraná. Raízen is not a member of Copersucar.
Raízen also faces strong competition from international producers, particularly in highly regulated and protected markets such as the United States and the European Union. With regard to sugar exports, Raízen faces intense competition from producers all around the world, including India, Thailand, and the European Union, among others. There are global producers of sugar whose costs are lower than those of Brazilian producers, including Raízen, and whose production capacity and prices could lead to a decrease in prices on the global sugar market. Furthermore, Raízen faces very strong competition internationally with regards to ethanol, especially from the United States. Ethanol production in the United States is based on corn-derived ethanol and is undertaken on a larger scale than Brazilian ethanol production. Accordingly, a reduction in corn prices may lead to material reductions in the price of ethanol produced in the United States and result in increased competition in the Brazilian market.
Historically, imports of sugar have not provided substantial competition for us in Brazil due to, among other factors, the production and logistical cost-competitiveness of sugar produced in Brazil. If the Brazilian government were to create incentives for sugar imports, Raízen could face increased competition in the Brazilian market by foreign producers. Many factors influence our competitive position, including the availability, quality and cost of fertilizer, energy, water, chemical products and labor. Some of our international competitors might have greater financial and marketing resources, larger customer bases and broader product ranges than Raízen does. If Raízen is unable to remain competitive with these producers in the future, its market share may be adversely affected.
The fuel distribution market in Brazil in which Raízen operates is active and highly competitive. For example, we compete with domestic fuel distributors who purchase substantially all of their fuel from Petrobras and from suppliers based outside of Brazil. There are few domestic participants, such as Vibra, Ipiranga and Raízen, who import fuels into Brazil. In addition, Raízen competes with producers and marketers in other industries that supply alternative forms of energy and fuel to satisfy the requirements of Raízen’s industrial, commercial and retail consumers. Certain measures currently being taken by participants in the fuel distribution market, including the expansion of their distribution networks, as well as the arrival of new participants, may result in an increase in fuel supply and a consequent decrease in fuel prices, which may have an adverse effect on our business, financial condition and results of operations. Raízen’s main competitor in Argentina is state-owned YPF, which has more than half of the market share in the country.
Moove’s main competitors in the global lubricant market are larger and have substantially greater resources than Moove. Because of their larger capitalization, these companies may be more flexible in responding to volatile industry or market conditions, such as shortages of base oil and other feedstock or intense price fluctuations. The actions of Moove’s competitors could lead to lower prices or reduced margins for Moove’s products, which could have a material and adverse effect on Moove and on our business, results of operations and financial performance.
Competition in the transportation services industry in which Rumo operates is intense and includes: (i) competition with other transportation modes, such as road freight; (ii) competition with alternative export options for agricultural products through other ports; (iii) dependence on operating quality and port and terminal capacity; (iv) the limitations established by the maximum tariffs established by the ANTT; (v) a reduction in road tariffs, particularly during times of declining growth rates in the economy or low demand from agricultural producers, which may limit our ability to maintain or increase rates, operating margins or growth of Rumo’s business; and (vi) establishment of cooperative relationships by Rumo’s competitors to increase their ability to address shipper needs. Rumo’s main competitors are companies in the truck transportation business, which has historically been the main cargo transportation mode in Brazil. Any new measures by the Brazilian government that benefit or reduce costs for road transportation, such as cheaper toll fares or permanent suspension of the toll-road concession program, may also limit Rumo’s growth prospects. Rumo may also face significant competition from third parties if the granting authority decides to subject its maturing concessions to a rebidding process.
The intense competition in the Brazilian markets in which we operate and the actions of our competitors could lead to lower prices or reduced margins for the products we sell, as well as reductions in our sales volumes, which could have a material and adverse effect on our business, results of operations and financial performance.
Raw material and supply service costs are subject to fluctuations that could have a material adverse effect on our business, financial condition and results of operations.
Raw materials used in our business and the costs of services in connection with our operations are subject to wide fluctuations depending on market conditions and government policies. For example, Compass’s distributors and Raízen’s distribution of natural gas and the procurement of agricultural inputs are subject to developments in the international energy and commodity markets, to Brazilian trade and other governmental policies, and to the policies of foreign governments, among other factors. The prices charged our various businesses for inputs and services are influenced by several factors over which we have little or no control, including, but not limited to, international and national economic conditions, regulations, government policies, the actions of our counterparties, tariff adjustments and global effects of supply and demand, particularly in commodity prices. We cannot assure you that we will be able to pass on any increased costs to our customers, which could decrease our profit margin and result in a material adverse effect on our business, financial condition and results of operations.
Furthermore, the COVID-19 pandemic, the war between Russia and Ukraine and conflicts in the Middle East have disrupted supply chains and international trade generally, affecting in particular the supply of fertilizer globally and in Brazil. Brazil depends to a significant extent on imports of Russian and Belarusian fertilizer, which have been severely disrupted. Raízen may be unable to obtain fertilizer (in particular nitrate) on favorable terms, sufficient quantities or at all, which could make agricultural production less efficient (potentially resulting in reduced output) or result in increases in costs (including as a result of the need to purchase other types of fertilizers). In addition, failure to obtain sufficient amounts of fertilizer may result in a reduction in grain production, which could affect Rumo’s transported volumes. Rumo has also purchased railroad tracks from Russian companies in the past. While we expect that Rumo will be able to source these tracks from other, non-Russian suppliers if needed, the prices charged and terms demanded by these alternative suppliers may not be as favorable as those which Rumo has obtained in the past. Any of these developments could have a material adverse effect on our business, financial condition and results of operations.
The fuel, natural gas, and base oil distribution businesses are concentrated in a single supplier.
Significant interruption in sales of fuels, natural gas and lubricants by us may occur if there is an interruption in the supply by our only supplier, Petrobras. Any interruption would immediately affect our ability to supply products to their customers. If we are unable to obtain adequate supply from Petrobras on acceptable terms, we may seek to cover their demands through purchases in the international market. The cost of products in the international market may be higher than the price obtained through the supplier.
Any interruption could increase our purchasing costs and reduce our sales volume, consequently adversely affecting our operating margins. In addition, we may be adversely affected if Petrobras significantly modifies its business plan or reduces its activities related to the distribution of fuel in Brazil. In particular, the current divestment plan of Petrobras suggests that Petrobras is scaling back its positions in refining and logistics, which may result in disruption of logistics services and changes to distribution policies, which may adversely affect the competitiveness of fuel distributors.
We are subject to developments affecting the Brazilian agribusiness sector as a whole.
We cannot assure you that in the future, the Brazilian agribusiness sector (i) will maintain the growth rate and development which it has experienced in recent years and (ii) will not suffer losses due to unfavorable climatic conditions, reduction of the prices of the agricultural commodities in the national and international markets, changes in credit policies for domestic producers, both by government agencies and private entities, that may affect our income, as well as other economic and political crises that may affect the agricultural industry in general. Any deterioration in the overall condition of the Brazilian agribusiness sector may have a material adverse effect on us.
We may be adversely affected by unfavorable outcomes in pending legal proceedings.
We are involved in a significant number of tax, civil (including regulatory and environmental) and labor proceedings. We cannot predict whether we will prevail in these or other proceedings, or whether we will have to pay significant amounts, including penalties and interest, as payment for our liabilities, which would materially and adversely impact our business and financial performance.
In addition, unfavorable decisions in criminal proceedings involving members of our management may have a material adverse effect on us. Certain members of our management have been named as defendants in criminal proceedings (i) in their capacity as officers of the predecessor entity of Raízen Energia for alleged artificial price fixing of fuel and the formation of a cartel with the purpose of establishing control over the regional market, (ii) in their capacity as officers of Raízen Energia and in our Company for alleged tax evasion carried out by these entities and (iii) in their capacity as officers of the predecessor entities of Raízen for the crimes of disobedience and pollution in connection with the alleged burning of sugarcane contrary to a judicial decision. In the event of a final non-appealable conviction, one or more of these officers may be barred from holding executive positions within our Company, and depending on the development of the proceedings, our reputation in the opinion of our clients, suppliers and investors may be materially adversely affected.
We cannot predict whether we will prevail in these or other proceedings, or whether we will have to pay significant amounts, including penalties and interest, as payment for our liabilities, which would materially and adversely impact our business, financial condition and results of operations. If we are the subject of an unfavorable outcome in any of these legal proceedings, the amount of such unfavorable decisions will have a material adverse effect on our financial position and operating results.
Furthermore, we may not have sufficient funds to post collateral or provide guarantees in judicial or administrative proceedings involving substantial amounts. Even if we do not post such collateral or provide guarantees, we will be liable for paying any amounts due pursuant to any unfavorable outcomes in legal proceedings. We cannot assure you that, if we cannot make such payments, our assets, including financial assets, will not be attached or that we will be able to obtain tax good-standing certificates, all of which may have a material adverse effect on our business, financial condition and results of operations.
Our business would be materially adversely affected if our operations, as well as those of our suppliers and customers, experienced significant interruptions.
The distribution of fuels, natural gas and other products is by its nature subject to inherent risks, including interruptions or disturbances in the distribution system which may be caused by accidents or force majeure events. Our operations are dependent upon the uninterrupted operation of our terminals and storage facilities and various means of transportation and distribution facilities. Our operations are subject to risks affecting our agricultural properties and facilities and distribution networks, including fire potentially destroying some or all of our crop and facilities, and our operations are subject to hazards associated with the manufacture of flammable products and transportation of raw materials and flammable products. In addition, we are dependent upon the uninterrupted operation of certain facilities owned or operated by our suppliers and customers.
Operations at our facilities and at the facilities owned or operated by our suppliers and customers could be partially or completely shut down, temporarily or permanently, as the result of any number of circumstances that are not within our control, such as:
The occurrence of any such catastrophic event, or any significant interruption at these facilities or inability to transport products to or from these facilities or to or from our customers for any reason could subject us to liability in judicial, administrative or other proceedings, even for disruptions caused by events outside of our control. In addition, our insurance coverage may not be sufficient to provide full protection against these types of casualties. If we are held liable for such events, our business, financial condition, results of operations and cash flow would be materially adversely affected.
Volatility in the price of the products we sell, through subsidiaries and joint ventures, may have a material adverse effect on us.
Our results of operations may be significantly affected by volatility in the prices of the products we sell, through subsidiaries and joint ventures. The prices of these products are subject to significant fluctuation as a result of domestic and international demand, production volumes and global stock levels. Price volatility may have a significant impact on our results of operations, particularly if our revenues fall below our production costs.
The prices at which our subsidiaries and joint ventures are able to sell their products depend on market conditions, both in Brazil and internationally, which are outside of our control. The prices at which our subsidiaries and joint ventures are able to sell their products have a significant impact on our results of operations. As is the case with other commodities, the prices of the products we sell, through subsidiaries and joint ventures, are subject to significant fluctuation as a result of natural disasters, harvest levels, agricultural investments, governmental policies (in particular with regard to the agricultural sector), trade policies, changes in supply and demand patterns, increases or decreases in purchasing power, the production of similar or competing products and other factors beyond our control. A significant portion of our products are also traded on commodities exchanges and their prices may therefore be affected by speculation on financial markets.
The price of sugar is also affected by the obligation to comply with certain requirements relating to exports and the consequent effects on supply within Brazil. As a result, the price of sugar has historically been subject to greater volatility than the prices of other products. Sugar prices may decrease as a result of, directly or indirectly, competition from alternative sweeteners, including saccharine and high fructose corn syrup, changes in agricultural policies or international or Brazilian trade policies (including those mandated by the World Trade Organization).
Any significant or prolonged decrease in the price of sugar and/or ethanol may have adverse effects on our business, financial condition and results of operations.
Our activities are inherently hazardous and involve high operational risk.
Through our subsidiaries, we produce, store and transport toxic, combustible and inflammable products, including petroleum and gas products. The complex manufacturing operations performed at (i) Raízen’s facilities (mills, terminals and its refinery in Argentina), (ii) Comgás (infrastructure used in the distribution of piped natural gas), (iii) Moove (a lubricants oil blending plant) and (iv) Rumo (storage terminals, ports and railcars) involve a variety of safety and other operating risks, including the handling, production, storage and transportation of toxic materials. These risks can result in personal injury, death, severe damage to or destruction of property, plant and equipment, and environmental damage. A major accident at one of our subsidiaries’ facilities could force us to suspend operations and result in significant compensation costs, loss of revenue and reputational damage.
Railroad transportation is an activity, which is carried out by Rumo, that involves risks relating to mechanical failures, derailments or other accidents that could interrupt the network of railroads and result in the payment of fines, damages to locomotives and wagons and loss of the product transported, which could result in significant financial losses and reputational damage for us. These accidents may also expose nearby communities to risks of life, personal injuries, or significant damages to property and the environment. The occurrence of any of these events may have a material adverse effect on our business, financial condition and results of operations. Furthermore any contamination of the soil or underground may subject our subsidiaries to administrative sanctions, including, but not limited to, suspension, shutdown, mandatory payment of fines and other expenses, or an obligation to materially alter or cease particular operations, in addition to subjecting them to criminal and civil proceedings in case of environmental damages, which include the obligation to repair and/or indemnify the contaminated area for any damages caused to the environment, public health and third parties. The proximity of our operation and storage sites to populated areas, including residential, commercial and industrial facilities, may also increase our risk exposure.
In Brazil, there is a wide range of regulations, norms, and standards that regulate the handling, storage, use, transportation, and marketing of products considered hazardous. Failure to comply with these regulations may result in the filing of administrative proceedings against these companies and the payment of fines, penalties or obligations to indemnify, as well as other sanctions.
The costs associated with complying with current and potential legislation relating to environmental protection, health and safety and liabilities incurred in connection with the leakage or exposure to harmful substances are substantial. Any increase in such costs could have a material adverse impact on our business, results of operations and financial standing of our subsidiaries.
We may also not receive insurance proceeds, if available, in a timely manner and these may be insufficient to cover all losses, including lost profits. Equipment breakdowns, natural disasters and delays in obtaining necessary replacement supplies may also have a material adverse effect on our business, financial condition and results of operations.
In Brazil and the other markets in which we operate, there are a wide range of regulations, norms and standards that regulate the handling, storage, use, transportation and marketing of products considered hazardous. Failure to comply with these regulations may result in the filing of administrative proceedings against these companies and the payment of fines, penalties or obligations to indemnify, as well as other sanctions.
The shareholders’ and certain other definitive agreements with respect to the Joint Venture and certain other of our subsidiaries are subject to various put and call options and termination provisions.
We have entered into certain definitive agreements with Shell with respect to the Joint Venture, Raízen. Specifically, these agreements set forth the rights and obligations of each shareholder in respect of our and Shell’s interest in the Joint Venture and establish certain options whereby we or Shell may acquire the other shareholder’s interest in the Joint Venture, certain lock-up provisions, rules governing intra-group transfers regarding our economic group and Shell, and remedies for fundamental breaches of the documentation governing the incorporation and operation of the Joint Venture. If triggered, these provisions may cause the Joint Venture, or our participation in it, to terminate prior to the scheduled expiration date of certain of the agreements in June 2031.
In November 2016, we executed amendments to certain agreements with Shell to remove the fixed-date call options over Raízen S.A. shares exercisable in 2021 and 2026 and replace them with certain call and put options exercisable by us or Shell in certain circumstances, including, among others, (1) fundamental breaches of the obligations provided for in the agreements governing the Joint Venture, (2) breach of anticorruption laws, (3) insolvency or bankruptcy of a party, (4) change of control and (5) in the event of the death or disability of our current Chairman, Mr. Rubens Ometto Silveira Mello or if he fails to attend meetings of the board of directors of Raízen for 12 consecutive months. Moreover, we granted Shell a call option that is applicable if we fail to comply with certain obligations agreed upon with Shell or if certain of Raízen’s or our financial indices are not met.
We also granted Shell a call option that can be exercised by Shell if a controlling company (referred to as a “Controlling Entity”) fails to (1) have a CEO for a period exceeding six months, (2) publish or prepare, as required by law, its financial statements under the terms and conditions agreed in the Joint Venture Agreement, or (3) if Cosan or a new shareholder of Cosan (referred to as a “New Cosan Shareholder”), as applicable, with respect to a joint venture entity (referred to as a “JV Entity”), fails to (i) appoint members to the executive board or (ii) propose names of candidates for the position of CEO of Raízen within the period provided for in the Shareholders’ Agreements. Lastly, there is a call option granted by us to Shell in the event of an involuntary delisting or involuntary suspension of the registration, as a publicly held company, of Cosan or any successor thereof.
We and Shell further agreed to renew the existing lock-up period for five years from the date of the execution of the amendment, following which the parties may sell their shares in Raízen S.A. subject to compliance with certain preemption rights in each other’s favor.
In May 2021 and July 2021, we executed amendments to certain agreements in anticipation of Raízen’s initial public offering, which was completed in August 2021. As part of these amendments, the lock-up period referred to above was renewed for an additional five years from July 2021. The call and put options described above remained the same.
We are also parties to shareholders’ agreements, partnership agreements, association agreements and other related agreements in relation to a number of other businesses, as described under “Major Shareholders and Related Party Transactions—A. Major Shareholders.” If any of the provisions described above or other similar provisions are triggered under the shareholders’ agreements or any of the other related agreements relating to the Joint Venture or our other businesses, our partnerships, or certain rights we hold in connection therewith, could terminate prior to the scheduled expiration, which could adversely affect our results of operations.
The modification, suspension, cancellation or non-renewal of the tax benefits which we have been granted could have a material adverse effect on us.
We benefit from certain federal, state and municipal tax incentives, benefit programs and special regimes, including reductions in corporate income tax, suspensions of PIS and COFINS (respectively, the profit participation contribution and the social security financing contribution, both of which are social contributions due on certain revenues net of some expenses on certain products, reductions in ICMS on certain activities, and suspensions or reductions in certain other taxes (including import duties, tax on industrial products (Imposto sobre Produtos Industrializados) and certain other social security charges). We cannot assure you that these tax benefits will be maintained or renewed or that we will be able to obtain new tax benefits. If we lose our existing tax benefits due to our noncompliance with future requirements or if the current tax programs and agreements from which we benefit are modified, suspended, canceled or not renewed, we could be materially and adversely affected.
A material weakness in our internal control over financial reporting has been identified, and if we fail to remediate such material weakness (and any other ones) and to maintain effective internal controls over financial reporting, we may be unable to accurately report our financial results, meet our reporting obligations and/or prevent fraud.
Disclosure controls and procedures over financial reporting are designed to provide reasonable assurance that information required to be disclosed by the Company is accumulated and communicated to management, and recorded, processed, summarized and reported in accordance with applicable rules.
These disclosure controls and procedures have inherent limitations which include the possibility that judgments in decision-making can be faulty and that breakdowns occur because of errors or mistakes. Additionally, controls can be circumvented by any unauthorized management override of controls. Therefore, our businesses are exposed to risk from potential noncompliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions, civil claims and serious reputational or financial harm. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.
Since the corporate reorganization of the Cosan group, which included the Merger, Cosan, as a foreign private issuer, is required to comply with the reporting, disclosure control and other applicable obligation under the Exchange Act, the Sarbanes-Oxley Act and Dodd Frank Act, as well as rules adopted, and to be adopted, by the SEC and NYSE.
In connection with the preparation of the audited consolidated financial statements as of and for the year ended December 31, 2023, we identified operating deficiencies in controls designed to prevent or detect inappropriate access to data and system changes implemented in certain IT systems and applications that support the operations in Companhia de Gás do Estado do Rio Grande do Sul, or “Sulgás,” and Necta Gás Natural S.A., or “Necta,” both of which are indirect subsidiaries acquired by Compass in 2022. These businesses were subjected to the assessment of internal controls for the first time in 2023 due to the waiver for newly acquired businesses in the prior year.
While the businesses impacted by the deficiencies represented approximately 1.0% of our total assets and liabilities as of December 31, 2023, they also accounted for 7.0% of net sales and 5.0% of the profit of the year ended December 31, 2023 and were therefore deemed material to our consolidated financial statements. In 2023, these entities maintained and were responsible for executing controls over their own IT environments, whereas our other businesses are managed by the shared service center and operated under a different set of controls.
These deficiencies in Necta and Sulgás, when aggregated, have been classified as a material weakness in our internal controls over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual financial statements will not be prevented or detected on a timely basis.
This material weakness did not result in actual misstatements as certain mitigating actions were taken by our management to complete the analysis of our financial reporting prior to year-end, such that there were no impacts on our consolidated financial statements as of December 31, 2023. However, the material weakness mentioned above, if not mitigated, could have resulted in a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis in future periods.
We cannot assure you that our efforts to remediate this material weakness as described under “Item 15. Controls and Procedures” will be effective, that we will be able to remedy this material weakness or that we will be able to prevent any future material weakness or significant deficiency in our internal control over financial reporting. Failure to remedy any material weakness in our internal controls over financial reporting, or to implement or maintain other effective control systems required of public companies in the United States, could have a material adverse effect on our business, financial condition and results of operations and could also restrict our future access to capital markets and reduce or eliminate the trading market for our shares and ADSs.
For details of the controls and remedial actions mentioned above, see the section of this annual report entitled “Item 15. Controls and Procedures—A. Disclosure Controls and Procedures.”
Public health threats or outbreaks of communicable diseases, such as the COVID-19 virus and others, could have an adverse effect on our operations and financial results.
We may face risks related to public health threats or outbreaks of communicable diseases. The outbreak of communicable diseases could result in a widespread health crisis that could adversely affect the global economy and our ability and our business partners’ ability to conduct business in Brazil for an indefinite period of time. For example, the early 2020 outbreak in China of COVID-19 that spread across the globe and resulted in a global and regional economic slowdown, a shutdown of production and supply chains and a disruption of international trade, negatively impacting the industries in which we operate.
Disruptions in public and private infrastructure, including communications and financial, could materially and adversely disrupt our normal business operations. Since the COVID-19 pandemic, a significant portion of our employees have been working remotely either full-time or part-time. Remote work may cause certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us, our hub partners, our students or other third parties.
The potential impact of any future health outbreak, epidemic or pandemic, and the measures that may be taken to control such outbreak by government and businesses, cannot be predicted and are beyond our control and it is possible that any such future outbreak could have an adverse effect on our business and results of operations.
We may not be successful in meeting our environmental, social and corporate governance, or ESG, commitments, which may have an adverse effect on our business, financial condition, reputation and results of operations.
The market is increasingly concerned with how companies assess and manage ESG risks to protect themselves and create opportunities to generate value. As part of this trend, we have made certain ESG commitments, and we strive to maintain socially responsible business practices, including fostering social investments and structuring programs to generate a positive social impact through in areas related to our business, such as renewable energy, employability, education, and culture. Failure to meet our ESG commitments or to pursue these socially responsible business practices, partially or at all, may have a material adverse effect on our business, reputation, financial condition and results of operations.
There has been an increase in ESG rules and regulations applicable to our business and we expect this tendency to continue. Given the pace of legislative developments in this area, we may not be able to comply with the new regulations in their totality. We are also exposed to the risk that future ESG rules and regulations may adversely affect our ability to conduct our business by requiring us to reduce the value of our assets or reduce their useful life, facing increased compliance costs or taking other actions that may be adverse to us.
The activities of Raízen, Rumo, Moove and Compass may impact the lives and socioeconomic dynamics of communities, especially those neighboring our operating units, bioenergy parks, service stations and franchisees. These impacts may include truck, train, vehicle and pedestrian traffic, construction, property expropriation, and the displacement of communities. As a result, there may be stoppages in our operations by virtue of demonstrations in surrounding communities, as well as investigations and judicial measures by public prosecutors and other authorities. Such demonstrations or investigations may be motivated by a lack of dialogue with the communities surrounding our units.
In addition, our suppliers or dealers may engage in conduct that violates human rights and for which we may be held liable in civil, labor, criminal and administrative proceedings, including for damages and remediation costs. As a result, we may face difficulties in obtaining or maintaining operating licenses, and their reputation may be negatively affected.
We operate in sectors in which market demand and prices are cyclical and affected by weather and economic conditions in Brazil and worldwide.
The sectors in which we operate are historically cyclical and sensitive to internal and external changes in supply and demand. Rainfall and temperature levels, which may vary and may be influenced by global climate changes, may cause significant volatility in the sectors in which we operate and adversely affect our business. Furthermore, Raízen’s business is subject to seasonality according to the sugarcane growth cycle in the Central-South region of Brazil. The annual sugarcane harvesting period in the Central-South region of Brazil begins in April or May and ends in November or December. This creates fluctuations in Raízen’s inventory and in its ability to generate energy, both of which usually peak in December, to cover sales between crop harvests (primarily from January to March), and a degree of seasonality in our gross profit, with ethanol and sugar sales significantly lower in the quarter ended on December 31. Rural producers of sugar and ethanol with whom Raízen maintains a commercial relationship may experience a similar degree of seasonality, which may impact the supply of ethanol and/or other products necessary for Raízen’s activities. Seasonality and any reduction in the volumes of sugar recovered could have a material adverse effect on our business, financial condition and results of operations. Raízen is also subject to seasonality with respect to demand for the energy which it generates and sells. Specifically, demand for energy is subject to various factors which vary from season to season according to the type of customer, geographical location and consumption type (e.g., residential, commercial or industrial), among other factors, and demand for energy and trading activities may be affected by variations in such factors. Furthermore, Rumo is subject to the seasonality that influences the sugar production cycle and grain harvest. During the peak months of each harvest, there is higher demand for transport and logistics operations. For example, Soybean harvests generally occur between January and May, corn harvests (mainly for export) generally occur between April and July and sugar harvests generally begin in April or May and end in November or December. For this reason, Rumo typically transports larger volumes of goods in the second and third quarters of each year and lower volumes in the “off season” (i.e., the first and fourth quarters of each year).
Any downturn in these industries may have a material adverse effect on Rumo’s business, financial condition and results of operations. In addition, some of the products Rumo transports have shown a historical pattern of price cyclicality, which has typically been influenced by the general economic environment, industry capacity and demand. Rumo is also subject to the risk that sugarcane mills may change their production mix in favor of ethanol if the relative prices of the two products swing that way. This could reduce the demand for sugar logistics and transport.
Seasonality could have a material adverse effect on our business, financial condition and results of operations.
We may be unable to protect our intellectual property rights and may be accused of violating third-party property.
If we are unable to protect our intellectual property rights, or those of subsidiaries, investees and jointly controlled company, our ability to operate our business and to compete in the markets in which we operate could be adversely affected. Among other factors, the success of our business also depends on the effective protection of our trademarks, patents, domain names, trade secrets, know-how and intellectual property rights and those held by our subsidiaries, investees and jointly controlled company.
There is a risk that we may not be successful in renewing our title or licensing certain intellectual property rights in a timely manner or at all, or that the validity of such rights may be successfully challenged by third parties. In addition, we may not be able to enforce intellectual property rights in certain countries where our subsidiaries, investees or common controlled company operate as the laws of certain foreign countries, including those in many emerging markets, may not fully protect these rights. The costs required to maintain proper registration and protect such rights can be substantial and affect the result of our operations.
We cannot assure you that third parties will not infringe or misappropriate intellectual property rights, despite our efforts to actively monitor against their unauthorized use. In addition, we are not able to guarantee that the measures taken by companies to protect our intellectual property rights will be sufficient. For this reason, we may need to engage in legal proceedings to defend our rights and there can be no guarantees that we will be successful.
The improper or unauthorized use of such intellectual property rights could decrease the value of our brands, adversely affect our reputation, cause a decline in sales, and have a material adverse effect on our business, financial condition and results of operations.
Additionally, third parties may claim that the products or services provided by our subsidiaries, investees or our jointly controlled company violate their intellectual property rights. Consequently, our companies may be forced to engage in potentially costly litigation, or to revise, in whole or in part, the products that are allegedly infringing on the rights of third parties and/or pay significant amounts in damages, royalties or licensing fees, in addition to the potential risk of damages to our image and loss of demand for our products. Any such developments could have a material adverse effect on business, financial condition and results of operations.
Anticompetitive practices in the fuel and lubricant distribution markets may distort market prices.
Anticompetitive practices have been one of the main problems affecting fuel distributors in Brazil. These practices usually involve a combination of tax evasion and fuel adulteration, such as diluting gasoline by mixing solvents or adding anhydrous ethanol in proportions greater than those permitted by law (anhydrous ethanol is taxed less than hydrous ethanol and gasoline).
Taxes constitute a significant portion of the cost of fuels sold in Brazil. For this reason, tax evasion has been a recurring practice of some distributors, allowing them to charge lower prices. These practices have allowed some distributors to supply large quantities of fuel products at prices lower than those offered by the main distributors, allowing the former to increase their sales volumes at the expenses of the latter. Consequently, these anti-competitive practices may affect Raízen and Moove sales volumes, which could have a material adverse effect on our businesses. If these practices become predominant, it could result in lower prices or reduced margins for products sold, which may cause a material adverse impact on our subsidiaries’ businesses and results of operations.
Given the complexity and breadth of our operations and the special sensitivity of the sector in which we operate, particularly in regard to anti-competitive practices, we cannot guarantee that our internal control mechanisms, such as our governance and compliance programs, are sufficient to avoid risks of investigations for illicit or irregular conducts and possible sanctions and legal proceedings. Despite having these internal control mechanisms, we and our subsidiaries, investees and jointly controlled company, may be subject to, among others, litigation, investigations, expenses, fines, sanctions and penalties, both administrative and criminal, by different authorities. We may also lose our licenses, permits or other regulatory instruments required for our operations, be subjected to search and seizure procedures, and suffer damage to our image and reputation. The fuel sector, in particular, has been the subject of investigations by the Brazilian authorities, especially by the Brazilian Antitrust Authority and the Public Prosecutors’ Offices. There are allegations on involving cartels and price agreements in the fuel distribution sector, and the Brazilian Antitrust Authority has been monitoring participants, which may adversely affect our operations.
Volatility and uncertainty in fuel prices can affect our operational margins and competitive position.
Fuel prices have historically been volatile and may continue to be so in the future. Fuel prices are influenced by numerous factors including, among others, demand and supply, processing, transportation allotment and availability, price and availability of alternative fuel sources, weather conditions, natural disasters and political conditions or hostilities in oil-producing regions, besides the political factors related to government pricing policy.
In our operations, we may need to contract freight services provided by outsourced truck drivers to carry out the distribution of our products, and the costs of these types of services are strongly linked to the cost of fuels, especially that of diesel, which may adversely affect our business, financial condition and results of operations.
Particularly in relation to our subsidiary Rumo, significant reductions in fuel prices could make rail transport less attractive, considering that Rumo’s main competitors have a higher exposure to road freight, which has between 50% and 60% of its cost linked to that of diesel, while the railroads, on average, have a much lower exposure at approximately 20%. If fuel prices were to decrease, the price of rail transport would decrease less than the price of road freight, which could result in lost transportation volume for Rumo or force Rumo to decrease its prices in order to be able to retain or attract customers.
In addition, the gas distribution market may also be impacted, because the price of natural gas is indexed to a basket of fuel oils and inflation. Rapid variations and/or substantial decreases in international prices for oil and oil-derived products may therefore have an effect on the price of our natural gas which could have a material adverse effect on Compass.
Accordingly, any significant variations in fuel prices may have a material adverse effect on our business, financial condition and results of operations.
Since the consummation of our significant financial investment in Vale in the fourth quarter of 2022, we have been exposed to risks affecting Vale .
As a result of our significant financial investment in Vale as further described under “Presentation of Financial and Certain Other Information—Certain Corporate Events—Acquisition of Significant Influence in Vale S.A., or ‘Vale’” and “Item 4. Information on the Company—B. Business Overview—Vale,” our business, results of operations and financial condition in future periods will be affected by any risks to which Vale is exposed. Important factors that could adversely affect Vale’s actual results of operations and financial condition include, among others, the following:
The loss of our existing concessions may have a material adverse effect on our business and results of operations.
In Brazil, gas distribution and rail transportation services are provided through concessions granted by governmental authorities. Pursuant to Law No. 8,987 dated February 13, 1995, as amended, or the Concessions Law, natural gas concessions are subject to early termination in certain events. Concession agreements may be terminated as a consequence of the following: (i) expiration of the contractual term; (ii) expropriation of the concessions in the public interest (i.e., encampação); (iii) forfeiture (caducidade); (iv) termination; (v) annulment of the concession agreement to the extent irregularities in the bidding process or the granting of the concession are identified; or (vi) the bankruptcy of the concessionaire or expiration of the concession-holding entity.
Upon termination of a concession, the concession assets revert to the granting authority. Any compensation received by the concession holder upon termination may not be sufficient to offset investments made in, or the implied rate of return and the loss of future profits from, the concession. In addition, a termination of a concession may have a material impact on Compass and Rumo’s operating results and affect our payment capacity and ability to meet our financial obligations, as well as damage our reputation. In addition, it would not relieve Compass or Rumo from liability for any damages caused to third parties in connection with the provision of services, or from their obligations to their creditors.
If we fail to provide adequate services or if we fail to comply with applicable legal and regulatory norms and contractual clauses, including, without limitation, as a result of a negative outcome in ongoing legal proceedings, our concession agreements may be terminated, and the amount of compensation to be paid by the granting authority may be reduced as a result of the imposition of fines or other penalties, which may have a material adverse effect on our business and results of operations.
Changes in accounting standards, pronouncements and interpretations, as well as amendments and/or updates to existing accounting standards or pronouncements by the IASB, CVM, SEC and the Brazilian Accounting Pronouncements Committee (Comitê de Pronunciamentos Contábeis), or “CPC,” may have a material effect on our consolidated financial statements.
The adoption of new accounting standards, pronouncements and interpretations, as well as amendments and/or updates to existing accounting standards or pronouncements by the IASB, CVM, SEC and CPC, may have a material impact on our consolidated financial statements, with possible effects on our financial results, including possible impacts on the basis of dividend distributions. The effects of the adoption of new accounting standards can only be measured if and when the adverse effects mentioned above occur.
Risks Related to Raízen
Ethanol prices are directly influenced by sugar and gasoline prices, so that a decline in those prices will adversely affect both our ethanol and sugar businesses.
The price of ethanol generally is closely associated with the sugar and gasoline prices in international and local markets. A vast majority of ethanol in Brazil is produced at sugarcane mills that produce both ethanol and sugar. Because sugarcane millers are able to alter their product mix in response to the relative prices of ethanol and sugar, this results in the prices of both products being directly correlated, and the correlation between them may increase over time. In addition, sugar prices in Brazil are determined by prices in the world market, so that there is a correlation between Brazilian ethanol prices and world sugar prices.
Because flex fuel vehicles allow consumers to choose between gasoline and ethanol at the pump rather than at the showroom, ethanol prices are correlated to gasoline prices as well and, consequently, international oil prices. We believe the correlation among the three products will increase over time. Accordingly, a decline in sugar prices will have an adverse effect on the financial performance of Raízen’s ethanol and sugar businesses, and a decline in petroleum prices could make ethanol less competitive and reduce demand, despite increased sales of flex fuel vehicles, affecting its results and financial condition, including cash flows.
Raízen may not be successful in its plans to sell energy from bioenergy projects, and the regulation of the electricity sector issued by the Brazilian government could adversely affect its business and financial performance.
Raízen’s bioenergy capacity is used to generate energy for its own industrial operations and to sell the surplus in the Brazilian national interconnected system (Sistema Nacional Interligado). The Brazilian government regulates the energy sector extensively. Raízen may not be able to satisfy all the requirements necessary to enter into new contracts or to otherwise comply with Brazilian energy regulation. Changes in current regulation or in the federal program for granting authorizations, and the creation of more stringent criteria for qualifying in future public energy auctions, in addition to lower prices, may adversely affect our results of operations from our bioenergy business.
Government authorities may, at their own discretion, change the regulations or the terms and conditions applicable to Raízen’s electricity concessions, causing additional costs or diminishing projected revenues. Raízen may be subject to regulatory penalties if we are unable to comply with the new terms and conditions. Raízen’s authorizations are subject to review by the granting authorities with respect to the amounts Raízen may sell in energy purchase and sale agreements, known as a “physical guarantee.” If the physical guarantee of its plants is reduced, Raízen may have our sales capacity reduced and may be exposed to payments and penalties within the scope of the Electric Energy Sales Board (Câmara de Comercialização de Energia Elétrica). Raízen may also be ordered to suspend its power generation if so determined by the National Electric System Operator (Operador Nacional do Sistema Elétrico), for example, in the event of excess generation and incapacity of the electricity grid, and Raízen may not be fully compensated for these restrictions.
Any failure to implement these plans could have a material adverse effect on Raízen’s business, financial condition and results of operations. Additionally, regulations in the electricity sector impose the payment of various sector charges, and the total costs of these charges may be increased by government authorities, adversely affecting the business of Raízen. In addition, cases of force majeure, acts of God, disturbances or interruptions can affect the energy transmission and distribution system.
Government policies and regulations directly related to Raízen products may adversely affect its results through increased production costs or reduced revenues.
The Brazilian government regulates the energy sector extensively. This includes the market for gasoline and diesel, which are the products we primarily distribute and sell. Thus, any intervention in or changes to the regulation of this sector may affect the prices of Raízen products.
More specifically, Raízen produces and sells three main types of ethanol: hydrous ethanol, anhydrous ethanol for fuel and industrial ethanol. The primary type of ethanol consumed in Brazil is hydrous ethanol, which is used as an alternative to gasoline for flex fuel vehicles (as opposed to anhydrous ethanol, which is used as an additive to gasoline). Governmental authorities of several countries, including Brazil and the United States, currently require the use of a certain percentage of anhydrous ethanol in gasoline. Since 1997, the Brazilian Sugar and Alcohol Inter-ministerial Council (Conselho Interministerial do Açúcar e Álcool), or “CIMA,” has fixed the percentage of anhydrous ethanol that must be used as an additive to gasoline. According to CIMA Resolution No. 1, dated March 4, 2015, and MAPA Ordinance No. 75, dated March 5, 2015, the current percentage of anhydrous alcohol for regular gasoline (regular gasoline “C”) is 27%, and for additive/premium gasoline (gasoline “C”) is 25%. The blending of ethanol with gasoline for automotive use is subject to a high degree and regularity of inspections by the ANP, which is responsible for establishing the acceptable specification parameters for ethanol through ANP Resolution No. 907/2022. Any blending of fuel that does not comply with these parameters will be subject to fines and even the loss of the license to operate in the sector. According to ANP data, approximately one-half of all fuel ethanol in Brazil is used to fuel automobiles that run on a blend of anhydrous ethanol and gasoline; the remainder is used in either flex fuel vehicles or vehicles powered by hydrous ethanol alone. Other countries have similar governmental policies requiring various blends of anhydrous ethanol and gasoline. Any reductions in the percentage of ethanol to be added to gasoline or changes in Brazilian government policies related to the taxation and use of ethanol, as well as growth in the demand for natural gas and other fuels as an alternative to ethanol, such as natural gas, may cause us significant adverse effects.
Further, new technologies may be developed or implemented to obtain alternative energy sources, and cars that use these sources may replace flex fuel vehicles. Advances in the development of alternatives to ethanol, or the development of automobiles that use energy sources other than ethanol, could significantly reduce the demand for ethanol, thereby affecting Raízen’s sales.
Raízen may not be able to satisfy all the requirements necessary to enter into new contracts or to otherwise comply with Brazilian energy regulation. Changes in current Brazilian regulations or authorization programs and the creation of stricter criteria for eligibility in future energy auctions, in addition to lower prices, may adversely affect Raízen’s operating results in its energy cogeneration businesses, increase the costs of projected investments and, as a result, hinder the growth of its business.
In addition, flex fuel vehicles in Brazil are currently taxed at lower levels than gasoline-only vehicles, which has contributed to the increase in the production and sale of flex fuel vehicles. Any reduction in the percentage of ethanol required to be added to gasoline or increase in the levels at which flex fuel vehicles are taxed in Brazil, as well as growth in the demand for natural gas and other fuels as an alternative to ethanol, lower gasoline prices or an increase in gasoline consumption (versus ethanol), may cause demand for ethanol to decline and affect our business. In addition, ethanol prices are influenced by the supply and demand for gasoline; therefore, a reduction in oil prices resulting in a decrease in gasoline prices and an increase in gasoline consumption (versus ethanol), may have a material adverse effect on our business, financial condition and results of operations.
Raízen may be adversely affected by a shortage of sugarcane or by high sugarcane costs and the consequent lack of sugar cane may materially impact Raízen’s ability to produce and distribute ethanol and sugar.
Sugarcane is the main raw material Raízen uses for the production of ethanol and sugar. Raízen generally enters into medium- and long-term supply contracts for periods varying from three and one-half to seven years.
Raízen’s supply of sugarcane in Brazil may be significantly reduced as a result of the termination of supply contracts or lease agreements, which may result in a shortage of sugarcane supply and an increase in the price of sugarcane. If there is a shortage of sugarcane or any supply contracts or lease agreements are terminated, Raízen may experience a material reduction in the sugarcane available for processing or an increase in sugarcane prices, which may materially adversely affect our business, results of operation and financial condition.
In Brazil, the price of sugarcane may increase as a result of changes in the criteria established by the Association of Producers of Sugarcane, Sugar and Ethanol of the state of São Paulo (Conselho dos Produtores de Cana-de-açúcar, Açúcar e Álcool do Estado de São Paulo), or “Consecana,” which is composed of sugarcane producers and sugar mill operators. The price of sugarcane is set in supply agreements, lease agreements and partnership agreements and is partially fixed and partially variable, as provided for in the criteria set forth by Consecana. As a result, any changes to the criteria established by Consecana may lead to an increase in the cost of sugarcane, which may have a material adverse effect on our business, financial condition and results of operations.
In addition, in certain cases, as a result of the price-setting formulas in the contracts which Raízen has entered into with its customers, Raízen may not be able to pass on the full amount of these cost increases to its customers. This may have a material adverse effect on Raízen’s business, financial condition and results of operations.
Furthermore, the availability of sugarcane may be affected by various environmental and climate-related factors, including water scarcity, excessive or insufficient rainfall and other weather patterns.
Raízen may be subject to expropriation of real estate intended for rural production.
The real estate used by Raízen, or by third parties with whom Raízen maintains a partnership or lease relationship, for the cultivation of sugarcane may be unilaterally expropriated by the Brazilian government for purposes of public and social interest, and we cannot assure you that the payment of the indemnification that they may have to pay to Raízen will be fair. Pursuant to Brazilian law, the Brazilian government may expropriate the real estate of rural producers where the sugarcane is planted by necessity or for public utility or social interest, partially or totally. In the event of expropriation, we cannot assure you that the price paid by the Brazilian government will be fair or equivalent to the market value, or that it will effectively and adequately compensate Raízen for the amounts invested. Accordingly, any expropriation of any real estate used by Raízen, or by third parties with whom Raízen maintains partnership or lease relationships, may adversely and significantly affect Raízen’s financial situation and results, and may also impact Raízen’s activities, which may have a material adverse effect on our business, financial condition and results of operations.
Social movements may affect the use of Raízen’s agricultural properties or cause damage to them.
Social movements are active in Brazil and advocate land reform and property redistribution by the Brazilian government. Invasion and occupation of agricultural land by large numbers of people is a common practice among the members of such movements, and in certain regions, including those in which Raízen owns or leases property, remedies such as police protection or eviction procedures might be inadequate or non-existent. As a result, we cannot assure you that Raízen’s agricultural properties will not be subject to invasion or occupation by any of such social movements. In these cases, our operations, image and reputation may be affected, and Raízen may be subject to legal and administrative litigation that may result in criminal and administrative penalties, including, but not limited to, suspension, shutdowns, and a requirement to pay fines, which may range from R$50 to R$50 million and can be doubled or tripled in case of recurrence, which may also result in the need for additional investments.
In addition, Raízen may be subject to civil liabilities for environmental damage, which includes the obligation to redress any damages caused to the environment and/or public health. The demonstration of the cause-and-effect relationship between the damage caused and action or omission is sufficient to trigger the obligation to redress environmental damage.
Raízen’s sugar and ethanol products are sold to a small number of customers who may be able to exercise significant bargaining power concerning pricing and other sale terms.
A non-negligible share of Raízen’s sugar and ethanol production is sold to a small number of customers that acquire large portions of our production and thus may be able to exercise significant bargaining power concerning pricing and other sale terms. In addition, intense competition in the ethanol and sugar industries further increases the bargaining power of customers, which may have a material adverse effect on Raízen’s sales volumes and, consequently, on us.
Raízen’s export sales are subject to a broad range of risks associated with international operations.
International activities expose Raízen to risks not faced by companies operating exclusively in Brazil. The risks associated with international operations include:
Most ethanol and/or sugar producing countries, including the United States and member countries of the European Union, protect local producers from foreign competition by establishing government policies and regulations that affect ethanol and sugar production, including quotas, import and export restrictions, subsidies, tariffs and duties. As a result of these policies, domestic ethanol and sugar prices vary greatly in individual countries. We have limited or no access to these large markets as a result of trade barriers. If these protectionist policies continue, we may not be able to expand our export activities at the rate we currently expect, or at all, which could have a material adverse effect on our business, financial condition and results of operations. Also, if new trade barriers are established in our key export markets, Raízen may face difficulties in reallocating products to other markets on favorable terms, and both Raízen’s and our business and financial performance may be adversely affected.
Raízen may be adversely affected if the outsourcing of mechanized sugarcane cutting becomes prohibited.
Raízen is a defendant in a public civil action in which the Public Ministry of Labor claims the prohibition of outsourcing the planting, loading and transport of sugarcane. If the Superior Labor Court changes its understanding in relation to the appeal granted to Raízen to annul the unfavorable decision of the lower court and determines that the activities in question are intrinsic activities to our production chain (and could not be outsourced), Raízen may be required to carry out these activities on its own on an ongoing basis (including hiring employees and purchasing suitable machinery). This could have a direct material adverse effect on Raízen and an indirect one on us. Such material adverse effects may also arise from a similar understanding in relation to other activities outsourced by us.
Any mismatches between the cash outflows for the payment of litigation costs of Raízen and the time of receipt of the related reimbursement by the Joint Venture’s shareholders may lead to pressures on Raízen’s cash flows.
Pursuant to the agreement entered into in the context of the formation of the Raízen joint venture, we agree that we will reimburse our shareholders or be reimbursed by them, as the case may be, for any amounts received or paid in relation to the lawsuits, provided that the events triggering such payments or receipts have occurred prior to the formation of the Raízen joint venture on June 1, 2011, and provided such amounts have actually been paid or received.
The agreement also provides that our controlling shareholders are required to indemnify us for any expenses related to litigation (tax, labor, civil and others) that have been caused by events prior to the formation of the Raízen joint venture. Any mismatch between cash outflows to pay litigation costs and the timing of receipt of the related reimbursement by our shareholders, or any failure by our shareholders to reimburse us, could lead to pressure on our cash flows.
In addition, Brazilian courts, in some circumstances, understand that a controlling shareholder, a successor entity of another company, a company assignee of another company’s assets and other companies subject to the common control of the assignor or predecessor company must all be liable, jointly and separately for, among other obligations, labor, social security, civil, tax or environmental obligations of the assignor, assignee or predecessor. Therefore, we may be liable for obligations of our controlling shareholders for which we have not made and do not intend to make any provisions, which could adversely affect our business, financial condition and results of operations.
Crop disease and pestilence may strike our crops which may result in destruction of a significant portion of the harvest.
Crop disease and pestilence can occur from time to time and have a devastating effect on Raízen’s crops, potentially rendering useless or unusable all or a substantial portion of affected harvests. Even when only a portion of the crop is damaged, Raízen’s business, financial condition and results of operations could be adversely affected because we may have incurred a substantial portion of the production cost for the related harvest. The cost of treatment of crop disease tends to be high. Any serious incidents of crop disease or pestilence, and related costs, may adversely affect Raízen’s production levels and, as a result, our net sales and overall financial performance.
Significant competition in Brazil, Argentina and Paraguay may distort prices and adversely affect our market share, our operations and our profitability.
The fuel distribution markets in Brazil and Argentina are highly competitive within both the wholesale and retail segments. Raízen competes with small and large domestic fuel distributors. Large players may be more flexible than Raízen in responding to volatile industry or market conditions, such as shortages of crude oil and other raw materials or intense price fluctuations. In addition, Raízen competes with producers and traders in other industries that provide alternative forms of energy and fuel to satisfy the requirements of our industrial, commercial and retail customers.
Certain measures currently being taken by participants in the fuel distribution market, including the expansion of their distribution networks, as well as the arrival of new participants or the offer of alternative forms of energy and fuel, may result in an increase in competition and/or fuel supply and a consequent decrease in fuel prices, which could have an adverse effect on our business, financial condition and results of operations.
Intense competition and the actions of Raízen’s competitors could lead to reduced profit margins for the products we sell, as well as reductions in sales volumes, which could have a material adverse effect on our business, financial condition and results of operations.
See also “—Risks Related to Our Businesses and the Industries in Which We Operate Generally—Anticompetitive practices in the fuel and lubricant distribution markets may distort market prices.”
Disruption of Raízen’s transportation and logistics services or insufficient investment in public infrastructure could materially adversely affect our operating results.
One of the principal disadvantages of the Brazilian agriculture sector is that key growing regions lie far from major ports. As a result, efficient access to transportation infrastructure and ports is critical to the growth of Brazilian agriculture as a whole and of our operations in particular. As part of its business strategy, Raízen is investing in areas where existing transportation infrastructure is underdeveloped.
A substantial portion of Brazilian agricultural production is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to U.S. and other international producers. Raízen’s dependence on truck transport may affect our position as a low-cost producer, such that its ability to compete in world markets may be impaired. Furthermore, Raízen’s supply chain is dependent on road transport and may be adversely affected by weather conditions which require a decrease or stoppage in road transport. Any such impediments to road traffic along the routes typically used within Raízen’s supply chain could require it and its suppliers to use alternative routes, which may result in delays and have a material adverse effect on Raízen’s business, financial condition and results of operations.
Given that a significant part of Raízen’s sales are exported to countries other than Brazil (both with regards to sugar and ethanol), we may be adversely affected by the lack of port capacity or an increase in the costs of such port capacity as a result of limitations in supply.
Raízen currently outsources the transportation and logistics services necessary to operate its business. Any disruption in these services, or any obligation to take over these services from existing service providers as a result of judicial orders banning the outsourcing of these services, could result in supply problems at Raízen’s processing plants and impair its ability to deliver processed products to our customers in a timely manner. In addition, a natural disaster or other catastrophic event could result in disruption in regional transportation infrastructure systems affecting Raízen’s third-party transportation providers.
Even though road and rail improvement projects have been considered for some areas of Brazil, and in some cases have been implemented, substantial investments are required for road and rail improvement projects, which may not be completed on a timely basis, if at all. Any delay or failure in developing infrastructure systems could hurt the demand for our products, impede our delivery of products or impose additional costs on Raízen.
Raízen depends on third parties to provide its customers and Raízen with facilities and services that are integral to its business. Additionally, Raízen depends on the renewal of contracts with retail dealers that operate Shell-branded sites in Brazil and Argentina.
Raízen has entered into agreements with third-party contractors to provide facilities and services required for its operations, including fuel distribution, storage facilities and transportation services for Raízen’s ethanol and sugar operations. Additionally, Raízen depends on contracts entered into with retail dealers that operate Shell-branded sites in Brazil and Argentina. The loss or expiration of Raízen’s agreements with third-party contractors and retail dealers, or Raízen’s inability to renew these agreements or to negotiate new agreements with other suppliers and retail dealers at comparable rates could harm its business and financial performance. Raízen’s reliance on third parties to provide essential services on its behalf, and retail dealers that operate Shell-branded sites in Brazil and Argentina, also gives Raízen less control over the costs, efficiency, timeliness and quality of those services. Contractors’ negligence could compromise the safety of the transportation of ethanol from Raízen’s production facilities to its export facilities and expose Raízen to the risk of liability for environmental damage caused by such third parties. Raízen is expected to be dependent on such agreements for the foreseeable future, and if Raízen enters any new market segments, Raízen will need to have similar agreements in place.
Brazilian labor authorities, based on case law, previously prohibited the outsourcing of activities considered to be part of an entity’s core business. Noncompliance with this prohibition could result in fines and a requirement that the outsourcing be terminated. Recent decisions by the Brazilian Federal Supreme Court (Supremo Tribunal Federal), or the “STF,” and recently enacted labor laws, have permitted the outsourcing of activities considered part of an entity’s core business, provided certain conditions are met. Raízen faces the risk that (1) it may be held indirectly liable when third-party contractors fail to comply with their labor obligations, and (2) it is held jointly and severally liable with its third-party contractors where they fail to comply with their labor obligations if it is proved that there was a direct relationship between Raízen and the outsourced employees, or in cases of fraud. Any such developments could materially adversely affect Raízen and, consequently, us.
We and Shell have joint control over Raízen
Raízen is controlled by two different shareholders, Cosan and Shell. Pursuant to the Raízen shareholders’ agreement, several matters require the approval of its board of directors, which consists of eight members: two independent members and six members appointed by the two controlling shareholders (three each). Decisions of Raízen’s board of directors require majority approval, which could result in delays in making important decisions related to Raízen’s business if there is any misalignment between our interests and those of Shell.
The shared control may result in deadlocks and disputes between us and Shell regarding strategy, control and other important matters. Any such deadlocks and disputes could have a material adverse effect on Raízen’s and therefore, our business, financial condition and results of operations.
The shareholders’ agreement and other agreements, related to Raízen, into which we have entered with Shell are subject to put and call options and termination provisions.
We and Shell have entered into certain agreements with respect to Raízen that are subject to put and call options (ranging from general to specific events) and termination provisions that, if triggered, would cause a change in the control structure of Raízen.
If any of these events or similar provisions are triggered under the terms of the agreements relating to Raízen, or if certain rights that we or Shell hold in connection therewith are exercised, our interest in Raízen may be liquidated prior to scheduled termination, which could have a materially adverse effect on our business, financial condition and results of operations.
The sale of fuel products refineries in Brazil by Petrobras may have a material adverse effect on our business, financial condition and results of operations.
The cease and desist agreement (Termo de Compromisso de Cessação), or “TCC,” entered into by Petrobras and the Brazilian Antitrust Authority regarding the divestment of Petrobras’ refineries marks a significant change to the Brazilian government’s historical approach to the oil and gas industry. The TCC was signed on June 8, 2019, and reflects a focus on promoting market competition and reducing the government’s intervention in the economy. The TCC requires Petrobras to sell its refineries to third-party companies, which is expected to increase competition in the oil market and promote a more dynamic and efficient sector. Competition in the fuel distribution industry may be increased if the oil product refineries that are currently being sold by Petrobras are acquired by third parties. Similarly, Raízen may be impacted by the acquisition of Petrobras’ refineries by private investors that practice more restrictive pricing and supply policies, limiting access to petroleum products from these locations. Additionally, we cannot assure you that Raízen would be successful if it acquires, directly or indirectly, any of the refineries that are being sold, which may have a material adverse effect on Raízen’s and our business, financial condition and results of operations. On the other hand, there is a possibility that the newly elected Brazilian government administration decides to abandon the plan to sell Petrobras’ refineries, despite the TCC having been entered into by Petrobras and the Brazilian Antitrust Authority. This decision would represent a significant shift in the government’s approach to the oil and gas industry, and it would likely face resistance from market participants and regulators. There is a possibility that the sale of Petrobras’ refinery assets is put on review by the newly elected Brazilian government administration; however, such scenario may help to maintain current market conditions in favor of Raízen. Any of the adverse developments referred to above as well as the ongoing uncertainty with respect to the sale of fuel products refineries may have a material adverse effect on our business, financial condition and results of operations.
The high concentration of the Brazilian aviation market in a small number of airlines could have a material adverse effect on Raízen’s and our business, financial condition and results of operations should any of these companies face financial difficulties.
Raízen supplies fuel to the Brazilian aviation market, which is highly concentrated in a few airlines. LATAM, Gol and Azul, according to the Brazilian National Civil Aviation Agency (Agência Nacional de Aviação Civil), are the three biggest national airlines in terms of number of passengers. If any of these airlines were to encounter financial difficulties, this could have a material adverse effect on our business, financial condition and results of operations and those of our subsidiaries, including Raízen’s.
Considering the high concentration in commercial aviation, the migration of any of the large domestic airlines to another distributor of fuel could also have a material adverse effect on Raízen’s and our business, financial condition and results of operations.
Risks Related to Compass
Raw material and supply service costs are subject to fluctuations that could have a material adverse effect on Compass’s results of operations.
Raw materials used in Compass’s business and the cost of services it engages for the distribution of natural gas are subject to wide fluctuations depending on market conditions and government policies. These prices are influenced by several factors over which we have little or no control, including, but not limited to, international and national economic conditions, regulations, government policies (including those applicable to the pricing policies of Petrobras, which is our main gas supplier), tariff adjustments and global effects of supply and demand, particularly in commodity prices. We cannot assure you that Comgás’s tariff adjustment will be conducted in a timely manner or be sufficient to reflect and/or offset increases in inflation, operation costs and expenses, amortization of investments and taxes. As a result, Comgás might not be able to pass on the increased costs to its customers, which could decrease its profit margin and result in a material adverse effect on Comgás’s and our business, financial condition and results of operations.
The transportation and storage of natural gas, the import of liquefied natural gas (LNG), regasification and distribution of natural gas are inherently hazardous.
Compass and its subsidiaries are involved in activities which are inherently hazardous and fraught with operational risks, including leaks, accidents and mechanical problems. These risks could result in personal injury and death, severe damage to or destruction of property and equipment, pollution and environmental damage and a suspension of operations, which could result in significant lost revenue and other penalties. Compass and its subsidiaries do not carry insurance against all the risks and losses to which they are exposed. In addition, insurance proceeds, if available, may be insufficient to cover all losses. The location of pipelines near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from these risks. The occurrence of any of these events could adversely affect our image, reputation, results of operations, cash flows and financial condition.
Variations in the price of natural gas may affect the operating costs and competitive positions of our businesses, which could adversely affect our results of operations, cash flows and financial condition.
Natural gas prices historically have been volatile and may continue to be volatile in the future. Prices for natural gas are subject to a variety of factors that are beyond our control. These factors include, but are not limited to, the level of consumer demand for, and the supply of, natural gas, processing, gathering and transportation availability, statutory gas supply purchase obligations, price and availability of alternative fuel sources, weather conditions, natural disasters and political conditions or hostilities in natural gas producing regions.
In addition, the amounts we pay under our natural gas supply agreements are composed of two components: (i) one that is indexed to a basket of combustible oils in the international market that is adjusted quarterly and (ii) one that is adjusted annually based on the inflation rate. We have no control over either of these components. Furthermore, natural gas supply agreements often take the form of a “take or pay” agreement, pursuant to which we might be required to pay the difference in amounts between actual consumption and the contract amount. Variations and uncertainties in the price and demand of oil and gas are beyond our control and may adversely affect our results of operations.
We may be unable to renew the term of our concession agreements, or the terms of the concession agreements may be renewed on terms that are less favorable to us, which may have a material adverse effect on our business and results of operations.
Comgás, Sulgás and Necta, all of which are indirect subsidiaries of Cosan and subsidiaries of Compass, carry out natural gas distribution activities pursuant to concession agreements entered into with the governments of the state of São Paulo and Rio Grande do Sul, respectively. The concession agreement of Comgás and Necta in the state of São Paulo expires in 2049 and 2029 respectively, and the concession agreement of Sulgás in the state of Rio Grande do Sul expires in 2044.
Due to the discretionary power of the government of the states of São Paulo and Rio Grande do Sul in granting the renewal of the concession agreements, we cannot assure you that the concession agreements will be renewed, that they will be renewed on the same terms or that, to the extent they are renewed, that the amount of compensation Compass’s subsidiaries receive will be sufficient to cover the full value of our investment, all of which may have a material adverse effect on Compass’s and our business, results of operations and financial condition.
Moreover, our results of operations, our ability to implement our growth strategy and the ordinary course of our business may be materially and adversely affected if (i) there are any changes in the applicable laws or regulations, (ii) we are unable to extend any of our concessions, (iii) any extension is subjected to certain conditions precedent or the applicable concessions are extended on terms less favorable than those currently in place or (iv) state concession programs are cancelled.
We cannot guarantee that the results of tariff reviews pursuant to our concession agreements will be supportive of our strategy. These tariff results may be affected by administrative or judicial decisions.
The principal rights and obligations on our natural gas distribution subsidiaries are contained in the applicable concession agreements and in the regulations established by the applicable regulatory agencies. The concession agreements provide for tariff reviews, which should ordinarily occur in five-year cycles, setting the maximum margin for the prospective cycle and the rates that will apply for each segment. Any delays, disagreements with respect to tariffs or inadequate tariff adjustments relative to our costs could have a negative impact on our results of operations.
Given the margins established in the concession agreements are prospectively set and approved by the applicable regulatory agencies and consider, among others, the costs, the asset base, investments, rate of remuneration, depreciation and projections for each tariff cycle, the results of prior, current and future tariff cycles may not be supportive of our strategy and/or may be challenged or amended, including as a result of third-party judicial and/or administrative proceedings.
As part of the tariff review processes, our natural gas distribution subsidiaries and third parties initiated certain procedures and appeals with the applicable regulatory agencies, which are currently pending. They relate to certain material and formal aspects of the tariff review procedures, including with respect to required revenue formation and asset base forecast, and they could potentially result in new judicial and/or administrative proceedings related to past tariff reviews and/or could reduce our margins and adversely affect the balance of the concession, including our ability to generate revenues, our investment capacity and our operations.
The liberalization of the gas market in Brazil depends on compliance by Petrobras with a cease and desist agreement (Termo de Compromisso de Cessação). Any noncompliance or delay in the implementation of the TCC may hinder or prevent the development of the natural gas market, which may have a material adverse effect on our business.
As of the date of this annual report, Petrobras dominates the Brazilian gas market. In 2019, Petrobras entered into the TCC with the Brazilian Antitrust Authority. The liberalization of the Brazilian gas market and our participation in it may be adversely affected to the extent that Petrobras does not comply with the terms of the TCC and Petrobras’s dominant position in the gas sector is not reduced in the coming years, including through (1) the release of contracted and unused capacity in pipelines; (2) access to all essential natural gas infrastructure; (3) the sale of holdings in transportation and distribution companies; and (4) the leasing of liquefied natural gas regasification terminals. Any such developments may limit our participation and the participation of other players in the natural gas market by limiting opportunities for developments, investments, and for the negotiation of gas supply and distribution.
Any failure by Petrobras to comply in whole or in part with the terms of the TCC may adversely affect the liberalization of the Brazilian gas market, which may have a material adverse effect on our business.
We cannot assure you that our natural gas supply contracts will be renewed or extended, or that we will be able to replace these contracts with agreements with alternative suppliers on favorable terms or at all.
Our natural gas supply contracts have a definite term, which is on average 10 years. We could be adversely affected if we are unable to renew or extend these contracts, or to replace them with new agreements with alternative suppliers, on favorable terms or at all. In recent years, additional participants have entered the Brazilian natural gas market, and this increase in competition has also increased the uncertainty around the renewal and/or extension of existing agreements. Failure to renew, extend or replace our natural gas supply contracts on favorable terms, or at all, could have a material adverse effect on our business, financial condition and results of operations.
In addition, natural gas purchase and sale transactions are conducted bilaterally between agents, and we are exposed to the credit risk of our counterparties. A default by one of our counterparties will expose us to market prices at that time, which could adversely affect our projected results of operations.
We may be forced to buy or sell energy at prices that may generate additional costs.
Our energy trading activities require us to estimate future market demand for electricity. We may be adversely affected to the extent that we overestimate or underestimate such demand.
If we underestimate demand and buy less electricity than we need, we may be forced to buy additional electricity in the spot market at substantially higher prices than those provided for in long-term purchase contracts. We may also be unable to pass on these additional costs to our customers and would be subject to penalties pursuant to applicable regulations. On the other hand, if we overestimate demand and buy more electricity than we need (if, for example, a significant portion of our customers start purchasing electricity directly in the open market), we may need to sell the surplus at substantially lower prices. Any significant divergence between our anticipated needs and demand for electricity may adversely affect our results of operations.
Market activities are subject to potential losses due to short-term changes in spot market prices, and may not be able to purchase sufficient electricity to honor the sales contracts.
We may be unable to purchase the electricity we need to fulfill our sales contracts, which may expose us to short-term market prices that are significantly higher than the prices set by our medium and long-term contracts. Free market contracts are subject to possible mismatches between the volume of generated or purchased electricity (supply) and the volume of electricity sold or consumed (demand). These volume mismatches are settled by the CCEE at the differentiated settlement price (Preço de Liquidação das Diferenças), or the PLD. The PLD is calculated weekly and is based on the Marginal Cost of Operation, or the CMO, and is limited to minimum and maximum values, which are reviewed and set by the ANEEL annually. Changes in short-term market prices can lead to potential losses in our market activities. The PLD may be impacted by (1) variations in expected and verified loads; (2) variations in the levels of hydroelectric plant reservoirs; (3) decreases/increases in expected and verified inflows; (4) an advanced or delayed start of operations of new generators and/or transmitters; and (5) variations in expected and verified generation of small plants. The occurrence of any of these events could lead to a significant variation in the PLD, which could result in increased costs or reduced revenue from energy sales in the short-term, and could adversely affect our cash flows.
In addition, the purchase and sale of electricity transactions are conducted bilaterally between agents, and we are exposed to the credit risk of our counterparties. A default by one of our counterparties will expose us to market prices at that time, which could adversely affect our projected results of operations.
We may not be successful in executing our business strategy, which may have a material adverse effect on us.
Our business strategy and financial performance depend on the successful implementation of various strategies and on a multitude of factors, including the ability to undertake successful expansions, acquisition opportunities, approval of projects by the competent authorities, variations in the cost of construction, favorable macroeconomic factors, access to financing on attractive terms and increased consumer capacity, among others. We cannot assure you that our strategy will be executed successfully or at all, which may have a material adverse effect on us.
Moreover, we are unable to predict whether or when acquisitions or strategic alliances will occur or the likelihood that any particular transaction will be completed on favorable terms and conditions to us. In addition, we cannot assure you that we will be able to obtain the necessary financing to make any such acquisitions, whether on favorable terms or at all.
Acquisitions, investments or partnerships, particularly those involving large companies, may bring managerial and operational challenges, including diverting management’s attention from existing operations and difficulties in integrating operations and personnel. Any material failure to integrate new businesses or manage new partnerships could adversely affect our business, financial condition and results of operations. Acquisitions may also expose us to potential legal proceedings relating to liabilities involving any acquired company, its directors or officers or contingent liabilities incurred prior to the acquisition. Material liabilities associated with an acquisition, such as labor or environmental liabilities, could materially and adversely affect our reputation, business, results of operations or financial condition and reduce the benefits expected to accrue from such acquisition. In addition, any major acquisition we envisaged may be subject to antitrust and other regulatory approvals, and we may not be successful in obtaining such approvals on a timely basis or at all. Failure to obtain such approvals may result in fines or penalties for us.
If we try to expand our current operations, we may face difficulties in obtaining appropriate permits for expansions and installation of new projects. Any expansions may not achieve the level of revenue and profitability in the time frame we estimate and, consequently, may adversely affect our profitability, which could have a material adverse effect on us.
Finally, we may not be able to fully implement our business strategy as projected, which may result in increased investments and operating expenses that may not be offset by the expected increase in revenue (if such an expected increase materializes in full or at all, which we cannot guarantee), resulting in a decrease of our operating margins. Failure to implement our strategy may have a material adverse effect on our business, financial condition and results of operations.
See also “—Risks Related to Our Businesses and the Industries in Which We Operate Generally—We may be unable to implement our growth strategy successfully.”
Compass is subject to regulatory risks arising from the different state regulatory regimes to which its operations are subject.
Several Brazilian states have local regulatory agencies that conduct tariff reviews and regulate gas distribution services. There is a risk that tariff reviews in certain states may be delayed, or that such states may apply the provisions of the concession contracts in a manner which we consider to be incorrect, since reviews occur (or should occur) annually for all distributors operating under the cost-plus model. A delay of six to eight months in the conclusion of a tariff review process may impact the revision of the following year, given the proximity of the tariff updates.
We also cannot assure you that state regulatory agencies will conduct their policy-making decisions and reviews in a manner which is consistent across all of the states in which we operate. This may result in divergent regulatory standards across states, which could increase our compliance costs. State governments may also from time to time appoint or remove senior civil servants from these regulatory agencies, which may affect the agencies’ decision-making process and decisions, and thereby have a material adverse effect on Compass.
Furthermore, certain of these state regulatory agencies are relatively new and do not therefore have established regulatory review processes and methods. Accordingly, they tend to base their decisions on precedents from other state regulatory agencies. There is therefore a risk that a precedent decision that is adverse to us in one state (for example, about tariff calculation, or the recognition of operating expenses and/or capital expenditure items) may adversely affect our business other states as well.
The administrative penalties and sanctions applied by these regulatory agencies may range from a simple warning to forfeiture of the concession, depending on (i) the scope and severity of the violation; (ii) the size of the damage; (iii) the advantage gained through the violation; (iv) the company’s record; and (v) the duration of the violation.
Any delays in the exploration, development, negotiation or other issues related to the supply of gas from the pre-salt gas fields and Bolivia, as well as delays in negotiations or operational issues that create compliance issues with the expected timetables for the supply of gas through the importation of liquefied natural gas, may affect the plans and profitability of our activities and those of our subsidiaries.
The success of our and our subsidiaries’ strategies depends on our ability to access different sources of natural gas supply to be competitive and expand our supply options for consumption in the Brazilian market.
There are currently alternatives for accessing natural gas, such as pre-salt, mainly from the Santos basin in Brazil, gas from Bolivia imported via pipelines, and liquefied natural gas (“LNG”) imported into Brazil from overseas and made available to customers after regasification in terminals such as the Terminal de Regaseificação de GNL de São Paulo S.A., or “TRSP.” Each of these sources has different risks related to exploration, development and supply. Operational issues that hinder access or delay negotiations for the supply of natural gas, or additionally in the case of LNG, the expected timetable for the TRSP project or the importation of LNG, may adversely affect our strategy and operations, and could have a material adverse effect on our business, financial condition and results of operations.
In addition, a public hearing before the ANP is underway in Brazil to implement changes to the process for obtaining licenses and authorizations to operate in the LNG market in Brazil. Depending on the results of such public hearing, there may be adverse impacts to operators working with this type of fuel, including on our business, financial condition and results of operations.
Compass’s future performance is uncertain considering the degree of maturity of projects and assets recently incorporated into its portfolio, which may adversely affect our business plan.
Compass has been developing a number of projects and incorporating a number of assets into its portfolio. It is therefore subject to risks, expenses and uncertainties associated with the implementation of Compass’s business plan, as it may be unable to conclude such projects or obtain the expected benefits from them and the newly incorporated assets. Unlike Comgás, Compass has other companies in their early stages of development, some of them in the pre-operational stage, which involves significant business risks and could result in significant losses. For these initiatives, Compass may face challenges and uncertainties in financial planning due to the absence of available historical data for its newly incorporated assets and uncertainties regarding the nature, scope and results of its future activities.
It is possible that Compass may not be successful in implementing its business strategies, integrating newly acquired assets or completing the development of the structure necessary to conduct its business as planned. If one or more of its projects fails to be completed, or is delayed or cancelled, if Compass is unable to successfully integrate new assets, or if material liabilities relating to such new assets were to materialize, Compass’s and our business, financial condition and results of operations may suffer a material adverse effect. Compass’s projects may be delayed or cancelled for various reasons, including political instability, governmental regulatory action or supervening legislation, revocation, loss of or not obtaining environmental permits, insufficient capital, natural disasters, engineering failure or changes in business policy. As a result of industry factors or factors relating specifically to Compass, it may be necessary to change its methods of conducting business, in which case its financial condition and results of operations will be adversely affected.
Any such developments could have a material adverse effect on Compass’s and our business, financial condition and results of operations.
The supply of natural gas in Brazil is highly concentrated among a few suppliers. Any decisions by these suppliers regarding their natural gas business may adversely affect the revenues and operating margins of Compass.
The supply of natural gas that Compass sells is highly concentrated among a few suppliers as a result of the limited number of natural gas suppliers in Brazil. Compass therefore remains exposed to this concentration of supply and its revenues and operating margins may be adversely affected by decisions such suppliers take about their natural gas business.
In addition, a significant interruption of natural gas supply from one of these suppliers could occur in the event of a disruption in their operations or in the event of a commercial disagreement with Compass, which would adversely affect Compass’s ability to sell natural gas to its customers and making it more dependent on other suppliers. If Compass is unable to obtain an adequate supply of natural gas, it may be forced to meet its natural gas demands by purchasing on the international market, which could adversely affect its revenues and operating margins. Any such developments could have a material adverse effect on Compass’s and our business, financial condition and results of operations.
Risks Related to Moove
Moove’s international operations expose it to political and economic risks in other countries.
In the year ended December 31, 2023, our lubricants business, Moove, derived approximately 52% of its gross sales from its international operations. Moove’s international activities expose us to risks not faced by companies that operate solely in Brazil. Risks associated with our international operations include: (i) foreign exchange controls; (ii) changes in the political or economic conditions in a specific country or region, especially in emerging markets; (iii) potentially negative consequences resulting from changes to regulatory requirements; (iv) difficulties and costs associated with our observance of different laws, treaties and complex international regulations; (v) tax rates that may exceed those applicable in Brazil and other countries or gains that may be subject to withholding regimes and an increase in repatriation taxes; (vi) imposition of trade barriers; and (vii) limitations on the repatriation of undistributed profits. The realization of any of these risks may have a material adverse effect on Moove’s and our business, results of operations or financial condition.
We may not be able to maintain or renew certain agreements with third parties which are important to our business.
Our business, financial condition and results of operations may be materially and adversely affected if we are unable to maintain or renew certain agreements (including, without limitation, supply agreements, service contracts, licensing agreements, distribution agreements, joint ventures, partnerships and others) with third parties which are important to our business and operations.
On November 1, 2017, we acquired Stanbridge, which distributes lubricants and fuels in some regions of the United Kingdom. The company, via its subsidiaries, had a non-exclusive supply and service agreements for supply and delivery of ground fuel with the company operating Heathrow Airport. Such agreements had been extended until Airport Energy Services Limited (a subsidiary of Stanbridge) was awarded on July 30, 2020 a new agreement with Heathrow Airport Limited for the supply and delivery of ground fuel at Heathrow Airport. This agreement commenced on August 1, 2020 and will continue in full force and effect until March 31, 2025.
We, through our subsidiary Moove, are the manufacturer and exclusive distributor of lubricants in Brazil based on formulas that have been provided under the terms of the Principal Lubricants Agreement that we have entered into with ExxonMobil. On March 19, 2018, we entered into an agreement with ExxonMobil Lubricants Trading Company which grants our subsidiary Moove the exclusive production, import, distribution and marketing rights in Brazil, Bolivia, Paraguay and Uruguay of lubricants and certain other related products under the Mobil brand until November 30, 2038. This agreement came into force on December 1, 2018. The termination or failure to renew these agreements, or the failure by ExxonMobil to adequately maintain and protect its intellectual property rights, could materially and adversely affect our results of operations or could require significant unplanned investments by us if we are forced to develop or acquire alternative technology. In the future, it may be necessary or desirable to obtain other third-party technology licenses relating to one or more of our products or relating to current or future technologies to enhance our product offerings. However, we may not be able to obtain licensing rights to the needed technology or components on commercially reasonable terms or at all.
Risks Related to Rumo
Rumo depends on a few major customers for a significant portion of its revenue.
The majority of the cargo Rumo transports is for the agricultural commodities industry. Rumo’s major clients are export companies participating in this market, such as Cargill, Bunge, ADM, Amaggi, COFCO, Louis Dreyfus and Raízen, among others. Those clients accounted for a significant share of Rumo’s total net revenue. We cannot guarantee that Rumo will obtain similar revenue from its major clients in the future. Any change by Rumo’s major clients in their demand for transportation services, including logistics services, may have a material adverse effect on Rumo’s business, financial condition and results of operations. Moreover, Rumo’s revenue predominantly derives from transportation agreements between Rumo and its clients. We cannot guarantee that these transportation agreements will be renewed once they have expired. Failure to renew or otherwise extend these agreements may adversely affect Rumo’s and our business, financial condition and results of operations. For further information, see “Item 4. Information on the Company—B. Business Overview—Rumo—Overview—Major Customers.”
Rumo’s significant indebtedness could adversely affect its financial health and prevent it from fulfilling its indebtedness obligations, which would have a material adverse effect on us, our financial condition and reduce our ability to raise capital to finance our investments and our results of operations and would adversely impact our ability to recover from economic changes.
Rumo’s indebtedness level and the composition of its indebtedness could have important consequences to its business. For example, it could: (i) require Rumo to reserve a substantial part of its operational cash flows to pay principal and interest on Rumo’s indebtedness, which will reduce the availability of its cash flow to fund working capital, capital expenditures, acquisitions and investments; (ii) limit its flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; (iii) limit its ability to borrow additional funds, obtain bank guarantees or collateral insurance and generally increase its borrowing costs; and (iv) place Rumo at a competitive disadvantage compared to our competitors that have less indebtedness. We cannot assure you that Rumo will be able to refinance any such indebtedness on terms satisfactory to it or at all.
In addition, certain of Rumo’s financing agreements are subject to early maturity due to cross default and cross acceleration provisions in case Rumo fails to comply with certain nonfinancial covenants or defaults on certain of its financial obligations under such financing agreements.
Any of the aforementioned developments could have a material adverse effect on Rumo as well as on us, our financial condition and results of operations.
Certain of Rumo’s assets are involved in the provision of public rail transport services and, as a result, would not be available to honor Rumo’s obligations in the event of execution, liquidation or insolvency, which may have an adverse effect on Rumo’s business.
A substantial part of Rumo’s assets is involved in the provision of public services. Such assets will not be subject to liquidation in the case of Rumo’s bankruptcy nor may they be the subject of an order to guarantee the execution of a judicial sentence. Pursuant to legislation currently in force and to the concession agreements to which Rumo is a party, upon the maturity of the respective concession agreements or upon their early termination, Rumo’s assets involved in the provisions of public rail transport services will revert to the granting authority free and clear of any liens or encumbrances and may not be subject to attachment or liquidation. Accordingly, if any indemnities to be paid by the granting authority to us for these reversions are lower than the market value of the reverted assets, the amounts available for distribution to Rumo’s shareholders, including us, may be significantly reduced.
Rumo may not obtain an early renewal of the Rumo Malha Sul S.A., or “Rumo Malha Sul,” concession agreement, currently under review by the Brazilian Transportation Authority (Agência Nacional de Transporte Terrestre), or ANTT, which may have a material adverse effect on Rumo’s investment plan and growth strategy.
The concession agreement for Malha Sul expires in 2027. Rumo has already filed a formal request for an early renewal of the term of this concession agreement, similarly to the request made in connection with the renewal of the Rumo Malha Paulista S.A., or “Rumo Malha Paulista,” concession agreement already approved by ANTT. See “—Rumo made certain commitments in connection with the Rumo Malha Paulista early renewal agreement and may incur additional liability if it fails to comply with them.”
In the meantime, Law No. 13,448/2017 was enacted following the conversion into law of Provisional Measure No. 752/2016 which defines the general rules governing extensions of concessions, including early renewals, as well as re-bidding of partnership contracts of the federal public administration pursuant to the provisions of Law No. 13,334/2016, in the road, rail and airport sectors. Pursuant to the terms of the new law, the granting authority will perform re-bidding if there is a breach of contract or if the concession holders are no longer capable of fulfilling the contractual and financial obligations originally undertaken. In the case of early renewals, rail concession holders must demonstrate provision of adequate services, including compliance with production and safety targets or of safety targets set forth in the applicable contracts, pursuant to the provisions of article 6, paragraph 2 of Law No. 13,448/2017. In addition, contract amendments must contain a timeline for required investments and include measures to discourage potential noncompliance or delay in complying with obligations (such as the annual rebalancing discount and the additional grant payment).
We cannot guarantee that Rumo’s requests for renewals will be successful or that they will occur within the timeframe which we anticipate. In addition, any early renewal may be subject to certain conditions precedent or the applicable concessions may be renewed on terms less favorable than those currently in place. Rumo may also face significant competition from third parties if the granting authority decides to subject our maturing concessions to a re-bidding process.
Rumo made certain commitments in connection with the Rumo Malha Paulista early renewal agreement and may incur additional liability if it fails to comply with them.
The concession contract for Malha Paulista was initially going to expire in 2028. In September 2015, Rumo filed a formal request with ANTT for an early extension of the term of this contract. Such request resulted in the signature of the Second Addendum to the Concession Agreement of Rumo Malha Paulista of December 30, 1998 and its respective attachments. On May 27, 2020, Rumo entered into an amendment to the concession agreement relating to Rumo Malha Paulista with the ANTT. The amendment was reviewed and authorized by the Brazilian Federal Court of Accounts (Tribunal de Contas da União). As a result, the term of the Rumo Malha Paulista concession is expected to be extended to 2058, provided that Rumo complies with certain obligations such as investments to increase its operating capacity. Furthermore, the new value of the concession grant is approximately R$3.6 billion, to be paid in quarterly installments during the term from 2038 until 2058, with estimated investments of R$6.1 billion (as of the signing of the contract).
Rumo may not be able to comply with all of the conditions imposed by the public authority in the Addendum, which could prevent Rumo from extending the concession to 2058. Failure to comply with such conditions may subject Rumo to sanctions.
Any investment overages in connection with Rumo’s expansion strategy could materially and adversely affect anticipated returns and jeopardize Rumo’s financial condition.
Rumo is actively engaged in multiple capacity expansion initiatives over the next few years. Carrying these out in compliance with applicable regulatory requirements constitutes a significant undertaking. These efforts, coupled with routine operational maintenance, constitute substantial financial commitments. Example of such commitments include the Paulista Network Investments Obligations, the Rumo Extension Project in the State of Mato Grosso, and investments in the expansion of the Internal Railway of the Port of Santos (Ferrovia Interna do Porto do Santos).
Given the complexity and long timeline of these investments, spanning several years, their projected funding requirements are susceptible to changes in scope and inflationary pressures. If Rumo’s estimates of the funding and other commitments to these projects prove to be too low, Rumo may be required to expend significant additional financial and other resources to complete these projects. Rumo may also not be able to complete these projects in a timely manner, on budget or at all. Any such developments could have a material adverse effect on Rumo’s business, financial condition and results of operations.
Rumo is subject to certain global and domestic market forces that could have an adverse effect on its business and results of operations.
The transportation and logistics industries are highly cyclical and generally subject to fluctuations in the global economy. As a result, Rumo’s operations are subject to a number of risks that could adversely impact its results of operations, including, among others: (i) global and Brazilian macroeconomic conditions, (ii) global demand for agricultural and other commodities, (iii) Brazil’s competitiveness versus other countries for the supply of agricultural commodities, (iv) the competitiveness of domestic transport and logistics providers in Brazil, (v) local demand for transportation of agricultural commodities to foreign markets, (vi) efficient operation of its railroad to meet transportation demand, (vii) shutdowns, blockades, demonstrations, changes in legislation or strikes that interfere with Rumo’s operations and the operations of its business partners, whether on the highway, railroad or port, (viii) specific market factors, and (ix) changes in demand from customers that operate in highly cyclical industries, such as oil and gas and agriculture.
Rumo may not be able to fulfill the terms of its concession, sub-concession, authorization agreements and leases, which may result in fines, other penalties, and, depending on the severity of the breach, the loss of the respective concessions, sub-concessions, authorizations and leases. Rumo may also fail to renew such concessions, sub-concessions, authorizations and leases.
Brazilian railway concessions are subject to premature termination under certain circumstances, including by the Brazilian authorities taking back control of the service in accordance with applicable law, or by the termination of the concession due to breach of the respective contracts, especially by the inadequate provision of the railway service under the concession contracts. Failure to comply with the terms of a concession agreement may also result in fines, the loss of operating rights or other penalties. Any fines, penalties or loss of operating rights could materially adversely affect Rumo’s business, financial condition and results of operations.
Rumo and its subsidiaries also hold leases for certain ports. If Rumo’s subsidiaries fail to comply with the applicable regulatory rules or contractual obligations relating to their terminals, their leases may be terminated early pursuant to the Concession Law (Law No. 8,987/1995), which applies to port leases. Termination of Rumo’s port lease agreements may adversely impact Rumo’s transportation costs and the turnaround time for the export of Rumo’s products, as well as Rumo’s revenues from service agreements related to Rumo’s port facilities, which could have a material adverse effect on Rumo’s business, financial condition and results of operations. Rumo may also fail to renew such leases, which could also have a material adverse effect on Rumo’s business, financial condition and results of operations.
In addition, port assets deemed essential to the continuity of port operations will revert to the granting authority upon expiration of the concession. The reversion following expiration is subject to indemnification for investments in assets not yet amortized or depreciated which were undertaken to guarantee service continuity. Upon termination of the concession, it is possible that the investments made in those assets will have not been entirely amortized or depreciated. In this case, Rumo and the granting authority will negotiate the amount of any indemnification for such investments, to the extent such investments have been previously approved by the granting authority. As the final decision on this amount will be made solely by the granting authority, Rumo’s financial condition may be negatively impacted if indemnification eventually approved is not sufficient to compensate us for the investments made.
Rumo’s Brazilian rail tariffs are subject to a maximum rate established by the Brazilian government.
Under Rumo’s rail network concession agreements, tariffs for our rail freight services are subject to a maximum rate. Maximum tariff rates that Rumo is allowed to charge are adjusted for inflation according to variations in the Price Index-Domestic Supply (Índice Geral de Preços – Disponibilidade Interna), or IGP-DI index (or a substitute index) in accordance with applicable Brazilian law or concession agreements. Currently, tariff adjustments are performed on an annual basis, at different months of the year, depending on the terms of each concession agreement. Additionally, the tariffs Rumo charges for rail freight services on our rail network can be revised upward or downward if there is a justified, permanent market and/or costs change that may alter the rail network concession agreements’ economic and financial balance, or as determined by the Brazilian government every five years. The mechanisms for restoring the financial balance are defined in Brazilian law or in the agreements and must be requested by the non-breaching party along with adequate economic evidence.
ANTT may implement a review of the reference rates, changing the methodology for defining the tariffs originally established. Any application of revised tables may impact Rumo’s revenues and we cannot guarantee that future tariffs will be set at a level that will allow Rumo to continue operating profitably.
We cannot predict the outcome of an investigation into the conduct of former employees of ALL – América Latina Logística S.A., or “ALL,” prior to its acquisition by Rumo.
During 2016, Rumo became aware of certain press reports alleging that improper payments to government officials were made by former employees of ALL (prior to being acquired by Rumo) in connection with an investment by Fundo de Investimento do Fundo de Garantia do Tempo de Serviço, or “FI-FGTS,” in Rumo’s indirect subsidiary Brado Logística and in ALL. As a result of these allegations, Rumo hired external advisors to conduct an internal investigation. Upon completion of the investigation, in July 2016, we voluntarily submitted a report to the Public Prosecutor’s Office, clarifying that the facts found refer to the period prior to our merger with ALL.
Rumo has been made aware that information regarding this investigation report was added to the records of a criminal investigative procedure initiated by the Federal Prosecutor’s Office to investigate these and other facts. As of the date of this annual report, this investigative proceeding is ongoing.
In June 2021, Rumo became aware of certain press reports alleging that a former chief executive officer of ALL (prior to being acquired by Rumo) had been involved in suspicious payments made in 2013 to companies connected to a certain politician. Rumo immediately investigated and informed the legal authorities. These payments had been also reported in 2016 to the legal authorities, as noted above. A criminal investigation is ongoing, but Rumo is not a party to this criminal investigation. As of the date of this annual report, we can neither predict the outcome of the criminal investigation, the consequences of any findings or any measures that may be taken by local authorities, any of which may have a material adverse effect on Rumo.
The rail transportation services by Rumo and its partners are regulated and any measures adopted by governmental authorities may have a material adverse effect on it.
The rail transportation services performed by Rumo and its partners are extensively regulated and supervised by the Brazilian federal government, especially through the Brazilian Ministry of Transportation and Ministry of Ports and Airports, as well as certain regulatory agencies, which regulate Rumo’s activities through laws, decrees, provisional measures, ordinances and resolutions, among other legislative and regulatory acts. Thus, any changes in the legislation or in the regulation related to the railway sector may adversely affect our business and the financial and operational results.
The concession contracts are administrative contracts, governed by public law rules, which give the applicable governmental authority the right to unilaterally modify, terminate and supervise them as well as to apply sanctions. Accordingly, the actions of the governmental authority may adversely affect the services provided by Rumo if, for example, (i) there is the imposition of new obligations, (ii) there is the imposition of a requirement to make additional investments not originally provided for in the concession agreements, or (iii) the scope of the concession agreements is reduced or certain provisions are not enforced (such as the possible early extension, the extension of the term of the concessions in force or their execution under conditions that are not favorable to us). Any such developments could have a material adverse effect on Rumo’s business, financial condition and results of operations.
We cannot predict which actions will be taken by the Brazilian federal government in the future and in which aspects such actions may affect Rumo. If Rumo is required to operate in a manner substantially different from that set forth in its business plans, Rumo’s and our business, financial condition and results of operations may be materially adversely affected.
Any disruptions to Malha Norte business could adversely affect Rumo’s results of operations and financial condition.
In the years ended December 31, 2023, 2022 and 2021, the volume of goods transported (in TKUs) in Rumo’s Malha Norte operations accounted for 83%, 82% and 78% of Rumo’s total transported volume, respectively.
The performance of Malha Norte’s operations is materially dependent on certain critical infrastructures, including the Port of Santos, the Rondonópolis Inland Transshipment Terminal and the railway segment of the Malha Paulista. As a result, Malha Norte’s operations are subject to various potential disruptions, including accidents, public security concerns, strikes, blockades, demonstrations, productivity issues at the Port of Santos terminals and adverse weather conditions leading to landslides and terminal shutdowns, among others. Any incidents affecting Malha Norte or the critical infrastructures on which it depends may have a material adverse effect on Rumo’s and our business, financial condition and results of operations.
Rail transportation is inherently hazardous, and Rumo may not be able to prevent accidents or other occurrences.
Rail transportation involves a series of risks including mechanical failures, derailments and other accidents which may result in disruptions to Rumo’s rail network, fines or other penalties, damage to rolling stock and loss of transported goods. Safety management actions and protocols by Rumo may prove inadequate or insufficient in preventing such accidents or other occurrences, particularly in light of external factors and/or actions by third parties. Any such consequences may expose employees and nearby communities to considerable risks, including loss of life, significant property damage and environmental contamination. Moreover, the proximity of railway infrastructure to storage facilities, commercial areas and industrial sites heightens the potential for exacerbated damage. The occurrence of any of these events could have a material adverse effect on Rumo’s and our business, financial condition and results of operations.
Rumo’s expansive railway infrastructure is susceptible to criminal activities, and inadequate public safety conditions may materially adversely affect Rumo’s operations.
Violent and nonviolent criminal activities, ranging from cargo theft to vandalism, directly affect Rumo’s operations and could result in significant damage and liabilities. Rumo’s ability to address these challenges is limited as public security in Brazil is primarily a governmental responsibility. Rumo may experience capacity constraints and decreased productivity due to delays caused by cargo removal from tracks, repairs necessitated by external interventions, knock-on effects from travel disruptions and volume reallocations, obligations to compensate third parties, loss of or damage to property, among other adverse consequences.
Rumo could also incur significant expenses and/or loss of revenue as a result of decreased transport volumes and increased expenses with maintenance, compensation, security and contractual penalties for unfulfilled commitments, such as take-or-pay agreements. These risks are underscored, for instance, by notable incidents like grain and fuel thefts in the Baixada Santista region of the State of São Paulo in early 2023, which were extensively covered by the media. Similarly, acts of vandalism could result in environmental harm, including product and fuel leaks into soil and water resources, for which Rumo could be held liable, whether or not Rumo is actually responsible for such environmental harm.
Any such developments could have a material adverse effect on Rumo’s and our business, financial condition and results of operations.
Risks Related to Radar
Owning and managing rural properties involves significant risks.
We own a rural properties management business, which manages 305,802 hectares of land in eight Brazilian states, all of which are leased to third parties. The risks involved in owning and managing rural properties include:
We consider these risks before acquiring rural properties as investments. However, we cannot assure you that we will always be able to accurately assess these risks, or that other risks which we may not have anticipated will not materialize. Any such developments could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our American Depositary Shares and Our Common Shares
Our ADSs may not be as liquid as our common shares.
Some companies that have issued ADSs on U.S. stock exchanges have experienced lower levels of liquidity in their ADSs than is the case for their equity securities listed on their domestic exchange. There is a possibility that our ADSs, listed on the NYSE, will be less liquid than our common shares listed on the B3.
There is no guarantee that an active public market in our ADSs will develop or be sustained. If an active market for our ADSs does not develop, the market price and liquidity our ADSs may be adversely affected.
Our maintenance of two exchange listings may adversely affect liquidity in the market for our common shares and ADSs and result in pricing differentials between the two exchanges.
Our common shares are listed on the B3 and our ADSs are listed on the NYSE. It is not possible to predict how trading will be conducted on such markets. The listing of our common shares and our ADSs on two distinct exchanges may adversely affect the liquidity of such shares in one or both markets and may adversely affect the development of an active trading market for our common shares on the B3 and for our ADSs on the NYSE. In addition, differences in the trading schedules, as well as the volatility in the exchange rate of the two trading currencies, may result in different trading prices for our common shares and our ADSs.
The market price of our common shares and ADSs may be volatile.
The market price of our common shares and ADSs may be volatile. Broad general economic, political, market and industry factors may adversely affect the market price of our common shares and ADSs, regardless of our actual operating performance. Factors that could cause fluctuation in the price of our commons shares and ADSs include:
Shareholders could be diluted in the future, which could also adversely affect the market price of our common shares and ADSs.
It is possible that we may decide to offer additional common shares or ADSs or securities convertible therein in the future either to raise capital or for other purposes. If our shareholders do not take up such offer or are not eligible to participate in such offering, their proportionate ownership and voting interests would be reduced. An additional offering could have a material adverse effect on the market price of our common shares and ADSs.
In addition, according to art. 172 of Law No. 6,404, of December 15, 1976, as amended, or the “Brazilian Corporation Law,” we may not be required to grant preemptive rights to our shareholders in the event of a capital increase through a public offering of shares or securities convertible into shares, which may result in a dilution of our current shareholders’ stake in our company.
Exchange controls and restrictions on remittances abroad may adversely affect holders of our ADSs.
Brazilian laws provide that whenever a serious imbalance in Brazil’s balance of payments exists or is anticipated, the Brazilian federal government may impose temporary restrictions on the repatriation by foreign investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. For example, for six months in 1989 and early 1990, the Brazilian federal government restricted all fund transfers that were owed to foreign equity investors and held by the Brazilian Central Bank, in order to preserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Brazilian federal government directives. Although the Brazilian federal government has never exercised such a prerogative since, we cannot guarantee that the Brazilian federal government will not take similar actions in the future.
You may be adversely affected if the Brazilian federal government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the real into foreign currencies. These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of shares, as the case may be, into U.S. dollars and the remittance of U.S. dollars abroad. We cannot assure that the government will not take this measure or similar measures in the future. Holders of our ADSs could be adversely affected by delays in, or a refusal to grant, any required governmental approval for conversion of real payments and remittances abroad in respect of the shares, including the shares underlying our ADSs. In such a case, the depositary will distribute reais or hold the reais it cannot convert for the account of our ADS holders who have not been paid.
Holders of our ADSs may face difficulties in serving process on or enforcing judgments against us and other persons.
We are organized under, and are subject to, the laws of Brazil, and substantially all our directors and executive officers and our independent registered public accounting firm reside or are based in Brazil. Substantially all of our assets and those of these other persons are located in Brazil. As a result, it may not be possible for holders of the ADSs to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, our ADS holders may face greater difficulties in protecting their interests due to actions by us or our directors or executive officers than would shareholders of a U.S. corporation.
The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of our common shares and ADSs.
Investments in securities, such as our common shares or ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investments in securities of issuers from more developed countries. The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions, and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States.
The uncertainties caused by the outbreak of COVID-19 had an adverse impact on the global economy and global capital markets, including in Brazil, especially during 2020. As a result of this volatility, the B3’s circuit breaker mechanism was triggered eight times during March 2020. The prices of most securities traded on the NYSE and the B3, including the price of our common shares, were adversely affected by the COVID-19 pandemic. Impacts similar to those described above may reoccur, which may result in volatility in the price of our securities traded on the NYSE and on the B3. We cannot assure you that the price of our securities will not fall below the lowest levels at which our securities traded during the ongoing pandemic.
These features may substantially limit the ability to sell our common shares, including in the form of ADSs, at a price and time at which holders wish to do so. A liquid and active market may never develop for the ADSs, and as a result, the ability of holders of our ADSs to sell at the desired price or time may be significantly hindered.
Holders of our ADSs may face difficulties in protecting their interests because we are subject to different corporate rules and regulations than a U.S. company and holders of our ADSs may have fewer and less well-defined rights.
Holders of our ADSs are not our direct shareholders and may be unable to enforce the rights of shareholders under our bylaws and Brazilian law. Holders of our common shares are generally required under our current bylaws to resolve any disputes with us through arbitration. Our corporate affairs are governed by our bylaws and Brazilian law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, or elsewhere outside Brazil. Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may also be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our ADSs at a potential disadvantage.
Holders of our ADSs do not have the same voting rights as our shareholders.
Holders of our ADSs do not have the same voting rights as holders of our common shares. Holders of our ADSs are entitled to the contractual rights set forth for their benefit under the deposit agreement. ADS holders exercise voting rights by providing instructions to the Depositary, as opposed to attending shareholders’ meetings or voting by other means available to shareholders. In practice, the ability of a holder of ADSs to instruct the Depositary as to voting will depend on the timing and procedures for providing instructions to the Depositary, either directly or through the holder’s custodian and clearing system.
Due to delays in notification to and by the Depositary, holders of our ADSs may not be able to give voting instructions to the Depositary or to withdraw our common shares underlying their ADSs to vote such shares in person, virtually or by proxy.
Despite our efforts, the Depositary may not receive voting materials for our common shares represented by ADSs in time to ensure that holders of such ADSs can either instruct the Depositary to vote our common shares underlying their ADSs or withdraw such shares to vote them in person, virtually or by proxy.
In addition, the Depositary’s liability to holders of ADSs for failing to execute voting instructions, or for the manner in which voting instructions are executed, will be limited by the deposit agreement for the ADSs. As a result, holders of our ADSs may not be able to exercise their rights to give voting instructions, or to vote in person, virtually or by proxy, and may not have any recourse against the Depositary or us if our common shares underlying their ADSs are not voted as they have requested or if our common shares underlying their ADSs cannot be voted.
An exchange of ADSs for common shares risks the loss of certain foreign currency remittance advantages.
Holders of our ADSs benefit from the certificate of foreign capital registration, which permits the Depositary to convert dividends and other distributions with respect to common shares into foreign currency, and to remit the proceeds abroad. Holders of our ADSs who exchange their ADSs for common shares will then be entitled to rely on the Depositary’s certificate of foreign capital registration for five business days from the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under Resolution No. 4,373/2014 of the CMN, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration. There can be no assurance that the certificate of registration of the Depositary, or any certificate of foreign capital registration obtained by holders of our ADSs, will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in our ADSs may not be imposed in the future.
Holders of our ADSs may not be able to exercise the preemptive rights relating to the common shares.
Holders of our ADSs may not be able to exercise the preemptive rights relating to the common shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to the rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights, and we cannot assure holders of the ADSs that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, holders of our ADSs may receive only the net proceeds from the sale of their preemptive rights by the Depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse.
The holders of our common shares (including the common shares underlying the ADSs) may not receive dividends or interest on own capital.
According to our current bylaws, our shareholders are entitled to receive a mandatory minimum annual dividend equal to 25% of our annual net profit, calculated and adjusted under the terms of the Brazilian Corporation Law. Our current bylaws allow for the payment of intermediary dividends, to the retained earnings account or the existing earnings reserves in the last yearly or six-month balance, by means of the annual dividend. We may also pay interest on own capital, as described by Brazilian law. The intermediary dividends and the interest on own capital declared in each fiscal period may be imputed to the mandatory dividend that results from the fiscal period in which they are distributed. At the general shareholders’ meeting, shareholders may decide on the capitalization, on the offset of our losses or on the net profit retention, as provided for in the Brazilian Corporation Law, with the aforementioned net profit not being made available for the payment of dividends or interest on own capital.
In addition, Brazilian Corporation Law allows publicly-held companies, like us, to suspend the required minimum distribution of dividends. The payment of dividends may be suspended if our management reports at an annual shareholders’ meeting that such distribution would be inadvisable in view of our financial condition and has provided the shareholders at the annual general shareholders’ meeting with an opinion to that effect, which has been reviewed by our fiscal council, if installed. In addition, our management must submit a report to the CVM within five days following said meeting clarifying the reasoning for any such non-payment. If the abovementioned occurs, holders of the common shares (including the common shares underlying the ADSs) may not receive dividends or interest on own capital.
Judgments of Brazilian courts with respect to our shares will be payable only in reais.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the common shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Brazilian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the ADSs.
As a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.
As a foreign private issuer under the Exchange Act, we may be subject to different disclosure and other requirements than U.S. domestic registrants. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a U.S. domestic registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to U.S. domestic registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to U.S. domestic registrants under Section 16 of the Exchange Act. In addition, we rely on exemptions from certain U.S. rules, which permit us to follow Brazilian legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days following the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days following the end of each fiscal year. As a result of the above, even though, we are required to make submissions on Form 6-K disclosing the information that we have made or are required to make public pursuant to Brazilian law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.
We are a foreign private issuer and, as a result, in accordance with the listing requirements of the NYSE, we rely on certain home country governance practices from Brazil, rather than the corporate governance requirements of the NYSE.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. The NYSE rules provide that foreign private issuers are permitted to follow home country practice in lieu of certain NYSE corporate governance standards. The standards that are applicable to us are considerably different than the standards applied to U.S. domestic issuers. For instance, we are not required to:
As a foreign private issuer, we may follow our home country practice in Brazil (including the rules and regulations of the B3 and the CVM) in lieu of the above requirements. Therefore, the approach to governance adopted by our board of directors may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, our management oversight may be more limited than if we were subject to all of the NYSE corporate governance standards. Accordingly, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers. See “Directors, Senior Management and Employees—C. Board Practices—Summary of Significant Differences of Corporate Governance Practices.”
Holders of Cosan ADSs may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result less favorable results to the plaintiff(s) in any such action.
The deposit agreement governing the Cosan ADSs representing the Cosan common shares provides that holders and beneficial owners of Cosan ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement, the Cosan common shares or the Cosan ADSs or the transactions contemplated thereby, including claims under U.S. federal securities laws, against us or the Depositary to the fullest extent permitted by applicable law. The waiver continues to apply to claims that arise during the period when a holder holds the Cosan ADSs, whether the holder of Cosan ADSs acquired the Cosan ADSs pursuant to the Merger or in secondary transactions. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the U.S. federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a jury trial waiver provision is generally enforceable under the laws of the state of New York, which govern the deposit agreement, by a court of the state of New York or a federal court in New York, which have jurisdiction over matters arising under the deposit agreement, applying such law. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement, the Cosan common shares and the Cosan ADSs and the transactions contemplated thereby. In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim sounding in fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute), none of which we believe are applicable in the case of the deposit agreement, the Cosan common shares or the Cosan ADSs or the transactions contemplated thereby. No condition, stipulation or provision of the deposit agreement or Cosan ADSs serves as a waiver by any holder or beneficial owner of Cosan ADSs or by us or the depositary of compliance with any provision of the U.S. federal securities laws. If you or any other holder or beneficial owner of Cosan ADSs brings a claim against us or the Depositary in connection with matters arising under the deposit agreement, the Cosan common shares or the Cosan ADSs or the transactions contemplated thereby, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may result in increased costs to bring a claim, and have the effect of limiting and discouraging lawsuits against us and/or the Depositary. If a lawsuit is brought against us and/or the Depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may augur different results than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
Although we do not expect that we were a PFIC in 2023 there is risk that we were a PFIC for 2023 and that we will be a PFIC for 2024 or in future taxable years, which could result in adverse U.S. federal income tax consequences to U.S. investors in the ADSs.
In general, a non-U.S. corporation will be a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax purposes for any taxable year in which, after applying certain look-through rules, either (1) at least 75% of its gross income is “passive income” or (2) at least 50% of the average quarterly value of its assets consists of assets that produce “passive income” or are held for the production of “passive income.” For purposes of these calculations, a non-U.S. corporation that owns (or is treated as owning for U.S. federal income tax purposes), directly or indirectly, at least 25% by value of the stock of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. On the other hand, an equity investment in a corporation representing less than 25% by value of that corporation is generally treated as a passive asset for purposes of the PFIC rules. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from foreign currency, securities and certain commodities transactions. In addition, the value of a company’s goodwill is an active asset under the PFIC rules to the extent attributable to activities that produce active income.
We expect that we were not a PFIC for our taxable year ended December 31, 2023. However, we cannot assure you that we will not be considered a PFIC for the 2023 taxable year or 2024 or any future taxable year. Our PFIC status for any taxable year is an annual factual determination that can be made only after the end of that year and depends on the composition of our income and assets and the value of our assets from time to time. Moreover, we hold significant minority investments in certain entities (representing less than 25% by value of the entity’s equity). Accordingly, our PFIC status for any taxable year will depend in part on the value of those minority investments relative to the value of our active assets, including goodwill. The value of our goodwill may be determined, in large part, by reference to our market capitalization. If the value of our minority (less-than-25%-owned) equity investments were to increase relative to our active assets (in particular, if our market capitalization were to decline), we could be treated as a PFIC for our taxable year 2024 and/or future taxable years. Thus, we cannot assure you that we will not be considered a PFIC for any taxable year.
If we are a PFIC for any taxable year during which you hold common shares or ADSs, you generally will be subject to adverse U.S. federal income tax consequences, including increased tax liability on disposition gains and “excess distributions,” and additional reporting requirements. This will generally continue to be the case even if we ceased to be a PFIC in a later taxable year, unless certain elections are made. See “Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”
Risks Related to the Countries in Which We Operate
Our international operations expose us to political and economic risks in other countries.
Our international activities and those of our subsidiaries, investees and jointly-controlled companies, including the Joint Venture, expose us to risks not faced by companies that operate solely in Brazil. Risks associated with our international operations include: (i) foreign exchange controls; (ii) changes in the political or economic conditions in a specific country or region, especially in emerging markets such as Argentina; (iii) potentially negative consequences resulting from changes to regulatory requirements; (iv) difficulties and costs associated with our compliance with different laws, treaties and complex international regulations; (v) tax rates that may exceed those applicable in Brazil or Argentina and other countries or gains that may be subject to withholding regimes and an increase in repatriation taxes; (vi) the imposition of trade barriers; and (vii) limitations on the repatriation of undistributed profits. The realization of any of these risks may materially adversely affect our business, results of operations or financial condition.
Historically, the Brazilian government has influenced and continues to influence the economy of Brazil, which may negatively affect our business and financial performance.
Political and economic conditions directly affect our business and can result in a material adverse effect on our operations and financial condition. Macroeconomic policies imposed by the government can have significant impacts on Brazilian companies, including ourselves, as well as market conditions and securities prices in Brazil.
The Brazilian economy has been characterized by frequent and occasionally extensive intervention by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls and limiting imports into Brazil.
Our business, financial performance and prospects, as well as the market prices of our shares, may be adversely affected by, among others, the following factors:
Instability resulting from any changes made by the Brazilian government to policies or regulations that may affect these or other factors in the future may contribute to economic uncertainty in Brazil and intensify the volatility of Brazilian securities markets and securities issued abroad by Brazilian companies. The President of Brazil has the power to define the policies and actions of the Brazilian government in relation to the Brazilian economy and thereby affect the operations and financial performance of Brazilian companies. The Brazilian government may be subject to internal pressure to change the current macroeconomic policies in order to achieve higher rates of economic growth. We cannot predict what policies will be adopted by the Brazilian government. Moreover, in the past, the Brazilian economy has been affected by the country’s political events, which have also affected the confidence of investors and the public in general, thereby adversely affecting the performance of the Brazilian economy. Any indecisiveness by the Brazilian government in implementing changes to certain policies or regulations may contribute to economic uncertainty in Brazil and heightened volatility for the Brazilian securities markets and securities issued abroad by Brazilian companies.
These factors, as well as uncertainty as to whether the Brazilian government will apply changes to its policy or regulations that may affect any of the abovementioned factors or other factors in the future, can lead to political and economic uncertainty and increase the volatility of the capital markets and the securities issued by Brazilian companies. Changes in such policies and regulations may have a negative impact on our operating results and financial position and the price of our common shares and ADSs.
The deterioration of economic and market conditions in other countries may have a negative impact on the Brazilian economy and on our business.
The market for securities issued by Brazilian companies is influenced, to differing degrees, by global economies and market conditions, especially those of Latin American countries and emerging markets. Investors’ reactions to developments in other countries may have a negative impact on the value of Brazilian companies’ securities. Crises or economic policies in other countries may reduce investor demand for Brazilian companies’ securities, including ours and those of our subsidiaries, which may adversely affect the market price of their securities, and the capacity of obtaining financing. In the past, negative developments in the economic conditions of emerging markets led to significant withdrawals of resources from Brazil, and a drop in the amount of foreign capital in the country. Changes in the share prices of public companies, lack of available credit, cost‑cutting, a slowdown in the global economy, exchange rate instability, interest rate increases in Brazil or abroad, and inflationary pressure may adversely affect the Brazilian economy and capital markets, which may reduce global liquidity and investor interest in Brazilian capital markets, which, in turn, may negatively affect the price of Brazilian companies’ securities, including ours and those of our subsidiaries.
Economic, political and other conditions, as well as governmental measures, may negatively affect our business and results of operations and the market price of our shares.
The Brazilian economy has been characterized by frequent and occasionally extensive interventions by the Brazilian government as well as unstable economic cycles. The Brazilian government has frequently changed monetary, tax, credit, tariff, and other policies to influence the course of the economy in Brazil. In the past, government actions to control inflation have included wage and price controls, blocking access to bank accounts, exchange controls and restrictions on imports into Brazil. Inflation, actions to combat inflation and public speculation about possible additional actions have also had significant effects on the Brazilian economy and contributed materially to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets. We cannot control or predict what policies or actions will be taken by the Brazilian government in the future.
Brazil has experienced extremely high rates of inflation in the past and has therefore implemented monetary policies that have resulted in one of the highest interest rates in the world. According to the General Market Price Index (Índice Geral de Preços – Mercado), or “IGP-M,” a general price inflation index, Brazil recorded inflation of 3.2% in 2023, 5.45 % in 2022 and 17.8% in 2021. In addition, according to the National Extended Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), published by the IBGE, the Brazilian price inflation rates were 4.6% in 2023, 5.8% in 2022 and 10.1% in 2021.
Uncertain macroeconomic conditions in Brazil are expected to continue throughout 2025 as considerable economic and political uncertainty remains both in Brazil and globally, compounded by the ongoing war between Russia and Ukraine and conflicts in the Middle East, which have contributed and continue to contribute to further increases in the prices of energy, oil, gas, fertilizer, basic materials and other commodities and to volatility in financial markets globally, as well as a new landscape in relation to international sanctions. There is also uncertainly about new variants and a new crisis in the COVID-19 pandemic. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on global political and economic conditions in the long term.
Brazil may experience high levels of inflation in future periods, and has recently experienced a significant increase in inflation. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which could lead to reduced demand for our products in Brazil and decreased net sales. Inflation is also likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing any floating-rate real-denominated debt may increase, resulting in lower net income. Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity in the domestic capital and lending markets, which could affect our ability to refinance our indebtedness in those markets. Future Brazilian governmental actions, including interest rate decreases, intervention in the foreign exchange market and actions to adjust or fix the value of the real, may trigger increases in inflation and adversely affect the performance of the Brazilian economy as a whole. Any of the aforementioned developments may adversely affect the Brazilian economy as a whole, as well as our financial condition, operations and profits. Any decline in our net sales or net income and any deterioration in our financial performance would also likely lead to a decline in the market price of our common shares and ADSs.
High interest rates may adversely affect our operations and financial condition.
The Brazilian government’s measures to control inflation have frequently included maintaining a restrictive monetary policy with high interest rates, thereby limiting the availability of credit and reducing economic growth. Official interest rates in Brazil at the end of 2023, 2022 and 2021 were 11.75%, 13.75% and 9.25% per year, respectively, as established by the monetary policy committee of the Brazilian Central Bank (Comitê de Política Monetária). As of the date of this annual report, the official interest rate in Brazil was 11.75%. Any increase of such interest rates may negatively affect our profits and results of operations, thereby increasing the costs of financing our operations.
High interest rates may impact our cost of obtaining loans and also the cost of indebtedness, resulting in an increase in our financial expenses. This increase may adversely affect our ability to pay our financial obligations, as it reduces our cash availability. Mismatches between contracted indexes for assets versus liabilities and/or high volatilities in interest rates may result in financial losses for us.
As of December 31, 2023, our consolidated indebtedness was either fixed or linked to various benchmark interest rates typically used in Brazil. We enter into certain financial instruments to mitigate our exposure to interest rate fluctuations. For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness.”
Significant volatility in the value of the Brazilian real in relation to foreign currencies could harm our ability to meet our liabilities denominated in foreign currencies.
The Brazilian currency has historically experienced volatility against the U.S. dollar, Euro, Yen and other foreign currencies. In the past, the Brazilian government has implemented various economic plans and exchange rate policies, including sudden devaluations and periodic mini-devaluations, during which the frequency of adjustments has ranged from daily to monthly, fluctuation band exchange rate systems, exchange controls and dual exchange rate markets.
As of September 30, 2024, the exchange rate for reais into U.S. dollars was R$5.45 per U.S.$1.00, a 12.5% depreciation of the real against the U.S. dollar since December 31, 2023. As of September 30, 2024, the exchange rate for reais into Euros was R$6.07 per €1.00, a 13.5% appreciation of the real against the Euro since December 31, 2023. As of September 30, 2024, the exchange rate for reais into Pound Sterling was R$7.30 per £1.00, a 18.5% appreciation of the real against the Pound Sterling since December 31, 2023. As of September 30, 2024, the exchange rate for reais into Yen was R$0.04 per ¥1.00, a 11.1% depreciation of the real against the Yen since December 31, 2023. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar, the Euro or the Yen. For more information, see “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting Our Results of Operations—Currency Fluctuations.”
Because our subsidiaries and jointly controlled entities generally invoice their sales in reais, devaluation of the real against foreign currencies may generate losses from our foreign currency-denominated liabilities as well as an increase in our funding costs with a negative impact on our ability to finance our operations through access to the international capital markets and on the market value of the shares. A strengthening of the real in relation to the U.S. dollar generally has the opposite effect, which may adversely affect our operating margins. In addition, our indebtedness has both pre-fixed and post-fixed rates and is therefore exposed to the risk of interest rate variations. If interest rates increase, our financial results may be adversely affected. Further devaluations of the Brazilian currency may occur and impact our business in the future. These foreign exchange and monetary gains or losses can be substantial, which can significantly impact our earnings from one period to the next. In addition, depreciation of the real relative to the U.S. dollar could (i) result in additional inflationary pressures in Brazil by generally increasing the price of imported products and services and requiring recessionary government policies to curb demand, and (ii) weaken investor confidence in Brazil and reduce the market price of the shares. On the other hand, further appreciation of the real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments and may dampen export-driven growth.
Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are compelling reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. Any such restrictions on remittances of foreign capital abroad may limit our ability to receive dividends from our subsidiaries. We cannot assure you that such measures will not be taken by the Brazilian government in the future. Exchange rate fluctuation will affect the U.S. dollar value of any distributions we receive from our subsidiaries as well as the U.S. dollar value of any dividends or other distributions we make to our shareholders, which will be made in reais.
In addition, we are active in the capital markets, and regularly seek to obtain funds denominated in national and foreign currencies to finance our investments and working capital. We manage a portion of our exchange rate risk through foreign currency derivative instruments. Our foreign currency debt obligations are not completely hedged, as a portion of our perpetual notes are unhedged. As a result, the possible depreciation of the real against the U.S. dollar could increase the cost of our obligations in foreign currency, and therefore significantly affect our income statement in the short term. The depreciation of the real may limit our access to international capital markets and may favor state intervention in the economy, including the imposition of potentially recessionary policies.
Infrastructure and workforce deficiency in Brazil may impact economic growth and have a material adverse effect on us.
Our performance depends on the overall health and growth of the Brazilian economy. Brazilian GDP growth has fluctuated over the past few years, with increases of 5.0% in 2021, 2.9% in 2022 and 2.1% in 2023. Continued growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, the lack of a qualified labor force and the lack of private and public investments in these areas, which limit productivity, as well as efficiency. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth or result in contraction and ultimately have a material adverse effect on our business.
Furthermore, deficiencies in the road, rail or waterway network of the areas in which we operate, such as unpaved or maintenance-free roads and lack of railroads, especially in regions farthest from the ports, result in high logistics costs and, consequently, reduce the profitability of our sugarcane operations. Likewise, failure or malpractice in transportation handling, whether on trains, trucks or vessels, may lead to loss of production, waste of quantities or damage to sugarcane. Constant climate change, such as excessive rainfall, has led to a worsening of the conditions of the roads, which may lead to an increase in over-production losses. The aforementioned infrastructure deficiencies may make it more difficult for us to conduct our business in the areas in which we operate and thereby adversely affect us.
Developments and the perception of risk in other countries may adversely affect the Brazilian economy and market price of Brazilian issuers’ securities.
The market value of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States, European countries, and in other Latin American and emerging market countries. Although economic conditions in Europe and the United States may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Additionally, crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including our securities, as well as adversely affect the availability of credit to Brazilian companies in the international markets, with a significant outflow of capital from Brazil and a decrease in the amount of foreign currency invested in Brazil. In addition, negative events in the Brazilian financial and capital markets, any news or evidence of corruption in government, publicly traded companies and other issuers of securities, and the lack of rigorous application of investor protection rules or lack of transparency of information or potential crises in the Brazilian economy and in other economies may influence the Brazilian capital markets and negatively impact the securities issued in Brazil. This could adversely affect the market price of our securities, restrict our access to capital markets and compromise our ability to finance our operations in the future on favorable terms, or at all.
In June 2016, the United Kingdom had a referendum in which the majority voted to leave the European Union (so-called “Brexit”). Trade relations between the UK and the EU are currently regulated by the UK-EU Trade and Cooperation Agreement, or “TCA,” which provided that there will be no tariffs or quotas on the movement of goods between the UK and EU and marked the UK’s departure from the EU customs union and single market. There continues to be uncertainty surrounding political and economic concerns, as the true effects of the TCA and future trade agreements outside of the EU begin to unfold, which developments we continue to monitor. Continued uncertainty around the terms of the UK’s relationship with the EU and the lack of a comprehensive trade agreement may negatively impact the economic growth of both regions, which would similarly have an adverse effect on the wider global economy (including in Brazil), market conditions and investor confidence. As a result, uncertainties around post-Brexit trade negotiations could impair our ability to transact business in the United Kingdom and in countries in the European Union. In particular, Brexit and its effects may have an adverse impact on the ability of our lubricants business, Moove, to conduct business within the European Union given that Moove has operations in both the United Kingdom and the European Union and that both Moove Lubricants and Stanbridge (subsidiaries of Moove) are headquartered in the United Kingdom. If the United Kingdom were to significantly alter its regulations affecting the lubricants industry, we could face significant new costs. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations. We have no control over and cannot predict the effect of United Kingdom’s exit from the European Union nor over whether and to which effect any other member state will decide to exit the European Union in the future. The wider impact of Brexit on financial markets through market fragmentation, reduced access to finance and funding, and lack of access to certain financial market infrastructure, may affect our operations, financial condition and prospects and those of our customers. These developments, as well as potential crises and forms of political instability arising therefrom or any other as of yet unforeseen development, may harm our business and the price of our common shares and ADSs.
Since 2022, the war between Russia and Ukraine and the recent conflicts in the Middle East have contributed and continue to contribute to further increases in the prices of energy, oil and other commodities (including certain inputs on which we rely to conduct our operations), disruptions to global supply chains, and to volatility in financial markets globally, as well as a new landscape in relation to international sanctions. Also, the Middle East conflict presents similar concerns, mainly in relation to oil prices, fertilizer imports and the export of agricultural products that are made in high quantities for Israel. See also “—The ongoing war between Russia and Ukraine and conflicts in the Middle East may have a material adverse effect on the global and Brazilian economies as well as on us.”
In recent years, there was an increase in volatility in all Brazilian markets due to, among other factors, uncertainties about how monetary policy adjustments in the United States would affect the international financial markets, the increasing risk aversion to emerging market countries and the uncertainties regarding Brazilian macroeconomic and political conditions. These uncertainties adversely affected us and the market value of our securities.
In addition, we continue to be exposed to disruptions and volatility in the global financial markets because of their effects on the financial and economic environment, particularly in Brazil, such as a slowdown in the economy, an increase in the unemployment rate, a decrease in the purchasing power of consumers and the lack of credit availability. Disruption or volatility in the global financial markets could further increase negative effects on the financial and economic environment in Brazil, which could have a material adverse effect on our business, financial condition and results of operations.
A reduction in the volume of foreign investments in Brazil may have a negative impact on us.
Any reduction in the volume of foreign investments in Brazil may have an impact on the balance of payments, which may force the Brazilian government to have a greater need to raise funds, both in the domestic and in the international markets, at higher interest rates. Likewise, any significant increase in Brazilian inflation rates and the current slowdowns of the European and American economies may have a negative impact on the Brazilian economy and affect interest rate levels, raising expenses on loans already obtained and costs of new funding from resources by Brazilian companies, including us.
Changes in taxes and other assessments may adversely affect us.
The legislatures and tax authorities in the tax jurisdictions in which we operate regularly enact reforms to the tax and other assessment regimes to which we and our customers are subject. Such reforms include changes in tax rates and, occasionally, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. In addition, the interpretation of tax laws by courts and taxation authorities is constantly evolving. In Brazil, the tax system is highly complex and the interpretation of the tax laws and regulations is commonly controversial. The effects of these changes and any other changes that result from enactment of additional tax reforms or changes to the manner in which current tax laws are applied cannot be quantified and there can be no assurance that any such reforms or changes would not have an adverse effect upon our business.
The Brazilian government regularly implements changes to tax regimes that may increase the tax burden on us, our subsidiaries and jointly-controlled entity and their respective customers. These changes include modifications in the rate of assessments and the enactment of new or temporary taxes, the proceeds of which are earmarked for designated governmental purposes.
If we do not successfully comply with laws and regulations designed to prevent governmental corruption in countries in which we operate and sell our products (notably Brazil), we could become subject to fines, penalties or other regulatory sanctions, which could cause our sales and profitability to be materially reduced.
Our anti-corruption policies and procedures designed to prevent governmental corruption violations may not prevent our management, employees or third parties acting on our behalf in the countries in which we operate from taking actions that violate applicable laws and regulations on improper payments to government officials for the purpose of obtaining or keeping business or business advantages. Laws prohibiting such behaviors include (but are not limited to) laws relating to the OECD’s 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, such as the U.S. Foreign Corrupt Practices Act and Brazilian Anticorruption Law No. 12,846/2013, or the “Anti-Corruption Act,” which has been in effect since January 29, 2014. Any breach thereof may have a material adverse effect on our business, financial condition and results of operations, including access to financing, as well as the acceleration of loans and financing.
The Anti-Corruption Act imposes strict liability on companies for acts of corruption, fraud or manipulation of public tenders and government contracts, and interference with investigations or inspections by governmental authorities. Companies found liable under the Anti-Corruption Act face fines of up to 20% of their gross revenue in the immediately preceding year or, if such annual gross revenue cannot be estimated, such fines may range from R$6,000 to R$60 million. Among other sanctions, the Anti-Corruption Act also provides for the seizure of assets or benefits obtained illegally, the suspension or partial prohibition of operations, the dissolution of the entity and/or the prohibition to receive incentives, subsidies, donations or financing from the government or from government-controlled entities for up to five years. In assessing penalties under the Brazilian Anti-Corruption Law, local authorities may consider the adoption of an effective compliance program. Other relevant laws applicable to corruption-related violations, such as Law No. 8.492/1992, or the “Administrative Misconduct Law,” also provide for penalties that include the prohibition to enter into government contracts for up to 10 years.
Consequently, if we, our management, our employees or third parties acting on our behalf in the countries in which we operate and sell our products become involved in any corruption or criminal investigations or proceedings in connection with our business in Brazil or in any other jurisdiction, our business could be materially adversely affected.
General
We are a publicly-held company incorporated under the laws of Brazil on July 8, 1966 for an indefinite term. Cosan S.A. is registered with the Junta Comercial do Estado de São Paulo in Brazil under registration number 35.300.177.045. Our legal name is Cosan S.A. and our commercial name is “Cosan.” Our registered office is located at Av. Brigadeiro Faria Lima, 4,100 - 16th floor, São Paulo – SP, 04538-132, Brazil and our general telephone and fax numbers are 55 11 3897-9797 and 55 11 3897-9799, respectively. Our website is https://www.cosan.com.br/en. In addition, the SEC maintains a website that contains information which we have filed electronically with the SEC, including our annual reports, periodic reports and other filings, which can be accessed at https://www.sec.gov. The information contained on our website, any website mentioned in this annual report or any website directly or indirectly linked to these websites, is not part of, and is not incorporated by reference in, this annual report and you should not rely on such information.
See also Exhibit 8.1 to this annual report, which contains a list of our subsidiaries.
History
Over the last decades, we have transitioned from being a sugar and alcohol producer with a complex corporate structure, into a streamlined group of publicly held companies operating in the natural resources sectors in which Brazil has a global competitive advantage. Our history dates back to 1936 when the Costa Pinto mill was established by the Ometto family in the city of Piracicaba in the state of São Paulo. As of the mid-1980s, we began to expand our operations through the acquisition of various milling facilities in the state of São Paulo and, in 2000, we consolidated the activities of our sugar and alcohol conglomerate into a single company, which was named Cosan S.A. Indústria e Comércio, currently Cosan S.A. We began diversifying our portfolio in 2008 with the acquisition of Exxon Mobil assets in Brazil, and the creation of Rumo and Radar, enabling us to focus on fuel distribution, sugarcane transport and operation, and management of agricultural properties, respectively. In 2011, we successfully completed the formation of the joint venture with Shell for the incorporation of Raízen, which combined our sugar and ethanol and fuel distribution assets with Shell’s fuel distribution operations in Brazil. The remaining Exxon Mobil assets were contributed to the creation of Moove, which today operates in several countries in the Americas and Europe producing and distributing high quality lubricants. As part of our strategy to consolidate as an energy business, we acquired Comgás and contributed its shares to Compass, which now operates in infrastructure, distribution and commercialization of natural gas, in addition to projects focused on generation (transforming gas into electricity efficiently) and commercialization of gas.
In 2021, we (i) reorganized our corporate structure to optimize investments across the group and consolidate the various free floats of our businesses, and (ii) obtained the registration of Raízen as a “category A” publicly held company with the CVM and completed the IPO of its preferred shares, allowing for the capitalization of Raízen’s business while maintaining the original control arrangement among its shareholders.
In 2022, we acquired a 4.96% equity interest in Vale’s outstanding share capital (4.85% of its total share capital), allowing us to invest in a relevant player in the energy transition and decarbonization, with a competitive advantage in the sectors in which it operates. As of the date of this annual report, we hold a 3.91% equity interest in Vale’s total share capital. See “Presentation of Financial and Certain Other Information—Certain Corporate Events—Acquisition of Significant Influence in Vale S.A., or ‘Vale.’” We believe that we have become a distinct corporate group, with recognized brands and a commitment to transitioning to a cleaner energy matrix. In addition, throughout 2023, we made several advance payments on our indebtedness with J.P. Morgan S.A. and Citibank S.A. and sold 9.5 million Vale shares on December 18, 2023, an amount equal to 0.21% of its total share capital, in connection with the collar financing structure. These transactions brought our direct interest in Vale’s total share capital to 2.45% and our total interest to 4.65%, in each case as of December 31, 2023, which is in line with our strategy of viewing Vale as an investment in an affiliate. Additionally, on April 19, 2024, we sold an additional 33.5 million Vale shares, an amount equal to 0.74% of its total share capital, in connection with the collar financing structure. With this final advance payment, we settled all of our indebtedness tied to this transaction and the collar financing derivatives.
In 2023, we (i) sold all of our equity interest in Sinlog Tecnologia em Logística S.A. or “Trizy”; (ii) issued our fifth, seventh, eighth and ninth issuance of debentures, in an aggregate principal amount of R$1 billion, R$1.5 billion, R$1.3 billion and R$2.9 billion, respectively; (iii) internalized the remaining resources from the issuance of our 2030 senior notes, through the issuance of debentures by Cosan S.A., referenced in U.S. dollars in the amount of R$1,491 million (equivalent to approximately U.S.$300 million); (iv) issued U.S.$550.0 million in aggregate principal amount of 7.500% notes due 2030, the net proceeds of which were used to pay the tender price of our then-outstanding 7.00% Senior Notes due 2027, or the “2027 Notes,” tendered in connection with the tender offer for such notes which expired in July 2023; and (v) issued unsecured commercial paper, in two series, in an aggregate principal amount of R$1 billion, accruing interest at a rate equal to the DI. For more information, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness.” Our board of directors also approved a new 18-month-duration share buyback program for up to 116,000,000 common shares of Cosan S.A., or approximately 6.19% of our total shares.
In early 2024, Mr. Luis Henrique Guimarães stepped down as our chief executive officer and Mr. Nelson Roseira Gomes Neto, former chief executive officer of Compass, took over as our chief executive officer while remaining on the board of directors for Compass, and was also appointed to the boards of directors of Raízen, Moove and Rumo. Mr. Ricardo Lewin stepped down as our chief financial and investor relations officer and Mr. Rodrigo Araujo Alves, our former director of strategy, took over as our chief financial and investor relations officer. Mr. Nelson Roseira Gomes Neto stepped down as our chief executive officer on November 1, 2024 and became the chief executive officer of Raízen. On the same date, Mr. Marcelo Eduardo Martins stepped down as our chief strategy officer and became our new chief executive officer. In addition, Mr. Ricardo Dell Aquila Mussa, the current chief executive officer of Raízen, became the new chief executive officer of Cosan Investimentos on November 1, 2024.
In 2024, we also entered into certain additional financings, as described under “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Indebtedness”, including (i) the issuance of U.S.$600.0 million in aggregate principal amount of 7.250% notes due 2031, which were delivered to investors on January 26, 2024 and which proceeds were used for general corporate purposes, (ii) the issuance of R$1.45 billion in unsecured, non-convertible debentures in two series in June 2024, and (iii) the issuance of R$2.5 billion in unsecured, non-convertible debentures in three series in October 2024.
Capital Expenditures
For a description of our main capital expenditures over the fiscal years ending December 31, 2023, 2022 and 2021, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures.” For more information concerning our principal capital expenditures currently in progress, see “—D. Property, Plant and Equipment—Capital Expenditures.”
We are a holding company and the following companies are part of our group: Raízen (which is under joint control), Compass and its subsidiaries Comgás, Commit Gás e Energia S.A., or “Commit” (previously known as Petrobras Gás S.A. - Gaspetro), Sulgás, Moove and Rumo, and Radar, through which we control real estate companies, among others. We also have a minority stake in Vale, a mining company.
Raízen, a joint venture between us and Shell created in June of 2011, produces more than three billion liters of ethanol per year to supply both domestic and international markets and 5.8 million tons of sugar, with 1.6 GW of installed capacity - making it one of the largest sugar exporters and one of the world’s largest power generators of electricity from sugarcane bagasse. The company plants, harvests and processes sugarcane, the main raw material used in the production of sugar and ethanol. Raízen also distributes fuel to over 8,204 service stations throughout Brazil, Argentina and Paraguay under the Shell brand, with more than 2,000 Shell Select convenience stores, 74 distribution terminals and presence in 69 airports supplying jet fuel.
Compass was created in March 2020 to expand and diversify the gas market in Brazil, promoting greater security and competitiveness to the country’s energy matrix. Compass has invested approximately R$9.0 billion in the Brazilian natural gas market, with operations currently grouped into two segments: (i) distribution and (ii) marketing and services. The distribution segment operates through two vehicles that hold stakes in Comgás, Brazil’s largest natural gas distributor, and in 6 other gas distributors managed by Commit, a subsidiary of Compass. Commit’s assets are organized with a focus on the Central-South regions of Brazil, where it owns 49% of Sulgás, and Necta, which is directly controlled by Commit. In addition to its indirect interest through Commit, Compass also has an indirect interest Sulgás through its wholly-owned subsidiary, Compass Um Participações S.A., giving Compass control of Sulgás.
The marketing & services segment offers alternative natural gas supply options to consumers while promoting decarbonization for all its customers, whether connected to the distribution network or off-grid, displacing other energy sources through road transportation. This business model relies on strategic assets such as the TRSP (São Paulo Regasification Terminal located in Santos), biomethane assets and contracts, LNG B2B (liquefied natural gas), other infrastructure projects, and gas trading.
Through Moove, we produce and distribute automotive and industrial lubricants. Under the Mobil brand, Cosan S.A. operates in Brazil and in nine other countries: in South America, Argentina, Bolivia, Uruguay and Paraguay (South America); in North America, the United States of America; and in Europe, Spain, France, Portugal and the United Kingdom. These operations are aligned with Moove’s strategy of leveraging the ExxonMobil strategic partnership and expanding its operations globally. In addition, Moove operates through a range of proprietary brands, which include the “Tirreno” brand in Brazil and the “Comma” brand in the United Kingdom (through which it also sells its products to over 40 other countries in Europe and Asia). Following our acquisition of PetroChoice in May 2022, Moove also operates throughout the United States under the main brands “EcoUltra, Medallion Plus and Dyna-Plex 21C.”
Rumo is Latin America’s largest logistics operator, with an independent railway base, and offering a broad range of rail transportation logistics services, port loading and storage. The five railway concessions Rumo operates are in the States of Mato Grosso, Mato Grosso do Sul, São Paulo, Tocantins, Goiás and the States of Brazil’s south region (Paraná, Santa Catarina, and Rio Grande do Sul). Rumo is a leader in the transport of sugar for exportation and is creating an integrated transport platform that will significantly increase the efficiency of Brazilian exports. In addition, following Rumo’s merger with ALL, Rumo has become one of the most important transportation and port operators for grains and other commodities in Brazil. For additional information, see “—A. History and Development of the Company.”
Our real estate operations are conducted through Radar, Radar II, Tellus, Janus, Gamiovapar and Duguetiapar. These companies focus on acquiring rural properties to be subsequently leased or sold to third parties. Radar is a land management company that invests in assets with high productivity potential in Brazil. It owns and manages approximately 417 rural properties covering a total of 91,176 hectares, and harvests sugarcane, soy, cotton, corn and other commodities in the States of São Paulo, Maranhão and Mato Grosso. Radar manages its properties using a satellite-based geomonitoring system and we believe it is well-positioned to create carbon credits. Cosan acquired additional stakes in Tellus, Janus, Gamiovapar and Duguetiapar in September 2022. Tellus, Janus, Gamiovapar and Duguetiapar are also land management companies that invest in agricultural land in Brazil and oversee approximately 427 rural properties, covering a total of 214,626 hectares (148,876 hectares of which are considered useful), dedicated to the harvesting of sugarcane, soy, cotton, corn and other commodities in several States of Brazil.
In October 2022, we announced the acquisition of a 4.96% equity interest in Vale’s outstanding share capital (4.85% of its total share capital), one of the world’s leading mining companies. As of the date of this annual report, we hold a 3.91% equity interest in Vale’s total share capital. This investment is aligned with our capital allocation and portfolio diversification strategies.
Cosan S.A. (B3 ticker: “CSAN3”) has been listed since 2005 on the B3 segment with the highest standards of corporate governance, the “Novo Mercado.” Raízen (B3 ticker: “RAIZ4”) has been listed on the B3 since August 2021 on the “Nível 2” segment. Comgás (B3 ticker: “CGAS3” and “CGAS5”) has been listed since 1997 on the B3. Rumo (B3 ticker: “RAIL3”) has been listed since 2015 on the B3, and also on the “Novo Mercado” segment. Our ADSs have also been listed on the NYSE under the symbol “CSAN” since March 2021, as a consequence of the Merger.
Raízen
Raízen primarily operates in the energy sector and other synergistic activities. Raízen has increasingly consolidated itself as an integrated energy company with a diverse portfolio, from renewable sources such as biomass (and expanding to other sources, such as solar), to its core businesses of globally distributing and selling first- and second-generation ethanol (from sugarcane), sugar and other by-products to enterprise, or “B2B,” customers, in Brazil, Argentina and Paraguay, and operating a network of service stations and airport bases. Raízen’s operations also include proximity retail, through Rede Integrada de Lojas de Conveniências e Proximidade S.A., or “Grupo Nós,” a joint venture between Raízen and FEMSA Comercio, S.A. de C.V., or “FEMSA Comercio.”
Prior to the corporate reorganization of Raízen completed on June 1, 2021, we viewed Raízen as two reportable operating segments whereby each of the legal entities (Raízen Combustíveis S.A. and Raízen Energia S.A.) was considered to be a separate segment. Following the corporate reorganization of Raízen, we started to consider Raízen as a single reportable segment. Accordingly, our previously reported segment information has been recast for all periods presented to reflect the changes in the reportable segments. For further information, see “Presentation of Financial and Other Information—Certain Corporate Events—Consolidation of Raízen,” “Item 4. Information on the Company—E. Supplemental Information About Joint Venture,” “Item 5. Operating and Financial Review and Prospects—Financial Presentation and Accounting Policies—Business Segments and Presentation of Segment Financial Data” and note 4, “Segment Information,” to our consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report.
Raízen’s operations include the production and marketing of ethanol, sugar, gasoline and diesel, and the cogeneration of energy:
Raízen S.A.(1)
Ethanol
23,312.3
29,652.1
27,464.3
Sugar
29,070.5
23,695.8
13,946.5
Gasoline
66,267.7
66,586.9
55,158.0
Diesel
90,281.6
106,684.6
71,828.1
Cogeneration
3,724.1
3,688.1
3,968.9
Other
9,037.1
13,986.2
7,288.5
Intercompany elimination
(4,607.1
Total net operating revenue
244,293.7
175,047.3
Ethanol, Biomass and Electricity
Raízen produces and markets renewable energy and by-products of its bioenergy projects and of third parties, and seeks to expand its operations into other low-carbon energy sources. Raízen’s activities in the renewables segment encompass:
First-generation ethanol is produced in a chemical process called fermentation by which sugarcane used in ethanol production is processed in the same way as for sugar production and resulting molasses gets mixed with sugarcane juice and yeast in tanks. The by-product of the fermentation process is then boiled and distilled and/or dehydrated to produce the various types of ethanol. Raízen also produces second-generation ethanol, or “E2G,” which emits 80% less carbon dioxide than fossil fuels. E2G is a cellulosic biofuel made according to our proprietary technology. The process of making E2G consists of hydrolysis and fermentation of bagasse and straw with enzymes and yeasts. Raízen is a pioneer in developing carbon circularity from the by-products of its production processes. Raízen introduced biogas technology in its bioenergy parks, which is produced through a biodigestion process from vinasse and filter cake, and can be a substitute for methane in its various applications, including in the production of electricity. Raízen also produces other products derived from sugarcane biomass such as the steam from excess bagasse in boilers, which can be used to move mechanical parts in bioenergy parks as well as to generate electricity sold to the grid.
Raízen is able to transport ethanol and sugar production from its extensive infrastructure of port terminals and bioenergy parks in the Central-South region of Brazil. Raízen also has terminals connected to the most efficient modes of transportation and strategic positioning in the main ports to export production, in addition to having its own teams to market production both in Brazil and overseas. The logistics of delivering products to customers depend on the complexity and the potential to capture value by advancing development into the supply chain.
In addition to sugar and ethanol, Raízen also sells any excess energy produced from processing sugarcane in its bioenergy parks through energy auctions conducted by the government of the state of São Paulo. Furthermore, Raízen began advances into the value chain (production, logistics, marketing and refining) by replicating the same model currently applied to its ethanol business.
Sale and Distribution of Fuel
Raízen produces, distributes and sells fuels and other specialties. Raízen’s primary products include ethanol, gasoline, diesel, vehicular natural gas, kerosene and aviation fuel, lubricants, and oil fuel. In addition, Raízen operates proximity retail stores both within and outside service stations, offering consumer products and services like bakeries, tobacco, groceries, hygiene and cleaning products, food products, and beverages.
The following table presents certain key operating indicators consolidating Brazil, Argentina and Paraguay (except where otherwise indicated), for the periods set forth below.
Service Stations
8,204
8,057
7,300
Fuels sold (million liters)
35,295
34,821
33,178
Gasoline (million liters)
11,479
11,437
10,311
Ethanol (million liters)
2,989
3,017
3,470
Diesel (million liters)
16,951
17,465
17,062
Aviation (million liters)
1,873
1,161
885
Other (million liters)
2,002
1,742
1,451
Raízen is the largest fuel distributor in Paraguay, and the second-largest in Brazil and Argentina. Its operations consist of the purchase, storage, mixing and distribution of gasoline, ethanol, diesel and aviation kerosene through a network of over 8,204 retail service stations licensed with the Shell brand (over 1,640 of which feature integrated convenience stores), and have recorded consistent year-on-year growth. Raízen’s logistics infrastructure in the segment has been built over more than 100 years, and is strategically located close to major consumer markets. Raízen currently has 74 land distribution terminals, and storage capacity for approximately 1.4 billion liters. In the aviation market, Raízen operates through 69 supply bases in Brazilian and Argentinean airports.
Raízen has a complete platform focused on B2B2C and B2B customers (B2B2C refers to situations in which our products go through an intermediary before reaching the final customer) that support its strategic objective to be the preferred choice for resellers and customers in the markets in which it operates.
Since 2017, Raízen has invested in increasing the productivity and safety of its partner carriers and reducing logistical costs through the ONE Project, focusing on real-time management of the routes for our entire fuel tanker fleet from a monitoring center. Further, Raízen’s capillarity enables it to reach over 50 million consumers in Brazil, who benefit from Raízen’s investments in the development of innovative payment methods and cloud-based platforms such as Shell Box, which is a mobile application that enables customers to enjoy contact-less payment solutions, promotions and other benefits.
Moreover, Raízen’s store models allow it to serve different segments in markets with different characteristics, as well as different profiles and purchase needs. This commercial proposal is leveraged by long-term partnerships with the main fast-moving consumer goods companies, generating new forms of monetization and ensuring better competitiveness for our stores, while transforming our network into a strategic channel to launch and position our products. Raízen combines this strategy with promotional and marketing activity in all its stores.
Finally, Raízen has over 6,000 customers in the B2B market in Brazil and in Argentina, which are categorized into over different segments (e.g., cargo and passenger transport, agricultural and mining sectors). The B2B strategy is focused on customer loyalty through an offering of premium technology products (such as Shell Evolux, Shell Rimula and Shell Helix portfolios) and carrier fleet control tools. We believe that this strategy, which connects our physical and digital presence, has the potential to create a leading omnichannel platform in the market, in addition to offering financial, procurement, engineering and Health, Safety, Security and Environment, or “HSSE,” solutions for our customers.
Raízen produces and markets a variety of sugars from our bioenergy projects and from third parties, such as raw sugar (or very high polarity sugar, or “VHP”), refined sugar and liquid sugar.
The following table details Raízen’s energy and sugar production.
Crushed sugarcane (million tons)
Volume of sugar sold (thousand tons)
10,173.7
10,954.8
7,758.0
Volume of ethanol sold (million liters)
5,497.5
6,231.4
4,453.0
Energy sold (thousand MWh)
27,208.5
20,673.0
21,253.0
Sugarcane is the main raw material used in Raízen’s bioenergy parks. It is a photosynthetic metabolism plant which has four essential attributes: (1) sugarcane is best suited to convert solar energy into biomass when compared to other crops with which Raízen’s products compete; (2) sugar is the basis for a diversified product portfolio, which includes sustainable foods, biofuels, bioelectricity and bioproducts or biomaterial. This is consistent with Raízen’s strategy, which includes: Bonsucro, ELO, Raw Materials and Deforestation; (3) low carbon footprint in Raízen’s products due to circularity and waste optimization; and (4) high levels of productivity in the Brazilian Central-South region, due to certain natural characteristics of the region (including soil, climate and other factors), combined with access to logistical infrastructure for the outflow of production.
Raízen received the Bonsucro certification for its bioenergy parks and became responsible for a large portion of sugarcane certified under this model globally. In addition to the Bonsucro certification, Raízen has led the creation of an innovative program in the sugar and ethanol industry, the ELO program, which provides a system of continuous improvement and technical assistance to third-party sugarcane suppliers. Generating shared value within our raw material supply chain is an important part of our business. In connection with the Elos program, our Cultivar program offers solutions to its partner producers across their business life cycles. These producers accounted for approximately 93% of all the third-party sugarcane purchased for the 2022/2023 harvest.
As a result of the circular nature of the sugarcane production process, sugarcane-derived products have a low carbon footprint, and can therefore serve as substitutes for fossil and/or products with high environmental impact. For example, consistent with the Bonsucro certification, Raízen’s operations cause no deforestation, and all of its raw materials are subject to sustainability programs.
Raízen’s sugar production encompasses a three-step process: (i) sugarcane is processed for juice extraction; (ii) the product is filtered to remove impurities and boiled to crystallize sugars; and (iii) the product is passed through a centrifuge for the production of the final product, raw sugar or VHP. This can then be refined, dried and packaged in Raízen’s refineries. This process is routinely optimized through Raízen’s proprietary technologies supporting decisions and driving its business.
Regulation
Regulation of the Oil and Gas Industry
Brazil
The ANP is a federal agency responsible for the control, supervision and implementation of the government’s oil, gas and biofuel regulations. The ANP regulates all aspects of the production, distribution and sale of oil, natural gas, and biofuels products in Brazil. With respect to regulation relating to gasoline, diesel and biofuels, the ANP determines: (i) standards and restrictions applicable to the companies which it regulates; (ii) the product quality standards and minimum storage capacities required to be maintained by distributors; (iii) the limits of oil-based fuel volume purchased by distributors based on their storage capacity; and (iv) the criteria applicable to the authorization for the construction, operation and usage of the infrastructure used to handling and storage of fuels.
Environmental health and safety standards. Fuel distributors are subject to Brazilian federal, state and municipal laws and regulations relating to environmental protection, safety and occupational health and safety, licensing by fire departments, environment and transport authorities. The National Environmental Council (Conselho Nacional do Meio Ambiente), or “CONAMA,” is the main government body responsible for issuing environmental standards and regulations at the federal level. Environmental state agencies and municipal departments are also responsible for establishing and supervising complementary laws and regulations within their areas of operation.
Fuel distributors must obtain authorizations and/or licenses from federal, state and/or municipal environmental agencies and fire departments to implement and operate their facilities, and are subject to extensive registration and operational requirements resulting in certain limitations to, among others, the (i) distribution of liquid fuels; (ii) distribution of aviation fuels; (iii) liquid and aviation fuels storage; (iv) liquid products storage and handling; and (v) ethanol production. Furthermore, fuel distributors are required to develop programs to control air, soil and water pollution, including management of hazardous waste.
Port Regulation. The Brazilian port sector is regulated by (1) the National Water Transportation Agency (Agência Nacional de Transportes Aquaviários), or the “ANTAQ,” which is linked to the Brazilian Ministry of Infrastructure (Ministério da Infraestrutura), or the “Ministry of Infrastructure,” (2) the National Secretariat of Ports (Secretaria Nacional de Portos), or the “SNP,” which is also linked to the Ministry of Infrastructure, and (3) local port authorities. Since 2012, the Brazilian port sector has undergone a number of regulatory changes, including the enactment of Federal Law No. 12,815/2013, as amended by Law No. 14,047, dated August 24, 2020 (regulated by Decree No. 8,033/2013). One of the most important changes brought about by this new regulatory framework is the abolition of the distinction between “own cargo” and “third-party cargo” for the development and operation of private use terminals, or “TUPs.” Authorizations to operate TUPs are granted by authorizations preceded by public calls (chamadas públicas) or public announcement (anúncio público) and, as applicable, a public bidding procedure.
In addition, the operations of Energina Compañía Argentina de Petróleo S.A., or “Raízen Argentina,” are subject to regulation pursuant to Argentine federal, state and municipal laws and regulations relating to fuel distribution, environmental protection, safety, occupational health and safety, environment and transport matters.
Argentina
The oil and gas industry in Argentina is regulated by Law No. 17,319/1967, as amended by Law No. 26,197/2007 and Law No. 27,007/2014, which sets forth the general legal framework for the exploration, development, industrialization, transportation and marketing of hydrocarbons in Argentina.
Hydrocarbon resources are severable from the general ownership of property. According to the Argentine Constitution, as amended in 1994, natural resources, including hydrocarbon reserves, belong to the provinces in which they are located. However, the Argentine Constitution empowers the Argentine National Congress to legislate on hydrocarbon matters.
Transfer of ownership of hydrocarbon reserves and resources from the federal domain to the provinces was implemented through the enactment of the several legal provisions that effectively amended Law No. 17,319, including by means of Law No. 26,197. The reserves and resources transferred pursuant to Law No. 26,197 were those located in the provinces and in territorial waters up to 12 nautical miles from a baseline, which in Argentina is the mean low-water line along the coast. In addition, with Law No. 26,197 the enforcement of the exploration permits and production and transportation concessions granted by the Argentine federal government over the hydrocarbon reserves and resources prior to the law was transferred to the provinces.
The Secretariat of Energy of the Ministry of Economy (Ministerio de Economia), or “SE,” is the federal enforcement agency responsible for the control, supervision and implementation of the Argentine government’s oil, gas, and biofuel regulations. The SE regulates all aspects of the production, distribution and sale of oil, natural gas, and biofuels products in Argentina. With respect to regulation relating to gasoline, diesel oil and biofuels, the SE determines the product quality standards and storage requirements (SE Resolution No. 1,283/2006).
Hydrocarbon-refining activities are subject to Law No. 13,660/1949, which provides the basic regulatory framework for these activities, whether conducted by oil producers or third parties, and to registration requirements established by the SE (SE Resolution No. 419/1998). In addition to federal rules, refining activities must comply with provincial and municipal regulations on technical and safety standards. Decree No. 1,212/1989 established a Refineries and Gas Station Price Deregulation Policy. Moreover, the locations where liquid fuels are sold are subject to registration requirements established by Resolution No. 1102/2004, enacted by the SE.
The export of crude oil, natural gas and their derivatives is subject to prior governmental approval. The import of crude oil and liquid fuels also requires prior governmental approval. Law No. 26,050 establishes the legal framework for the industrialization and commercialization of liquid petroleum gas.
Port Regulation. The Argentinean port sector is regulated by Law No. 24,093 and Decree No. 769/1993. This legal framework regulates all matters related to the authorization, administration; and operation of existing and to-be-created state-owned and private ports in Argentina. The regulation classifies ports according to their ownership into national, provincial, municipal; and privately owned, and according to their purpose into commercial, industrial; and recreational. It also contains the conditions and requirements for authorizing ports. The Argentine ports regulation also provides that private individuals may build, administer; and operate public or private ports for commercial, industrial or recreational purposes, on public land or on their own property, and requires that the fees, prices and other consideration paid by users be strictly proportional to the service provided.
Environmental Health and Safety standards. Provinces have the power to legislate as to and regulate environmental matters. Provincial environmental regulations must set standards equal to or higher than those approved by the Argentine National Congress. Most of the hydrocarbon-producing provinces have issued specific environmental regulations for the oil industry, including on unconventional operations.
Legislation Applicable to Fuel Distributors. Fuel distributors are subject to Argentine federal, state and municipal laws and regulations relating to environmental protection, safety and occupational health and safety, environment and transport authorities. The Argentine Ministry of Environmental and Sustainable Development (Ministerio de Ambiente y Desarrollo Sostenible) is the government agency primarily responsible for issuing environmental standards and regulations at the federal level. Law No. 25,675 sets out minimum standards for the adequate and sustainable management of the environment, the preservation and protection of biodiversity and the implementation of sustainable development. Fuel distributors must obtain authorizations and/or licenses from federal, state and/or municipal environmental agencies to operate their facilities. They are required to develop programs to control air, soil and water pollution, including to manage hazardous waste in accordance with Law No. 24,051, which contains the regulatory framework on the generation, handling, transportation; and treatment of hazardous waste.
Regulation of Sugar, Ethanol and Cogeneration Activities
Raízen is subject to several Brazilian federal, state and municipal environmental protection and health and safety laws and regulations governing, among other things, the generation, storage, handling, use, transportation and discharge of hazardous materials into the ground, air and water as well as regulation concerning electricity generation. Below is a summary of the principal rules and regulations to which Raízen is subject in this regard.
Permits
Certain environmental laws require us to obtain from governmental authorities permits, licenses and authorizations to install and operate our mills, to burn sugarcane and to perform other activities.
We are subject to the regulations of the pollution control and remediation agencies of several Brazilian states, such as:
Environmental Licensing of Raízen
We operate mills, transport facilities and numerous warehouses. CONAMA is the government agency responsible for issuing rules and resolutions on environmental licensing at a national level. Environmental licensing is required for the development of new facilities and for alterations in existing operations. Environmental licenses must be periodically renewed.
Sugarcane Burning
The state of São Paulo and certain municipal governments have established laws and regulations that limit or eliminate the burning of sugarcane entirely. We have voluntarily signed the Agro-Environmental Sugarcane Protocol, which establishes accelerated deadlines for the reduction of sugarcane burning.
Brazilian Forestry Code
We are subject to Brazilian Federal Law No. 12,651, dated May 25, 2012, or the “Brazilian Forest Code,” which prohibits land use in certain permanently protected areas, and obligates us to maintain and register a forest reserve in each of our rural landholdings covering from 20% to 80% of the total area of such land, known as “Legal Reserve.”
Environmental Liabilities
We are involved in certain administrative and judicial proceedings for alleged failure to comply with environmental laws and regulations (especially relating to environmental damages caused by sugarcane burning and contaminated areas). The Brazilian Federal Constitution provides for three different types of environmental liabilities: (1) civil, (2) administrative and (3) criminal. Noncompliance with environmental law is subject to administrative, civil and/or criminal sanctions, regardless of the civil impacts such as the obligation to repair, compensate or indemnify any damages caused to the environment or third parties. Public attorneys’ offices, foundations, state agencies, state-owned companies and environmental protection associations are all authorized by law to file public civil actions seeking compensation for environmental damages.
Sugar Regulation
The MAPA is responsible for planning, coordinating, monitoring and assessing the implementation of governmental initiatives and programs related to the production of sugarcane and ethanol. All sugarcane processing mills must be duly registered with SAPCana (Sistema de Acompanhamento de Produção Canavieira), a system created and maintained by the MAPA that registers all sugar and ethanol producing mills and ethanol trading companies and monitors the production of sugarcane, sugar and ethanol in Brazil. All registered mills must regularly submit (online) reports about the production, output and inventory of sugar and ethanol, in accordance with Normative Instruction No. 52, of November 12, 2009 (the regulation that created SAPCana). Noncompliance with the rules established under the aforementioned Normative Instruction may subject us to suspension or cancellation of the registration in SAPCana until irregularities are resolved.
Ethanol Regulation
The Brazilian ethanol industry is also regulated by the ANP, a federal agency linked to the Ministry of Mines and Energy (Ministério de Minas e Energia), or the “MME.” On April 29, 2011, a provisional measure was published in Brazil’s Official Gazette, or the Provisional Measure No. 532/11, that changed the status of ethanol from an agricultural product to a fuel. Previously, the ANP was only responsible for the oversight of the distribution and sale of ethanol. Since the publication of Provisional Measure No. 532/11, converted into law on September 16, 2011 as Law No. 12,490/11, the agency then became responsible for the supervision of mills producing sugarcane-based biofuel. In accordance with Law No. 12,490/12, and in order to regulate the ethanol industry, the ANP published Resolution No. 734 of June 28, 2018, pursuant to which the production of ethanol, which involves construction, capacity expansion, modification and operation of ethanol production plants, became subjected to prior authorization of the ANP.
The performance of an activity without the proper authorization or with an expired authorization issued by the ANP may subject us to the following penalties, among others: (1) fine (from R$5,000 and R$5 million); (2) prohibition on performing such activity while the company is not in conformance; (3) temporary suspension of all or part of the site or operation of the facility; (4) inability to operate in the same activity in the future; or (5) annulment of our registration, pursuant to Law No. 9,847/99, of October 26, 1999. These penalties may be applied cumulatively and tend to be more severe depending on the economic capacity of the party and recidivism.
Electricity Regulation
The Brazilian power industry is regulated by ANEEL, a federal regulatory agency, in accordance with the general guidelines set forth by the Ministry of Mines and Energy. In order to perform power generation activities, the power agent must obtain authorizations granted by ANEEL or execute concession and permission agreements with the Brazilian government through ANEEL, which can be terminated before their original term upon the occurrence of certain events. The activities related to generation and commercialization of electricity performed by Raízen are subject to ANEEL’s supervision. Pursuant to Law No. 9,427 dated December 26, 1996 and ANEEL’s Resolution No. 846/2016, within the scope of its powers of inspection of electrical energy plants and services, ANEEL may impose penalties (including warnings, fines, temporary suspension of the right to participate in bidding processes for new concessions, licenses or authorizations, or request for new grants, licenses or authorizations, and revocation of existing authorizations or concessions granted by ANEEL) on power industry participants based on the nature of its relation with the agency (concessionaires or agents who hold permission or authorization) and the materiality of the infraction. In case of fines, the limit of 2.0% of the revenue of the concessionaire in the 12-month period preceding any assessment notice must be respected or, for independent producers or self-producers (authorized agents), 2.0% of the estimated amount of energy produced in the same period. In addition, pursuant to ANEEL’s Resolution No. 846/2019 some infractions may result in fines related to the failure of the agent in requesting ANEEL’s prior approval to certain conduct, including the following:
Furthermore, if a power generator’s fuel suppliers are either unable or unavailable to comply with their respective contractual obligations, in whole or in part, the power generator may face (1) a default of its regulatory duties, (2) a temporary reduction of its allotted energy generation capacity, and (3) difficulties in maintaining assets or projects. Finally, if power generators lack fuel, they may be subject to fines under ANEEL Resolution No. 583/2013, as applicable.
Raízen and its subsidiaries also operate in the distributed energy generation segment, wherein projects enjoy the benefits of ANEEL Normative Resolution No. 482/2012, or “Resolution 482” – in particular, an exemption from charges on the transmission and distribution of electricity. The Brazilian National Congress recently instituted a new legal framework for the micro and small-size distributed generation sector in Brazil. As a result of the enactment of Law No. 14,300, both ANEEL and electricity distributors must adapt their rules, regulations, procedures and processes to the new guidelines within 180 days after its publication.
Pursuant to Law No. 10,848, dated March 15, 2004, the purchase and sale of electricity operations are carried out in two different market segments: (i) the regulated contracting environment, which houses the purchase by distributors, through auctions, of all the electricity that is necessary to supply its consumers, and (ii) the free contracting environment, which houses the purchase of electricity from other CCEE agents (such as electricity generators and traders). Energy sector agents are also subject to the payment of sector charges and fees for the use of the transmission or distribution system, as applicable.
Controlled Substances
Certain laws and regulations require us to obtain from governmental authorities permits, licenses and certificates to use controlled substances in our activities. Decree No. 10,030, dated September 30, 2019, regulates the Brazilian Army’s control over explosive substances and establishes that those who manufacture, store or sell such substances are required to obtain a registration certificate, which must be periodically renewed. Law No. 10,357, dated December 27, 2001, sets forth that those who manufacture, store, handle, use and distribute chemical substances, which could be employed in the manufacture of narcotics or psychotropic substances, are subject to control by the Federal Police Department and shall obtain the required certificates, which must be periodically renewed. In parallel, state legislation empowers each state’s respective Civil Police to grant licenses for use, storage, marketing, importation and exportation of certain chemical products, usually consisting of an inspection certificate and an operating license. Sanctions that can be imposed in cases of noncompliance with the applicable regulations concerning controlled substances include notices, fines, pre-interdiction fines, interdiction, apprehension of products, suspension, and cancellation or forfeiture of the corresponding certificates and licenses.
Sanitation Regulation
The food industry is subject to the rules set forth in Decree No. 986, dated October 21, 1969, and is regulated by the National Agency of Health Surveillance (Agência Nacional de Vigilância Sanitária), or the “ANVISA,” an independent federal regulatory agency, in accordance with the general guidelines set forth by the Ministry of Health, and by the MAPA. The requirements for classification, identity, quality and labeling applicable to sugars for human consumption are established by the MAPA Normative Instruction No. 45, dated August 30, 2018, and the ANVISA Resolution No. 271, dated September 22, 2005. Activities related to the production and selling of standard sugars for human consumption are subject to local sanitary authorities’ licensing. Law No. 6,437 dated August 20, 1977, as amended, governs the imposition of sanctions for players in the food sector, which include notices, fines up to R$1,500,000 (which may be doubled in cases of repeated penalties), production and/or sales prohibition, facilities interdiction, revocation of the facilities’ sanitary permit, and seizure and/or destruction of products.
Compass
Overview
On January 14, 2020, we contributed to the share capital of our wholly owned subsidiary Compass, formerly known as Distribuidora de Gás Participações S.A., the totality of the shares we held in Comgás (i.e., 103,699,333 common shares and 27,682,044 preferred shares), equivalent to 99.15% of the total share capital of Comgás, for an amount of R$2,861.9 million. As the parties to the transaction are under common control transaction, there was no effect on our consolidated financial statements. We derecognized the investment in Comgás and we recognized an investment in Compass for the same amount.
On March 9, 2020, we announced the creation of our new gas and power business segment of which Compass is the holding company and through which we now conduct our activities in the gas and power market. On January 3, 2022, Compass’s subsidiary Compass Um Participações S.A. concluded the acquisition of 51% of the capital stock of Sulgás, assuming the control of Rio Grande do Sul’s gas supply concessionaire.
In addition, on July 11, 2022 Compass concluded the acquisition of 51% of Commit, a holding company that holds interests in 11 gas supply concessionaires in 11 states of Brazil. This acquisition from Petróleo Brasileiro S.A., or “Petrobras” was agreed to after a competitive process led by Petrobras to divest Petrobras Gás S.A., or “Gaspetro” (now known as Commit). Before the acquisition, Commit held interests in 18 gas supply concessionaires, but this number was reduced by seven due to the exercise by other shareholders of preemptive rights that were triggered upon the change of control of Commit.
Compass’s subsidiary, Comgás, is Brazil’s largest distributor of piped natural gas, with a network reaching 21,908 kilometers and delivering natural gas to more than two million residential, commercial and industrial consumers in about 177 cities, including 93 municipalities in the metropolitan areas of São Paulo, Campinas and Santos as well as the Paraíba Valley. Sulgás and Necta have a distribution network of approximately 2,842 km, serving over 133.7 thousand customers, and in 2023 distributed a volume of 2.74 million cbm/day.
We believe the prospects for future availability of natural gas in Brazil are positive based on expected exploration of carbon deposits discovered in the pre-salt layer offshore of Brazil’s coast. Comgás’s supply of natural gas is currently sourced primarily from Petrobras, with contracts in Bolivia and Brazil having been entered into. Our natural gas supply agreement with Petrobras will expire in 2024. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business, the Operations of Our Joint Venture, and Industries in Which We Operate—Our business would be materially adversely affected if operations experienced significant interruptions. Our business would also be materially adversely affected if the operations of our customers and suppliers experienced significant interruptions.”
Compass Highlights
As of and for the
Fiscal Year Ended December 31,
Natural gas sold (million cbm)
Net sales (R$ millions)
17,767.3
19,719.2
12,330.2
The ANP is responsible for the control, supervision and implementation of the government’s oil, gas and biofuel policies. The ANP is responsible for regulating all exploration, production and importation activities with respect to the gas sector, as well as for regulating the gas transport sector.
In addition to the regulation by ANP, Compass’s activities are also supervised and regulated by ARSESP and ARGERGS, with which it maintains continuous dialogue through its directorate for Regulatory and Institutional Affairs in order to enhance or formulate industry policies. The functions and responsibilities of these agencies include, among others: (i) setting, adjusting, reviewing and approving both the distribution contracts and the tariffs applicable to the contracts; (ii) holding public consultations and hearings to issue new and review old rules related to the activity of gas distribution; and (iii) conducting inspection activities, as well as applying sanctions to agents that violate the rules and guidelines issued by the agencies.
Concessions and Authorizations
Pursuant to the Brazilian Federal Constitution of 1988, it is the responsibility of the State to provide, directly or through concessions, piped gas services. Concessions are formalized through concession agreements. Our subsidiaries Comgás and Necta are the concessionaires for the public distribution of natural gas for part of the state of São Paulo pursuant to Decree No. 43,888, of March 10, 1999, or Decree No. 43,888/99, and concession agreement No. CSPE/01/99, entered into on May 31, 1999 with the state of São Paulo (as amended), which at the time was represented by the Public Energy Services Commission of the state of São Paulo, and has since been replaced by the ARSESP.
In the case of the state of Rio Grande do Sul, our subsidiary Sulgás is the concessionaire for the public service of natural gas distribution. The company was established by State Law No. 9,128, of August 7, 1990, and is authorized to operate as the state’s distributor for a term of 50 years, pursuant to a concession agreement entered into on April 19, 1994.
São Paulo Concession
The Comgás concession agreement was originally set for a 30-year term, which was renewed for an additional 20 years at the discretion of the government of the state of São Paulo considering that Comgás is in compliance with all of its tax, social security and other legal and regulatory commitments and obligations. In September 2019, Comgás submitted an extension request for the concession to the SIMA, as provided for in the concession agreement. On October 1, 2021, the 7th Amendment to the Concession Agreement No. CSPE/01/99 was signed, extending the concession agreement until May 30, 2049.
Pursuant to the concession agreement, Comgás has the right to distribute and commercialize piped gas to customers until 2049 and in a concession area comprising 177 cities in the state of São Paulo. Comgás is also authorized to carry out other business activities, provided that (1) it obtains prior authorization from the ARSESP; (2) such activities do not interfere with Comgás’s main activity; and (3) the revenues from such activities are accounted for separately. In addition, any change in the bylaws of Comgás resulting in a transfer of shares or a change of control requires the prior approval of the ARSESP.
The concession agreement sets out Comgás’s obligations, including, with respect to quality and safety, the five‑year tariff review procedures. CSPE Ordinance No. 160/01 established the general conditions for the supply of piped gas and was replaced by the ARSESP Resolution No. 732 in August 2017. The concession agreement provides for three types of tariff review/adjustments, namely (1) the five-year cycle tariff review; (2) the annual adjustment as of December 10 of each year of the average margin using the IPCA/IBGE; and (3) extraordinary revisions to the extent there are significant cost variations, in order to reestablish the economic and financial balance of the concession. Also, under the terms of the concession agreement, Comgás must achieve certain minimum targets for the sale of gas and the implementation of mechanisms for improving the piped gas distribution system, under the evaluation of ARSESP.
On December 6, 2019, ARSESP published Resolution No. 933, which approved the amount of R$697.2 million plus monetary adjustment since April 2018, as a result of the Third Ordinary Tariff Review, to be applied to the value of the assets returned by Comgás upon termination of the concession, or to any amounts payable by Comgás if the concession is renewed, or to any amounts payable in connection with any renewal of the concession agreement, as it comes to be defined by ARSESP, according to Resolution No. 995 of May 27, 2020. With the publication of the aforementioned resolution, there are no more ongoing discussions regarding tariffs related to previous periods with ARSESP. The amount indicated in Resolution No. 933 was not recognized in our financial statements because it does not comply with accounting standards.
To the extent Comgás fails to comply with its obligations under the concession agreement, it will be subject to penalties of up to 2% of its annual revenues, and the granting authority may terminate the concession or take control of the concession to ensure the adequate provision of the piped gas distribution services.
The concession agreements may be terminated as a consequence of: (1) expiration of the contractual term; (2) expropriation of the concessions in the public interest (i.e., encampação); (3) forfeiture (caducidade); (4) termination; (5) annulment of the concession agreement to the extent irregularities in the bidding process or the granting of the concession are identified; or (6) the bankruptcy or expiration of Comgás.
Authorizations to carry out public works in the concession area are obtained from the relevant municipality.
On November 10, 1999, Necta entered into Concession Contract Nº CSPE/02/99 with the public energy services commission (Comissão de Serviços Públicos de Energia or “CSPE”) of the state of São Paulo to provide piped gas distribution services in 375 municipalities for a term of 30 years, extendable for an additional 20-year term.
Furthermore, under the terms of ARSESP Deliberation No. 1,061/2020, the concession to Compass and Necta would be subject to the piped gas free market regime. Accordingly, pursuant to the ARSESP terms, such gas suppliers would be entitled: (i) to freely contract the purchase of piped gas from supplying agents and free users or partially free users; and (ii) to negotiate prices and other commercial conditions for piped gas in any location in the State.
Rio Grande do Sul Concession
Our subsidiary Sulgás is the concessionaire for the public distribution of natural gas in the state of Rio Grande do Sul pursuant to a concession agreement signed on April 19, 1994. The concession agreement is for a 50-year term.
On April 19, 1994, Sulgás signed a concession contract with the State of Rio Grande do Sul for the exclusive rights to provide piped gas distribution services to any and all consumers or industry, commerce, institutions and residences, for any and all uses or purposes in Rio Grande do Sul for a period of 50 years.
Under the terms of the concession agreement, Sulgás will be obligated to ensure (i) the provision of adequate services, as provided in the agreement and applicable technical standards; (ii) the maintenance of the inventory and registration of assets related to the concession; (iii) the collection of tariffs as established in the agreement; (iv) the use of the public domain necessary for the execution of the service, as well as to promote expropriation and create easements of areas declared of public utility for the provision of services; (v) rendering of accounts of the management of the service to the state government and its users; (vi) care for the integrity of the assets linked to the rendering of the services; (vi) permission to inspect, at any time, the works and installations included in the concession, as well as the respective accounting records; and (vii) the maintenance, on a permanent basis, of a user service agency with the specific purpose of attending to complaints and claims regarding the rendering of services, as well as to forward suggestions aimed at its improvement.
The concession agreement will be terminated upon the occurrence of one of the following events: (i) expiration of the 50-year term; (ii) removal from service (i.e. taken over due to public interest); (iii) forfeiture; (iv) rescission; (v) annulment; or (vi) extinction of the concessionaire. The contract can also be terminated at Sulgás’s discretion in the event of non-compliance by the state government with certain contractual provisions of the concession agreement.
In the event that Sulgás does not comply with the provisions of the concession agreement, it will be subject to intervention by the state of Rio Grande do Sul, as well as having to bear the costs of the administrative process and the subsequent rendering of accounts before the state.
In accordance with Brazilian state law 15,648/21, which has not yet been regulated by AGERGS, free agents (i.e. auto-producers, auto-importers and free consumers) may purchase natural gas other than through the piped gas service concessionaire. In this case, the concessionaire must (i) provide the necessary infrastructure for meeting the gas handling needs in its concession area, including the needs of the free agents; or (ii) if the free agents cannot have their natural gas handling needs met by Sulgás, they may directly build and implement a gas distribution infrastructure for their use, which must be operated and maintained by Sulgás by signing a Distribution System Use Agreement (Contrato de Uso do Sistema de Distribuição, or “CUSD”) as well as the payment of a Distribution System Use Tariff (Tarifa de Uso do Sistema de Distribuição, or “TUSD”).
Currently, there are several discussions involving Sulgás at AGERGS: (i) Public Consultation and Public Hearing No. 02/2023, which addresses Sulgás’ tariff revision for 2023; (ii) Normative Resolution No. 67/2023, whose intention is to approve the Regulation for Distribution Services of Piped Gas for the state of Rio Grande do Sul; and (iii) Normative Resolution No. 68/2023, with the objective of establishing the legal framework for the free market of piped gas in the state. The results of these discussions could directly and permanently affect Sulgás’ operations.
Paraná Concession
Our subsidiary Companhia Paranaense de Gás – Compagas, or Compagas, is the concessionaire of the state-owned piped natural gas distribution service in the state of Paraná. On December 20, 1996, Compagas signed a concession agreement with the state of Paraná granting it an exclusive right to operate the piped natural gas distribution network throughout the state for all consumer market segments for a period of 30 years, starting from July 6, 1994. On December 26, 2022, Compagas's concession was extended for a further 30 years to July 6, 2054.
Under the terms of the concession agreement, Compagas is required to provide adequate levels of services, in accordance with the concession agreement, applicable law and regulatory standards. The concession agreement provides that the concession may be terminated in the following circumstances: (i) expiration of the contractual term; (ii) expropriation; (iii) forfeiture; (iv) termination; (v) annulment; and (vi) bankruptcy or extinction of the concessionaire. Compagas may also take legal action to terminate the concession agreement if the granting authority fails to comply with its terms.
The general conditions for providing piped natural gas distribution services are regulated by State Decree No. 6,052/2006, which is due to be superseded by new regulations to be issued by the Regulatory Agency for Delegated Public Services of Paraná (Agência Reguladora de Serviços Públicos Delegados do Paraná), or AGEPAR.
The following AGEPAR resolutions are currently in effect:
The concession agreement stipulates that tariff adjustments will occur through revisions and adjustments, namely: (i) periodic tariff reviews every five years; (ii) extraordinary tariff review aimed at restoring economic and financial balance, which can occur at any time due to unforeseen and unpredictable events affecting one of the parties, as outlined in the concession agreement, (iii) following adjustments to the weighted average cost of gas, in accordance with AGEPAR Resolution No. 28/2022; and (iv) annual adjustments in certain circumstances outlined in the concession agreement, except during years in which periodic tariff reviews take place.
The Gas Law
The natural gas industry is regulated by Law No. 14,134, of April 8, 2021, as amended, or the New Gas Law. This New Gas Law revoked the Law No. 11,909, of March 4, 2009, and has set a new regulatory framework for the exploration of the economic activities in the natural gas market. The New Gas Law seeks to attract private investment and promote a more open and dynamic market, which is intended to reduce energy costs, stimulating economic growth, establish a more transparent and predictable regulatory framework, simplify the licensing process and allow third-party access to gas transportation and distribution infrastructure. These measures are expected to increase competition among gas companies, reduce dependency on Petrobras, and stimulate the development of new gas fields and infrastructure. In addition, Decree 10,712, of June 2, 2021, regulated Law No. 14,134, which sets forth the new guidelines on natural gas transportation in Brazil.
Moove
Moove is responsible for the manufacturing and distribution of passenger vehicle lubricants, commercial vehicle lubricants, industrial lubricants and special application products such as greases, cutting oils and car care products under the Mobil brand, operates in Brazil and in nine other countries: Argentina, Bolivia, Uruguay, Paraguay, the United States of America, Spain, France, Portugal and the United Kingdom. This is consistent with Moove’s strategy of leveraging the ExxonMobil partnership and expanding abroad. Under the “Comma” brand, Moove also operates in the United Kingdom, selling its products to over 40 other countries in Europe and Asia.
Moove Highlights:
Volume of lubricants sold (million liters)
10,078.6
8,980.1
6,112.5
Moove has five production plants. In Brazil there are two plants, one in the city of Rio de Janeiro, state of Rio de Janeiro, where the largest plant of the business, with its own pier, is located, and the second one, in the city of Diadema, state of São Paulo, where products are produced under the Tirreno brand. Outside Brazil, Moove has a plant in Gravesend, England, where it produces and distributes lubricants, as well as other automotive products, such as antifreeze, additives and coolants, destined for the UK markets and exported to some European and Asian countries, mainly under the Comma brand. Moove also has two other plants in the United States in the cities of Wichita, Kansas, and another one in Indianapolis, Indiana, where lubricants and other automotive products are produced under the Dynaplex, Ecoultra and Medallion Plus brands. Through these plants, Moove produces and markets a comprehensive portfolio of lubricant products and specialties for various sectors, from automotive to industrial.
We have distribution and production rights for Mobil brand products in Brazil and distribution rights in Bolivia, Paraguay and Uruguay following the purchase of ExxonMobil’s lubricant distribution business in these latter three countries in 2011.
In July 2012, we acquired Moove Lubricants, which reinforced our strategy to enter into the European lubricants and specialties markets. As a result, we acquired finished lubricants and the manufacture and sale of chemicals to third parties, all of Moove Lubricants’ assets at the Gravesend site in Kent, United Kingdom, as well as ownership of Moove Lubricants’ trademarks and brand names. In addition, there are agreements in place allowing Moove Lubricants to distribute select Mobil-brand lubricants into specific sales channels in the United Kingdom and to continue to manufacture and distribute a range of seasonal and ancillary automotive products to ExxonMobil and other Mobil distributors in Europe and Asia.
Since December 2016, Moove has had distribution rights for Mobil brand products in Spain and, more recently, in the United Kingdom, France, Portugal and the United States of America. Since December 2018, Moove has had distribution rights for Mobil-branded products in Argentina.
In May 2022, Moove expanded its international portfolio by acquiring PetroChoice, a lubricants distributor and marketer for Mobil brand products and proprietary brands in the United States that distributes about 240 million liters of lubricants annually, and its assets, which include two lubricant blending plants and more than 50 distribution centers across 25 states. Moove also acquired Tirreno, a privately held company headquartered in Brazil, specialized in the production and sale of lubricating oils, additives and fluids. The acquisition of Tirreno is intended to enhance synergies in automotive and industrial products and fluids through technology and manufacturing, distribution, and cross-selling and branding opportunities.
During the third quarter of 2023, the management of Moove approved the execution of a corporate reorganization consisting of the creation of a new entity in the Cayman Islands named Moove Lubricants Holdings, or “MLH,” and the subsequent transfer of all assets from the then-current holding company of the Moove group, Cosan Lubes Investments Limited, or “CLI,” to the new entity.
Our lubricants business is not subject to significant seasonality. However, a significant proportion of our raw material purchases are invoiced in U.S. dollars and we hedge part of our shipments of base oils against variations in exchange rates.
Moove is subject to substantially the same regulation imposed by the regulatory bodies to which our fuel distribution business is subject with respect to its operations in Brazil. See “Raízen—Regulation—Regulation of the Oil and Gas Industry—Brazil.”
Moove is also subject to several federal, state and municipal oil and gas, environmental protection and health and safety laws and regulations governing, among other things, the manufacturing and distribution of passenger vehicle lubricants, commercial vehicle lubricants, industrial lubricants and special application products such as greases, ancillaries, base oils and car care products in Brazil, Argentina, Bolivia, Uruguay, Paraguay, the United States of America, Spain, France, Portugal and the United Kingdom.
Rumo
Our logistics operations are conducted through Rumo, which offers an integrated logistics solution to many sectors, but primarily to agricultural commodity producers across Brazil, connecting the main producing regions with Brazil’s four main ports. Rumo also offers warehousing services.
The following table sets forth certain financial and other information of Rumo for the periods indicated:
Rumo Highlights:
Transported volume (million TKU)
Port elevation volume (thousand tons)
10,794.0
12,493.0
North operations (R$ millions)
8,346.3
7,635.2
5,479.6
South operations (R$ millions)
2,032.7
1,739.4
1,624.1
Container operations (R$ millions)
558.7
466.9
336.0
10,937.7
9,841.5
7,439.6
Following Rumo’s merger with ALL which was completed on April 1, 2015, Rumo has expanded its offering of logistics services, including, among other things, by providing port handling services. Furthermore, Rumo acquired control of ALL’s former concessions which include the main railroads between the sugar and grain producing areas of the central-south region of Brazil and the ports of Santos, Paranaguá, São Francisco and Rio Grande. As a result, Rumo now operates in the states of Mato Grosso and São Paulo as well as the southern region of Brazil where four of the most active ports in the country are located and through which most of Brazil’s grain production is exported. Moreover, Rumo started operating 9 main inland terminals, either directly or through partners. In September 2021, Rumo announced a contract with the state of Mato Grosso for the construction, operation, exploration, and maintenance of the first state railroad in Brazil. The contract, which has a 45-year concession, renewable for an additional 45 years, will add 740 kilometers to Malha Norte, connecting the city of Rondonópolis and the cities of Cuiabá and Lucas do Rio Verde, both in the state of Mato Grosso, to the Port of Santos in the state of São Paulo.
The transportation of agricultural commodities, primarily for export, represented approximately 83%, 82% and 81% of Rumo’s transported volume in the fiscal years ended December 31, 2023, 2022 and 2021, respectively. The transportation of industrial products represented approximately 12%, 13% and 19% of Rumo’s transported volume in the same periods, respectively. Rumo’s transported volume derived from the transportation of grains (soybean, corn and soybean meal) represented 70%, 70% and 66% in the fiscal years ended December 31, 2023, 2022 and 2021, respectively.
Rumo also provides intermodal transportation logistics services, which is the movement of freight via container using two or more modes of transportation (generally rail and truck). We believe that these methods of transportation reduce the costs of cargo handling, because containers are typically consolidated from trucks onto trains or ships that can carry mass loads, allowing for fuel efficiency.
In November 2022, Rumo concluded the sale of 80% of its equity interest in its then wholly owned subsidiary EPSA whose main operation is the storage and handling of grains and sugar. Rumo continues to hold a 20% stake in the entity, making up Rumo’s portfolio of port assets.
Operational Segments
Rumo conducts its operations through three segments that correspond to the main markets in which it operates: (1) the north operations business segment, or “Northern Operations,” comprising the Rumo Malha Norte, Rumo Malha Paulista and Rumo Malha Central S.A., or “Rumo Malha Central,” rail concessions, Rumo’s transshipment terminals located in the states of Mato Grosso and São Paulo, and its port operation in Santos, (2) Rumo’s south operations business segment, or “Southern Operations,” comprising the Rumo Malha Oeste and Rumo Malha Sul rail concessions and Rumo’s transshipment terminals located in the state of Paraná, and (3) Rumo’s container operations business segment, or “Container Operations,” comprising the operations of Brado Logística which focuses on container logistics, whether by rail or road transport, and the results of container operations on the networks.
The table below shows Rumo’s net sales by segment as well as a percentage of total net sales for the periods indicated:
As of and for the Fiscal Year Ended December 31,
(in R$ millions, except percentages)
Northern Operations
76.3%
77.6%
73.7%
Southern Operations
18.6%
17.7%
21.8%
Container Operations
5.1%
4.7%
4.5%
Net sales
100%
Major Customers
The majority of the cargo Rumo transports is for the agricultural commodities industry. Rumo’s major clients are export companies participating in this market, such as Bunge, Cargill, ADM, COFCO, Amaggi and Louis Dreyfus. In the fiscal year ended December 31, 2023, Bunge accounted for 10.4% of Rumo’s total net revenue, while Rumo’s six major clients accounted for 50.2% of its total net revenue in the same period. In the fiscal year ended December 31, 2022, Cargill accounted for 8.6% (7.7% in 2021) of Rumo’s total net revenue, while Rumo’s six major clients accounted for 45.8% (42.6% in 2021) of Rumo’s total net revenue in the same period.
Rumo’s major clients in the rail sector are export companies such as Cargill, Bunge, ADM, Amaggi, COFCO and Louis Dreyfus. In the fiscal year ended December 31, 2023, Bunge accounted for 12.1% of Rumo’s net revenue from services in the rail sector, while Rumo’s six major clients in the rail sector jointly accounted for 54.1% of its net revenue from services in that sector. In the fiscal year ended December 31, 2022, Cargill accounted for 10.1% (9.0% in 2021) of Rumo’s net revenue from services in the rail sector, while Rumo’s six major clients in the rail sector jointly accounted for 48.3% (43.9% in 2021) of its net revenue from services in that sector.
Seasonality
Rumo is subject to the seasonality that influences the sugarcane and grain harvest. During the peak months of the harvests, there is higher demand for transport and logistics operations. Rumo is also subject to the risk that sugarcane mills may change their production mix in favor of ethanol if the relative prices of the two products swing that way. This could reduce the demand for sugar logistics and transport. See also “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting Our Results of Operations—Seasonality.”
Rumo’s activities are subject to extensive regulation by public authorities, especially by the Brazilian Ministry of Infrastructure, the ANTT and ANTAQ.
Further, given the fact that they operate in the transport infrastructure sector, Rumo’s subsidiaries and affiliates maintain a constant relationship with their respective granting authorities, whether in the context of participation in bidding processes to obtain new business (concessions) or in the context of inspections of their existing business by the authorities responsible for supervising services rendered, in order to remain in compliance with the demands of such authorities.
Rail Transportation Regulation
Rail transportation activities in Brazil are subject to a wide variety of laws and regulations. Rail transportation regulation in Brazil regulates (1) the relationship between the Brazilian government and the rail companies, (2) the relationship among the rail companies, including interchange and mutual transit rights, (3) the relationship between the rail companies and their customers and (4) rail safety. The rules also contain a few provisions relating to a railroad operator’s liability. According to Decree No. 1,832/1996, Rumo will be relieved of liability for damage caused by Rumo’s operations in the event of (1) inherent defects or causes inherent to the nature of the goods to be transported, (2) death or injury of animals as a consequence of the natural risk inherent to rail transportation, (3) lack of latent defect in or fraudulent procedure for the packaging of the product, (4) damage derived from the operations of loading, unloading or trans-loading by the sender, the addressee or their representatives or (5) damage to freight that has been packaged in sealed containers or sealed railroad cars but, after transportation, arrives damaged but still displaying a non-violated seal. Rumo is otherwise liable for losses and damages. The liability is limited to the value declared by the sender, which must be stated on the bill of lading. In the event of fault of both Rumo and the cargo owner, the responsibility is allocated proportionally based on relative fault. Total loss is assumed 30 days after the agreed date of delivery, except when due to force majeure.
Pursuant to Decree No. 2,681/1912, the liability of the rail company for total or partial loss, damage or theft of transported freight is always assumed and the burden of proof of non-liability may only be deemed satisfied if the rail company is able to provide evidence of (1) an act of God or force majeure, (2) a loss caused by fault of the merchandise, (3) death or injury to a live animal resulting from an ordinary risk caused by the transportation, (4) defective packaging of the freight, (5) loss or damage caused by transportation in open cars, as required by regulation or resulting from the agreement with the customer, (6) loss or damage caused by loading and unloading by either the shipper or receiver or (7) loss or damage that could have been avoided by proper surveillance by the shipper of a freighted car. In the cases provided in (1), (2), (3), (5) and (6), whenever there is mutual fault of the rail company and the shipper and/or the receiver, the indemnification shall be apportioned based on relative fault. For a total loss of the merchandise, the amount of the indemnification is limited to the fair market price of the shipped goods. For damage to the merchandise, the indemnification is proportional to the damage caused. In both cases, recovery is reduced by the amount of expenses not incurred by the shipper as a result of the damage or loss. For willful misconduct, all direct damages are indemnifiable. Late deliveries also are indemnifiable under certain circumstances.
Indemnification is limited by a one-year statute of limitations, counted from the delivery date (in case of damage) or from the 31st day after the promised delivery (in case of loss or theft). Any agreement providing for the exemption of railway liability is null and void, except that the indemnification may be limited based on an agreed-upon tariff reduction.
If more than one rail company causes damage, any of them may be named as a sole defendant, although such named defendant will have recourse against the others. Death, disability or personal injuries are also indemnifiable and subject to this presumed liability rule, except when caused by force majeure or the injured party’s sole liability, without fault of the rail company. Indemnification for personal injuries may include, in addition to medical expenses and loss of profits, other indemnification that may be granted. In addition, in 2001, the land transportation industry underwent reform with the enactment of Law No. 10,233/2001, which created, among other agencies, the ANTT, an entity member of the indirect federal administration, submitted to the special administration system and linked to the Brazilian Ministry of Infrastructure, the responsibilities of which include, among others, (1) to publish bidding invitations, judge the bids and execute the rail transportation service concession agreements, (2) to administer concession agreements and rail network leases executed until the date of reform of the transportation market, according to Law No. 10,233/2001, (3) to publish invitations to bid, to judge the bids and to execute concession agreements for the construction and exploitation of new rail networks, (4) to inspect, through cooperation arrangements, compliance with contractual clauses for the provision of rail transportation services, as well as maintenance and replacement of the leased assets, and (5) to regulate and coordinate each concessionaire’s operations.
Rail transportation services in Brazil can be provided by private parties under the concession regime regulated by Law No. 8,987 of February 13, 1995, or the Concession Law. The Concession Law requires that the granting authority and concession holder enter into a concession agreement regulating the terms of such exploration and setting forth the terms applicable to the performance of the services.
Examples of key clauses found in such concession agreements include those relating to its purpose, the concession area and the concession term; the manner, form and conditions for rendering the services; criteria, indicators, formulas and parameters defining the quality of services; the price of the services, criteria and proceedings for the readjustment and review of tariffs; and rights, warrants and obligations of each of the granting authority and the concession holder, including those related to predictable needs of future change and expansion and services and consequent modernization, improvement and expansion of equipment and installations. Further examples include clauses relating to customers’ rights and obligations to have and use the services; contractual and administrative penalties to which the concession holder is subject and their application; concession termination events; revertible assets; criteria for the calculation and the payment conditions of indemnification owned to the concession holder; and conditions relating to the renewal of the concession agreement.
In addition, both the Concession Law and the concession agreements regulate the penalties applicable in case of breach of the concession agreement. Pursuant to the Concession Law, the granting authority is entitled to terminate the concession agreement if (1) the services rendered by the concession holder fall below the standard agreed between the parties with regard to such services; (2) there is a breach of the provisions of the concession agreement by the concession holder; (3) the concession holder interrupts the provision of the services, unless such interruption is due to a force majeure event; (4) the concession holder does not have the financial resources necessary to render the services required under the concession agreement; (5) the concession holder does not comply with penalties imposed by the granting authority; (6) the concession holder does not comply with requests from the granting authority intended to improve the services provided under the concession agreement; or (7) the concession holder does not provide, within 180 days after a request by the granting authority to that effect, documents proving that it is in compliance with applicable tax law. In addition, the granting authority can also terminate the concession agreement when it considers that it is in the public interest to do so, in which case specific legislation must be enacted regarding such termination and the concession holder must be duly indemnified for it.
Waterborne Transportation Regulation
Waterborne transportation services in Brazil are regulated by Law No. 12,815/2013, as amended by Law No. 14,047, dated August 24, 2020, Decree No. 8,033/2013 and by the rules issued by ANTAQ and by the Brazilian Ministry of Infrastructure.
ANTAQ, which was created by Law No. 10,233/2001, is linked to the Brazilian Ministry of Infrastructure. Among other things, ANTAQ is responsible for (1) publishing invitations to bid, executing concession agreements, and issuing authorizations to exploit private port terminals and facilities, (2) inspecting compliance with contractual clauses for the provision of services in connection with public terminals and private port facilities and (3) regulating and coordinating each concession holder’s operations and companies authorized to exploit private port facilities.
In Brazil, there are two main regulatory regimes affecting waterborne transportation: (1) the concession regime, preceded by a public bidding process which regulates the operation of government-owned port terminals and the leasing of government-owned terminals, also preceded by a public bidding process, except when there is only one interested operator, and (2) the authorization regime, relating to new private port terminals and facilities. Furthermore, the Law No. 14,047/2020 has created a temporary use granting of government-owned port terminals for unconsolidated market cargo handling.
Pursuant to Law No. 12,815/2013, with its amendments and additions issued by Law No. 14,047/2020, the following provisions are essential to the lease agreements: contract object, area and term; those relating to the manner, form and conditions for the exploration of organized ports and facilities; the value of the contract, tariffs in place and criteria and procedure for their readjustment and review; those relating to the contracting party’s investment obligations; the parties’ rights, obligations and responsibilities; the duty to provide information of interest and access to port facilities to the competent entities; clauses relating to the port owner’s liability for nonperformance or deficient performance of activities; contract termination events; and penalties and the application thereof; criteria, indicators, formulas and parameters defining the quality of activities performed, as well as goals and time frames for reaching certain service levels; customers’ rights and obligations, including the related obligations of the contracted party and the respective sanctions; assets reversal; contractor and contracting party’s rights, obligations and warrants, including those related to future supplemental need, change and activities expansion and consequent modernization, improvement and expansion of facilities; inspection of facilities, equipment and of the methods and practices for the development of the activities, as well as the appointment of competent entities to perform it; guarantees for the adequate performance of the contract; and clauses on customs inspection measures for goods, vehicles and customers.
Until December 6, 2012, port operations in Brazil were governed by Federal Law No. 8,630/1993, or the Ports Modernization Law, which provided the legal framework applicable to the operation of government-owned port terminals and facilities in Brazil. In view of the need to improve the applicable legislation, the Brazilian government implemented Law No. 12,815/2013, or the Ports Law, which expressly revoked the Ports Modernization Law and established a new legal framework with respect to port operations in Brazil. As a result, public ports are regulated by the Ports Law and by specific complementing regulations, such as Decree No. 8,033/2013, with its amendments and additions issued by Decree No. 10,672/2021. According to the provisions of the Ports Law, there are no more distinctions between third-party and own cargo handled at private port terminals. As a result, public ports are expected to face higher competition by private operators, as private operators are subject to less rigorous regulatory requirements than publicly owned ports. Accordingly, it is possible that Rumo may not be able to reach the minimum cargo movement provided for in its concession agreement for the operation of public port terminals, which may subject it to fines and, upon repeated violations, to the early termination of the concession. Even though the Ports Law does not provide for the adjustments of the terms of any concession agreement currently in place, it is possible that new regulations may make such provision. New regulations applicable to port operations in Brazil that might cause an adjustment of the terms in Rumo’s concession agreements may adversely affect Rumo’s results of operations.
On January 8, 2014, ANTAQ published Resolution No. 3,220/2014, which sets forth the process for requesting the economic and financial rebalancing of the concession agreements for the operation of government-owned port terminals.
Environmental Regulation
Rumo’s operations are subject to a wide range of federal, state and local laws, in addition to regulations and permit requirements regarding environmental protection in Brazil.
Rumo’s rail operations are subject to potential environmental liabilities involving the use, handling and transportation of hazardous materials. Rumo can also be held liable for damages resulting from vegetation suppression in connection with railroad expansion and other works in the vicinity of Rumo’s railroads. Locomotives are supplied with fossil fuel, which can be transported by wagon or truck, depending on the location. We have 20 active refueling stations, with a total storage capacity of over 2.3 million liters. Potential incidents and leaks at those refueling stations may result in environmental damage.
Legislation authorizes the use of herbicides throughout Rumo’s rail system to control overgrown invasive vegetation, except in permanent preservation areas, where herbicides are prohibited. Rumo is constantly researching alternatives to control invasive vegetation in partnership with environmental authorities.
Rumo possesses an interstate railroad network and, pursuant to the Complementary Federal Law No. 140/2011, the Brazilian Institute of Environment and Natural Resources (Instituto Brasileiro do Meio Ambiente e dos Recursos Naturais Renováveis), or “IBAMA,” is the federal entity competent for licensing these activities. Rumo holds operating permits that allow us to operate the railways in the states of Rio Grande do Sul, Santa Catarina, Paraná, São Paulo, Mato Grosso and Mato Grosso do Sul, pending the issuance of the operating permits for the south of São Paulo and all operating units. The issuance of these licenses by IBAMA is pending, but Rumo is currently standardizing its environmental licensing in accordance with applicable legislation.
The performance of environmental programs is essential to guarantee the granting and renewal of rail network permits and the continuity of Rumo’s operations. The following environmental programs are included as conditions in Rumo’s permits:
Rumo currently has an environmental licensing timeline for the improvement and expansion of Rumo’s rail operations. Compliance with environmental conditions imposed by the current permits is of great importance in obtaining new licensing from environmental agencies.
Rumo seeks to comply with several procedures to reduce the risks related to the transportation of hazardous materials, such as having an emergency service plan and a management risk plan, and undertaking periodical track maintenance. Rumo also has an authorization to transport hazardous materials in the states in which we operate. In addition, Rumo has put in place certain procedures to reduce the risks of leakage of hazardous materials. For example, the recent installation of automatic shut-off valves and high-level alarms at Rumo’s diesel storage areas are expected to help reduce the number of accidental discharges. Rumo’s investment program includes comprehensive upgrades to control systems that are expected to reduce the number and severity of hazardous materials leaks in cases of derailments. The environmental impact caused by the leakage of hazardous materials may vary in each case, so we perform quarterly internal audits to identify any noncompliance with the environmental standards. Rumo has identified and is in the remediation and monitoring phase with respect to certain areas of soil and groundwater contamination resulting from inadequate operation of wastewater treatment systems associated with railcar maintenance and washing and contamination from the leakage of hazardous materials.
Rumo’s environmental liabilities consist of environmental proceedings, including with respect to contaminated areas undergoing remediation, monitoring, supply posts and workshops. Rumo has been investing to resolve these liabilities. Other issues identified that require improvement include leakage prevention and leakage containment procedures, particularly with respect to avoiding water and soil contamination.
Compliance with applicable legislation is essential in order to fulfill the terms of current environmental permits as well as to obtain permits for new projects. Due to the need to compete for new projects and perform operational enhancements, we try to enhance and improve Rumo’s routine and operational procedures, and it is likely that Rumo’s environmental investments and costs associated with compliance with environmental legislation will increase with the passage of time in accordance with Rumo’s need to undertake new projects and improve its operations.
Rail Concessions
Rumo conducts its rail activities through the following concession agreements: (1) the concession agreement entered into on December 30, 1998 and amended on May 27, 2020 involving Rumo Malha Paulista, which was originally scheduled to expire in 2028 but in May 2020 it was extended to 2058, as Rumo complied with the required obligations; (2) the concession agreement entered into on May 19, 1989 involving Rumo Malha Norte, expiring in 2079; (3) the concession agreement entered into on July 7, 1996 involving Rumo Malha Oeste, expiring in 2026; and (iv) the concession agreement entered into on February 27, 1997 involving Rumo Malha Sul, expiring in 2027 (which may be extended for a further 30 years).
In September 2015, we filed a formal request for the renewal of the Rumo Malha Sul concession agreement with the ANTT and, in January 2018, a request for extension of the concession agreement termination date.
The granting authority may unilaterally rescind all of Rumo’s rail concession agreements prior to their expiration in the following circumstances:
The enforcement of any of the unilateral termination provisions of the concession agreement must be preceded by the relevant administrative proceeding with ANTT and may result in indemnity to us for assets that revert to the granting authority. As of the date of annual report, we are aware of the existence of the administrative proceedings that could potentially give rise to unilateral termination events for our concessions, after all applicable administrative and judicial spheres have been overcome. For further information, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings—Probable Losses—Civil, regulatory, environmental and other claims.”
On March 28, 2019, Rumo won the tender No. 02/2018 organized by ANTT to operate the railway network located between the cities of Porto Nacional, in the state of Tocantins, and Estrela d’Oeste, in the state of São Paulo, or the Ferrovia Norte Sul Tramo Central, for 30 years. Rumo’s bid was R$2,719.5 million. On July 31, 2019, Rumo entered into a sub-concession agreement with ANTT and Valec Engenharia, Construções e Ferrovias S.A., allowing Rumo Malha Central to explore for 30 years the activities of rail freight transport and operate the Ferrovia Norte Sul Tramo Central. If Rumo is unable to comply with the obligations detailed in the tender notice for the Ferrovia Norte Sul Tramo Central, Rumo’s assets may be encumbered, which may adversely affect Rumo’s financial condition and results of operations.
See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business, the Operations of Our Joint Venture, and Industries in Which We Operate––The loss of Brazilian railway concessions may have a material adverse effect on our business.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business, the Operations of Our Joint Venture, and Industries in Which We Operate––Rumo may not obtain an early renewal of the Rumo Malha Sul concession agreement, currently under review by the Brazilian Transportation Authority (Agência Nacional de Transporte Terrestre), or ANTT, which may have a material adverse effect on Rumo’s investment plan and growth strategy.”
Rail Authorization Agreements
Currently, no section of our railroad network is subject to an authorization, rather than a concession, by any governmental entity. However, on July 19, 2021, the government of the state of Mato Grosso launched a public call to receive bids for an authorization to construct a new, 730-kilometer railroad network within the state. Under current law, an authorization to construct a railway network requires no prior tender. Rather, a simplified, public call process may be used, wherein technically and financially eligible companies may submit bids for the project without an elaborate competitive process. However, whereas concession agreements typically entail the operation or expansion of an existing railway network in consideration for a guaranteed rate of return, an authorization requires a successful bidder to build a railway network from scratch, and carries with it no guarantee of success or return.
On September 20, 2021, Rumo Malha Norte entered into an adhesion agreement with the state of Mato Grosso, which allows Rumo Malha Norte to engage in the construction, operation, exploration and conservation of a railroad that independently connects the Rondonópolis railroad terminal to Cuiabá and Lucas do Rio Verde in the state of Mato Grosso.
Port Lease Agreements
Rumo holds equity interests in: (1) Terminal XXXIX and the adjacent areas for moving agricultural products and bulk as well as other goods capable of being transported in those port installations, through a port lease agreement due to expire in 2050; (2) Portofer Transporte Ferroviário Ltda., which leases facilities, equipment and railroad tracks for the transportation of goods and import/export through the right and left banks of the port of Santos, by means of a lease agreement with Portofer Transporte Ferroviário Ltda. due to expire in 2025; (3) Terminal de Granéis do Guarujá (TGG), located on the left bank of the port of Santos, for the transport of solid and liquid bulk, through an area used by Rumo Malha Norte via a leasing agreement due to expire in 2027; and (4) Terminal Marítimo do Guarujá (TERMAG), located on the left bank of the port of Santos, mainly for the transport of solid and liquid bulk, through an area used by Rumo Malha Norte via a lease agreement due to expire in 2027.
If Rumo fails to comply with the applicable regulatory rules or contractual obligations, its lease may be terminated early pursuant to the Concession Law, which applies to port leases.
Furthermore, there are ongoing legal and administrative proceedings which question the validity or legality of Rumo’s concessions or leaseholds in port facilities, as follows: (i) ongoing legal proceeding regarding whether the execution of the lease agreement relating to Terminal XXXIX, TGG and TERMAG should have been subject to a prior bidding procedure. The Brazilian Superior Justice Court (Superior Tribunal de Justiça) sustained Rumo’s appeal by finding in its favor, to which the public prosecutor’s office filed an additional appeal, which is currently pending disposition; (ii) an ongoing public civil action filed by the Brazilian Federal Prosecutor’s Office challenging the validity of the Portofer lease agreement. A trial court has ruled in favor of Rumo and rejected the claim, but an appeal had been lodged by the Federal Prosecutor’s Office and is currently awaiting disposition; and (iii) an administrative proceeding before the Federal Court of Accounts, or the TCU, challenging the legal validity of the Portofer lease agreement. In June 2020, the TCU decided that a declaration of invalidity relating to the lease agreement would be contrary to public interest, however, the Santos Port Authority, or “SPA,” was denied the right to renew the lease agreement with Portofer for subsequent terms upon its expiration in June 2025. Considering the TCU decision and to avoid costs associated with third-party leases of the railroad in the Santos Port, the SPA issued public notice calling for members to join an association to manage the railroad in the Port area (Ferrovia Interna do Porto de Santos), or “FIPS.” Rumo, MRS and VLI Multimodal S.A. have accepted to join this association. FIPS has been created and has entered into a lease agreement with Port Authority. FPIS is expected to begin its activities following a transition process with Portofer, after which Portofer will end its activities.
Real Estate
Our real estate operations are conducted through Radar, Tellus, Gamiovapar, Duguetiapar and Janus. Through these companies, we acquire rural properties to be leased or sold to third parties. Radar, Tellus, Janus, Gamiovapar and Duguetiapar together manage approximately 305,802 hectares of land in the Brazilian states of São Paulo, Goiás, Mato Grosso, Maranhão, Minas Gerais, Tocantins, Bahia and Piauí.
In November 2021, we concluded the acquisition of an additional interest in Radar. This initiative is aligned with our capital allocation strategy and reinforces our commitments to the sustainable development of Brazilian agribusiness while creating value to all stakeholders. On September 30, 2022, we entered into a share purchase agreement for the acquisition of an additional stake in Tellus Brasil Participações S.A., Janus Brasil Participações S.A., Gamiovapar Empreendimentos e Participações S.A. and Duguetiapar Empreendimentos e Participações S.A.
Our real estate operations are subject to various Brazilian federal, state and municipal environmental and real estate laws and regulations governing, among other things, the acquisition, lease and disposal of rural properties.
Certain environmental laws require the tenants of Radar’s properties to obtain permits, licenses and approvals from governmental authorities in order to conduct agricultural activities and operate storage facilities. Despite Radar’s position as a real estate investor, if its tenants fail to obtain licenses and permits that they would be obliged to obtain for the use of land, Radar could be adversely impacted. We are subject to regulation by the following principal governmental agencies:
Furthermore, certain of our activities such as land ownership and georeferencing processes, are regulated by several Brazilian laws, including but not limited to the Brazilian Constitution. INCRA is responsible for approving georeferencing procedures necessary for registering any title of acquired agricultural property in Brazil. We are also subject to the Brazilian Forestry Code, which prohibits land use in certain permanently protected areas, and obliges us to maintain and register a forestry reserve in each of our rural landholdings covering at least 20% of the area in any such property. The responsibility for maintenance of forestry reserves and permanent preservation areas as required by law falls jointly upon the landowners (in our case, Radar) and any tenants.
Vale
In October 2022, we completed the acquisition, through a subsidiary and via the combination of direct investments and derivative operations, of a stake corresponding to 4.96% of Vale’s outstanding share capital (4.85% of its total share capital). As of the date of this annual report, we hold a 3.91% of Vale’s total share capital. For more information on the acquisition of our stake in Vale, see “Presentation of Financial and other Information—Certain Corporate Events—Acquisition of Significant Influence in Vale S.A.,” or “Vale.”
Vale was created by the Brazilian federal government on June 1, 1942, by Decree-Law No. 4,352 for the purpose of exploiting, marketing, transporting and exporting iron ore from the mines of Itabira, state of Minas Gerais, and of exploiting the Vitória-Minas railroad, which transported iron ore and agricultural products through the Rio Doce valley in southeastern Brazil to the port of Vitória, located in the state of Espírito Santo. For additional information, see Vale’s latest annual report on Form 20-F filed with the SEC, which is not part of, and is not incorporated by reference in, this annual report.
Competition
Raízen faces competition in its fuel distribution and renewables businesses.
In the fuel distribution business, Raízen competes with companies in the sectors in which it operates and with companies in other sectors that produce similar products. Competitors include gas stations from large integrated oil companies, independent gas stations, convenience stores, fast food stores and other similar outlets, some of which are well-known Brazilian or regional retail companies. According to ANP, the three largest fuel distributors in Brazil are Vibra Energia (through the BR Petrobras brand), Raízen (through our Shell brand gas stations) and Ultrapar S.A. (through the Ipiranga brand). The main competitive factors affecting retail marketing operations include site location, product price, selection and quality, appearance and cleanliness, opening hours, safety at the store, customer loyalty and brand recognition. In the year ended December 31, 2023, we registered 28.0 billion liters of fuel sold in Brazil, while in the years ended December 31, 2022 and December 31, 2021, Raízen registered the sale, respectively, of 27.7 billion and 27.4 billion liters. In November 2021, Raízen concluded the acquisition of B&R, the largest fuel distributor in Paraguay, complementing our operating platform in South America. In its international operations, Raízen faces competition from several other fuel distributors, including YPF, Axion and Puma, among others. In Paraguay and Argentina, Raízen recorded 7.3 billion liters of fuels sold in the year ended December 31, 2023.
Raízen is a leading global company in the ethanol and sugar markets, with low-cost, large-scale production and integrated operations throughout Brazil. The favorable conditions in Brazil enable sugarcane to be harvested five to six times before replanting becomes necessary, which is a major advantage relative to other countries, such as India, where sugarcane needs to be replanted every two or three harvests on average. However, Raízen faces competition from international ethanol producers who use other sources of ethanol, such as corn and sugar beet to produce ethanol fuel.
We believe that Raízen is a global leader in terms of the products it markets through the renewables and sugar segments, as follows:
Comgás’s concession area covers 93 municipalities in the metropolitan areas of São Paulo, Campinas and Santos as well as the Paraíba Valley. Comgás distributes natural gas for residential, commercial and industrial customers, and also supplies gas for use as fuel for vehicles and electricity generation. For the residential and commercial customers, Comgás holds exclusivity rights within its area of concession. For industrial customers, Comgás has exclusive distribution rights until 2049. Comgás faces competition from electricity concessionaires, oil and ethanol producers in its activities.
Sulgás and Necta are distribution companies in which Compass and Commit own equity interests, directly and indirectly, in excess of 51.0% as of December 31, 2023. Sulgás is the natural gas distribution company with an exclusive distribution rights until 2044 in the state of Rio Grande do Sul, and it operates in the industrial, commercial, residential and automotive segment. Necta is responsible for the distribution of natural gas to the northwest area of the state of São Paulo and it has an exclusive distribution right until 2029. Necta also distributes natural gas for residential, commercial and industrial customers, and supplies gas for use as fuel for vehicles.
Companies active in the Brazilian railroad transport market generally provide logistics services in their respective regions, with regions being allocated to various companies based on the public concessions granted by the ANTT. The necessity of obtaining a concession from the ANTT represents a barrier to the entry of new competitors into the market given that each concession area is granted to a single operator. As there are currently no parallel rail tracks in the Brazilian railway network, the competition in the market in which we operate primarily derives from truck transportation, which can compete for the same freight as rail operators.
Clients generally select a mode of transportation based on the freight rates charged, efficiency and volume. Given our offering of advantageous prices coupled with our significant transport capacity and greater efficiency over trucks, we believe we have significant opportunities to increase our current market share within the areas in which we operate and that we are in a better strategic position than our competitors to seize the growth opportunities in these industries.
Historically, railroad freight prices have varied in conjunction with road freight prices. Freight prices in the road transportation market have increased significantly in the past years, usually in line with the fluctuations of diesel prices. We expect this increase to also benefit railroad operators such as us, given the correlation between road and rail freight prices.
Each railway concession agreement grants the recipient concession holder an exclusive right to develop the rail network infrastructure in a particular geographic area. Because each concession holder operates in a separate geographic area, they do not compete directly with each other. Instead, the main competition to the various rail concession holders is, in most cases, the truck transportation sector, which has historically been the main form of cargo transportation in Brazil.
The main competitive factors affecting intermodal logistics operations include (1) rates charged, (2) haul time, (3) haul volume and (4) the quality and reliability of the service provided. We believe that Rumo in a strong position to compete effectively in the intermodal transportation sphere due to the lower rates it can charge due to our relatively larger transportation capacity and operational efficiencies arising from our long-term investment plan.
The global iron ore and iron ore pellet markets are highly competitive. Factors affecting competition are price, quality and range of products offered, reliability, operating costs and shipping costs.
Patents, Licenses, Contracts and Processes
In Brazil, ownership of trademarks can be acquired only through a validly approved registration with the National Institute of Intellectual Property (Instituto Nacional de Propriedade Industrial), or “INPI,” the agency responsible for registering trademarks, patents and designs in Brazil. After registration, the owner has exclusive rights of use of the trademark throughout Brazil for a ten-year period that can be successively renewed for equal periods.
As of the date of this annual report, we own 492 trademarks in Brazil, 137 of which are owned by Cosan S.A., 28 of which are owned by Rumo S.A., with the remaining 327 owned by other companies of the Cosan Group. All material trademarks for our business are registered or have been submitted to INPI by us or our affiliates.
Research and Development
Our main research and development activities for the fiscal years ended December 31, 2023, 2022 and 2021 concentrated in the following key areas:
Our total research and development expenditure amounted to R$12.0 million in the fiscal year ended December 31, 2023, R$9.7 million in the fiscal year ended December 31, 2022, and R$5.3 million in the fiscal year ended December 31, 2021.
We are an integrated energy and logistics company and, when considered together with the Joint Venture, a Brazilian market leader in fuel distribution, sugar and ethanol production, natural gas distribution and logistics. Our operations include: (1) the production of sugar, ethanol and bioenergy through Raízen, which also distributes and sells fuels and lubricants under the “Shell” brand, supplying a network of service stations, airport refueling sites and business-to-business customers in Brazil, Paraguay and Argentina, where it also refines oil, manufactures and sells automotive and industrial lubricants, and produces and sells liquefied petroleum gas, and which also operates a network of Shell Select convenience stores and OXXO proximity stores; (2) through our Compass segment, (i) the distribution of piped natural gas in Southeast, South, Center, North and Northeast regions of Brazil to customers in the industrial, residential, commercial, automotive, thermogeneration cogeneration sectors through Comgás, Sulgás and the other companies in which Commit has an interest; and (ii) other investments in the development process and value chain of natural gas, with Terminal de Regasificação de LNG de São Paulo S.A., or “TRSP” and Rota 4 Participações S.A., or “Rota 4”; (3) the production and distribution of lubricants under the Mobil brand in Brazil, Argentina, Bolivia, Uruguay, Paraguay, the United States of America and certain European countries, as well as in the European and Asian markets under the “Comma” trademark and corporate activities through Moove; (4) logistics services for rail transportation, storage and port loading of commodities, mainly for grains and sugar, leasing of locomotives, wagons and another railway equipment through Rumo; (5) the management of agricultural properties, mining and logistics projects; (6) logistics projects and investment in the Climate Tech Fund, which specializes in technological innovation; and (7) a minority stake in Vale, a mining company.
The chart below sets forth a simplified summary of our corporate structure as of the date of this annual report:
A list of our subsidiaries is included in note 9.1 of our consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report.
The investments constituting the Joint Venture are accounted for under the equity method. We and our subsidiaries own 30.92% and Shell and its affiliates likewise own 44.02% of the preferred shares (which have preferential dividend rights in certain circumstances) issued by Raízen S.A. The differences between the shareholdings of Cosan and Shell in Raízen S.A. result from an investment made on December 28, 2022 by Itaú in Cosan Nove, our investment vehicle that now holds part of the shares issued by Raízen S.A., following which our shareholding rights as co-controlling entity of Raízen pursuant to the Shareholders’ Agreement with Shell remained unchanged.
For more information related to property, plant and equipment see note 11.1 to our consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report. See also “—Capital Expenditures” for a description of our ongoing expansions and renovations of our property, plant and equipment.
We present a summary below of our material tangible fixed assets, including investment properties and intangible assets (concessions), by segment:
Raízen distributes fuels through 74 distribution terminals to approximately 8,204 service stations throughout Brazil, Argentina and Paraguay under the Shell brand and also has 69 airport terminals supplying aviation fuel. In addition, in its energy generation business, Raízen operates 35 mills, has an installed capacity for grinding 105 million tons of sugarcane and installed capacity to generate 1.6 GW of power, a second-generation (E2G) ethanol plant and a biogas plant.
In 2018, Raízen acquired Shell’s downstream operations in Argentina. The assets acquired consist of a refinery, located in the Buenos Aires metropolitan region, with a refining capacity of 110 thousand barrels per day, which distributes fuels and lubricants through 869 strategically-located service stations under the Shell brand.
On November 1, 2021, Raízen concluded the acquisition of 50% of the capital stock of Barcos y Rodados S.A., or “B&R.” B&R is based in Paraguay and is the leader in the fuel distribution market in Paraguay, with a network of 340 fuel resale stations. With the acquisition and sublicense of the right to use the Shell brand in the B&R network, the B&R service stations will progressively start operating under the Shell brand.
On May 1, 2022, Raízen concluded the acquisition of the entirety of Shell Brasil Petroleo Ltda.’s lubricants operations in Brazil, including a production unit strategically located in Ilha do Governador, Rio de Janeiro, that produces and distributes lubricants under Shell brand in Brazil.
Compass is the holding company through which we own interests in a number of businesses which make up our Compass segment:
Moove has five production plants. In Brazil there are two plants, one in the city of Rio de Janeiro, state of Rio de Janeiro, where the largest plant of the business, with its own pier, is located, and the second one, in the city of Diadema, state of São Paulo, where products are produced under the Tirreno brand. Outside of Brazil, Moove has a plant in Gravesend, England, where it produces and distributes lubricants and other automotive products, such as antifreeze, additives and coolants. Through these plants products are shipped to the UK markets and exported to certain countries in Europe and Asia, mainly under the Comma brand. It also has two other plants in the United States in the cities of Wichita, Kansas, and another one in Indianapolis, Indiana, where lubricants and other automotive products are produced under the Dynaplex, Ecoultra and Medallion Plus brands.
Through these plants, Moove produces and markets a comprehensive portfolio of lubricant products and specialties for various sectors - from automotive to industrial - providing the market with innovative solutions in high-performance products and services.
Rumo concluded the ALL Acquisition on April 1, 2015 and is Brazil’s largest logistics operator in terms of total volume transported, providing rail transport logistics, port handling and warehousing services. Rumo operates in the states of Mato Grosso, Mato Grosso do Sul, Goiás, Tocantins, São Paulo, Paraná, Santa Catarina and Rio Grande do Sul.
Currently, Rumo owns and operates a large asset base, including a rail network consisting of five concessions that extend over approximately 13,500 kilometers of railway lines, over 1,200 locomotives, over 34,000 rail cars, as well as distribution centers and warehousing facilities. Rumo provides efficient and complete logistics services to its clients through its operation of 9 transshipment terminals and four port terminals, either controlling or minority interest. At its most important terminal, the logistics complex of Rondonópolis (in the state of Mato Grosso), Rumo has the capability to load over 2,000,000 tons of grains per month depending on the period and assortment of transported volumes. Moreover, Rumo holds equity interests in five port terminals in the port of Santos, in the state of São Paulo, and one in the state of Paraná. The real estate Rumo leases in connection with its concessions contain available area for construction and development of warehouses and logistics terminals, which makes possible for Rumo to expand its operations and improve its logistics and other services. For example, Rumo currently holds a 10.0% equity interest in the Grain Terminal of Guarujá (TGG) in the port terminal in Santos, which is a significant port project. To expand its North Operation, in September of 2021, Rumo signed an agreement with the state of Mato Grosso to construct and operate a railway stretch that independently connects the road-rail terminal of Rondonópolis to Cuiabá and Lucas do Rio Verde in the state of Mato Grosso.
Radar
Our real estate operations are conducted through Radar, Radar II, Tellus, Janus, Gamiovapar and Duguetiapar. Radar and Radar II own and manage approximately 417 rural properties covering a total of 91 thousand hectares, and harvests sugarcane, soy, cotton, corn and other commodities in the States of São Paulo, Maranhão, Bahia and Mato Grosso. Radar manages its properties using a satellite-based geomonitoring system. Tellus, Janus, Gamiovapar and Duguetiapar oversee approximately 427 rural properties, covering a total of 214,626 hectares (148,876 hectares of which are considered useful), dedicated to the harvesting of sugarcane, soy, cotton, corn and other commodities in several States of Brazil. For more information on our real estate operations, see “Item 4. Information on the Company—B. Business Overview—Real Estate.”
Our capital expenditure program is currently focused on the following areas (each of these primarily within Brazil):
Raízen’s investment plan for the year ended December 31, 2023 was comprised of the following: (i) planting and treating sugarcane fields (R$3,165 million); (ii) maintaining industrial, agricultural, logistics and distribution assets, and assets relating to adapting and developing our standards for environmental safety and health related in the production of sugar, ethanol and electricity (R$2,612 million); (iii) improvements and expansions related to sugar, ethanol and electricity (R$3,708 million); and (iv) expand the network of operations in retail, aviation and distribution terminals in Brazil with a focus on profitability and sustainable growth (R$1,195 million). Raízen’s total projected capital expenditure in Argentina was R$1,084 million, of which approximately R$756 million refers to a nonrecurring project to modernize our refining facilities, while the remainder is for maintenance and other operational improvements.
Moreover, Raízen invests in maintaining and renewing sugarcane fields at approximately 33.4% of its total capital expenditures per year. Raízen also invests every year in intercrop maintenance (i.e., primarily in plant and agricultural machine repairs during the times in which no operations are ongoing). The biological asset and intercrop maintenance capital expenditures totaled approximately R$3,658 million in the fiscal year ended December 31, 2023.
Comgás has been investing in its network expansion. During the fiscal year ended December 31, 2023, it invested R$1,499.8 million, of which approximately 46% was associated with expansion programs, approximately 45% was related to network support investments, and approximately 9% was related to administrative and software investments. In 2024, we expect to invest approximately R$1,600 million, according to a similar distribution. The funds used by Comgás for making capital expenditures are generated from its working capital and existing or new indebtedness. During the fiscal year ended December 31, 2023, TRSP’s capital expenditure totaled R$659.4 million and that of other companies in the Compass group totaled R$16.1 million.
Sulgás has been investing in its network expansion. During the fiscal year ended December 31, 2023, Sulgás invested R$68.4 million, which approximately 80% was associated with expansion programs, approximately 3% was related to network support investments and approximately 17% was related to administrative and software investments.
Necta has been investing in the expansion of its network. During the fiscal year ended December 31, 2023. It invested R$74.2 million, of which approximately 60% was associated with expansion programs, approximately 4% was related to network support investments, and approximately 36% was related to administrative and software investments.
The funds used by Comgás, Sulgás and Necta for making capital expenditures are generated from their working capital and existing or new indebtedness.
Rumo’s strategy is focused on investments in the renovation of assets, in particular its locomotives and railcar fleet, through the purchase of new rolling stock to replace assets in poor condition of use. The purpose of Rumo’s investment in rail tracks is to reduce its operating costs and maximize its transported volume. As result of Rumo’s ongoing efforts, Rumo is increasing capacity while reducing transit time along some of our major routes. During the fiscal year ended December 31, 2023, Rumo’s total investments in property, plant and equipment and intangible assets amounted to R$3,689.9 million in the aforementioned initiatives. The main investments in capacity expansion were (1) the Lucas do Rio Verde project, an extension of the railway network in Mato Grosso, one of the main grain production regions in Brazil; (2) upgrading the permanent way by replacing tracks and sleepers; (3) expanding yards to adjust for the 135-railcar train; and (4) infrastructure improvements, with the aim of removing restrictions.
The funds used by Rumo for making capital expenditures are provided by Rumo’s operating results and from financings and credit extended by private banks, as well as by government-owned banks such as BNDES.
As of December 31, 2023, Moove’s capital expenditures (property, plant and equipment, intangible assets and contract assets) totaled R$178.0 million, of which 26.3%, or R$46.9 million, was invested in Moove’s Brazilian operations and the remainder was invested in its European and North American and other South American operations. R$36.4 million was mostly invested in recurring projects in Brazil. In Europe and North America, approximately 100% was invested in recurring projects. The funds used by Moove for making capital expenditures are generated from cash flows generated from operations and existing or new indebtedness.
Raízen and its consolidated subsidiaries are not consolidated in our financial statements. Nevertheless, we have included below a summary of business performance derived from note 4 (Segment information) to our consolidated financial statements included elsewhere in this annual report.
Prior to the corporate reorganization of Raízen completed on June 1, 2021, we viewed Raízen as two reportable operating segments whereby each of the legal entities (Raízen Combustíveis S.A. and Raízen Energia S.A.) was considered to be a separate segment. Following the corporate reorganization of Raízen, we started to consider Raízen as a single reportable segment. Accordingly, our previously reported segment information has been recast for all periods presented to reflect the changes in the reportable segments. For further information, see “Presentation of Financial and Other Information—Certain Corporate Events—Consolidation of Raízen,” “—B. Business Overview—Raízen,” “Item 5. Operating and Financial Review and Prospects—Financial Presentation and Accounting Policies—Business Segments and Presentation of Segment Financial Data” and note 4, “Segment Information,” to our audited consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report.
The discussion in this section is based on a comparison of the fiscal year ended December 31, 2023 with the fiscal year ended December 31, 2022, and on a comparison of the fiscal year ended December 31, 2022 with the fiscal year ended December 31, 2021.
Results of Operations for the Joint Venture for the Fiscal Year Ended December 31, 2023 Compared to the Fiscal Year Ended December 31, 2022
The following table presents Raízen’s comparative combined consolidated financial information for the years ended December 31, 2023 and 2022.
Year Ended December 31,(1)(2)
2023/2022
(in millions of R$)
(variation %)
221,693.3
(9.3
Costs of sales
(202,926.8
(233,658.1
(13.2
Gross profit
18,766.5
10,635.6
76.4
(5,773.5
(5,148.0
12.2
General and administrative expenses
(2,815.5
(2,425.3
16.1
Other income (expenses), net
1,968.2
283.6
594.0
Interest in earnings of associates
(219.9
(119.3
84.4
(6,840.7
(7,409.0
(7.7
Profit before finance result, net and income taxes
11,925.8
3,226.6
269.6
Finance costs
(6,241.3
(3,010.4
107.3
Finance income
797.6
811.9
(1.8
Foreign exchange differences, net
1,240.9
963.1
28.8
Net effect of derivatives
(1,760.1
(2,869.7
(38.7
Finance income result, net
(5,962.8
(4,105.1
45.3
Profit (loss) before income taxes
5,962.9
(878.5
n.m.
Income taxes
(1,936.6
864.7
Profit (loss) for the year
4,026.3
(13.8
Following the corporate reorganization of Raízen completed on June 1, 2021, we started to consider Raízen as a single reportable segment. Accordingly, our previously reported segment information has been recast for all periods and is presented to reflect the changes in the reportable segments. For further information, see “Presentation of Financial and Other Information—Certain Corporate Events—Consolidation of Raízen.”
Raízen’s net sales decreased by 9.3%, or R$22,600.4 million, to R$221,693.3 million in the year ended December 31, 2023 from R$244,293.7 million in the year ended December 31, 2022. This decrease was primarily due to (i) a 16% decrease in the average price of oil derivative products, resulting in a 10.0%, or R$16,722.2 million, decrease in oil derivative products sales revenues in Brazil, Argentina and Paraguay, and (ii) a 10% decrease in the average ethanol sales price and a 21.4% reduction in the volume of ethanol sales, resulting in a R$6,339.8 million decrease in net sales
Raízen’s costs of sales decreased by 13.2%, or R$30,731.3 million, to R$202,926.8 million in the year ended December 31, 2023 from R$233,658.1 million in the year ended December 31, 2022, mainly due to (1) a 13% decrease in the cost of sales in Raízen’s mobility segment driven by a decrease in the price of oil derivative products, resulting in a R$21,111.7 million decrease in Raízen’s costs of goods sold and services provided, and (2) a decrease in the prices of Raízen’s inputs, such as sugarcane (with an impact of R$9,808.8 million).
Raízen’s gross profit increased by 76.4%, or R$8,130.9 million, to R$18,766.5 million in the year ended December 31, 2023 from R$10,653.6 million in the year ended December 31, 2022 (representing 8.5% and 4.4% of net sales, respectively), for the reasons indicated above.
Raízen’s operating income increased by R$1,684.6 million, to a R$1,968.2 million net income in the year ended December 31, 2023, from a R$283.6 million net expense in the year ended December 31, 2022. This increase was mainly due to the recognition of PIS and COFINS tax credits in an amount of R$1,465.6 million in connection with Supplementary Laws Nos. 192 and 194 (which reduced the rates of PIS and COFINS applicable to certain products) as further described in note 10 to our consolidated financial statements included elsewhere in this annual report.
Raízen’s finance results, net increased by 45.3%, or R$1,857.8 million, to an expense of R$5,962.8 million in the year ended December 31, 2023, from an expense of R$4,105.1 million in the year ended December 31, 2022. This increase was primarily due to a higher cost of interest as a result of an increase in current and non-current loans, borrowings and debentures, which increased from R$33.6 billion as of December 31, 2022 to R$39.6 billion as of December 31, 2023.
Raízen’s profit before income tax and social contribution changed by R$6.841.4 million, to an income of R$5,962.9 million in the year ended December 31, 2023 from an expense of R$878.5 million in the year ended December 31, 2022 (representing 2.7% and 0.4% of net sales, respectively), for the reasons indicated above.
Raízen’s total income and social contribution taxes changed by R$2.801.3 million, to an expense of R$1,936.6 million in the year ended December 31, 2023, from a gain of R$864.7 million in the year ended December 31, 2022 (representing 0.9% and 0.4% of operating revenue, net, respectively), primarily due to the increase of the result before income and social taxes for the reasons indicated above.
Raízen’s profit (loss) for the year increased by R$4,040.1 million, to a profit of R$4,026.3 million in the year ended December 31, 2023 from a loss of R$13.8 million in the year ended December 31, 2022 (representing 1.8% and 0.01% of operating revenue, net sales, respectively), for the reasons indicated above.
Results of Operations for the Joint Venture for the Fiscal Year Ended December 31, 2022 Compared to the Fiscal Year Ended December 31, 2021
The following table presents Raízen’s comparative combined consolidated financial information for the years ended December 31, 2022 and 2021.
2021(3)
2022/2021
39. 6
(163,367.6
43.0
11,679.7
(8.9
(3,882.7
32.6
(1,788.2
35.6
717.8
(75.6
(45.3
163.4
(4,996.6
48.3
6,683.1
(51.7
(1,606.7
87.4
580.2
39.9
(1,076.7
136.1
(1,967.1
108.7
4,716.0
(1,350.3
3,365.7
Raízen’s net sales increased by 39.6%, or R$69,246.5 million, to R$244,293.7 million in the year ended December 31, 2022 from R$175,047.3 million in the year ended December 31, 2021. This increase is primarily due to (i) the significant volume growth in sugar sales of 41.2% (with an impact of R$4,016.7 million), consistent with the strategy to expand Raízen’s participation in the value chain, (ii) our sales strategy which enabled us to charge prices 12.0% higher for sugar compared to the previous year (with an impact of R$1,169.9 million) and (iii) a 5.0% increase in sales volume in the distribution of fuel and lubricants and improved refinery performance (with an impact of R$57,745.9 million).
Raízen’s costs of sales increased by 43.0%, or R$70,290.6 million, to R$233,658.1 million in the year ended December 31, 2022 from R$163,367.6 million in the year ended December 31, 2021, mainly due to (1) a 39.6%, or R$69,246.4 million, increase in sales, and (2) a 21.2% increase in the prices of Raízen’s inputs such as sugarcane (with an impact of R$2,066.8 million).
Raízen’s gross profit decreased by 8.9%, or R$1,044.1 million, to R$10,653.6 million in the year ended December 31, 2022 from R$11,679.7 million in the year ended December 31, 2021 (representing 4.4% and 6.7% of net sales, respectively), for the reasons indicated above.
Raízen’s operating expenses increased by 48.3%, or R$2,416.6 million, to a R$7,409.0 million net expense in the year ended December 31, 2022 from a R$4,996.6 million net expense in the year ended December 31, 2021. This increase was mainly due to higher expenses incurred as a result of inflation and the increase of R$1,265.3 million in selling expenses, due to (1) a 75.0%, or R$906.8 million, increase in freight expenses and (2) a 60.1%, or R$193.8 million, increase in logistics expenses.
Raízen’s finance results, net increased by 180.7%, or R$2,137.9 million, to an expense of R$4,105.1 million in the year ended December 31, 2022 from an expense of R$1,967.1 million in the year ended December 31, 2021, primarily due to (i) the higher balance of net debt (loans, borrowings and debentures - current and non-current liabilities minus cash and cash equivalent plus marketable securities) which increased from R$19.2 billion in 2021 to R$28.1 billion in 2022, (ii) the increase in the SELIC interest rate to 13.75% as of December 31, 2022 in comparison with 9.25% as of December 31, 2021, and (iii) the depreciation of the U.S. dollar relative to the real, to R$5.165 per U.S.$1.00 on average during the year ended December 31, 2022 in comparison to R$5.396 per U.S.$1.00 on average during the year ended December 31, 2021. The combination of these factors resulted in higher debt servicing costs, which reached R$2,096.7 million in the year ended December 31, 2022.
Raízen’s profit before income taxes decreased by 118.6%, or R$5.594.5 million, to an expense of R$878.5 million in the year ended December 31, 2022 from an income of R$4,716.0 million in the year ended December 31, 2021 (representing 0.4% and 2.7% of net sales, respectively), for the reasons indicated above.
Raízen’s total income and social contribution taxes changed by R$2,215.0 million, to a gain of R$864.7 million in the year ended December 31, 2022 from an expense of R$1,350.3 million in the year ended December 31, 2021 (representing 0.4% and 0.8% of operating revenue, net, respectively), primarily due to the decrease of the result before income and social taxes for the reasons indicated above.
Raízen’s profit (loss) for the year decreased by 100.4%, or R$3,379.5 million, to a loss of R$13.8 million in the year ended December 31, 2022 from a profit of R$3,365.7 million in the year ended December 31, 2021 (representing 0.01% and 1.9% of operating revenue, net sales, respectively), for the reasons indicated above.
Legal and Administrative Proceedings of the Joint Venture
In the ordinary course of business, Raízen and its subsidiaries are parties to numerous judicial and administrative proceedings of a tax, civil, regulatory, environmental, criminal and labor nature, including proceedings with probable, possible and remote risks of loss.
Pursuant to the framework agreement which was entered into during the formation of the Raízen joint venture, Raízen has agreed that it will reimburse its shareholders, i.e., Cosan S.A. and Shell, or will be reimbursed by them, as applicable, for any amounts received or paid in connection with legal proceedings, provided that the triggering events for such payments or receipts occurred before the formation of the Raízen joint venture on April 1, 2011 and provided that any such sums have actually been paid or received.
As of December 31, 2023, Raízen and its subsidiaries were party to proceedings with a probable risk of loss involving an aggregate amount of R$2,054.2 million for which provisions have been made. Raízen and its subsidiaries were also party to proceedings for which our risk of loss was deemed possible which involved an aggregate amount of R$22,335.5 million and for which no provision has been made.
Raízen and its subsidiaries constitute provisions for tax, civil, environmental and labor contingencies in which our risk of loss is considered probable, in accordance with IFRS. Determination of the likelihood of loss includes determination of available evidence, hierarchy of laws, jurisprudence available, more recent court decisions and relevance thereof in the legal system, as well as an evaluation by internal and external attorneys. Such provisions are reviewed and adjusted to take into account changes in circumstances, such as statute of limitations applicable, tax inspection conclusions or additional exposures identified based on new matters or court decisions.
Below is a description of Raízen and its subsidiaries’ principal proceedings:
Criminal Actions and Investigations Involving Raízen
Environmental Criminal Action
According to article 225, paragraph 3, of the Brazilian Federal Constitution and Law No. 9,605/98, legal entities may be subject to criminal and administrative sanctions if they engage in environmentally damaging actions. In addition, entities which engage in such actions may also be required to repair the environmental degradation caused. Under the terms of article 21 of Law No. 9,605/98, legal entities are subject to fines, penalties restricting rights and community service obligations.
Raízen is party to a criminal proceeding filed by São Paulo Prosecutor’s Office in 2020 for the alleged practice of destroying or damaging protected forest areas or using them in violation of applicable environment protection norms, as a result of a fire that occurred at the Fazenda Palmital, leased by us for the cultivation of sugarcane, which would have caused damage to both agro-pastoral areas and areas of permanent preservation. The public prosecutor’s office filed a complaint against Raízen and one of its employees, who was responsible for the fire brigade. The risk of loss was initially classified as possible. However, Raízen and its employee presented defenses requesting the annulment of the accusation due to lack of a forensic report and requesting their acquittal. Moreover, Raízen and its employee clarified that there was no omission on the part of Raízen, which had every interest in fighting the fire and had invested in the adoption of numerous environmental best practices, among other factors leading up to Raízen and its employee’s acquittal. As a result, the court judge dismissed the claim for lack of materiality. The public prosecutor’s office presented an appeal and Raízen and its employee offered objections. On March 22, 2022, the Court of Appeals of the State of São Paulo confirmed the prior decision and the Court dismissed the claim for lack of materiality. The chances of reversal of the decision that was favorable to Raízen and its employee have been classified as remote.
Biosev is party to a criminal proceeding commenced by the civil police of the City of Moema, state of Minas Gerais, to investigate an alleged environmental crime allegedly committed by Biosev. It is alleged that Biosev operated without the required environmental license. A detailed report has been prepared by the civil police in respect of this proceeding. Biosev requested the dismissal of the proceeding, which is currently under review by the prosecution office and the civil police in the City of Moema. Should the prosecution continue and be successful, Biosev could face operational and reputational impacts. The risk of loss was classified as possible on December 31, 2023. On July 15, 2024 the case was archived by the Public Ministry of Minas Gerais.
Raízen is party to a criminal proceeding filed by Amazonas State Prosecutor’s Office on July 21, 2023, for allegedly committing the environmental crime provided for in article 56 of Federal Law 9,605/1998, namely trading dangerous products (aviation fuel) in contravention of the requirements established in applicable regulations. On August 14, 2023, Raízen filed a response to the accusation. On November 9, 2023, the court accepted the defendants’ arguments and rejected the complaint of the prosecutor’s office. On November 24, 2023, the Amazonas State Prosecutor’s Office filed an appeal. On December 6, 2023, Raízen filed its reply to the appeal. Should the proceeding continue and be successful, Raízen’s reputation could be adversely affected. The risk of loss has been classified as remote, considering the first rejection of the accusation.
Criminal Investigations Involving Raízen’s Employees
On July 31, 2018, the Civil Police of the state of Paraná launched Controlled Margin Operation to investigate alleged violation, by Raízen Combustíveis and other distributors, in the suggestion of resale prices at gas stations in the region. The operation involved dawn raids and temporary arrest of some individuals, but the arrest warrants were withdrawn after three days and there have been no further developments. Raízen Combustíveis is currently contesting the proceeding, which is a police investigation/operation and not a lawsuit at this moment. The investigation is ongoing as to whether these employees were engaged in misconducts against the economic order. We are waiting the closure of the police investigation.
On July 31, 2018, in connection with Operation Dubai, the Public Prosecutor’s Office of the Federal District filed a complaint against, among other parties, one employee of Raízen in relation to certain alleged anticompetitive practices. In said complaint, the Public Prosecutor’s Office of the Federal District requested that certain assets and funds of Raízen and of such Raízen’s employee in an amount of approximately R$120 million be frozen. However, Raízen successfully contested the freezing of assets. If the employee of Raízen is convicted, we may suffer reputational harm. This proceeding involves an aggregate amount of R$151.7 million, to us and our employee, and a total amount at issue of R$996.7 million. The risk of loss has been classified as possible.
Raízen is currently the subject of a criminal investigation, which commenced with an administrative proceeding before the Brazilian Antitrust Authority in 2009 against certain resellers and distributors. The proceeding is related to the alleged artificial price fixing of fuel and the alleged formation of a cartel among fuel distributors and resellers in the Brazilian Federal District in order to establish regional market control. In 2012, the Brazilian Antitrust Authority issued a technical note that alleged the existence of cartels within the sector. In November 2015, the Brazilian federal police executed search and seizure warrants against certain resellers and fuel distributors, including Raízen at its distribution terminal in Brasília. Raízen is cooperating with Brazilian authorities in connection with the investigation, which is currently ongoing. As of the date of this annual report, no individual (including gas station owners) indicted in connection with the investigation has any relationship or affiliation with Raízen. On June 30, 2020, the Brazilian Antitrust Authority issued a technical notice, which we are currently evaluating, commencing an administrative proceeding involving resellers and fuel distributors, including Raízen. If Raízen or any of its employees are determined to have been involved in the misconduct, Raízen may be subject to penalties, including fines.
None.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, as well as with the information presented under the sections entitled “Presentation of Financial and Other Information” and “Item 3. Key Information—A. Selected Financial Data.”
The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in “Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors.”
Financial Presentation and Accounting Policies
Presentation of Financial Information
We have included in this annual report the consolidated financial statements of Cosan S.A. using the predecessor method of accounting as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021, as further discussed under “Presentation of Financial and Certain Other Information—Financial Statements.”
We use IFRS as issued by the IASB for financial reporting purposes. Investments in entities which we do not control, but either jointly control or have significant influence over, are accounted for using the equity method. The results of operations of Raízen S.A., our Joint Venture, are accounted for using the equity method, under IFRS 11.
See also “Presentation of Financial and Certain Other Information.”
Business Segments and Presentation of Segment Financial Data
We present the following reportable segments:
(1) Raízen: operates in the production of sugar, ethanol and bioenergy. Raízen is an integrated producer of energy from renewable sources such as biomass and solar energy, and also invests in technologies that will allow it to intensify the use of biomass in its portfolio. In addition, Raízen distributes and sells fuels under the “Shell” brand, supplying a network of service stations, airport refueling sites and business-to-business customers in Brazil and Argentina, where it also refines oil, manufactures and sells automotive and industrial lubricants, and produces and sells liquefied petroleum gas. Raízen’s operations also include the Shell Select convenience stores and the OXXO proximity stores of Grupo Nós, a joint venture with FEMSA Comércio. Following the corporate reorganization of Raízen completed on June 1, 2021, we started to consider Raízen as a single reportable segment. Accordingly, our previously reported segment information has been recast for all periods presented to reflect the changes in the reportable segments. For further information, see “Presentation of Financial and Other Information—Certain Corporate Events—Consolidation of Raízen,” “Item 4. Information on the Company—B. Business Overview—Raízen,” “Item 4. Information on the Company—E. Supplemental Information About Joint Venture” and note 4 “Segment Information” to our audited consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report;
(2) Compass: (i) distribution of piped natural gas throughout Brazil to industrial, residential, commercial, automotive and cogeneration customers; (ii) the sale of electricity and natural gas; (iii) the development of infrastructure projects in a regasification terminal and offshore gas pipeline; and (iv) development of thermal generation projects utilizing natural gas. Our Compass segment was created in March 2020. Prior to its creation, our natural gas distribution operations were concentrated in our Comgás segment, which has since been contributed to our Compass segment;
(3) Moove: production and distribution of lubricants under the Mobil brand in Brazil, Argentina, Bolivia, Uruguay, Paraguay, the United States of America and certain European countries, as well as in the European and Asian markets under the “Comma” trademark and corporate activities;
(4) Rumo: logistics services for rail transportation, storage and port loading of commodities, mainly for grains and sugar, leasing of locomotives, wagons and other railway equipment;
(5) Radar: agricultural property management; and
Reconciliation
(6) Cosan Corporate: this segment represents Cosan’s corporate structure, which includes: (i) senior management and corporate departments, which incur general and administrative expenses and other expenses (operating income), including pre-operational investments; (ii) equity income from assets, including the interest in Vale; and (iii) financial result attributed to the cash and indebtedness of the controlling company, intermediary holding companies (i.e., Cosan Oito, Cosan Nove and Cosan Dez) and offshore financial companies, and mining projects and investments in the Climate Tech Fund, a fund managed by Fifth Wall, specializing in technological innovation.
Principal Factors Affecting Our Results of Operations
In addition to the factors that are described in “Item 4. Information on the Company—B. Business Overview,” our results of operations have been influenced and will continue to be influenced by the following key factors:
Brazilian Economic Environment
The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation and currency exchange rates. Our results of operations and financial condition are influenced by these factors and the effect that these factors have on employment rates, the availability of credit and average wages in Brazil. The following table sets forth Brazilian inflation rates, interest rates, and exchange rates for the periods indicated:
For the Fiscal Year Ended December 31,
2023
2022
2021
GDP growth
2.1
2.7
4.6
Inflation (IGP M)
(3.2
5.5
17.8
Inflation (IPCA)(1)
4.6
10.1
Interbank rate – CDI (2)
13.0
12.4
4.4
SELIC average rate
11.65
13.65
9.15
Long term interest rates (3)
6.6
7.2
5.3
Exchange rate at the end of the period per U.S.$1.00
4.84
5.22
5.58
Average exchange rate per U.S.$1.00
5.00
5.17
5.40
Appreciation (depreciation) of the real against the U.S. dollar (4)
(7.3
(6.5
(7.4
Exchange rate at the end of the period per €1.00
5.35
5.57
6.32
Average exchange rate per €1.00
5.40
5.44
6.38
Appreciation (depreciation) of the real against theEuro (4)
(3.9
(11.9
(0.9
Exchange rate at the end of the period per ¥1.00
0.03
0.04
0.05
Average exchange rate per ¥1.00
0.04
0.05
Appreciation (depreciation) of the real against theYen (4)
(13.5
(18.4
Exchange rate at the end of the period per £1.00
6.16
6.28
7.52
Average exchange rate per £1.00
6.21
6.69
7.42
Appreciation (depreciation) of the real against the Pound (4)
(1.9
(16.6
6.0
Any deterioration in Brazil’s rate of economic growth, or changes in interest rates, the unemployment rate or price levels generally, may limit the availability of credit, income and purchasing power of our customers, thereby adversely affecting demand for our products. Our international operations expose us to political and economic risks in other countries. The Brazilian economy is also exposed to global macroeconomic conditions. Accordingly, the deterioration of economic and market conditions in other countries may have a negative impact on the Brazilian economy and on our business. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Businesses and the Industries in Which We Operate Generally” and “Item 3. Key Information—D. Risk Factors—Risks Related to the Countries in Which We Operate.”
Acquisitions, Partnerships and Corporate Restructurings
Our strategy is to be a leading Brazilian group in the energy and logistics sectors. For this reason, since May 2004, we have expanded our operations primarily through acquisitions, partnerships and corporate restructurings. We have also diversified into other operations to become a vertically integrated energy and logistics company. In 2022, we also acquired a minority interest in Vale. See also “Presentation of Financial and Certain Other Information—Certain Corporate Events—Acquisition of Significant Influence in Vale S.A., or ‘Vale.’”
The profitability of our sugar products is mainly affected by fluctuations in the international price of raw sugar and in the real/dollar exchange rate. International raw sugar prices are determined based on the New York Board of Trade Futures Contract No. 11, or “NY11.” Refined sugar trades at a premium to raw sugar, known as the “white premium,” and its price is determined based on the London International Financial Futures and Options Exchange Contract No. 5, or “LIFFE No. 5.” Prices are affected by the perceived and actual supply and demand for sugar and its substitute products. The supply of sugar is affected by weather conditions, governmental trade policies and regulations, and the amount of sugarcane and sugar beet planted by farmers, including substitution by farmers of other agricultural commodities for sugarcane or sugar beet. Demand is affected by growth in worldwide consumption of sugar and the prices of substitute sugar products. From time to time, imbalances may occur between overall sugarcane and sugar beet processing capacity, sugarcane and sugar beet supply and the demand for sugar products. Prices of sugar products are also affected by these imbalances, which, in turn, impact our decisions regarding whether and when to purchase, store or process sugarcane and whether to produce sugar or more ethanol.
The table below sets forth the prices for raw sugar NY11 for the periods indicated:
Sugar NY11
For the Fiscal Year Ended December 31,
(U.S.$/lb.)
Initial quote
0.2176
0.1874
0.1576
Closing quote
0.2058
0.2004
0.1888
Daily average quote
0.2117
0.1882
0.1787
High quote
0.2188
0.2098
0.2042
Low quote
0.2033
0.1740
0.1471
Our ethanol products are affected by domestic Brazilian and international prices of ethanol, competition, governmental policies and regulations, and market demand for ethanol as an alternative or additive to gasoline. The price for ethanol we sell in Brazil is set in accordance with market prices, using indices published by the Agriculture School of the University of São Paulo (Escola Superior de Agricultura Luiz de Queiroz—ESALQ) and B3 as a reference. Prices for ethanol we export are set based on international market prices, including the New York Board of Trade’s recently launched ethanol futures contract. Prices for the industrial alcohol and bottled alcohol products we sell are also set based on market prices and have been historically higher than market prices for ethanol.
The table below sets forth the prices for hydrous ethanol in the Brazilian market for the periods indicated:
Hydrous Ethanol ESALQ
(U.S.$/thousand liters)
522.80
590.80
387.80
392.90
549.70
591.80
480.60
576.47
549.55
Monthly average quote
482.40
576.71
548.54
617.20
819.10
695.80
376.60
429.30
The table below sets forth the prices for anhydrous ethanol in the Brazilian market for the periods indicated:
Anhydrous Ethanol ESALQ
600.80
676.30
451.30
436.10
616.30
681.60
556.24
664.88
630.00
693.50
902.20
810.20
430.20
535.30
442.20
The following table sets forth our average selling prices (in R$ per thousand liters) for ethanol in the export market for the periods indicated:
(R$/thousand liters)
Average Unitary Price
4,090.92
3,368.28
4,508.60
Demand for Fuels
Demand for natural gas, gasoline, ethanol and diesel is susceptible to volatility related to the level of economic activity in Brazil, Argentina and Paraguay, and may also fluctuate depending on the performance of specific industries. We expect that a decrease in economic activity would adversely affect demand for fuels.
Currency Fluctuations
A significant proportion of the sales of sugar of Raízen, a significant proportion of natural gas purchases of Compass, and a significant proportion of the base oil purchases of CLE are conducted in U.S. dollars. Therefore, a depreciation of the real against the U.S. dollar would have the effect of increasing our sales in Raízen, and increasing our costs of sales in Compass and Moove. An appreciation of the real against the U.S. dollar would have the opposite effect.
A significant proportion of our debt is denominated in U.S. dollars, Euro and Yen. A depreciation of the real against the U.S. dollar, Euro and Yen would increase our debt burden and our related financial expenses. However, we have receivables and other financial assets denominated in U.S. dollars, which would partially offset the impact that a depreciation of the real would have on our financial position. An appreciation of the real against the U.S. dollar, Euro and Yen would have the opposite effect.
See also “—Hedging Transactions and Exposures.”
Our business is subject to a degree of seasonality as described below. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business, the Operations of Our Joint Venture, and Industries in Which We Operate—We operate in sectors in which market demand and prices are cyclical and affected by weather and economic conditions in Brazil and worldwide.”
Raízen is subject to seasonal trends based on the sugarcane growing cycle in the Central-South region of Brazil. The annual sugarcane harvesting period in the Central-South region of Brazil begins in April/May and ends in November/December. This creates variations in inventory, which is usually high in November due to harvest dynamics and a degree of seasonality in gross income from sales of ethanol and sugar, and is significantly lower in the quarter ending March 31. In addition, Rumo is subject to the seasonality that influences the sugarcane and grain harvest. During the peak months of the harvests, there is higher demand for transport and logistics operations.
Inflation
Inflation rates in Brazil were 3% in 2017, 3.8% in 2018, 4.3% in 2019, 4.5% in 2020, 10.1% in 2021, 5.8% in 2022 and 4.6% in 2023, as measured by the Extended National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or “IPCA,” published by the Brazilian Institute for Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or “IBGE.” The inflation rate reached a level of 4.6% for the 12-month period ending December 31, 2023 and 2.9% as of August 30, 2024.
Inflation affects our financial performance by increasing certain of our operating expenses denominated in reais (and not linked to the U.S. dollar). These operating expenses include labor costs, leases, and selling and general administrative expenses. However, inflation did not have a material impact on our business for the periods presented.
As a result of COVID-19’s continuous disruption of global supply chains and the ongoing armed conflicts between Russia and Ukraine and in the Middle East, inflationary pressure has increased in Brazil and around the world in the markets in which we operate. These inflationary pressures may lead to an increase in our costs and expenses which could ultimately impact our profitability.
See also “Item 3. Key Information—D. Risk Factors—Risks Related to the Countries in Which We Operate—Inflation and government measures to curb inflation may adversely affect the Brazilian economy, the Brazilian securities market, our business and operations, and the market prices of our shares.”
Cost Structure
The cost structure of Raízen is affected mainly by variable costs related to purchase of crude oil (Argentina), and fuels (mainly gasoline, ethanol and diesel). Costs related to our property, plant and equipment incur fixed depreciation charges which increase in line with our capital expenditure. Costs that are linked to the prices of our products and costs that are not linked to the prices of our products. Two of our principal cost components, raw materials and land leases, are linked to the prices of our products. Accordingly, we adjust the prices of our products to follow fluctuations in the cost of our raw materials and leased land, substantially minimizing the impact of this cost volatility on our results of operations. In addition, another relevant portion of our costs is represented by agricultural and industrial inputs, some of which are imported and which are also subject to price fluctuations primarily as a result of exchange rate variations. As 2% of our net sales are derived from exports, a portion of fluctuations in the costs of these inputs is offset by similar fluctuations in our Brazilian and international prices, minimizing the impact of this cost volatility on our results of operations.
Our cost structure for Compass is affected by fixed and variable costs. Costs related to our property, plant and equipment incur fixed depreciation charges which increase in line with our capital expenditure. Costs relating to the natural gas resource, costs relating to transportation and other gas services are affected by volumes sold.
The cost of oil, gas and related products is linked to oil and natural gas commodity prices driven by the Platts Japan Borea Marker, a benchmark price that reflects the spot market value of liquefied natural gas, and Brent the leading global price benchmark for basin crude oils. The war between Russia and Ukraine and the recent conflicts in the Middle East have caused and continue to cause an imbalance in supply and demand for a range of products and services, including oil and natural gas, in addition to increased uncertainty regarding the global macroeconomic environment and energy prices.
Our cost structure for Moove is affected by the cost of imported base oil and additives for lubricants blending.
Our cost structure for Rumo is affected by fixed and variable costs. Costs related to our property, plant and equipment incur fixed depreciation charges, which increase in line with our capital expenditure. Costs relating to the transportation of sugar and other commodities are partially dependent on sales volumes.
Other Factors
Other factors that will impact the results of our operations include:
Hedging Transactions and Exposures
Our management has overall responsibility for the establishment and oversight of our risk management framework. Our board of directors has established the risk management committee, which is responsible for developing and monitoring our risk management policies. The committee reports regularly to our board of directors on its activities.
Our risk management policies are established to identify and analyze the risks that we face, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and our activities. Our management, through its training, standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.
Our hedging strategy primarily seeks to protect our cash flows from risks arising from exchange rate fluctuations. Accordingly, certain of our derivatives financial instruments have been designated for hedge accounting, namely: (1) at Comgás, the fifth issuance of debentures due in 2023 and debt incurred with the BNDES due in 2034, and the associated derivative financial instruments; (2) at Rumo, the Senior Notes due 2025 (redeemed on January 18, 2022), due 2028 and 2032, debentures due between 2027 and 2036, Cédula de Crédito Bancário (“CCB”) due 2048 and Financiamento a empreendimentos (“Finem”) due 2031, and the associated derivatives financial instruments; and (3) at Moove, two export prepayments (Pré-pagamento de exportação) due in the months of October and December of 2023.
We also have derivatives financial instruments that have not been designated for hedge related to acquisition of interest in Vale. For more information see “Presentation of Financial and Certain Other Information—Certain Corporate Events—Acquisition of Significant Influence in Vale S.A., or ‘Vale.’”
In addition, Raízen hedges part of the future price risk of its sugar production (that which it believes will be exported) and of its exchange rate derivative transactions using future contracts, options and swaps. Its hedging strategy seeks to protect it from cash flow risks caused by commodities price and exchange rate fluctuations, and as most of the derivative instruments have been designated for hedge accounting, Raízen has not experienced material gains or losses in its financial results.
See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” and note 5.12 to our audited consolidated financial statements attached hereto for further information.
The following discussion of our results of operations is based on the financial information derived from our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB, unless otherwise stated. In the following discussion, references to increases or decreases in any year are made by comparison with the corresponding prior year, as applicable, except as the context otherwise indicates. The discussion in this section is based on a comparison of the fiscal year ended December 31, 2023 with the audited fiscal year ended December 31, 2022, and a comparison of the audited fiscal year ended December 31, 2022 with the fiscal year ended December 31, 2021.
Results of Operations for the Fiscal Year Ended December 31, 2023 Compared to the Fiscal Year Ended December 31, 2022
Consolidated Results
The following table sets forth our consolidated statement of profit or loss for the fiscal years ended December 31, 2023 and 2022:
%Variation
(in millions of reais, except percentages)
Consolidated statement of profit or loss
0.4%
(6.6)%
24.2%
5.8%
43.8%
124.0%
Operating expenses
(1,282.1
(103.6)
46.5%
350.4
418.9
(16.4)%
Interest in earnings of joint venture
1,695.9
(92.2
(1,939.4)%
53.1%
92.8%
Income taxes – current
31.9%
Income taxes – deferred
Total income taxes
(331.8)%
73.2%
130.4%
1,094.4
(6.9)%
(1) Our subsidiary Compass performed a reclassification affecting its consolidated financial statements in IFRS for the years ended December 31, 2022, and December 31, 2021. Specifically, its subsidiary Comgás reclassified the effects of the CCR on its gross profit. As a result, we voluntarily reassessed the way in which we present the classification of the effects of CCR and general and administrative expenses. Accordingly, we reclassified the relevant balances in our consolidated statement of profit or loss for the fiscal year ended December 31, 2022, and December 31, 2021, in order to reflect the reclassification performed by Compass. For more information, see “Presentation of Financial Information—Financial Statements—Reclassification by Compass” and note 3.4 to our consolidated financial statements included elsewhere in this annual report.
Net Sales
We report net sales after deducting federal and state taxes assessed on gross sales (ICMS, PIS, COFINS) and IPI (a federal value-added tax assessed on our sales in the Brazilian market at rates that vary by product). Deductions from sales in the Brazilian domestic market, which are subject to these taxes, are significantly higher than our deductions from sales in export markets.
The table below presents a breakdown of our net sales for the fiscal years ended December 31, 2023 and 2022:
For the Fiscal Year EndedDecember 31,
% Variation
11.1%
North Operations
9.3%
South Operations
16.9%
19.7%
(9.9)%
Natural gas distribution
Industrial
11,411.2
12,945.1
(11.8)%
Residential
2,202.3
2,200.8
0.1%
Construction revenue
1,494.1
1,217.8
22.7%
Commercial
820.7
814.9
0.7%
710.3
943.9
(24.7)%
Automotive
592.9
928.5
(36.1)%
535.7
429.5
24.7%
Electricity trading
238.6
12.2%
Finished goods
8,520.2
8,094.2
5.3%
Base oil
765.4
596.4
28.3%
Services
793.0
289.4
174.0%
743.4
834.6
(10.9)%
Leases and sale of lands
Cosan Corporate
10.4
(74.0)%
Digital platforms(1)
2.8
(3.6)%
Logistics services(1)
7.6
Segment elimination
(61.2
(63.0
(2.9)%
n.m. = not meaningful.
(1) Beginning in the fiscal year ended December 31, 2023, we reclassified our “digital platforms” and “logistics services” line items in our statements of profit or loss from the Radar segment to Cosan Corporate.
The change in the various components consists of the following:
Rumo’s net sales increased by R$1,096.2 million, or 11.1%, to R$10,937.7 million from R$9,841.5 million in the fiscal year ended December 31, 2023 compared to the year ended December 31, 2022, mainly due to (1) the demand for freight for key agricultural commodities, such as soybean, sugar and fertilizers, which led to an increase in average yields on a consolidated basis of 12.4% in 2023 to R$130.2 per 1,000 RTK in the year ended December 31, 2023 compared to R$115.8 per 1,000 RTK in the year ended December 31, 2022, and (2) a 3.1% increase in consolidated transported volume.
Compass’s net sales in the fiscal year ended December 31, 2023 amounted to R$17,767.3 million, representing the results of its natural gas distribution and electricity trading activities. This represented a decrease of 9.9%, or R$1,951.9 million, as compared to net sales of R$19,719.2 million in the fiscal year ended December 31, 2022. This decrease was primarily due to (1) a R$1,840.9 million decrease in net sales at Comgás, which, in turn, was caused by a decrease in the volume of distributed natural gas, and (2) a R$238.6 million decrease in electricity trading results to nil in the year ended December 31, 2023, which resulted from the execution by our subsidiary Edge Comercialização S.A. of an electricity purchase and sale contracts assignment agreement with WX Energy Comercializadora de Energia Ltda. in July 2022. These factors were partially offset by the acquisition of Commit and the consolidation of its results beginning in July 2022, which resulted in an increase in net sales of R$362.8 million.
The net revenue of the lubricants business was R$10,078.6 million in the fiscal year ended December 31, 2023, an increase of R$1,098.5 million, or 12.2%, compared to net revenue of R$8,980.1 million in the fiscal year ended December 31, 2022, primarily due to (1) the acquisition and consolidation of the results of PetroChoice and Tirreno beginning in May 2022, which increased net sales by R$791.4 million; and (2) an increase of 31.6% in the volume of lubricants and base oils sold, which accounts for the remainder of the increase.
Leases and sales of land amounted to R$743.4 million in the fiscal year ended December 31, 2023, a decrease of R$91.2 million, or 10.9%, compared to leases and sales of land of R$834.6 million in the fiscal year ended December 31, 2022, primarily due to a decrease in sales of land in 2023 with an impact of R$348.7 million on Janus and Radar, which was partially offset by an increase of R$257.5 million in sales of land by Tellus.
Cosan Corporate net sales totaled R$2.7 million in the fiscal year ended December 31, 2023, a decrease of R$7.7 million, or 74.0% when compared to R$10.4 million in the fiscal year ended December 31, 2022. This decrease was mainly due to our sale of Trizy in March 2023, which impacted revenue from logistics services.
Cost of Sales
(6,838.4
(6,695.1
2.1%
(14,256.0
(16,364.8
(12.9)%
(7,359.6
(6,990.2
(153.5
(560.3
(72.6)%
(3.6
(9.4
(61.7)%
61.2
63.0
Cost of sales
Total cost of sales decreased by R$2,006.9 million, or 6.6%, to R$28,549.8 million during the fiscal year ended December 31, 2023, from R$30,556.8 million during the fiscal year ended December 31, 2022, due to the factors described below.
The cost of sales of the Rumo segment in the fiscal year ended December 31, 2023 increased by R$143.3 million, or 2.1%, to R$6,838.4 million in the fiscal year ended December 31, 2022, from R$6,695.1 million in the previous year, which was primarily due to (i) a 3.1% increase in transported volume, and (ii) an increase of R$212.7 million due to depreciation and amortization related to the acquisition of fixed assets. This increase was partially offset by a decrease in electricity costs in the amount of R$38.8 million. Cost of sales accounted for 62.5% of net sales from services in the fiscal year ended December 31, 2023 as compared to 68.0% for the fiscal year ended December 31, 2022.
Compass’s costs of sales, which corresponds to the cost of gas, transportation, construction activity on the gas distribution infrastructure under concession and electricity trading, totaled R$14,256.0 million in the fiscal year ended December 31, 2023, a 12.9%, or R$2,108.8 million, decrease in comparison with R$16,364.8 million in the fiscal year ended December 31, 2022. This decrease was primarily due to (1) a 9.6% decrease in the volume of natural gas distributed, which resulted in a R$1,839.6 million decrease in Comgás’s cost of sales, and (2) a R$260.9 million decrease in energy trading results. These factors were partially offset by the acquisition of Commit and the consolidation of its results beginning in July 2022, resulting in an increase in cost of sales of R$297.1 million.
The cost of sales of Moove totaled R$7,359.6 million in the fiscal year ended December 31, 2023, an increase of 5.3%, or R$369.4 million, compared to R$6,990.2 million in the fiscal year ended December 31, 2022, mainly due to (1) the acquisition and consolidation of the results of PetroChoice and Tirreno beginning in May 2022, which increased the cost of sales by R$395.8 million; and (2) the general increase in sales of Moove’s core businesses discussed under “—Net Sales,” which accounts for the remainder of the increase.
The cost of sales of Radar in the fiscal year ended December 31, 2023 decreased by R$406.8 million to R$153.5 million in the fiscal year ended December 31, 2023, from R$560.3 million in the fiscal year ended December 31, 2022, mainly due to a decrease in costs incurred with the sale of real estate.
Cosan Corporate cost of sales totaled R$3.6 million in the fiscal year ended December 31, 2023, a decrease of R$5.8 million, or 61.7% when compared to R$9.4 million in the fiscal year ended December 31, 2022. This decrease was mainly due to our sale of Trizy in March 2023.
Selling Expenses
Selling expenses are primarily related to transportation costs, including freight and shipping costs for lubricant sold in Brazil and exported. Moove’s lubricant marketing expenses, as well as storage expenses, are also included as selling expenses.
(40.7
(30.6
(33.0)%
(164.4
(163.3
(0.7)%
(1,145.0
(1,072.5
(6.8)%
(0.5
(9.9
(94.9)%
(5.8)%
Selling expenses increased by R$74.3 million, or 5.8%, to R$1,350.6 million during the fiscal year ended December 31, 2023 from R$1,276.3 million during the fiscal year ended December 31, 2022, due to the factors described below.
Selling expenses increased by R$10.1 million, or 33.0%, to R$40.7 million in the fiscal year ended December 31, 2023 compared to R$30.6 million in the fiscal year ended December 31, 2022. This increase was mainly due to (1) a decrease in employee expenses of R$7.3 million, and (2) a decrease of R$1.0 million in reversals of allowances for credit losses.
Selling expenses increased by R$1.1 million, or 0.7%, to R$164.4 million during the fiscal year ended December 31, 2023, from an expense of R$163.3 million during the fiscal year ended December 31, 2022. This increase was primarily due to the acquisition and consolidation of the results of Sulgás beginning in January 2022 and Commit beginning in July 2022, which increased selling expenses in the Compass segment by R$16.6 million. This increase was mostly offset by a decrease of R$15.4 million in Comgás’s selling expenses, which primarily reflected a reversal of allowances for credit losses.
Selling expenses increased by R$72.5 million, or 6.8%, to R$1,145.0 million in the fiscal year ended December 31, 2023, as compared to R$1,072.5 million in the fiscal year ended December 31, 2022. This increase was mainly due to (1) the acquisition and consolidation of the results of PetroChoice and Tirreno beginning in May 2022, which increased selling expenses by R$38.9 million, and (2) a 21.7%, or R$44.5 million, increase in freight expenses. This increase in expenses was offset by a R$10.2 million decrease in depreciation and amortization in 2023 compared to 2022, which primarily resulted from the depreciation of the U.S. dollar during the period.
Selling expenses decreased by R$9.4 million, to R$0.5 million in the fiscal year ended December 31, 2023, from R$9.9 million in the fiscal year ended December 31, 2022, as a result of there only having been negligible selling expenses related to leasing in 2023.
General and Administrative Expenses
(560.0
(468.6)
19.5%
(788.0
(563.5
39.8%
(645.6
(347.6)
85.7%
(74.3
(45.5
63.3%
(460.0
(332.9
38.2%
(2,527.9
General and administrative expenses consist of salaries and benefits paid to employees, taxes, expenses related to third-party services, rentals and other expenses. Our total general and administrative expenses increased by 43.8% to R$2,527.9 million during the fiscal year ended December 31, 2023, from R$1,758.1 million during the fiscal year ended December 31, 2022, due to the factors described below.
General and administrative expenses totaled R$560.0 million in the fiscal year ended December 31, 2023, an increase of 19.5%, or R$91.4 million, from R$468.6 million in the fiscal year ended December 31, 2022, primarily due to increases of (1) R$67.3 million in salaries paid, and (2) an increase of R$40.8 million related to third-party services, including consulting and audit services.
General and administrative expenses totaled R$788.0 million in the fiscal year ended December 31, 2023, an increase of R$224.6 million, or 39.9%, compared to R$563.5 million in the fiscal year ended December 31, 2022. This increase was mainly due to: (1) the acquisition and consolidation of the results of Sulgás beginning in January 2022 and of the results of Commit beginning in July 2022, which increased general and administrative expenses in the Compass segment by R$48 million; (2) an increase of R$80.0 million due to an increase in depreciation and amortization expenses related to the acquisition of fixed assets; (3) an increase of R$34.4 million in taxes and fees; and (4) an increase of R$33.3 million related to third-party services, including consulting and audit services.
General and administrative expenses totaled R$645.6 million in the fiscal year ended December 31, 2023, an increase of R$298 million, or 85.8% when compared to the expense of R$347.6 million in the fiscal year ended December 31, 2022, primarily due to (1) the acquisition and consolidation of the results of PetroChoice and Tirreno beginning in May 2022, which increased Moove’s general and administrative expenses by R$193.8 million, and (2) an increase of R$120.2 million in employee expenses. This increase was partially offset by a decrease of R$46 million in provisions for doubtful accounts.
General and administrative expenses totaled R$74.4 million in the fiscal year ended December 31, 2023, an increase of R$28.8 million, or 63.3% when compared to expenses of R$45.5 million in the fiscal year ended December 31, 2022, primarily due to (1) the acquisition of the land management companies Tellus, Janus, Gamiovapar and Duguetiapar in the last quarter of 2022, which increased general and administrative expenses by R$16.6 million, and (2) an increase in third-party services expenses of R$11.0 million, mainly due to an increase in amounts paid to a strategic management consultancy firm.
General and administrative expenses totaled R$460.0 million in the fiscal year ended December 31, 2023, an increase of R$127.1 million, or 38.2% when compared to the expense of R$332.9 million in the fiscal year ended December 31, 2022. This increase was mainly due to an increase of R$120.7 million in salaries paid.
Other Income, Net
Other income, net increased from R$1,752.2 million in the fiscal year ended December 31, 2022 to R$3,924.4 million in the fiscal year ended December 31, 2023, mainly due to: (1) an increase of R$948.2 million reflecting changes in the fair value of investment properties (the methodology used to determine fair value incorporates direct comparisons of market information, such as market research, spot market prices, sales, distances, facilities, access to land, topography and soil, land use (crop type), and rainfall, among other data, in accordance with the standards issued by the Brazilian Association of Technical Standards (Associação Brasileira de Normas Técnicas — ABNT)); (2) the recognition of dividends declared by Vale in the amount of R$1,339.3 million; and (3) the recognition of other operating income received in the amount of R$923.2 million from our subsidiary Edge Comercialização, reflecting the cancellation of certain liquefied natural gas contracts with deliveries scheduled for 2023 and the receipt of financial compensation in connection thereto, initially recorded on its balance sheet under deferred revenue and subsequently recognized as other operating income upon contract cancellation, as further described in note 2 to our audited consolidated financial statements included elsewhere in this annual report. This increase was partially offset by: (1) Rumo’s R$955.6 million capital gain arising from the sale of its shareholding interest in EPSA; and (2) R$99.3 million of bargain purchase gains in the acquisition of Tellus, Janus, Gamiovapar and Duguetiapar in 2022.
Interest in Earnings of Associates
Interest in earnings of associates includes our 20% of interest in EPSA, interest in eight distributors acquired by Compass and other investments. Interest in earnings of associates decreased to R$350.4 million in the fiscal year ended December 31, 2023 from R$418.9 million in the fiscal year ended December 31, 2022, mainly due to the decrease in income from our interests in Tellus and Janus in the amount of R$279.6 million reflecting our acquisition of additional equity interests in these companies in the fourth quarter of 2022, following which the results from these entities were fully consolidated and no longer recorded under this line item. This decrease was offset by (1) the acquisition by our subsidiary Compass of minority interests in eight distributors in Brazil, which resulted in an impact in the amount of R$81.0 million in 2023; (2) the sale by Rumo of part of its controlling interest in EPSA in November 2022, which resulted in an impact in the amount of R$34.9 million; and (3) an increase in income from our interest in Vale in the amount of R$96.1 million in the year ended December 31, 2023.
Interest in Earnings of the Joint Venture
Interest in earnings of the joint venture includes our 30.9% interests in Raízen S.A. Interest in earnings of the joint venture increased to an income of R$1,695.9 million in the fiscal year ended December 31, 2023, representing an increase of R$1,788.1 million, from an expense of R$92.2 million in the fiscal year ended December 31, 2022, mainly due to the recognition of PIS and COFINS tax credits in an amount of R$1,465.6 million in connection with Supplementary Laws Nos. 192 and 194 (which reduced the rates of PIS and COFINS applicable to certain products). For more information see “Item 4. Information on the Company—E. Supplemental Information About Joint Venture.”
Finance Results, Net
Finance results, net in the fiscal year ended December 31, 2023 totaled a net financial expense of R$7,897.1 million compared with a net financial expense of R$5,157.9 million in the fiscal year ended December 31, 2022, an increase of R$2,739.2 million, or 53.1%.
For a better understanding of our finance results, the following table details our cost of debt:
Cost of gross debt
Interest on debt
(4,267.8
(4,464.8
(4.4)%
Monetary and exchange rate variation
1,921.6
549.7
249.6%
Derivatives and fair value measurement
(2,684.1
(4,203.1
Amortization of borrowing costs
(64.6
(244.3
(73.5)%
Guarantees and warranties
(38.8
(41.5
6.5%
(5,133.7
(8,404.0
(38.9)%
Income from financial investments and exchange rate in cash and cash equivalents
2,057.4
1,788.5
15.0%
Changes in fair value of investment in listed entities
(3,147.0
3,385.0
Cost of debt, net
(6,223.3
(3,230.5
92.6%
Other charges and monetary variations
Interest on other receivables
450.5
355.6
26.7%
Update of other financial assets
1.8
(1.4
Monetary variation of other financial assets
(514.2
(417.7
23.1%
Interest on lease liabilities
(444.9
(374.2
18.9%
Interest on shareholders’ equity
(46.2
33.1
Interest on contingencies and contracts
(781.1
(593.1
31.7%
Interest on sectoral assets and liabilities
(97.9
(36.7
166.8%
Bank charges and other
(107.8
(145.2
(25.8)%
Foreign exchange, net
(134.0
(747.8
(82.1)%
(1,673.7
(1,927.4
(13.2)%
(7,897.1
Finance expense
(11,337.4
(4,706.5
140.9%
3,028.1
5,777.5
(47.6)%
Foreign exchange losses, net
1,777.4
260.8
581.5%
Derivatives
(1,365.2
(6,489.7
(79.0)%
Cost of gross debt. The total cost of gross debt (which includes interest expenses, exchange variation and derivative gain or loss) decreased by R$3,270.3 million, or 38.9%. This decrease was primarily due to (1) the decrease of the average SELIC interest rate and the resulting effect over CDI rate, which decreased to 11.65% for the year ended December 31, 2023 from 13.65% for the year ended December 31, 2022, and (2) the depreciation of the U.S. dollar relative to the real, to R$5.00 per U.S.$1.00 on average during the year ended December 31, 2023 in comparison to R$5.17 per U.S.$1.00 on average during the year ended December 31, 2022.
Income from financial investments and exchange rate in cash and cash equivalents. Income from financial investments and exchange rate in cash and cash equivalents amounted to R$2,057.4 million in the fiscal year ended December 31, 2023, an increase of 15.0% as compared to interest income of R$1,788.5 million in the fiscal year ended December 31, 2022. This increase was primarily due to the increase in financial investments from R$12,019.7 million for the year ended December 31, 2022 to R$14,066.2 million for the year ended December 31, 2023.
Financial investment on listed entities. Expense from financial investment on listed entities amounted to R$3,147.0 in the fiscal year ended December 31, 2023. This amount is related to the loss from the adjustment at fair value based on the market value of Vale’s shares.
Other charges and monetary variations. Other charges and monetary variations decreased by R$253.7 million, or 10.6%, from an expense of R$1,927.4 million in the fiscal year ended December 31, 2022, to an expense of R$1,673.7 million in the fiscal year ended December 31, 2023. This decrease was due to a foreign exchange loss in the amount of R$565.3 million due to an effect of the depreciation of the U.S. dollar relative to the real, to R$5.00 per U.S.$1.00 on average during the year ended December 31, 2023 in comparison to R$5.165 per U.S.$1.00 on average during the year ended December 31, 2022. This increase was partially offset by (1) an increase of R$188.0 million in interest on contingencies and contracts, and (2) an increase of R$70.7 million in interest on lease liabilities.
Total Income Taxes
Income tax expenses amounted to an expense of R$274.4 million for the fiscal year ended December 31, 2023, compared to an income of R$118.4 million in the fiscal year ended December 31, 2022. This variation was primarily due to tax implications related to the exclusion of the ICMS benefit in the IRPJ and CSLL calculation, recorded at Comgás and Moove in the amount of R$398.1 million under current income tax and R$5.2 million for income tax and deferred social contribution.
In the fiscal year ended December 31, 2023, the effective tax rate was negative 5.4%, which was lower than the nominal corporate tax rate of 34%, mainly due to the recognition of a tax credit by Comgás following the payment in excess of income tax and social contributions in the years 2015, 2016 and 2019.
Profit Attributable to Owners of the Company
As a result of the foregoing, profit attributable to the owners of the Company was R$1,094.4 million in the fiscal year ended December 31, 2023, compared to R$1,176.0 million in the fiscal year ended December 31, 2022. This represented a decrease after deducting profit attributable to noncontrolling interests of R$3,790.4 million and R$1,644.8 million in the fiscal year ended December 31, 2023 and the fiscal year ended December 31, 2022, respectively.
Results of Operations for the Fiscal Year Ended December 31, 2022 Compared to the Fiscal Year Ended December 31, 2021
The following table sets forth our consolidated statement of profit or loss for the fiscal years ended December 31, 2022 and 2021:
50.7%
50.8%
5,830.0
50.4%
76.4%
25.4%
358.0%
(1,742.4
(26.4)%
83.1%
130.2
221.7%
4,590.6
(102.0)%
101.7%
(57.6)%
58.3%
10.7%
(73.4)%
(57.9)%
(1,644.8
(384.3
328.0%
(81.4)%
The table below presents a breakdown of our net sales for the fiscal years ended December 31, 2022 and 2021:
7,439.7
32.3%
39.3%
7.1%
39.0%
12,558.4
57.0%
19,480.7
11,709.9
66.4%
12,945.2
7,497.0
72.7%
1,679.7
31.0%
1,020.2
19.4%
815.0
474.4
71.8%
653.4
44.5%
371.0
150.3%
242.3
77.3%
238.5
620.5
(61.6)%
46.9%
5,088.1
59.1%
458.0
30.2%
566.4
(48.9)%
31.5
2,249.5%
8.3
25.3%
(57.2
10.1%
Rumo’s net sales increased by R$2,401.8 million, or 32.3%, to R$9,841.5 million from R$7,439.7 million in the fiscal year ended December 31, 2022 compared to the year ended December 31, 2021, mainly due to an increase of 17% in tariffs and an increase of 17% in transported volume (which, combined, lead to an increase in net sales of R$2,287.0 million). The increase in tariffs in the year ended December 31, 2022 was driven by (i) fuel price adjustments and (ii) industrial cargo yields which usually have long-term agreements with adjustments by inflation and diesel prices. The increase in volume transported in the year ended December 31, 2022 was driven by higher demand for transportation services due to an increase in the production volumes of corn across Brazil, which led to a 72.8% increase in the volume of corn transported by Rumo in the year ended December 31, 2022 compared to the year ended December 31, 2021.
Compass’s net sales in the fiscal year ended December 31, 2022 amounted to R$19,719.2 million, representing the results of its activities of natural gas distribution and electricity trading. This represented an increase of 57.0%, or R$7,160.8 million, as compared to net sales of R$12,558.4 million in the fiscal year ended December 31, 2021. This increase was primarily due to (1) the acquisition and consolidation of the results of Sulgás in January 2022, and of the results of Commit in July 2022, resulting in a combined increase in net sales of R$2,504.8 million, and (2) the readjustment of tariff tables by the Resolution No. 1,274 of ARSESP, with an average increase of 14.5% in the industrial segment, 16.1% (tariff applied to gas stations) in the price of natural gas vehicles, or “CNG,” and 15.9% for the cogeneration and refrigeration segment, which resulted in an increase in net sales of R$5,704.4 million. This increase in net sales was offset by a R$381.9 million decrease in trading volume in 2022 compared to 2021.
The net revenue of the lubricants business was R$8,980.1 million in the fiscal year ended December 31, 2022, an increase of R$2,867.6 million, or 46.9%, compared to net revenue of R$6,112.5 million in the fiscal year ended December 31, 2021, primarily due to (1) the acquisition and consolidation of the results of PetroChoice and Tirreno beginning in May 2022, which increased net sales by R$1,368.8 million; and (2) the increase of 35.0% in volume of lubricants and base oils sold, which accounts for the remainder of the increase.
The net sales of Radar were R$834.6 million in the fiscal year ended December 31, 2022, compared to net sales of R$31.5 million in the fiscal year ended December 31, 2021, primarily due to (1) the acquisition of the land management companies Tellus, Janus, Gamiovapar and Duguetiapar in the last quarter of 2022, which since the acquisition date have contributed in an increase in revenue of R$576.9 million; (2) the consolidation of the results of operations of Radar reflected throughout the year ended December 31, 2022 (in 2021, consolidation started only in November 2021) (result in an increase in net sales of R$226.3 million); and (3) the reclassification in the beginning of 2022 of investments in Payly Soluções de Pagamentos S.A., or “Payly,” and Trizy from the Corporate segment to the Radar segment, which increased the net sales of the Radar segment by R$10.4 million (R$2.8 million and R$7.6 million, relating to Payly (digital platform) and Trizy (logistic services), respectively).
Cosan Corporate did not have net sales in the fiscal year ended December 31, 2022, compared to net sales of R$8.3 million in the fiscal year ended December 31, 2021. This decrease was due to the reclassification in the beginning of 2022 of investments relating to Payly and Trizy, respectively, from Cosan Corporate to the Radar segment.
(5,352.0
25.1%
(10,154.4
61.2%
(4,808.7
45.4%
(5.2
57.1
10.3%
Total cost of sales increased by R$10,293.6 million, or 50.8%, to R$30,556.8 million during the fiscal year ended December 31, 2022, from R$20,263.2 million during the fiscal year ended December 31, 2021, due to the factors described below.
The cost of sales of the logistics services in the fiscal year ended December 31, 2021 increased by R$1,343.1 million, or 25.1%, to R$6,695.1 million in the fiscal year ended December 31, 2022, from R$5,352.0 million in the previous year. This increase in cost of sales of logistic services was primarily due to (1) a 17% increase in transported volume, coupled with a 42% increase in fuel prices which was partially offset by a 6% energy efficiency gain, which combined resulted in an increase in cost of sales of R$786.0 million, and (2) an increase in logistics solution costs of R$183 million, or 52.7%, driven by rising road freight and diesel prices. The cost of services accounted for 68.0% of net sales from services in the fiscal year ended December 31, 2022 as compared to 71.9% for the fiscal year ended December 31, 2021.
Compass’s costs of sales, which corresponds to the cost of gas, transportation, construction activity on the gas distribution infrastructure under concession and electricity trading, totaled R$16,364.8 million in the fiscal year ended December 31, 2022, a 61.2%, or R$6,210.4 million, increase in comparison with R$10,154.4 million in the fiscal year ended December 31, 2021. This increase was driven by (1) the acquisition and consolidation of the results of Sulgás beginning in January 2022, and of the results of Commit beginning in July 2022, which increased cost of sales by R$2,268.1 million; and (2) the increase in gas prices discussed under “—Net Sales,” which increased cost of sales by R$5,210.5 million. The cost increase is consistent with the segment’s revenue growth. This increase in costs of sales and services was offset by a R$742.8 million decrease in trading volume in 2022 compared to 2021.
Cost of sales of lubricants totaled R$6,990.2 million in the fiscal year ended December 31, 2022, an increase of 45.4%, or R$2,181.5 million, compared to R$4,808.6 million in the fiscal year ended December 31, 2021, mainly due to (1) the acquisition and consolidation of the results of PetroChoice and Tirreno beginning in May 2022, which increased the cost of sales by R$1,274.9 million; and (2) the general increase in sales of Moove’s core businesses discussed under “—Net Sales,” which accounts for the remainder of the increase.
The cost of sales of Radar in the fiscal year ended December 31, 2022 increased by R$560.3 million to R$560.3 million in the fiscal year ended December 31, 2022, from nil in the previous year primarily due to (1) the acquisition of an additional stake in each of the land management companies Tellus, Janus, Gamiovapar and Duguetiapar in September 2022 that impacted Radar’s cost of sales in an amount of R$543.9 million; (2) the consolidation of Radar’s results, reflected throughout the year ended December 31, 2022 (in 2021, consolidation started only in November 2021) which increased cost of sales by R$16.4 million; and (3) the reclassification in the beginning of 2022 of investments in Payly and Trizy from the Cosan Corporate segment to the Radar segment, which increased the cost of sales in the Radar segment by R$9.4 million (R$1.0 million and R$8.4 million, relating to Payly and Trizy, respectively).
The cost of sales of Cosan Corporate in the fiscal year ended December 31, 2022 was R$9.4 million compared to R$5.2 million in the fiscal year ended December 31, 2021, with the difference being due to the reclassification of Payly and Trizy from Cosan Corporate to the Radar segment.
(39.0
(21.5)%
(125.4
(551.5
94.5%
(7.5
32.0%
Selling expenses increased by R$552.9 million, or 76.4%, to R$1,276.3 million during the fiscal year ended December 31, 2022 from R$723.4 million during the fiscal year ended December 31, 2021, due to the factors described below.
Selling expenses decreased by R$8.4 million, or 21.5% to R$30.6 million in the fiscal year ended December 31, 2022 compared to R$39.0 million in the fiscal year ended December 31, 2021. This decrease was primarily due to a decrease in expenses with third-party services to R$0.3 million in the fiscal year ended December 31, 2022 from R$11.2 million in the fiscal year ended December 31, 2021. This decrease in selling expenses was offset by an increase in employee expenses in the amount of R$1.9 million mainly due to the readjustment of wages paid.
Selling expenses increased by R$37.8 million, or 30.2%, to R$163.3 million during the fiscal year ended December 31, 2022, from an expense of R$125.4 million during the fiscal year ended December 31, 2021. This increase was primarily due to (i) the effect of the acquisition and consolidation of the selling expenses of Sulgás beginning in January 2022 in an amount of R$2.5 million, (ii) the consolidation of results of Commit beginning in July 2022 which led to an R$18.3 million increase in selling expenses and (iii) an increase of R$14.3 million in provisions for doubtful accounts due to the effect of the reversal of a provision for doubtful accounts in 2021 after the reduction in the number of defaults due to the adverse macroeconomic conditions as a result of by the COVID-19 pandemic as restrictions were lifted and the macroeconomic environment improved in 2022.
Selling expenses increased by R$521.0 million, or 94.5%, to R$1,072.5 million in the fiscal year ended December 31, 2022, as compared to R$551.5 million in the fiscal year ended December 31, 2021. This increase was mainly due to the acquisition and consolidation of the selling expenses of PetroChoice which increased selling expenses by R$488.2 million and Tirreno which increased selling expenses by R$12.5 million beginning in May 2022.
Selling expenses decreased by R$2.4 million in the fiscal year ended December 31, 2022, from selling expenses of R$7.5 million in the fiscal year ended December 31, 2021, due to the reclassification of selling expenses in the beginning of 2022 from Cosan Corporate to the Radar segment.
(468.6
(472.7
(0.9)%
(331.3
70.1%
(347.6
(269.8
28.8%
(321.3
3.6%
General and administrative expenses consist of salaries and benefits paid to employees, taxes, expenses related to third-party services, rentals and other expenses. Our total general and administrative expenses increased by 25.4% to R$1,758.1 million during the fiscal year ended December 31, 2022, from R$1,401.6 million during the fiscal year ended December 31, 2021, due to the factors described below.
General and administrative expenses totaled R$468.6 million in the fiscal year ended December 31, 2022, a decrease of 0.9%, or R$4.1 million, from R$472.7 million in the fiscal year ended December 31, 2021.
General and administrative expenses totaled R$563.5 million in the fiscal year ended December 31, 2022, an increase of R$232.2 million, or 70.1%, compared to R$331.3 million in the fiscal year ended December 31, 2021. This increase was mainly due to (1) the acquisition and consolidation of the results of Sulgás beginning in January 2022, and of the results of Commit beginning in July 2022, which increased general and administrative expenses in the Compass segment by R$116.0 million; (2) nonrecurring expenses related to the integration of new businesses and projects in development which increased general and administrative expenses by R$83.6 million; and (3) an increase of R$96.3 million due to an increase of numbers of employees and an increase in wages.
General and administrative expenses totaled R$347.6 million in the fiscal year ended December 31, 2022, an increase of R$77.8 million, or 28.8% when compared to the expense of R$269.8 million in the fiscal year ended December 31, 2021, primarily due to (1) the acquisition and consolidation of the results of PetroChoice and Tirreno beginning in May 2022, which increased Moove’s general and administrative expenses by R$6.0 million, (2) an increase in nonrecurring expenses related to the integration of new businesses which increased general and administrative expenses by R$45.6 million, and (3) an increase of R$29.4 million in employee expenses.
General and administrative expenses totaled R$45.5 million in the fiscal year ended December 31, 2022, an increase of R$39.0 million when compared to expenses of R$6.5 million in the fiscal year ended December 31, 2021, primarily due to (1) the acquisition of the land management companies Tellus, Janus, Gamiovapar and Duguetiapar in the last quarter of 2022, which increased general and administrative expenses by R$4.8 million, (2) the consolidation of the result of Radar reflected throughout the year ended December 31, 2022 (consolidation started in November 2021) which increased general and administrative expenses by R$34.2 million, (3) the reclassification in the beginning of 2022 of investments in Payly and Trizy from Cosan Corporate to the Radar segment, which increased general and administrative expenses by R$9.9 million and R$11.6 million, relating to Payly and Trizy, respectively, (4) the acquisition of TUP Porto São Luís S.A. in the first quarter of 2022, which increased general and administrative expenses R$9.5 million, and (5) an increase in employee expenses in the amount of R$23.2 million mainly due to the transfer of some employees from Cosan Corporate to Radar.
General and administrative expenses totaled R$332.9 million in the fiscal year ended December 31, 2022, a decrease of R$11.6 million, or 3.6% when compared to the expense of R$321.3 million in the fiscal year ended December 31, 2021, primarily due to (i) the reclassification in the beginning of 2022 of investments in the amount of R$11.6 million and R$9.9 million, relating to Payly and Trizy, respectively, from Cosan Corporate to the Radar segment, (ii) a decrease in employee expenses in the amount of R$23.2 million mainly due to the transfer of some employees from Cosan Corporate to Radar and (iii) a decrease of R$10.7 million due to the closing of our office in New York.
Other income, net increased from R$382.6 million in the fiscal year ended December 31, 2021 to R$1,752.2 million in the fiscal year ended December 31, 2022. This increase was mainly due to (1) the adjustment in fair value of our land properties, totaling R$1,311.7 million; and (2) Rumo’s R$955.6 million capital gain arising from the sale of its shareholding interest in EPSA. These effects were partially offset by (1) the termination of a confidential arbitration proceeding on November 22, 2022, which resulted from the acquisition by Rumo of all the shares of Farovia S.A. which resulted in a payment by Rumo of R$396.8 million; and (2) the R$316.9 million difference between bargain purchase gains in the acquisition of Radar in 2021 and the acquisition of Tellus, Janus, Gamiovapar and Duguetiapar in 2022.
Interest in earnings of associates includes our 20% of interest in EPSA, interest in eight distributors acquired by Compass and other investments. Equity in earnings of associates increased to R$468.7 million in the fiscal year ended December 31, 2022 from R$130.2 million in the fiscal year ended December 31, 2021, mainly due to the (1) acquisition by our subsidiary Compass of minority interests in eight distributors in Brazil, which resulted in an impact in the amount of R$141.9 million; (2) sale by Rumo of part of its controlling interest in EPSA which resulted in an impact in the amount of R$6.2 million; and (3) an increase in our interests in Tellus and Janus during the year partially offset by the acquisition of control of these companies in the fourth quarter of the year, with an impact of R$190.4 million.
Interest in earnings of the joint venture includes our 33.63% interests in Raízen S.A. Equity income decreased to an expense of R$92.2 million in the fiscal year ended December 31, 2022 from an income of R$4,590.6 million in the fiscal year ended December 31, 2021. This variation is mainly due (i) to the effects of the 2021 initial public offering, from which there was a gain of R$2,929.9 million, (ii) the exercise by Hédera Investimentos e Participações S.A. of a subscription warrant on August 10, 2021 that generated a capital increase with an impact of R$1,043.3 million, and (iii) a decrease in Raízen’s results of operations in the year ended December 31, 2022 compared to the year ended December 31, 2021. For more information see “Item 4. Information on the Company—E. Supplemental Information About Joint Venture.”
Finance results, net in the fiscal year ended December 31, 2022 totaled a net financial expense of R$5,157.9 million compared with a net financial expense of R$2,557.6 million in the fiscal year ended December 31, 2021, an increase of R$2,600.4 million, or 101.7%.
(3,162.9
41.2%
(1,069.2
2,193.9
(341.0
(28.4)%
(52.1
(20.4)%
(2,431.3
245.7%
600.9
197.6%
(1,830.4
76.5%
411.4
(13.6)%
(0.4
250.0%
Interest on other payables
(454.4
(424.9
6.9%
(408.0
(8.3)%
(8.3
(498.8)%
(315.6
87.9%
(97.0
49.7%
115.6
(746.9)%
(727.2
165.1%
(2,527.5
86.21%
1,258.4
359.10%
(1,099.4
(123.71)%
(189.0
101.67%
(1) Following the Merger, Cosan S.A. began consolidating the results of Cosan Logística from March 1, 2021. For the financial information of Cosan S.A. as of and for the year ended December 31, 2021 we used the predecessor accounting method. See “Presentation of Financial and Other Information—Financial Statements.”
Cost of gross debt. The total cost of gross debt (which includes interest expenses, exchange variation and derivative gain or loss) increased by R$5,972.8 million, or 245.7%. This increase was primarily due to (1) the increase of the average SELIC interest rate and the resulting effect over CDI rate, which increased to 12.4% for the year ended December 31, 2022 from 4.4% for the year ended December 31, 2021, (2) an increase in loans, borrowings and debentures (current and non-current) from R$45,659.0 million on December 31, 2021 to R$52,987.2 million on December 31, 2022, (3) an increase of R$2,124.0 million due to expenses associated with the derivatives used in the Vale transaction and (4) depreciation of the U.S. dollar relative to the real, to R$5.165 per U.S.$1.00 on average during the year ended December 31, 2022 in comparison to R$5.396 per U.S.$1.00 on average during the year ended December 31, 2021.
Income from financial investments and exchange rate in cash and cash equivalents. Income from financial investments and exchange rate in cash and cash equivalents amounted to R$1,788.5 million in the fiscal year ended December 31, 2022, an increase of 197.64% as compared to interest income of R$600.9 million in the fiscal year ended December 31, 2021. This increase was primarily due to the increase of the average CDI rate to 12.4% for the year ended December 31, 2022 from 4.4% for the year ended December 31, 2021.
Financial investment on listed entities. Income from financial investment on listed entities amounted to R$3,385.0 in the fiscal year ended December 31, 2022. This amount is related to the gain from the adjustment at fair value based on the market value of Vale’s shares.
Other charges and monetary variations. Other charges and monetary variations increased by R$1,200.2 million or 165.0%, from an expense of R$727.2 million in the fiscal year ended December 31, 2021, to an expense of R$1,927.4 million in the fiscal year ended December 31, 2022. This increase was due to (1) foreign exchange loss in the amount of R$863.5 million due to an effect of the depreciation of the U.S. dollar relative to the real, to R$5.165 per U.S.$1.00 on average during the year ended December 31, 2022 in comparison to R$5.396 per U.S.$1.00 on average during the year ended December 31, 2021, and (2) the recognition of interest on contingencies and contracts in the amount of R$277.5 million referring to the reclassification of certain legal proceedings.
Income tax expenses amounted to an income of R$118.4 million for the fiscal year ended December 31, 2022, compared to an income of R$445.6 million in the fiscal year ended December 31, 2021. This decrease was primarily due to the impact in interest on investee’s earnings in 2021 caused by (i) the initial public offering of Raízen, and (ii) the exercise of subscription warrants by Hédera Investimentos e Participações S.A. on August 10, 2021, resulting in a capital increase of Raízen.
In the fiscal year ended December 31, 2022, the effective tax rate was 4.38%, which was lower than the nominal corporate tax rate of 34%, mainly due to the recognition of a tax credit by Comgás following the payment in excess of income tax and social contributions in the years 2015, 2016 and 2019, as a result of the application of a higher rate to the calculation of the ICMS taxable base (15.6% instead of 12.0%).
As a result of the foregoing, profit attributable to the owners of the Company was R$1,176.0 million in the fiscal year ended December 31, 2022, compared to R$6,312.1 million in the fiscal year ended December 31, 2021. This represented a decrease after deducting profit attributable to noncontrolling interests of R$1.644.8 million and R$384.3 million in the fiscal year ended December 31, 2022 and the fiscal year ended December 31, 2021, respectively.
Our financial condition and liquidity are influenced by several factors, including:
Our cash needs have traditionally consisted of working capital requirements, servicing of our indebtedness, capital expenditures related to investments in operations, maintenance and expansion of plant facilities, as well as acquisitions. Our sources of liquidity have traditionally consisted of cash flows from our operations and short- and long-term borrowings. We have financed acquisitions through seller financing, third-party financing or capital contributions by our shareholders. We believe our current working capital is sufficient for our present requirements and would expect to meet any potential shortfalls in our working capital needs through short- and long-term borrowings, capital contributions by our shareholders, or offerings of debt or equity securities in the domestic and international capital markets.
In the fiscal years ended December 31, 2023, 2022 and 2021, the cash flow used in investing activities was funded mainly by increased borrowing and also by the operational cash flows of our subsidiaries. As of December 31, 2023, our consolidated cash and cash equivalents (including marketable securities – current and non-current) amounted to R$18,162.5 million, compared to R$35,401 million as of December 31, 2022 and R$20,562.1 million as of December 31, 2021.
On December 31, 2023, Cosan S.A. had positive consolidated working capital (total current assets less total current liabilities) of R$12,451.4 million and a profit for the year of R$4,026.4 million.
Cash Flows
The following table sets forth certain of our cash flow data for the periods indicated:
Consolidated
2021(1)
Cash flows generated from operating activities
Cash flows used in investing activities
Cash flows generated (used) from financing activities
Cash Flows Generated from Operating Activities
The net cash flows generated from operating activities in the fiscal year ended December 31, 2023 amounted to R$10,276.4 million, compared to R$9,972.2 million in the fiscal year ended December 31, 2022, representing an increase of R$304.2 million, which was primarily attributable to (i) R$9,379.5 million in net interest and foreign exchange in the year ended December 31, 2023, compared to R$6,521.9 million in the year ended December 31, 2022, representing an increase of R$2,857.6 million, or 43.8%, mainly attributable to the effect of the fair value adjustment of the interest acquired in Vale, and (ii) depreciation and amortization of R$3,364.9 million in the fiscal year ended December 31, 2023, compared to R$3,014.5 million in the fiscal year ended December 31, 2022, representing an increase of R$350.5 million, or 11.6%, mainly due to acquisitions carried out in the period. These effects were partially offset by (i) interest in earnings of the associates and joint venture in the amount of R$2,046.3 million in the fiscal year ended December 31, 2023, and (ii) an increase of R$1,719.6 million from a profit of R$326.7 million in the fiscal year ended December 31, 2022, mainly due to the recognition of PIS and COFINS tax credits in an amount of R$1,465.6 million in connection with Supplementary Laws Nos. 192 and 194 (which reduced the rates of PIS and COFINS applicable to certain products).
Cash Flows Used In Investing Activities
Net cash flows used in investing activities amounted to R$4,303.1 million in the fiscal year ended December 31, 2023, compared to net cash flows used in investing activities of R$20,726.6 million in the fiscal year ended December 31, 2022, representing a decrease of R$16,423.5 million, which was primarily attributable to (i) costs associated with acquisitions that we carried out in the period, net of acquired cash, in the amount of R$4,586.1 million, (ii) the purchase of marketable securities in the amount of R$508.0 million in the year ended December 31, 2023 compared to R$13,911.7 million in the year ended December 31, 2022, representing a decrease of R$13,403.8 million, and (iii) the receipt of dividends declared by Vale S.A. in the amount of R$1,305.4 million in the year ended December 31, 2023, as compared to nil for the year ended December 31, 2022. These effects were partially offset by (i) the acquisition of property, plant and equipment, intangible assets and contract assets in the amount of R$6,268.0 million in year ended December 31, 2023 compared to R$4,531.4 million for the year ended December 31, 2022, representing a R$1,736.6 million, or 38.3%, increase, mainly due to ongoing construction in the Rumo and Compass segments, and (iii) proceeds from the sale of investments in the amount of R$645.8 million in the year ended December 31, 2023 compared to R$1,969.8 million in the year ended December 31, 2022, representing a decrease of R$1,324.0 million.
Cash Flows Generated From (Used in) Financing Activities
Net cash flows used in financing activities were R$4,516.6 million in the fiscal year ended December 31, 2023, compared to net cash flows generated in financing activities of R$8,305.5 million in the fiscal year ended December 31, 2022, representing a decrease of R$12,802.8 million, which was primarily attributable to (i) loans, borrowings and debentures in the amount of R$12,785.6 million incurred in the fiscal year ended December 31, 2023 compared to R$23,887.0 million incurred in the fiscal year ended December 31, 2022, representing a decrease of R$11,101.3 million, (ii) a decrease of R$8,151.1 million in the acquisition of non-controlling shareholders’ shares, and (iii) the payment of dividends in the amount of R$2,582.4 million in the year ended December 31, 2023, compared to R$1,908.2 in the year ended December 31, 2022. This variation was partially offset by a decrease of R$7,223.6 million in the repayment of principal on loans, borrowings and debentures, to R$8,054.8 million in the year ended December 31, 2023 compared to R$15,278.4 million for the year ended December 31, 2022.
Indebtedness
As of December 31, 2023, our outstanding debt (represented by current and non-current Loans, borrowings and debentures) totaled R$56,904.7 million, of which R$4,882.4 million was short-term debt. Our debt consisted of R$31,307.2 million in local currency-denominated debt and R$25,597.5 million in foreign currency-denominated debt.
Our total debt (represented by current and non-current loans, borrowings and debentures) of R$56,904.7 million as of December 31, 2023 increased by 7.4% as compared to our total debt of R$52,987.2 million as of December 31, 2022, primarily due to issuance by Cosan Luxembourg of its senior notes due 2030 in the total amount of R$2,642.0 million. Our U.S. dollar-denominated debt as of December 31, 2023 represented 34.6%, our euro-denominated debt represented 6.5% and our yen-denominated debt represented 3.9% of our total indebtedness. Our secured debt as of December 31, 2023 represented 26.7% of our total indebtedness, mostly in the form of land mortgage deeds and the assignment/pledge of credit rights, machinery and equipment.
Certain of our long-term debt agreements require us or certain of our subsidiaries, as applicable, to comply with certain financial covenants, including our U.S.$600 million 7.250% senior notes due 2031, U.S.$550 million 7.500% senior notes due 2030, our U.S.$400 million 7.000% senior notes due 2027, our U.S.$750 million 5.500% senior notes due 2029, Rumo’s U.S.$500 million 5.250% senior notes due 2028, Rumo’s U.S.$500 million 4.200% sustainability-linked notes due 2032, our U.S.$200 million and U.S.$300 million 8.25% perpetual notes and our U.S.$121 million 5.00% notes due 2023, which limit the ability of our subsidiaries to, among other things, enter into certain transactions with shareholders or affiliates, make certain restricted payments (including, in certain circumstances, payments of dividends), engage in a merger, sale or consolidation transactions and create liens.
We and our subsidiaries are subject to certain restrictive financial covenants set forth in existing loans and financing agreements. As of December 31, 2023 and the date of this annual report, we and our subsidiaries were in compliance with our debt covenants.
The principal financing activities for the fiscal year ended December 31, 2023 are described below:
The table below shows the profile of our debt instruments as of the dates indicated:
Description
Index
Annual Interest
December 31, 2023
December 31, 2022
December 31, 2021
Currency
Maturity
(in millions)
Secured
BNDES
IPCA + 5.74%
10.42%
598.7
544.9
R$
Dec-2036
URTJLP
8.60%
2,210.3
2,221.9
2,598.6
Dec-2029
Fixed
6.00%
128.5
280.9
461.8
Jan-2025
IPCA + 6.01%
10.71%
304.3
3.50%
0.03
0.4
0.7
Jan-2024
99.98% CDI
7.82%
1,547.7
1,653.5
945.7
Apr-2029
IPCA + 4.10%
8.71%
113.0
131.9
154.8
Export credit agreement (ECA)
Euribor + 0.58%
4.52%
48.8
68.5
95.5
EUR
Sep-2026
CDI + 1.03%
15.39%
79.0
98.0
86.7
Feb-2023
CDI + 2.25%
15.16%
60.8
62.8
60.7
May-2026
CDI + 0.80%
355.8
515.9
Dec-2023
CDI + 2.07%
14.85%
52.1
50.5
Mar-2025
10.63%
140.0
73.7
Jan-2030
CDI + 2.20%
14.20%
30.2
Mar-2026
SOFR + 1.30%
6.65%
487.5
U.S.$
Resolution 4131
148.9
Nov-2022
868.4
Oct-2024
578.7
JP¥
3.20%
860.6
2,009.5
Oct-2025
0.25%
602.5
1,338.7
3.40%
1,954.0
1,966.1
Oct-2026
1,135.2
1,309.3
3.56%
812.5
816.2
Oct-2027
471.0
543.2
Debentures
CDI + 1.79%
13.65%
753.4
754.8
753.8
Jun-2027
CDI + 1.30%
13.10%
759.4
759.1
746.7
IPCA + 4.77%
9.41%
773.6
632.3
694.9
Jun-2031
15,172.5
17,925.1
7,911.3
Unsecured
Foreign loans
GBP + Libor 6-month + 1.50%
GBP
Jul-2021
GBP | Fixed
37.6
GBP + Libor 6-month + 1.10%
Dec-2021
263.5
Dec-2022
EUR | Fixed
0.9
Sep-2022
125.8
150.6
ECN
CDI + 3.05%
Mar-2021
CDI + 3.15%
Perpetual Notes
8.25%
2,451.1
2,641.7
2,825.4
Resolution 4,131*
5.50%
31.9
45.1
May-2023
2.13%
943.5
1,000.9
Feb-2025
U.S.$ | Fixed
CDI
Apr-2021
3.67%
395.3
438.8
4.04%
734.1
1.36%
362.8
377.7
414.3
Feb-2024
Banking credit certificates
IPCA + 0.81%
Jan-2048
Senior Notes Due 2023
685.5
Mar-2023
Senior Notes Due 2024
Sep-2024
Senior Notes Due 2025
2,981.3
Senior Notes Due 2027
7.00%
1,928.9
3,587.3
4,305.9
Jan-2027
Senior Notes Due 2028
5.25%
2,178.5
2,196.1
2,700.6
Jan-2028
Senior Notes Due 2029
3,662.9
3,953.6
4,226.1
Sep-2029
Senior Notes Due 2030
7.50%
2,642.0
Jun-2030
Senior Notes Due 2032
4.20%
2,066.8
2,124.1
2,800.7
Jan-2032
Working capital
CDI + 1.60%
15.47%
100.2
Jun-2022
SOFR + 1.50%
1.50%
2,175.1
2,334.6
May-2027
Bank overdrafts
125% of CDI
Jan-2020
Prepayment
Libor 3-month + 3.50%
Libor 3-month + 1.00%
1.59%
104.7
111.9
Oct-2023
1.27% Base 360
1.27%
151.9
166.4
Jul-2023
IPCA + 4.68%
9.32%
396.2
518.7
543.8
Feb-2026
CDI + 1.45%
13.27%
399.4
399.6
Dec-2026
IPCA + 4.50%
9.13%
1,596.9
1,523.4
1,483.9
Feb-2029
CDI + 2.65%
14.61%
1,208.1
1,819.8
1,858.8
Aug-2025
IPCA + 6.80%
11.53%
1,004.8
893.9
892.0
Apr-2030
IPCA + 3.90%
8.50%
1,113.8
1,048.3
1,018.8
Oct-2029
IPCA + 4.00%
IPCA + 7.48%
165.5
IPCA + 7.36%
12.12%
81.0
114.0
108.5
Dec-2025
IPCA + 5.87%
907.4
873.5
IPCA + 4.33%
8.95%
554.2
523.8
501.3
IGPM + 6.10%
6.10%
359.6
372.2
352.2
May-2028
CDI + 0.50%
2,033.2
Oct-2022
IPCA + 3.60%
8.19%
413.9
367.5
361.9
Sep-2020
IPCA + 5.73%
10.41%
551.7
537.3
505.6
Oct-2033
8.61%
1,077.1
941.3
952.7
Dec-2035
IPCA + 4.54%
9.17%
254.2
126.7
Jun-2036
CDI + 1.95%
13.83%
735.6
824.9
717.7
Aug-2024
109.20% CDI
9.78%
550.3
491.2
485.0
Aug-2031
IPCA + 5.22%
9.88%
553.9
467.8
477.6
Aug-2036
CDI + 1.65%
13.49%
784.5
787.5
774.2
Aug-2028
CDI + 2.00%
13.88%
942.0
946.3
930.3
IPCA + 5.75%
10.43%
412.5
394.0
374.8
CDI + 1.50%
13.32%
406.5
407.2
CDI + 1.90%
13.77%
1,118.0
1,120.5
May-2032
IPCA + 5.99%
10.69%
470.1
435.7
Jun-2032
IPCA + 5.76%
10.45%
Aug-2029
IPCA + 6.18%
10.88%
749.3
May-2033
CDI + 1.55%
13.38%
1,764.0
Nov-2030
CDI + 2.40%
14.33%
1,020.7
Apr-2028
998.542
Jun-2028
CDI + 1.80%
13.66%
1,260.7
Jan-2031
Promissory notes
CDI + 3.00%
12.33%
CDI + 3.40%
12.73%
CDI + 1.75%
13.60%
547.8
Dec-2028
448.2
41,732.1
35,062.1
37,747.7
Consolidated Debt
4,241.3
Non-current
* Resolution 4,131: funds raised outside of Brazil with several financial institutions.
In addition, the principal financing activities of us, our subsidiaries and joint venture in 2024 through the date of this annual report are described below:
We believe we will be able to refinance our existing debt on favorable market conditions.
Unused Sources of Liquidity
As of December 31, 2023 and 2022, we and our subsidiaries had unused available credit lines in the amount of R$2,102.8 million and R$3,052.3 million, respectively. The use of these credit lines is subject to certain contractual conditions.
Working Capital
As of December 31, 2023, we had working capital (total current assets less total current liabilities) of R$12,451.4 million, compared to R$9,779.7 million as of December 31, 2022. The difference between the position as of December 31, 2023 and December 31, 2022 was mainly attributable to an increase in cash and cash equivalents.
Our capital expenditures, which consist of acquisitions of property, plant and equipment, intangible and contract assets, were R$6,268.0 million during the fiscal year ended December 31, 2023, compared to R$4,531.4 million during the fiscal year ended December 31, 2022. For the fiscal year ended December 31, 2021 our capital expenditures were R$4,774.8 million.
In 2023, 2022 and 2021, our capital expenditures consisted primarily of the following:
The following table sets forth our capital expenditures for the fiscal years ended December 31, 2023, 2022 and 2021:
(in millions of reais)
3,689.9
2,717.7
3,453.4
2,317.9
1,659.2
1,269.9
178.0
109.3
42.5
19.2
8.7
42.3
26.0
0.3
Total consolidated capital expenditures (1)
6,268.0
4,531.4
4,774.8
(1) Capital expenditures consist of acquisitions of property, plant and equipment, intangible and contract assets.
The main planned and undergoing projects related to capital expenditures are described in “Item 4. Information on the Company—D. Property, Plant and Equipment.” We expect to fund such planned and undergoing projects primarily through our and our subsidiaries’ working capital and existing or new indebtedness.
Contractual Financial Obligations
The following table sets forth the maturity schedule of our material contractual financial obligations (contracted undiscounted cash flows basis) as of December 31, 2023:
Less than 1 year
1 to 2 years
2 to 5 years
More than 5 years
Loans, borrowings and debentures(1)
5,504.2
5,300.7
23,711.3
33,419.3
67,935.5
Trade payables
3,920.3
264.3
4,184.5
Other financial liabilities
476.9
Tax installments – REFIS
53.2
1.5
160.7
217.3
Leases
658.1
818.9
1,233.7
18,164.1
20,874.8
Lease and concession installments
266.8
291.2
579.3
1,137.3
Payables to related parties
322.2
Dividends payable
549.1
Derivative financial instruments
2,149.5
1,327.5
3,146.3
1,705.5
4,917.9
13,900.2
8,004.0
28,672.4
50,038.7
100,615.4
(1) Include future interests based on the applicable rates as of December 31, 2023.
Since December 31, 2023, there have been no material changes to the contractual obligations described above.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements to finance our operations. We have no subsidiaries in which we hold a majority or minority stake that are not included in our consolidated financial statements, nor do we have any interests in or relationships with any special purpose companies that are not reflected in our consolidated financial statements.
However, we have entered, in the normal course of business, into several types of off-balance sheet arrangements, as set forth below:
Acquisition of Assets – Tariff Review
Following the postponement of the 2014 Five-Year Tariff Review 2014 as a result of the publications of ARSESP Resolutions No. 493 and No. 494, both of which were published on May 27, 2014, which approved the “Tariff Review Process of Gas distribution companies in the state of São Paulo, defining event schedule,” and the “Provisional adjustment of marketing margins of Companhia de Gás de São Paulo — COMGÁS,” we are not subject to any set regulatory commitment to purchase assets as of December 31, 2023, 2022 and 2021.
See “Item 4. Information on the Company—B. Business Overview—Patents, Licenses, Contracts and Processes” and “Item 4. Information on the Company—B. Business Overview—Research and Development.”
The following list sets forth, in our view, the most important trends, uncertainties and events that are reasonably likely to continue to have a material effect on our revenues, income from continuing operations, profitability, liquidity and capital resources, or that may cause reported financial information to be not necessarily indicative of future operating results or financial condition:
For further information, see “Item 3. Key Information—D. Risk Factors,” where we present the risks we face in our business that may affect our commercial activities, operating results or liquidity.
Our financial statements are presented in IFRS as issued by the IASB. For summary information about critical judgments, assumptions and estimation uncertainties in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements, see “—Financial Presentation and Accounting Policies—Critical Accounting Policies and Estimates” and note 3.2 to our audited consolidated financial statements as of December 31, 2023 and 2022 and for the fiscal years ended December 31, 2023, 2022 and 2021, included elsewhere in this annual report.
No new accounting standards or amendments that came into effect in the years ended December 31, 2023, 2022 and 2021 have had a material impact on our consolidated financial statements. There are no other standards and interpretations issued but not yet adopted that may, in the opinion of management, have a significant impact on the results or equity disclosed by us.
Rubens Ometto Silveira Mello, who controls the majority of our common shares, has the overall power to control us, including the power to establish our management policies.
Our board of directors consists of at least five (5) members and at most twenty (20) members. Out of the members of the Board of Directors, at least two members or 20% of the members, whichever is higher, must be independent directors, as defined in the Novo Mercado Rulebook. The qualification of the members appointed as independent directors will be resolved upon at the shareholders’ meeting that elects such independent directors. A director elected as permitted under article 141, paragraphs 4 and 5 of Brazilian Corporation Law will also be deemed an independent director even if there is a controlling shareholder. Should compliance with the foregoing percentage requirement lead to a fractional number of directors, the number of directors will be rounded to the whole number immediately higher.
The number of directors to be elected for the upcoming term will be decided by a majority vote at the relevant shareholders’ meeting. A shareholder or a group of shareholders representing at least 15% of the share capital of Cosan may separately elect up to one additional director. Additionally, shareholders representing a percentage of the share capital of Cosan of 5% (depending on the aggregate value of capital stock of Cosan at such time, pursuant to the applicable CVM ruling) may request that the election of directors be subject to cumulative voting proceedings, as provided for in article 141 of the Brazilian Corporation Law and CVM Ruling 70.
Board of Directors
Our board of directors is the decision-making body responsible for, among other things, determining policies and guidelines for our business. The board of directors also supervises our executive officers and monitors their implementation of policies and guidelines established from time to time by our board of directors.
The following table lists the members of our board of directors:
Name
Date of Election
Position
Year of Birth
Rubens Ometto Silveira Mello
April 27, 2023
Chairman
1950
Marcelo Eduardo Martins
August 14, 2024
Vice Chairman
1966
Burkhard Otto Cordes
Director
1975
Luis Henrique Cals de Beauclair Guimarães
Pedro Isamu Mizutani
1959
Silvia Brasil Coutinho(1)
1961
Vasco Augusto Pinto da Fonseca Dias Júnior(1)
1956
José Alexandre Scheinkman(1)
1948
Ana Paula Pessoa(1)
1967
(1) Independent director.
The following is a summary of the business experience of our current directors. Unless otherwise indicated, the business address of our current directors is Av. Brigadeiro Faria Lima, 4,100 – 16th floor, São Paulo – SP, Zip Code 04538-132, Brazil.
Rubens Ometto Silveira Mello. Mr. Mello is the chairman of Cosan, Compass, Rumo, Radar, Moove and Raízen, besides being the controlling shareholder of these companies. He is also the chair of our people and nominating committee. He holds a degree in mechanical engineering from the Polytechnic School of the University of São Paulo (Escola Politécnica da Universidade de São Paulo) (1972), with a post-graduate degree in finance from the Universidade Metodista de Piracicaba, or “UNIMEP,” and an MBA degree in business management from Fundação Getúlio Vargas – FGV with extension to Ohio University. Mr. Mello has more than 40 years of experience in the management of large companies. He has also served as planning supervisor, financial manager and as administrative and financial superintendent of Costa Pinto S.A. from 1983 to 1990 and officer and chairman of the board of directors of Aguassanta Participações S.A., since 2001. He is also one of the founders of UNICA, the Sugarcane Agroindustry Association of the state of São Paulo (UNICA—União da Agroindústria Canavieira do Estado de São Paulo). Prior to joining Cosan, Mr. Mello worked from 1971 to 1973 as an advisor to the board of executive officers of UNIBANCO - União de Bancos Brasileiros S.A., and from 1973 to 1980 as chief financial officer of Indústrias Votorantim S.A.
Marcelo Eduardo Martins. Mr. Martins became our current chief executive officer on November 1, 2024. He became an executive officer of Aguassanta Participações S.A. in July 2007. Since then he has held various significant positions at companies with the Cosan Group. He is currently our chief executive officer, the vice-chairman of our board of directors, a member of our sustainability committee, our former chief financial officer and investor relations officer and our former chief strategy officer. He is also member of the boards of directors of Raízen S.A., Rumo S.A., Moove and Compass Gás e Energia S.A. Prior to joining the Cosan Group, Mr. Martins was the chief financial and business development officer of Votorantim Cimentos between July 2003 and July 2007 and, prior to that, head of Latin American Fixed Income at Salomon Smith Barney (Citigroup) in New York. He has significant experience in capital markets, having worked at Citibank (where he began his career as a trainee in 1989), Unibanco, UBS and FleetBoston. He has a degree in business administration from the FGV, specializing in finance.
Burkhard Otto Cordes. Mr. Cordes has been a member of our board of directors since 2005 and is currently a member of our people and nominating committee. He is also a member of the board of directors and of the financial committee of Rumo and a member of the board of directors of Compass Gás e Energia S.A. He holds a degree in business administration from Fundação Armando Álvares Penteado (1997) and an MBA in finance from IBMEC-SP (2001). Mr. Cordes has worked in financial markets at Banco BBM S.A., a company owned by Grupo Mariani, where he worked in the commercial division focusing on the corporate and middle market segments. Before holding his current position, he had worked at IBM Brasil in its financial division.
Luis Henrique Cals de Beauclair Guimarães. Mr. Guimarães is a member of our board of directors and our former chief executive officer. He was also the chief executive officer of Cosan Limited from April 1, 2020 until Cosan Limited’s merger with and into Cosan. Prior to that he had been chief executive officer of Raízen. He was formerly the chief executive officer of Comgás, and after that, the fuels operational officer and person responsible for Raízen’s downstream division, which covers the retail, commercial and aviation businesses. Mr. Guimarães joined Shell in 1987 and worked in several positions in the lubricants and retail businesses in Brazil and abroad (based in London). From 2007 until September 2010, he served as Shell’s chief marketing officer for lubricants in North America, based in Houston. Mr. Guimarães has a bachelor’s degree in statistics and an MBA in marketing from Coppead – Universidade Federal do Rio de Janeiro. Mr. Guimarães is also a member of the board of directors of Vale.
Pedro Isamu Mizutani. Mr. Mizutani has been a member of our board of directors since 2021 and has more than 20 years of experience in the business and financial departments of sugarcane companies. He also worked at Costa Pinto S.A. as planning supervisor, financial manager, and as administrative and financial superintendent. From 1990 to 2001, he served as administrative and financial officer of the Cosan Group, and in 2001 he became a superintendent officer responsible for the coordination of strategic and operating activities of the commercial, administrative, financial, agricultural and industrial areas. In 2011, he became vice chairman and operations officer of Raízen, where he remained in office until 2019. Mr. Mizutani holds a bachelor’s degree in production engineering from Escola Politécnica da Universidade de São Paulo (1982) and a post-graduate degree in finance from UNIMEP – Universidade Metodista de Piracicaba and also an MBA in business management from Fundação Getúlio Vargas – FGV with an extension course at Ohio University.
Silvia Brasil Coutinho.Ms. Brasil Coutinho has over 45 years of experience, including close to 20 years at Citibank in various departments and approximately 10 years at HSBC. Ms. Brasil Coutinho is a member of our board of directors and of our people and nominating committee. Also a member of the board of directors of Edenred and the current country head of UBS Group in Brazil and head of wealth management in Latin America for UBS. Ms. Brasil Coutinho has a bachelor’s degree in agronomy and a master’s degree in agricultural economics from Escola de Agricultura da Universidade de São Paulo – ESALQ, as well as an MBA from Columbia University.
Vasco Augusto Pinto da Fonseca Dias Júnior. Mr. Dias Júnior has been a member of our board of directors since 2021 and a member of our sustainability committee. He joined Shell Group as intern in 1979 and later became analyst and chief of systems. In December 2000, he left Shell Group to become executive officer of Companhia Siderúrgica Nacional – CSN. He returned to Shell Group in 2005 as chairman for Latin America. He also served as officer chairman of Raízen from 2011 to March 2016. Mr. Dias Júnior holds a bachelor’s degree in systems engineering from Pontifícia Universidade Católica do Rio de Janeiro.
José Alexandre Scheinkman. Mr. Scheinkman has been a member of our board of directors since 2021, a member of our audit committee and is a professor at Columbia University and professor of economics at Theodore A. Wells ‘29 (Emeritus) at Princeton University. He is member of several research groups and associations, including the National Bureau of Economic Research and Cambridge Endowment for Research in Finance. He received the title of Doctor Honoris Causa from Université Paris Dauphine in 2001. He is member of the Scientific Board of Europlace Institute of Finance (Paris), National Academy of Sciences, American Finance Association and Academic Board of INSPER. Previously, he was financial strategy vice chairman of Goldman, Sachs & Co., a member of Axion Investments from 2003 to 2013, co-editor of the Journal of Political Economy and a member of the economic advisory group of Foundation Sloan. Mr. Scheinkman holds a bachelor’s degree in economics from Universidade Federal do Rio de Janeiro and a master’s degree and PhD in economics from the University of Rochester, as well as a master’s degree in mathematics from the Institute of Pure and Applied Mathematics.
Ana Paula Pessoa. Ms. Pessoa has been a member of our board of directors since 2021, a member of our sustainability committee and is a partner, investor and chairman of the board of directors of Kunumi AI, a Brazilian artificial intelligence company. She is also a member of the global board of Credit Suisse, in Zurich, of News Corporation, in New York, and of Vinci Group, in Paris. Her voluntary activities concentrate on educational initiatives and environmental concerns to foment sustainable growth. She is a member of the global board of Stanford University, in California, the advisory board of The Nature Conservancy Brazil, the audit committee of Fundação Roberto Marinho, and Instituto Atlantico de Gobierno, Madrid. She was the financial officer of the Rio 2016 Olympic and Paralympic Organizing Committee. She is an independent member of the boards of directors of Suzano, Vinci and Credit Suisse. She was a partner and founder of Brunswick São Paulo and worked for 18 years in several companies of Organizações Globo. She worked for the United Nations Development Program and for the World Bank in the United States and in Africa. Ms. Pessoa holds bachelor’s degree in economics and international relations and a master’s degree in development economics from Stanford University.
Executive Officers
Our executive officers serve as our executive management body. They are responsible for our internal organization and day-to-day operations and for the implementation of the general policies and guidelines established from time to time by our board of directors.
Our bylaws require that its board of executive officers consist of a minimum of three and a maximum of eight officers, each responsible for a specific area of the business.
The following table lists our current executive officers:
November 1, 2024
Chief Executive Officer
November 14, 2023
Chief Financial and Investor Relations Officer
1985
Maria Rita de Carvalho Drummond
General Counsel
1980
The following is a summary of the business experience of our executive officers. Unless otherwise indicated, the business address of the executive officers is Avenida Brigadeiro Faria Lima, 4,100 – 16th floor, Room 1, São Paulo – SP, 04538-132, Brazil.
Marcelo Eduardo Martins. See “—Board of Directors.”
Rodrigo Araujo Alves. Mr. Alves is our chief financial and investor relations officer. He is also a member of the board of directors of Compass Gás e Energia. He worked at Petróleo Brasileiro S.A. from 2007 to 2023 and has broad experience in the financial area, holding the position of Executive Manager of Accounting and Tax Matters; Executive Chief Finance and Investors Relations Officer at Petrobras; Chair of the Fiscal Council of TBG; Fiscal Council member of other companies within the Petrobras group; Member of an advisory group of the International Accounting Standards Board (IASB); Member of the Executive Board of the Brazilian Association of Publicly Held Companies (ABRASCA), and Strategy Director at Cosan. Mr. Alves earned an undergraduate degree in Business Administration from the Federal University of Minas Gerais; an undergraduate degree in Accounting from Faculdade Moraes Júnior Mackenzie – Rio de Janeiro; an MBA in Economic and Financial Business Management from FGV; an executive master’s degree in Finance (with honors) from HEC Paris; he is a Certified Public Accountant (CPA) from the State of Washington – United States; he earned a COSO Internal Control Certificate from the American Institute of Certified Public Accountants (AICPA); he is certified in IFRS (CertIFR) from the Association of Chartered Certified Accountants (ACCA); he also holds degrees in Management and Finance from INSEAD; Chicago Booth; Singularity University; Fundação Dom Cabral; CFA Institute; and MDT International.
Maria Rita de Carvalho Drummond. Ms. Drummond has been our legal officer since 2011. She is also a member of the board of directors of Compass Gás e Energia S.A and Rumo. She joined the Cosan Group in 2008, after leaving the law firm Barbosa, Mussnich e Aragão, where she worked from 2000 to 2004 and from 2007 to 2008. Ms. Drummond was a manager for Latin America at BAT, the controlling shareholder of Souza Cruz S.A., based in London, from 2004 to 2005. In 2019, Ms. Drummond was appointed by the Brazilian Association of Listed Companies (Associação Brasileira das Companhias Abertas) to hold a position on the Appeal Council of the National Financial System (Conselho de Recursos do Sistema Financeiro Nacional), with a mandate until March 2022. Ms. Drummond holds a law degree from Pontifícia Universidade Católica do Rio de Janeiro, a postgraduate degree in civil law from Universidade Estadual do Rio de Janeiro and a master’s degree in international law from the London School of Economics. She is currently a member of the board of directors of Rumo S.A.
Committees of the Board of Directors
Audit Committee
Our audit committee is a statutory and permanent body, responsible for undertaking technical and/or consultancy functions. Our audit committee comprises three members, elected by our board of directors for a renewable two-year term of office, limited to a ten-year office renewal, all of whom are independent and will preferably have experience in compliance. Our audit committee was created on March 28, 2012 at an extraordinary shareholders’ meeting. Our audit committee is governed by internal regulations that were approved by a meeting of our board of directors on October 29, 2018.
Our audit committee has the following responsibilities:
Our statutory audit committee meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The statutory audit committee is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority.
The following table sets forth certain information related to the current members of our audit committee, all of whom are independent:
Carla Alessandra Trematore
July 31, 2023
Chair
José Alexandre Scheinkman
Member
Felício Mascarenhas de Andrade
The terms of the current members of our audit committee expire in July 2025 or until the election of new members.
We present below a brief biographical description of each member of our audit committee.
Carla Alessandra Trematore. Ms. Trematore is currently a member of our audit committee and the fiscal councils of Comgás and Rumo. Ms. Trematore holds a Bachelor’s Degree in Computer Science from Universidade Estadual Paulista – UNESP and a Bachelor’s Degree in Accounting Sciences from the Pontifical Catholic University of Minas Gerais – PUC Minas. She worked at independent audit firms such as Arthur Andersen, Deloitte and EY between 1996 and 2010. She was also an internal audit manager at Confab, a publicly held Brazilian company controlled by the Italian-Argentine group Techint/Tenaris, and a partner at Hirashima & Associados, where she led the accounting and financial consulting services. Ms. Trematore acted as a consultant for the Fundação Institute of Accounting, Actuarial and Financial Research – FIPECAFI, and was also a chairman of the Audit Committee of Caixa Econômica Federal. She is currently a member of the fiscal councils of Ânima Educação, ISA CTEEP and Localiza, and the audit committees of BR Partners Participações, CI&T and Allied Tecnologia.
José Alexandre Scheinkman. See “—Board of Directors.”
Felício Mascarenhas de Andrade. Mr. Andrade is a member of the audit committees of Cosan and Rumo. He is also a founding partner of Vecte, which provides expert advice on good corporate governance practices. He spent his career in international consulting firms such as Andersen, Accenture, EY and KPMG. Throughout his career he has advised tens of large Brazilian companies on improving their financial management, governance mechanisms, financial risk management, and preparation for IPOs, among other themes related to the growth and protection of shareholder value. Mr. Andrade holds a bachelor’s degree in computer science from Universidade Estadual Paulista and an MBA from IBMEC.
Our board of directors has determined that Carla Alessandra Trematore, José Alexandre Scheinkman and Felício Mascarenhas de Andrade meet the independence requirements of the SEC and the NYSE listing standards, and Mr. José Alexandre Scheinkman is our audit committee financial expert.
People and Nominating Committee
Our people and nominating committee was established on August 18, 2011 and was re-constituted on April 27, 2017. On January 27, 2022, the committee was re-named the people and nominating committee effective immediately (it was previously known as the people committee). It comprises three members each appointed on a two-year term. Our people and nominating committee is governed by internal regulations that were approved at a meeting of our board of directors on February 20, 2024.
The role of our people and nominating committee is to provide guidance for strategic decision-making in relation to human resources, including, but not limited to, determining issues relating to compensation, goals, diversity, development, succession, leadership, and the identification, recruitment, interviewing and selection of potential candidates to fill vacancies on our board of directors or officers, among others. Furthermore, the committee also advises our board of directors on matters relating to the fixed and variable compensation of our directors, officers, members of our fiscal council and other employees, the definition and control of targets, as well as providing information to our board of directors.
The following table sets forth certain information related to the current members of our people and nominating committee:
August 1, 2024
The terms of the current members of our people and nominating committee expire in August 2026.
See “—Board of Directors” above for a brief biographical description of each member of our people and nominating committee.
Sustainability Committee
Our sustainability committee was established on January 27, 2022. On August 13, 2024, the committee was re-named the sustainability committee (it was previously known as the strategy and sustainability committee). It is comprised of at least three members, each appointed on a two-year term. Our sustainability committee is governed by internal regulations that were approved at a meeting of our board of directors on August 13, 2024.
The role of our sustainability committee is to assess strategies, projects, objectives and commitments of Cosan and its subsidiaries with respect to sustainability matters as well as to monitor the Company’s performance in both Brazilian and international indices and rating with respect to environment, social, and governance actions, proposing improvements, pursuing opportunities and assessing sustainability-related risks arising from the activities of Cosan and its subsidiaries. The sustainability committee is also tasked with promoting debate about matters related to sustainability, including by proposing objectives and targets, and to oversee the sustainability committees of our subsidiaries, if applicable.
The following table sets forth certain information related to the current members of our sustainability committee:
Ana Paula Pessoa
August 13, 2024
Vasco Augusto Pinto da Fonseca Dias Júnior
The terms of the current members of our sustainability committee expire in August 2026.
See “—Board of Directors” above for a brief biographical description of each member of our sustainability committee.
Fiscal Council
The Brazilian Corporation Law establishes the responsibilities, duties and powers of the fiscal council. Fiscal council resolutions are passed upon a majority of votes of members present at fiscal council meetings.
The role of our fiscal council is to: (1) supervise the actions of officers and directors, and their compliance with legal and statutory requirements; (2) voice its opinion regarding management’s annual report, and include in its report on such matter the additional information which it believes is necessary or useful to the deliberations of our general shareholders’ meetings; (3) voice its opinion on the proposals of management bodies to be submitted to our general shareholders’ meetings in relation to changes to the capital, issuance of debentures or subscription bonuses, investment plans or capital budgets, distributions of dividends, transformations, incorporations, mergers or spinoffs; (4) report to management on any mistakes, fraud or crime which it uncovers, and if management does not take appropriate action to protect our interests, report to the general shareholders’ meeting, and recommend useful steps we may take in this regard; (5) call an ordinary general shareholders’ meeting if management bodies delay the calling thereof for over a month, and extraordinary general shareholders’ meetings whenever serious or urgent events occur, and include in the agenda for such meetings the items which it considers necessary; (6) analyze, at least on a quarterly basis, our financial statements; (7) review our financial statements for each fiscal year and voice its opinion thereon; and (8) exercise the aforementioned functions during a liquidation, taking into account the specific provisions governing such a situation.
The following sets forth certain information related to the current members of our fiscal council:
Date of Election(1)
Vanessa Claro Lopes
April 30, 2024
João Ricardo Ducatti
Marcelo Curti
The terms of the current members of our fiscal council expire at our ordinary general shareholders’ meeting to be held in 2025.
Vanessa Claro Lopes. Ms. Lopes is currently a member of the fiscal councils of Cosan and Comgás and a member of the audit committee at Tegma Logistica S.A. She is also a member of the board of directors of Americanas S.A. She was formerly the chairman of the fiscal council of Via Varejo S.A. from 2014 to 2018, a member of the fiscal council of Terra Santa Agro S.A. from 2016 to 2018, a member of the fiscal council of Gerdau S.A. from 2016 to 2017 and a member of the fiscal councils of Estacio Participações S.A. and Renova Energia S.A. from 2017 to 2019. With over 25 years’ experience in corporate governance and internal and external audits of large private and listed companies, she started her career at PricewaterhouseCoopers in advisory services and was responsible for the creation of the revenue assurance specialists department in Brazil for the telecoms sector. She was an executive officer and the head of the internal accounting department of TAM S.A. from 2010 to 2014, an executive officer and the head of the internal accounting department of Globex Utilidades S.A. (Grupo Pão de Açúcar) from 2004 to 2010 and a coordinator and the head of the accounting department of Grupo Telefónica from 2001 to 2004. She was formerly a professor of audit systems and information security at Objetivo University. Ms. Lopes holds an MBA from EAESP/FGV, a master’s degree in management systems from Universidade Federal Fluminense, a master’s degree in computer networks from São Judas University, an accounting degree from Universidade Federal Fluminense and a systems analysis degree from FATEC/BS.
João Ricardo Ducatti. Mr. Ducatti is a business manager. He is a member of our fiscal council and of the audit committee of Rumo. He worked at Westinghouse of Brazil from 1973 to 1982, where he was a financial resources manager and a treasurer for Latin America, then as business manager of Usina Barbacena, located in Ribeirão Preto, in 1982 and 1983. He was also an administrative and financial officer of Grupo Bom Jesus, which produces sugar and ethanol and is located in Piracicaba, from 1983 to 1991, and an administrative and financial officer of the Cosan Group, which produces sugar and ethanol and is also located in Piracicaba, from 1991 to 1995. He was also a managing officer of SUCRESP, a professional association representing 17 mills producing sugar and alcohol, from 1995 to 1999. From 1999 to the present, he has focused on providing economic and financial advisory services, asset valuation, management of corporate structuring, sales development of equity and other associated activities, through his company, RDR Consultores Associados Ltda. Mr. Ducatti holds a bachelor’s degree in business administration from Faculdade de Ciências Administrativas e Contábeis Tabajara.
Marcelo Curti. Mr. Curti is currently a member of the fiscal councils of Cosan and Raízen. Mr. Curti was previously a managing partner of Rio Branco Consultores Associados Ltda. and of MAIOL Assessoria em Gestão Empresarial Ltda. He worked in the Safra Group from 1981 to 2008, where he was a statutory officer. He has also been a member of the fiscal council of Duke Energy S.A. and of Hypermarcas S.A. Mr. Curti holds a bachelor’s degree in economics from Fundação Armando Álvares Penteado – São Paulo (1985) and a postgraduate degree in business administration from Fundação Escola de Comércio Álvares Penteado (1986).
Our Relationship with Our Executive Officers, Directors and Key Managers
Mr. Burkhard Otto Cordes is a member of Cosan’s boards of directors and serves as a financial manager at Aguassanta Participações S.A. Mr. Cordes was previously married to Mr. Mello’s daughter. There are no arrangements or understandings with any of our shareholders, customers, suppliers or others, pursuant to which any director or member of our senior management has been or will be selected.
Under our current bylaws, our general shareholders’ meeting is responsible for approving the annual aggregate compensation that we pay to the members of our board of directors and our executive officers. The aggregate amount of compensation paid to all members of the board of directors and its executive officers on a consolidated basis was R$368.2 million during the fiscal year ended December 31, 2023, R$265.8 million during the fiscal year ended December 31, 2022 and R$252.2 million in the fiscal year ended December 31, 2021. Our compensation strategy aims to reflect best market practice, help us retain our executives and incentivize them to produce superior results.
Our executive officers receive the same benefits generally provided to our employees. Members of our board of directors are not entitled to these benefits. We currently have no employment agreements with our directors and executive officers providing for benefits upon the termination of employment.
Equity-Based Compensation Plans
In addition, certain executive officers, managers and other eligible employees may receive equity-based compensation pursuant to our stock option plan.
See “—E. Share Ownership—Equity-Based Compensation Plans” for information on the equity-based compensation plans in place at our Company.
Summary of Significant Differences of Corporate Governance Practices
The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such our Company, to comply with various corporate governance practices. In addition, following the listing of our ADSs on the NYSE, we are required to comply with the listing rules of the NYSE, or NYSE rules.
NYSE rules include certain accommodations to corporate governance requirements that allow foreign private issuers, such as our Company, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of the NYSE. Under NYSE rules, we are required to:
A summary of the significant differences between our corporate governance practices and those required of U.S. listed companies is included below.
Majority of Independent Directors
NYSE rules require that a majority of the board of a listed company consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Under the B3 listing rules, our board of directors must be composed of a minimum of two independent directors or a minimum of 20% of our total directors must be independent, whichever is greater. Additionally, pursuant to the Brazilian Corporation Law and CVM regulations, our directors are required to meet certain qualification requirements that address their compensation, duties and responsibilities. While our directors meet the qualification requirements of the Brazilian Corporation Law and CVM regulations, we do not believe that a majority of our directors would be considered independent under the NYSE rules test for director independence.
Executive Sessions
NYSE rules require that independent directors must meet at regularly scheduled executive sessions. The Brazilian Corporation Law does not have a similar provision, however, the bylaws may provide for such requirement. Under our bylaws, all directors shall meet at least four times each year.
Nominating/Corporate Governance Committee and Compensation Committee
NYSE rules require that listed companies maintain a nominating/corporate governance committee and a compensation committee comprising entirely independent directors and governed by a written charter addressing each committee’s required purpose and detailing its required responsibilities. The responsibilities of the nominating/corporate governance committee include, among other matters, identifying and selecting qualified board member nominees and developing a set of applicable corporate governance principles. The responsibilities of the compensation committee, in turn, include, among other matters, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board compensation of other executive officers, incentive compensation and equity-based compensation plans.
Pursuant to the Brazilian Corporation Law, we are not required to maintain a nominating committee, corporate governance committee or a compensation committee. Aggregate compensation for our directors and executive officers is established by our shareholders at annual shareholders’ meetings. The allocation of aggregate compensation among our directors and executive officers is determined by our directors at board of director meetings. The Brazilian Corporation Law and CVM regulations establish rules in relation to certain qualification requirements and restrictions, compensation, duties and responsibilities of a company’s executives and directors. In addition to the foregoing, the Novo Mercado Rules applicable to us require that the board of directors of a company discusses and approves certain internal policies, including a compensation policy and a nominating policy.
Audit Committee and Audit Committee Additional Requirements
Under Section 303A.06 of the NYSE listing rules and the requirements of Rule 10A-3 under the Exchange Act, each U.S. listed company is required to have an audit committee consisting entirely of independent members that comply with the requirements of Rule 10A-3. In addition, the audit committee must have a written charter compliant with the requirements of Section 303A.07(b) of the NYSE listing rules, the listed company must have an internal audit function and the listed company must fulfill all other requirements of the NYSE and Rule 10A-3. The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other advisory bodies. We have established a statutory audit committee. Our statutory audit committee meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The statutory audit committee is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority.
Shareholder Approval of Equity Compensation Plans
NYSE rules provide for limited exceptions to the requirement that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans (which may be approved for an undefined period). In contrast, pursuant to the Brazilian Corporation Law, all stock option plans must be submitted for approval by the holders of our common shares.
Corporate Governance Guidelines
NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We comply with the corporate governance guidelines under applicable Brazilian law and the Novo Mercado Rules. We believe the corporate governance guidelines applicable to us under Brazilian law are consistent with the NYSE rules. We have adopted and observe policies that deal with the public disclosure of all relevant information and which requires management to disclose all transactions relating to our securities as per CVM’s regulations and the Novo Mercado Rules.
Internal Audit Function
NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of our risk management processes and system of internal control.
The Novo Mercado Rules provide that the listed companies are required to have an audit department whose activities are reported to our board of directors, and which among other matters, is responsible for assessing the quality and effectiveness of our risk management processes.
As of December 31, 2023, we had 11,656 employees (including employees of our subsidiaries and excluding employees of Raízen). The following table sets forth the number of our total employees as of the dates indicated (including employees of Cosan Limited, Cosan, Cosan Logística and their respective subsidiaries for dates prior to the Merger):
11,188
10,658
10,078
Abroad
468
506
503
Total(1)
11,656
11,164
10,581
In the year ended December 31, 2023, we had an average of 5,554 temporary employees.
We believe that we have good relations with our employees and the unions that represent them. Collective bargaining agreements to which we are party have either one-year or two-year terms, are subject to annual renewal and are subject to changes in Brazilian law. We apply the terms of bargaining agreements entered into with the unions equally to unionized and non-unionized employees.
Our total annual personnel expenses were R$2,893.9 million for the year ended December 31, 2023, which includes a provision for vacations, and bonuses, taxes and social contributions.
We offer our employees, including our executive officers, various benefits, which are provided in accordance with the employee’s position in our company. Benefits include medical (including dental) assistance, meal and transport vouchers, life insurance, maternity leave, scholarships and funeral assistance and nursery assistance. All of our employees participate in profit sharing plans developed with the labor unions of which our employees are members, which provide performance-based compensation.
As of September 30, 2024, the following members of the board of directors and executive officers owned our shares and ADSs:
Position Held –Cosan
Cosan Common Shares
Cosan ADSs
Rubens Ometto Silveira Mello*
562,702,674
27,402,567
Others
Board Members
7,146,980
4,892,920
* Shares owned directly and indirectly by Mr. Rubens Ometto Silveira Mello include the total shares of our controlling group, which is not wholly-owned by him.
Other than as disclosed in the table above, none of the members of our board of directors or our executive officers currently owns or holds common shares or ADSs of our Company.
Below is a description of our equity-based compensation plans. See note 24 to our audited consolidated financial statements included elsewhere in this annual report for additional information.
Cosan S.A.
Cosan has two share-based compensation plans in force: (i) the share purchase option plan, approved by the Company’s Ordinary and Extraordinary General Meeting, held on July 29, 2011, or the “Stock Option Plan,” which has not made active grants since 2017, and (ii) the share-based remuneration plan, approved by the Company's Ordinary and Extraordinary General Meeting, held on April 27, 2017, or the “Share-Based Remuneration Plan.” The Share-Based Remuneration Plan provides for the distribution of up to 3% of the Company’s common shares, after giving effect to the issuances of common shares under such plan.
As of the date of this annual report, 34,622,217 common shares of the Company have been granted pursuant to these plans, amounting to 1.85% of the Company’s share capital as of December 31, 2023. This includes shares that were granted in 2017 by the Company in replacement of the options delivered until 2017 as part of the Stock Option Plan, before it was replaced by the Share-Based Remuneration Plan.
On May 5, 2021, a new share-based payment plan allowing for a total award of up to 1,481,000 shares of Rumo was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Rumo’s discretion, after five years.
On September 15, 2021, a new share-based payment plan allowing for a total award of up to 1,560,393 shares of Rumo was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Rumo’s discretion, after three years.
On September 1, 2022, two new share-based payment plans were approved allowing for (i) a total award of up to 1,781,640 shares of Rumo, to be granted at Rumo’s discretion to eligible executives through common shares, no cash consideration, or cash, after three years; and (ii) a total award of up to 146,909 shares of Rumo, to be granted at Rumo’s discretion to eligible executives through common shares, no-cash consideration or cash.
Comgás
On November 1, 2021, Comgás awarded 195,414 restricted shares to certain eligible executives, which will be fully transferred three years from the approval of the grant. The final transfer of the restricted shares to the executives is subject to the terms of the applicable share-grant program.
On August 1, 2021, a new share-based payment plan allowing for a total award of up to 30,205 shares of Compass was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Compass’s discretion, after two years.
On August 1, 2021, a new share-based payment plan allowing for a total award of up to 35,777 shares of Edge Comercialização was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Edge Comercialização’s discretion, after three years.
On August 1, 2021, a new share-based payment plan allowing for a total award of up to 173,316 shares of Compass was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Compass’s discretion, after three years.
On August 1, 2021, a new share-based payment plan allowing for a total award of up to 38,158 shares of Terminal de Regaseificação de São Paulo was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Terminal de Regaseificação de São Paulo’s discretion, after three years.
On November 1, 2021, a new share-based payment plan allowing for a total award of up to 1,672,626 shares of Compass was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Compass’s discretion, after three years.
On February 1, 2022, a new share-based payment plan allowing for a total award of up to 88,899 shares of Compass was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Compass’s discretion, after three years.
On August 1, 2022, a new share-based payment plan allowing for a total award of up to 31,258 shares of Terminal de Regaseificação de São Paulo was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Terminal de Regaseificação de São Paulo’s discretion, after three years. On August 1, 2022, a new share-based payment plan allowing for a total award of up to 826,392 shares of Compass was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Compass’s discretion, after three years.
On August 1, 2022, a new share-based payment plan allowing for a total award of up to 30,441 shares of Edge Comercialização was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Edge Comercialização’s discretion, after three years.
On August 1, 2023, a new share-based payment plan allowing for a total award of up to 234,741 shares of Compass was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Compass’s discretion, after three years.
On August 1, 2023, a new share-based payment plan allowing for a total award of up to 24,862 shares of Edge Comercialização was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Edge Comercialização’s discretion, after three years.
On August 1, 2023, a new share-based payment plan allowing for a total award of up to 22,187 shares of Terminal de Regaseificação de São Paulo was approved. The eligible executives may be granted common shares or no-cash consideration or cash, at Terminal de Regaseificação de São Paulo’s discretion, after three years.
On July 31, 2020, Moove awarded 106,952 share appreciation rights to certain eligible executives. The rights entitle the executives to a cash payment after five years of service. The amount payable will be determined based on the increase of the share price between the grant date and the vesting date. The rights must be exercised on the vesting date and will expire if not exercised on that date.
On July 31, 2021, Moove awarded 80,729 share appreciation rights to certain eligible executives. The rights entitle the executives to a cash payment after three years of service. The amount payable will be determined based on the increase of the share price between the grant date and the vesting date. The rights must be exercised on the vesting date and will expire if not exercised on that date.
On July 31, 2022, Moove awarded 615,362 share appreciation rights to certain eligible executives. The rights entitle the executives to a cash payment after four years of service. The amount payable will be determined based on the increase of the share price between the grant date and the vesting date. In July 2023, such share appreciation rights were canceled.
On July 31, 2022, Moove awarded 77,967 share appreciation rights to certain eligible executives. The rights entitle the executives to a cash payment after three years of service. The amount payable will be determined based on the increase of the share price between the grant date and the vesting date. The rights must be exercised on the vesting date and will expire if not exercised on that date.
On July 31, 2023, Moove awarded 82,204 share appreciation rights to certain eligible executives. The rights entitle the executives to a cash payment after three years of service. The amount payable will be determined based on the increase of the share price between the grant date and the vesting date. The rights must be exercised on the vesting date and will expire if not exercised on that date.
On July 31, 2023, Moove created an incentive program conditioned on length of service (service conditions) and the occurrence of certain liquidity events as set forth in such program (performance conditions). The options granted to participants may only be exercised after they become vested options, and the maximum period for exercising such options will be six years from the date of grant. As of the date of this annual report, Moove has awarded 1,342,609 shares to certain eligible executives.
Cosan Limited and Cosan Logística
Cosan Limited’s and Cosan Logística’s equity-based compensation plan were discontinued and all outstanding awards were settled before the merger of Cosan Limited and Cosan Logística with and into Cosan S.A.
As of September 30, 2024, our issued share capital was R$8,682,543,550.97, fully issued and paid in comprising 1,866,570,932 common shares, nominative and without nominal value (including 1,417,546 treasury shares).
The following table sets forth, as of September 30, 2024, except where otherwise noted, certain information with respect to the number of common shares beneficially owned (as defined by the SEC’s rules and regulations) by (1) each of our executive officers, (2) each member of our board of directors, (3) all current executive officers and directors as a group and (4) each person known to us to own beneficially more than 5% of our outstanding common shares:
Shareholders
Total Number ofCommon Shares
Percentage
Controlling Group
672,312,942
36.02%
Board of directors
21,796,071
1.17%
Executive officers
4,922,589
0.26%
1,166,121,784
62.47%
Treasury shares
1,417,546
0.08%
1,866,570,932
100.00%
Ex-Treasury Shares
1,865,153,386
99.92%
The total number of ADSs held by U.S. investors as of September 30, 2024 is 60,453,543. The total number of common shares held by U.S. investors as of September 30, 2024 is 171,026,542 (excluding common shares held by JPMorgan Chase Bank, N.A. as depositary).
Controlling Group: Aguassanta Investimentos S.A.
On April 30, 2019, a corporate reorganization was approved among companies from our controlling group (Aguassanta Participações S.A., or “Aguassanta,” Queluz S.A. Administração e Participações, or “Queluz,” Costa Pinto S.A., or “Costa Pinto,” and Usina Bom Jesus S.A. Açúcar e Álcool, or “UBJ”), which wished to consolidate their control with Aguassanta, controlled by Mr. Rubens Ometto Silveira Mello. As a result, Costa Pinto, UBJ and Queluz merged into Aguassanta on April 30, 2019.
This reorganization resulted in the transference by Queluz and UBJ to Aguassanta of 19,499,418 class A common shares issued by Cosan Limited and the transfer by Queluz and Costa Pinto to Aguassanta of all the class B common shares issued by Cosan Limited.
On July 29, 2019, Aguassanta approved the incorporation a new company named Aguassanta Investimentos S.A., or “Aguassanta Investimentos,” into which Aguassanta contributed the total of class A common shares and class B common shares issued by Cosan Limited which it held.
Aguassanta Investimentos was the direct controlling shareholder of Cosan Limited, and our indirect controlling shareholder, prior to our intra-group restructuring that occurred on January 22, 2021, pursuant to which Cosan Limited and Cosan Logística were merged into us. Aguassanta Investimentos is our current controlling shareholder.
Voting Rights of Principal Shareholders
Our principal shareholders do not have voting rights distinct from those of our other shareholders of the same class of shares. See “Description of Share Capital—A. Memorandum and Articles of Association.”
Cosan Logística
At our extraordinary shareholders’ meeting held on October 1, 2014, our shareholders approved the spin-off of our logistics business and its merger into Cosan Logística. This corporate restructuring was intended to segregate our logistics activities, by then focused on Rumo, and allowed each of our businesses to be focused on their specific sectors and also to establish capital structures appropriate for each segment. After the spin-off, Cosan Limited became not only our controlling shareholder but also of Cosan Logística. As a result of the spin-off, all shares issued by Cosan Logística previously held by us were canceled and consequently 405,856,814 new shares of Cosan Logística were attributed to our shareholders, at a 1:1 ratio. Since October 6, 2014, our shares were traded without rights to Cosan Logística’s shares, which in turn were traded from October 6, 2014 until March 5, 2021 on the Novo Mercado segment of the B3 under the ticker symbol “RLOG3.” In addition, the spin-off had no impact on the rights attached to our shares. On January 22, 2021, the shareholders of Cosan Limited (the former parent company of Cosan and Cosan Logística) and the shareholders of Cosan and Cosan Logística approved an intra-group restructuring, announced on July 3, 2020 by Cosan, Cosan Limited and Cosan Logística, consisting of a merger of companies under common control, as provided by art. 264, paragraph 4, of Brazilian Law No. 6,404, pursuant to which Cosan Limited and Cosan Logística were merged into Cosan.
On February 24, 2014, Cosan S.A., through its subsidiary Rumo Logística Operadora Multimodal S.A., or “Rumo Logística,” submitted to ALL a binding proposal for the incorporation of ALL by Rumo. The merger was completed on April 1, 2015. See “Item 4. Information on the Company—A. History and Development of the Company” for further information.
On August 27, 2008, as amended on July 14, 2012, September 28, 2012 and November 4, 2016, we entered into a shareholders’ agreement with the TIAA-CREF group, regarding its subsidiary Radar, whose corporate purpose is to identify and acquire rural properties with high appreciation potential for subsequent leasing and/or sale. This agreement was terminated on November 3, 2021, and on the same date we, Mansilla Participações Ltda., and Radar II Propriedades Agrícolas S.A. entered into a new shareholders’ agreement. We currently hold approximately 50% of Radar’s capital, with the remaining 50% being divided among other investors part of TIAA-CREF group. According to the shareholders’ agreement, we retain the majority of votes on Radar’s Board of Directors as well as the power to direct the activities of Radar.
Tellus
On July 1, 2011, we entered into a shareholders’ agreement with TIAA-CREF in order to govern certain of their rights, duties and obligations as shareholders of Tellus Brasil Participações S.A., as amended on October 20, 2022.
Janus
On August 19, 2014, we entered into a shareholders’ agreement with TIAA-CREF in order to govern certain of their rights, duties and obligations as shareholders of Janus Brasil Participações S.A., as amended on October 20, 2022.
Duguetiapar e Gamiovapar
On October 20, 2022, we entered into a shareholders’ agreement with TIAA-CREF in order to govern certain of their rights, duties and obligations as shareholders of Duguetiapar Empreendimentos e Participações S.A. and Gamiovapar Empreendimentos e Participações S.A.
Radar Gestão de Investimentos S.A.
On March 1, 2024, we entered into a shareholders’ agreement with Nuveen Natural Capital Latam Gestora de Ativos Ltda. in order to govern certain of their rights, duties and obligations as shareholders of Radar Gestão de Investimentos S.A.
On July 3, 2012, we entered into the European lubricants and specialties market by signing a sale and purchase agreement with Esso Petroleum Company to acquire Comma Oil & Chemicals Limited (currently known as Moove Lubricants). The value of the transaction, after all adjustments, was less than U.S.$100 million. Moove Lubricants continued to operate in the ordinary course under the “Comma” brand, manufacturing and selling Comma-branded and private label products following the change in control, in order to facilitate our entry into the European lubricants market.
On November 5, 2012, we concluded the acquisition of 60.05% of Comgás from BG Group for R$3.4 billion.
In December, 2017, the put options held by three vehicles of the Shell Group against Cosan Limited were exercised. As a result, Cosan Limited delivered to Shell 17,187,937 common shares issued by us, representing 4.21% of its capital, and received 21,805,645 common shares of Comgás. These were transferred to us, under the same price and payment term conditions of the transaction with Shell. At the conclusion of this transaction, the Cosan Limited reduced its interest in our share capital to 57.98% and we increased our interest in Comgás to 79.87%, with Shell no longer being a shareholder of Comgás.
At the end of this transaction, we and Integral Investments B.V. terminated the Comgás shareholders’ agreement dated December 19, 2012.
On March 8, 2019, we announced the conclusion of the tender offer for the acquisition of class A preferred shares issued by Comgás. A total of 19,496,165 preferred shares were acquired by us in the tender offer at a price of R$82.00 per share, representing approximately 14.77% of Comgás’s capital stock. As a result, our interest in Comgás increased from 80.12% prior to this tender offer to 94.88% following the conclusion of the tender offer, while our interest in Comgás increased from 79.88% prior to this tender offer to 94.65% following the conclusion of the tender offer.
On June 30, 2019, we concluded the tender offer for the acquisition of class A preferred shares issued by Comgás. A total of 22,597,886 preferred shares were acquired by us in the tender offer at a price of R$82.00 per share, representing approximately 17.11% of Comgás’s capital stock. As a result, our interest in Comgás increased from 94.88% prior to this tender offer to 97.23% following the conclusion of the tender offer.
On September 30, 2019, we concluded the tender offer for acquisition of common shares issued by Comgás. A total of 2,527,682 common shares of Comgás were acquired by us in the tender offer at a price of R$83.16 per preferred share, representing approximately 1.92% of Comgás’s capital stock. As a result, our interest in Comgás increased from 97.23% prior to the tender offer to 99.15% following the conclusion of the tender offer.
On January 14, 2020, we contributed to the share capital of our wholly owned subsidiary Compass, formerly known as Distribuidora de Gás Participações S.A., the totality of the shares we held in Comgás (i.e., 103,699,333 common shares and 27,682,044 preferred shares), equivalent to 99.15% of the total share capital of Comgás, for an amount of R$2,862 million. As the parties to the transaction are under common control transaction, there was no effect on our consolidated financial statements. We derecognized the investment in Comgás and we recognized an investment in Compass for the same amount.
On January 3, 2022, Compass, through one of its subsidiaries, concluded the acquisition of 51% of the share capital of Sulgás in the privatization process carried out by the state of Rio Grande do Sul, former controlling shareholder of Sulgás.
On July 11, 2022, Compass concluded the acquisition from Petrobras of 51% of the share capital of Gaspetro, now known as Commit Gás S.A. (“Commit”). On October 9, 2023, Commit’s shareholders approved the partial spin-off of Commit to form a new company to be called Norgás S.A. (“Norgás”). The spun-off portion comprises shares held by Commit in Companhia de Gás do Ceará (“CEGÁS”), Companhia Potiguar de Gás (“POTIGÁS”), Gás de Alagoas S.A. (“ALGÁS”), Sergipe Gás S.A. (“SERGÁS”) and Companhia Pernambucana de Gás (“COPERGÁS”).
On October 20, 2023, Compass, through one of its subsidiaries, concluded the acquisition of 51% of the share capital of Biometano Verde Paulínia S.A., a company that will invest in the development of a biomethane purification plant.
On November 13, 2023, Compass announced the creation of a new business, known as Edge, responsible for the consolidation of Compass’s marketing and services activities, which includes the liquefied natural gas regasification terminal located in Santos, biomethane operations, gas trade and other infrastructure project.
Shareholders’ Agreements and Other Arrangements
Agreements between Shell and Us
We and Shell have entered into other definitive agreements, among others, concerning the scope of the Joint Venture, the governance and management of the Joint Venture and the granting of reciprocal put and call options concerning their interests in the Joint Venture. Each of these agreements was entered into on June 1, 2011.
The shareholders’ agreement for Raízen, or the “Raízen Shareholders’ Agreement,” establishes the scope and governance of the Joint Venture. The agreement provides that the scope of the Joint Venture is the global production of sugarcane-based ethanol and sugar and the distribution; the commercialization and sale of fuel products and lubricants; the operation and franchising and/or licensing of convenience stores businesses within Brazil; the supply and commercialization of fuel products; the operation of retail stations and operation and franchising and/or licensing of convenience stores; the operation of the refinery in Buenos Aires; and the supply, blending, commercialization, and sale of lubricants within Argentina. We, Shell and our respective affiliates are prohibited from competing with the Joint Venture as long as they remain shareholders of the Joint Venture (subject to customary exceptions).
The Raízen Shareholders’ Agreement provides that we and Shell are required to hold a prior meeting whenever a general meeting or a board of directors meeting is convened and to vote at the general meetings, or instruct our appointed representatives to the board of directors to vote at the meetings of the board of directors, in a manner consistent with the resolutions adopted at the prior meeting.
The Raízen Shareholders’ Agreement provides certain significant matters, however, will be subject to the approval of shareholders, at a prior meeting, representing at least 75% of Raízen’s capital stock, namely: (i) appointment or removal of members of the board of directors and the fiscal council or establishment of the fiscal council; (ii) approval of management accounts and financial statements; (iii) resolutions related to the allocation of profits during the year and the distribution of dividends or interest on equity, in accordance with the proposal submitted by the board of directors; (iv) any determination regarding the global compensation of the members of Raízen’s board of directors, executive board and fiscal council; (v) creation of any share grant plan in relation to Raízen’s shares; (vi) any amendment to or termination of the management compensation plan or any decision not to pay any amount payable to any participant in said plan; (vii) any amendment to Raízen’s bylaws or the respective document of any of its subsidiaries; (viii) any change to Raízen’s business purpose or the business purpose of any of its subsidiaries; (ix) any increase or decrease Raízen’s in our capital stock; (x) redemption, amortization, repurchase, alteration or any other form of reorganization or restructuring of Raízen’s shares or creation of additional classes of our shares; (xi) any split or reverse split of Raízen’s shares or payment of share dividends; (xii) any consolidation, spin-off or merger involving Raízen, merger of Raízen’s shares or change in its corporate type or similar transaction in any of its subsidiaries; (xiii) winding up, dissolution, bankruptcy, voluntary termination of business activities or reorganization of Raízen or its subsidiaries; (xiv) appointment or dismissal of a liquidator or member of the audit committee during any period of our liquidation or of any of Raízen or any subsidiary ; (xv) resolution of any matters to which shareholder representatives have referred at a shareholders’ meeting or prior meeting; and (xvi) provided that it is put to vote at any shareholders’ meeting or prior meeting, approval of any act or transaction described in the Shareholders’ Agreement.
Unless another shareholder elects a member of Raízen’s board of directors who is not considered an independent member, we and Shell shall appoint, each, three members of our board of directors, and one of the members appointed by us must be Rubens Mello, as executive chairman of the board of directors. In addition, we and Shell shall each appoint one member considered independent, in accordance with the applicable regulations. Finally, the Raízen Shareholders’ Agreement mentions certain situations in which the voting rights of shareholders would be impaired as a result of a conflict of interest.
In May 2021 and July 2021, we executed amendments to certain agreements in anticipation of Raízen’s initial public offering, which was completed in August 2021. As part of these amendments, the lock-up periods provided for in the applicable agreements were renewed for an additional five years from July 2021. The call and put options described above remained the same.
On July 27, 2023, we entered into the Eighth Amendment to the Shareholders’ Agreement in order to (i) establish the organization of the Lubricants Strategy and Operations Committee, (ii) include Cosan Nove Participações S.A. as a new party of the Shareholders’ Agreement, and (iii) reflect recently-made amendments that have been made to Raízen’s bylaws.
Radar Propriedades Agrícolas S.A. – Shareholders’ Agreement
Mansilla Participações Ltda., Teachers Insurance and Annuity Association of America, we and Radar II Propriedades Agrícolas entered into this shareholders’ agreement on August 27, 2008, amended on November 4, 2016. This shareholders’ agreement consolidates Radar’s shareholders resolutions about share control, transfer of shares, preemption rights, tag‑along and the right to appoint the members of the board of directors. Subject to certain exceptions, corporate resolutions must be approved by shareholders representing a majority of the voting shares.
We, Mansilla Participações Ltda., and Radar II Propriedades Agrícolas entered into a new shareholders’ agreement on November 3, 2021. This shareholders’ agreement consolidates Radar’s shareholders resolutions about shareholders meetings, conditions of future property investments by Radar, transfer of shares, preemption rights, tag‑along, right of first offer (on the sale of certain investments), buy/sell right, the right to appoint the members of the board of directors and conditions of approval of some matters by the board of directors. Subject to certain exceptions, corporate resolutions must be approved by shareholders representing a majority of the voting shares.
Radar II Propriedades Agrícolas S.A. – Shareholders Agreement
The shareholders’ agreement of Radar II Propriedades Agrícolas S.A. was executed by and among Mansilla Participações Ltda., Teachers Insurance and Annuity Association of America, a New York Corporation and us on September 28, 2012, amended on November 4, 2016. This Shareholders Agreement covered Radar II’s shareholders resolutions about share control, transfer of shares, preemption rights, tag‑along and the right to appoint the members of the Board of Directors. Except for certain relevant decisions, the corporate resolutions were to be adopted by shareholders representing the majority of the voting shares.
We and Mansilla Participações Ltda. entered into a new shareholders’ agreement on November 3, 2021. This shareholders’ agreement covers Radar II’s shareholders resolutions about shareholders meetings, conditions of future property investments, Radar II’s voting rights in Radar I and of the group companies, transfer of shares, preemption rights, tag‑along, right of first offer (on the sale of certain investments), buy/sell right, the right to appoint the members of the board of directors and conditions of approval of some matters by the board of directors. Subject to certain exceptions, the corporate resolutions shall be adopted by shareholders representing the majority of the voting shares.
Rumo S.A. – Shareholders’ Agreement
Cosan Logística and Mrs. Julia Dora Antonia Koranyi Arduini entered into the Arduini Shareholders’ Agreement on November 28, 2016. On December 31, 2016, Rumo Logística was merged into its wholly owned subsidiary Rumo S.A., and on January 22, 2021, Cosan Logística was merged into Cosan S.A. As a result, the current parties to the Arduini Shareholders’ Agreement are Rumo S.A. (as the successor entity to Rumo Logística), Cosan S.A. (as the successor entity to Cosan Logística), and Mrs. Julia Arduini.
The Arduini Shareholders’ Agreement defines the terms and conditions that govern the relationship between the parties to the agreement, in particular with respect to: (1) the election of members of our board of directors; (2) the restrictions on the sale and transfer of our shares; and (3) voting arrangements for our shareholders, general meeting and board of directors meeting. The Arduini Shareholders’ Agreement will remain in force for 10 years from November 28, 2016 and may be terminated early if Mr. Rubens Mello leaves the position of chairman of our board of directors or if Julia Arduini’s interest in the company decreases by 50% after the three-year lock-up period on the transfer of shares to which the parties are subject. In addition, the Arduini Shareholders’ Agreement states that our shareholders and board of directors’ meetings will be preceded by preliminary meetings between the parties to the Arduini Shareholders’ Agreement, which shall determine the voting instructions for their representatives at those meetings, who shall vote together as a block.
Tellus Brasil Participações S.A. – Shareholders’ Agreement
The Shareholders Agreement of Tellus Brasil Participações S.A., executed by and among TIAA-CREF Global Agriculture LLC, Nova Gaia Brasil Participações Ltda., Terraviva Brasil Participações Ltda., Radar Propriedades Agrícolas S.A., and us on July 1, 2011, amended on December 20, 2013, December 21, 2014 and October 20, 2022. This Shareholders Agreement consolidates Tellus’ shareholder resolutions about corporate capital and share control, corporate governance, redemption right, put option, transfer of shares, preemption rights, tag‑along, Cosan’s right of first refusal (on the sale of investment), noncompetition provisions and right to appoint the members of the Board of Directors. Except for certain reserved matters, corporate resolutions must be approved by shareholders representing a majority of the voting shares.
Janus Brasil Participações S.A. – Shareholders’ Agreement
The Shareholders Agreement of Janus Brasil Participações S.A., executed by and among TIAA-CREF Global Agriculture II LLC, Helios Brasil Participações Ltda., Iris Brasil Participações Ltda., Radar Propriedades Agrícolas S.A. and us on September 23, 2014, amended on October 20, 2022. This Shareholders Agreement consolidates Janus’ shareholder resolutions about corporate capital and share control, corporate governance, redemption right, put option, transfer of shares, preemption rights, tag‑along, Cosan’s right of first refusal (on the sale of investment), noncompetition provisions and the right to appoint the members of the Board of Directors. Except for certain reserved matters, corporate resolutions must be approved by shareholders representing a majority of the voting shares.
Duguetiapar Empreendimentos e Participações S.A. e Gamiovapar Empreendimentos e Participações S.A. – Shareholders’ Agreement
The Shareholders’ Agreement of Duguetiapar Empreendimentos e Participações S.A., or “Duguetiapar,” and Gamiovapar Empreendimentos e Participações S.A., or “Gamiovapar,” executed by and among TIAA-CREF Global Agriculture LLC, Nova Gaia Brasil Participações Ltda., Terraviva Brasil Participações Ltda., Radar II Propriedades Agrícolas S.A. and us on October 20, 2022, or the “Duguetiapar and Gamiovapar Shareholders’ Agreement.” The Duguetiapar and Gamiovapar Shareholders’ Agreement consolidates, as between Duguetiapar and Gamiovapar, the rules applicable to corporate share capital and control, corporate governance, redemption rights, put options, transfer of shares, preemption rights, tag-along rights, Cosan’s right of first refusal in potential asset sales, noncompete clauses and the right to appoint certain members of the boards of directors of Duguetiapar and Gamiovapar. Except where a qualified quorum is required by the constitutive documents of each company and/or the Duguetiapar and Gamiovapar Shareholders’ Agreement, corporate resolutions shall be adopted by shareholders representing the majority of voting shares.
Brado Logística e Participações S.A. – Shareholders’ Agreement
The shareholders’ agreement of Brado Logística e Participações S.A., or “Brado,” was entered into by and among Fundo de Investimento do Fundo de Garantia do Tempo de Serviço- FI-FGTS, or “FI-FGTS,” Logística Brasil-Fundo de Investimento em Participações, Deminvest Empreendimentos e Participações S.A., Markinvest Gestão de Participações Ltda., or the “Original Shareholders,” and Brado Holdings S.A., with the intervention of Brado Logística Participações S.A., Brado Logística S.A. and ALL-América Latina Logística S.A. (current Rumo S.A.) on August 5, 2013. This shareholders’ agreement resolutions about share control, transfer of shares, preemption rights, tag‑along and the right to appoint the members of the board of directors. The shareholders’ agreement also provides that certain reserved matters are subject to a right of veto on the part of the signatories. We are not a party to this Agreement. This Agreement is the object of an ongoing confidential arbitration procedure.
Cosan Lubes Investments Limited – Shareholders’ Agreement
On March 29, 2019, we entered into a shareholders’ agreement in relation to Cosan Lubes Investments Limited, or “CLI,” with Galt Lubes Investments Limited, or “Galt,” an investment vehicle managed by CVC Fund VII, or “CVC,” following Galt’s subscription for new common shares representing 30% of the share capital of CLI. This shareholders’ agreement contains the reserved matters to be voted on at the shareholder’s meeting and board of directors, lock-up provisions which restrict our ability to transfer of control of CLI for a period of five years from March 29, 2019, includes a right of first refusal for both of us and Galt and tag-along rights in the case of transfer of shares to any third party, preemption rights in the case of an issuance of new shares or other securities and provisions relating to the transfer of shares, stock option plan, noncompete and nonsolicitation, among others.
Compass – Shareholders Agreement
On December 11, 2019, Comercializadora de Gás S.A., a company wholly owned by Compass, a subsidiary of Cosan S.A., entered into a quota purchase agreement with Marcelo Faria Parodi and Ritchie Guder for the acquisition of 100% of the quotas of Compass Comercializadora de Energia Ltda., Compass Energia Ltda. and Black River Participações Ltda. These entities are involved in the sale of electric power and consulting for clients in such segment.
On January 30, 2020, on the closing date of the acquisition mentioned above, as part of the transaction, Cosan S.A. approved a capital increase in Compass, which was fully subscribed by Marcelo Parodi and Ritchie. In this context, Marcelo Parodi and Ritchie became shareholders of Compass with an interest of less than 1%.
As shareholders of Compass, Marcelo Parodi and Ritchie are subject to a lock-up provision of three years and are entitled to a put option right exercisable during a month after the publishing of the financial statements of Compass for the fiscal year of 2022. We are also entitled to a call option exercisable during the same period. Marcelo Parodi and Ritchie are entitled to a tag-along right if we decide to sell our shares in Compass, and have a preemptive right to acquire Marcelo Parodi and Ritchie’s shares. On July 16, 2021, we bought the shares of Compass owned by Marcelo Parodi and Ritchie; thus, the conditions above mentioned were terminated.
On May 31, 2021, we, Atmos Ilíquidos Fundo de Investimento em Ações, Atmos Master Fundo de Investimento em Ações, Manzat Inversiones Auu S.A. and Ricardo Ernesto Correa da Silva executed the shareholders agreement of Compass. The shareholders’ agreement consolidates Compass’s shareholders’ resolutions about corporate capital and share control, preferred shares rights, preferred shareholders prior meetings, provisions relating to transfer of shares, restriction to the transfer of Compass’s shares by the preferred shareholders for a three‑year period (except for the permitted transfers provided in the shareholders agreement), tag-along, preemption rights, and initial public offering conditions, if applicable. This agreement will remain in force (i) for 10 years from the signing date or (ii) until financial settlement of any initial public offering of the company, if applicable.
On September 4, 2021, we, Bradesco Vida e Previdência S.A., Nucleo Capital Ltda., BC Gestão de Recursos Ltda., and Prisma Capital Ltda. executed the shareholders agreement of Compass S.A. This shareholders’ agreement consolidates Compass’s shareholders resolutions about corporate capital and share control, preferred shares rights, preferred shareholders prior meetings, provisions relating to transfer of shares, restriction to the transfer of Compass’s shares by the preferred shareholders for a three-year period (except for the permitted transfers provided in the shareholders agreement), tag‑along, preemption rights, and initial public offering conditions, if applicable. This agreement will remain in force (i) for 10 years from the signing date or (ii) until financial settlement of any initial public offering of the company, if applicable.
Commit Gás S.A. – Shareholders Agreement
On December 28, 2015, Petróleo Brasileiro S.A. and Mitsui Gás e Energia do Brasil Ltda. entered into the shareholders’ agreement, or the “Commit Shareholders’ Agreement.” Following the acquisition of 51% of the share capital of Commit by Compass, on July 11, 2022, Compass entered into the Commit Shareholders’ Agreement substituting Petróleo Brasileiro S.A. The Commit Shareholders’ Agreement provides, among other things, for the controlling interest of Commit, dividends distribution, preferred shares rights, share transfer provisions, preemption right, call option, shareholders’ meeting, composition and decisions of the board of directors, executive officers composition and appointments, and administration of subsidiaries.
Cosan Dez Participações S.A. – Shareholders Agreement
On December 23, 2022, we and Bradesco BBI S.A. entered into a shareholder’s agreement relating to our subsidiary Cosan Dez, or the “Cosan Dez Shareholders’ Agreement.” The Cosan Dez Shareholders’ Agreement provides that Cosan Dez’s shareholders resolutions will establish share-control arrangements, preferred shares rights, distribution of profits, provisions relating to transfer of shares, lock-up period, preemption rights, call options and redemption rights. The Cosan Dez’s Shareholders’ Agreement also gives Bradesco BBI S.A. a contingent call option exercisable only upon the occurrence of certain events constituting a material adverse effect listed in the agreement. The Cosan Dez’s Shareholders’ Agreement will remain in force as long as there are outstanding preferred shares. Cosan Dez currently holds the totality of the shareholding interest Cosan previously had in Compass.
On December 23, 2022, we and Bradesco BBI S.A. entered into a voting agreement relating to the voting rights of Cosan Dez’s shareholders, or the “Cosan Dez Voting Agreement.” Cosan Dez Voting Agreement provides that shareholders’ resolutions will establish share-control arrangements, shareholders’ meeting frequency and preferred shares voting rights. Unless a qualified quorum is otherwise required, corporate resolutions shall be adopted by shareholders representing the majority of Cosan Dez’s voting shares. Cosan Dez’s Voting Agreement will remain in force until December 23, 2032.
Cosan Nove Participações S.A. – Shareholders Agreement
On December 28, 2022, we and Itaú Unibanco S.A. entered into a shareholders’ agreement relating to our subsidiary Cosan Nove, or the “Cosan Nove Shareholders’ Agreement.” The Cosan Nove Shareholders’ Agreement provides that shareholders resolutions will establish share-control arrangements, preferred shares rights, provisions relating to transfer of shares, distribution of profits, lock-up period, preemption rights, tag-along rights, call options, redemption rights, and our rights to appoint all of Cosan Nove’s executive officers. Unless a qualified quorum is otherwise required, corporate resolutions shall be adopted by shareholders representing the majority of the voting shares of Cosan Nove. The Cosan Nove’s Shareholders’ Agreement also gives Itaú Unibanco S.A. a contingent call option exercisable only upon the occurrence of certain events constituting a material adverse effect listed in the agreement. The Cosan Nove Shareholders’ Agreement will remain in force until December 28, 2057. Cosan Nove currently holds part of the shareholding interest that Cosan previously held in Raízen.
Radar Gestão de Investimentos S.A. – Shareholders Agreement
The shareholders agreement of Radar Gestão de Investimentos S.A., was executed by and among Nuveen Natural Capital Latam Gestora de Ativos Ltda. and us on March 1, 2024. This shareholders agreement provides, among another things, for the following matters to be decided unanimously by both shareholders: the composition of the board of directors and the board of officers and their respective powers, the annual budget, dividends distribution, restrictions on transfers of shares, lock-up rights, right of first refusal, tag along and exit right. The Radar Gestão de Investimentos S.A.’s shareholders agreement will remain in force until 2044.
We engage in related party transactions with certain of our affiliates, some of which are of a recurring nature. Financial information with respect to certain material related party transactions is set forth in note 5.8 to our audited consolidated financial statements included elsewhere in this annual report.
Our board of directors delegates to the audit committee the responsibility for reviewing and approving the related party transactions in accordance with our policy on transactions with related parties (within the meaning of Item 404 of Regulation S-K of the SEC). The audit committee is responsible for obtaining information from our directors, executive officers and major shareholders with respect to related party transactions and for then determining, based on the facts and circumstances, whether our company or a related party has a direct or indirect material interest in the transaction. As required under SEC rules, transactions that are determined to be directly or indirectly material to our company or a related party has been disclosed herein.
In the normal course of business, we have operational and financing transactions with related parties. The significant related party balances and transactions are described in note 5.8 to our audited consolidated financial statements included elsewhere in this annual report.
See “Item 18. Financial Statements.”
Legal Proceedings
We are party to numerous legal proceedings, the most relevant of which are further described below.
Probable Losses
In the ordinary course of our business, we are party to a number of legal proceedings for which we deem the risk of loss as probable and for which we have recorded provisions for legal proceedings in an aggregate amount of R$1,714.4 million as of December 31, 2023 and R$1,801.2 million as of December 31, 2022. Provisions relating to probable losses are categorized into tax, civil, environmental, regulatory, and labor, as described below.
Tax. We recorded provisions of R$813.7 million and R$747.6 million for tax proceedings involving probable risk of loss as of December 31, 2023 and December 31, 2022, respectively. The principal tax proceedings for which the risk of loss is probable are described below:
Civil, regulatory, environmental and other claims. We, our subsidiaries and jointly controlled entity are parties to a several number of civil legal claims related to (1) indemnity for material and moral damages; (2) termination or litigation of in relation to different kinds of agreements (3) public civil claims related to sugarcane stubble burning; (4) environmental matters; and (5) compliance with certain conduct adjustment agreement and other matters. Provisions for civil, regulatory and environmental claims as of December 31, 2023 amounted to R$513.0 million and R$662.1 million as of December 31, 2022. As of December 31, 2023, R$114.7 million in judicial deposits were made for civil and environmental claims, and this figure was R$92.4 million as of December 31, 2022. Cosan S.A., its subsidiaries and jointly controlled entity are also parties to a number of regulatory legal proceedings related to (1) collection of fines by the ANTT; (2) discussions on the tariff ceiling imposed by the ANTT; and (3) certain other matters.
Labor claims. We, our subsidiaries and jointly controlled entity are also parties to a number of labor claims filed by former employees and service providers challenging, among other matters, the payment of overtime, night shift premiums and risk premiums, the recognition of employment relationships and the reimbursement of discounts from payroll, such as social contribution and trade union charges. Additionally, we are involved in several labor administrative and judicial proceedings such as labor investigations and class actions filed by the labor prosecutor’s office regarding alleged noncompliance with certain labor regulations, including work and safety rules, labor conditions and work environment, and social assistance plans. Moreover, we entered into certain consent orders (Termos de Ajustamento de Conduta) with Brazilian authorities and in the event we fail to comply with such consent orders, we could be subject to fines. Provisions for labor claims as of December 31, 2023 and 2022, amounted to R$387.7 million and R$391.5 million, respectively, while judicial deposits for labor claims amounted to R$128.9 million and R$136.0 million as of December 31, 2023 and 2022, respectively.
Possible Losses
In addition, there are currently certain legal proceedings pending in which we are involved for which we have not recorded provisions, as we deem the likelihood of loss as possible. If adverse decisions are rendered against us in any of these legal proceedings, our results of operations or financial condition could be materially and adversely affected. The aggregate amount involved in proceedings for which our risk of loss has been deemed possible as of December 31, 2023 totaled R$23,674.5 million, of which R$15,703.3 million, R$7,166.0 million and R$805.2 million were related to tax, civil, environmental and regulatory and labor claims, respectively. The principal proceedings for which we deem the risk of loss as possible are described below:
Certain Tax Proceedings
We are parties to certain other tax proceedings, including the following primary proceedings:
Judicial Deposits
In accordance with court orders concerning certain tax, civil and labor lawsuits, we had bank judicial deposits in an aggregate amount of R$895.9 million as of December 31, 2023.
Criminal Proceedings
Criminal Environmental Claims
Cosan and its subsidiaries are parties to nine criminal environmental lawsuits and are being investigated in certain environmental police inquiries in process in the states of São Paulo, Pará, Rio Grande do Sul, Mato Grosso do Sul, Paraná, Rio de Janeiro, Minas Gerais, Bahia, Pernambuco and Santa Catarina. The main crimes alleged to have been committed are noise pollution, contamination of soil and rivers, burning, deforestation of native forest, emission of pollutants into the atmosphere and irregular transportation of dangerous products.
Cosan is party to a criminal proceeding commenced by the Public Prosecutor’s Office of Pará for the alleged environmental crime of pollution. In March 2017, a decision was rendered recognizing that the statute of limitations had expired against the Public Prosecutor’s Office claim against Cosan. The prosecution filed an appeal and the court of appeals has granted continuance of the proceedings. We are currently awaiting service of process for the recommencement of the criminal proceeding. In addition to the application of fines, imposition of penalties that restrict certain rights, such as the suspension of activities or prohibition to enter into contracts with public authorities. The risk of loss has been classified as possible.
Criminal Proceedings Involving Members of Our Management
Certain members of our management are parties to criminal proceedings, as follows:
Mr. Rubens Mello and Mr. Pedro Mizutani
Mr. Rubens Mello and Mr. Pedro Mizutani and others were named as defendants in a criminal complaint filed on October 29, 2014 to determine whether they have committed tax evasion in connection with the alleged failure to adequately pay state value added taxes (ICMS). The determination as to whether outstanding taxes are in fact due is at issue in a separate tax collection enforcement proceeding that is independent of the criminal proceeding. Bank letters of credit and insurance guarantees have been deposited with the relevant court in order to secure the amount in controversy. Given the fact that the crime of tax evasion requires there to be an actual loss to the tax authorities, such deposits have generally been interpreted by the Brazilian courts to eliminate criminal liability given that there would no longer exist a direct or indirect risk of harm to the public treasury and the allegedly illicit conduct of the defendants would no longer constitute a crime. This understanding, however, may change depending on the judge’s final decision. In view of the foregoing, the defense filed a motion requesting that the criminal proceedings (which are currently suspended) be terminated for lack of cause. As of the date of this annual report, this criminal proceeding is stayed and awaiting final judgment of a motion to stay enforcement of the related tax proceedings. In the opinion of counsel responsible for the defense, the likelihood of a decision favorable to the defendants is possible. In any event the payment of the amounts due would be sufficient to extinguish criminal liability.
Mr. Rubens Mello and Mr. Pedro Mizutani were named as defendants in a criminal complaint filed on May 16, 2019 to determine whether they have committed tax evasion in connection with the alleged failure to adequately pay state value-added taxes (namely ICMS). The determination as to whether outstanding taxes are in fact due is at issue in a separate tax collection enforcement proceeding that is independent of the criminal proceeding. Bank letters of credit and insurance guarantees have been deposited with the relevant court in order to secure the amount in controversy. Given the fact that the crime of tax evasion requires there to be an actual loss to the tax authorities, such deposits have generally been interpreted by the Brazilian courts to eliminate criminal liability given that there would no longer exist a direct or indirect risk of harm to the public treasury and the allegedly illicit conduct of the defendants would no longer constitute a crime. This understanding, however, may change depending on the judge’s final decision. In September 2023, the Court confirmed the previously decision that the criminal proceedings will be suspended until the final decision in motion to stay execution on tax sphere. In the opinion of counsel responsible for the defense, the likelihood of a decision favorable to the defendant is possible.
Mr. Rubens Mello, in his capacity as a representative of Cosan, is also a party to two police investigations into tax evasion practices. For similar reasons as in the case above, these investigations have been stayed, and a court has ordered that Mr. Mello’s name be removed from the investigation. The amount at issue is R$9.1 million. Possible contingencies could result from other procedures related to these facts, such as the tax foreclosure proceedings that gave rise to this criminal investigation. The chance of loss has been assessed as possible.
Mr. Rubens Mello and Mr. Marcelo Martins
Mr. Martins and Mr. Mello, together with other individuals, are named defendants in their capacities as executive officers and accountants of Nova América S/A Comercial, in certain criminal complaints filed by the prosecutors of the state of Rio de Janeiro in connection with the alleged commission of crimes against the tax order related to the alleged failure to adequately pay state value-added taxes (ICMS) by Nova América. Mr. Martins and Mr. Mello and the other defendants were summoned and presented their defenses. In December 2021, the court ruled that the criminal complaint be suspended until the final decision in the motion to stay execution on the tax proceedings. As a result, this proceeding is currently stayed. In the opinion of the counsel responsible for the defense, the likelihood of a decision favorable to the defendant is possible.
Legal Proceedings of the Joint Venture
In addition, the Raízen Joint Venture is also party of certain legal proceedings as described under “Item 4. Information on the Company—E. Supplemental Information About Joint Venture—Legal and Administrative Proceedings of the Joint Venture.”
Dividends and Dividend Policy
Dividend Rights
The Brazilian Corporation Law and Cosan S.A.’s bylaws require that we distribute annually to our shareholders a mandatory minimum dividend, unless our board of directors notifies the shareholders that such distribution is not advisable in light of our financial condition as reflected in our consolidated financial statements. The basis of the mandatory dividend is a percentage of the net income, as adjusted pursuant to the Brazilian Corporation Law. Under our bylaws, a minimum of 25% of our adjusted net income should be intended for distribution and payment to our shareholders as mandatory dividend. However, the payment of mandatory dividends to our shareholders may be limited to the amount of realized net income in a given year, provided the difference is recorded as an unrealized income reserve.
We are required by the Brazilian Corporation Law and our bylaws to hold an annual shareholders’ meeting no later than four months after the end of each fiscal year, at which time the allocation of the results of operations in any year and the distribution of an annual dividend are reviewed. The distribution of annual dividends is based on our audited consolidated financial statements prepared for the immediately preceding fiscal year.
Additionally, pursuant to the Brazilian Corporation Law and Cosan S.A.’s bylaws, interim and extraordinary dividends may be distributed to our shareholders by decision of our board of directors, to be confirmed by the shareholders’ meeting. Amounts paid as interim and extraordinary dividends are included in the calculation of the minimum mandatory dividend provided for in the Brazilian Corporation Law and Cosan S.A.’s bylaws.
Calculation of Adjusted Net Income
At each annual shareholders’ meeting, our board of directors is required to recommend how to allocate our net income for the preceding fiscal year, which recommendation our board of executive officers initially submits to our board of directors for approval.
This allocation is subject to approval by our common shareholders. The Brazilian Corporation Law defines “net income” for any fiscal year as our profit after income taxes for that fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to employees’ participation in our profit in that fiscal year. Under the Brazilian Corporation Law, our adjusted net profit available for distribution are equal to our net profit in any fiscal year, reduced by amounts allocated to our legal reserve and other applicable reserves, and increased by any reversals of reserves that we constituted in prior years.
Reserve Accounts
Under the Brazilian Corporation Law and our bylaws, we are required to maintain a legal reserve. In addition, we are permitted by the Brazilian Corporation Law to establish the following discretionary reserves:
Allocations to each of these reserves (other than the legal reserve) are subject to approval by our common shareholders voting at our annual shareholders’ meeting.
The Brazilian Corporation Law provides that the legal reserve and the tax incentive investment reserve may be credited to shareholders’ equity or used to absorb losses, but these reserves are unavailable for the payment of distributions in subsequent years.
The amounts allocated to the other reserves may be credited to shareholders’ equity and used for the payment of distributions in subsequent years.
We expect to have sufficient available cash to pay dividends in accordance with our dividend policy. We do not, however, plan to pay dividends in the event that we do not generate sufficient cash from operations. In addition, we will not pay dividends if we believe that such payment will limit or preclude our or our subsidiaries’ ability to pursue growth opportunities. Although our bylaws do not restrict us from borrowing funds to pay dividends, we do not intend to borrow funds to pay dividends.
Any cash dividends payable to holders of our ADSs quoted on the NYSE will be paid to J.P. Morgan Chase Bank, N.A., our transfer agent in the United States, for disbursement to those holders.
Joint Venture’s Dividend Policy
The shareholders’ agreement between us and Shell also establish the dividend policy of the Joint Venture. The dividend policy states that the Joint Venture seeks to maximize the amount of profits to be distributed to its shareholders in a manner consistent with its leverage ratio objectives and capital investment requirements. The supervisory boards must propose, and the shareholders approve, an allocation of the net profit of the Joint Venture in accordance with the shareholders’ agreements. The shareholders’ agreements provide that net profit is subject to the following allocation order:
Brazilian Taxation
Taxation of Dividends
Dividends paid on our common shares or ADSs to U.S. Holders are currently not subject to withholding income tax, or “WHT,” in Brazil to the extent that such amounts are related to profits generated on or after January 1, 1996. Dividends paid from profits generated before January 1, 1996 may be subject to WHT at variable rates, according to the tax legislation applicable to each corresponding year.
Law No. 11,638, dated December 28, 2007, or Law No. 11,638, significantly changed the Brazilian Corporation Law in order to align Brazilian generally accepted accounting principles with the IFRS. Nonetheless, Law No. 11,941, dated May 27, 2009, introduced the Transitory Tax Regime, or the “RTT,” in order to render neutral, from a tax perspective, all the changes provided by Law No. 11,638. Under the RTT, for tax purposes, legal entities should observe accounting methods and criteria that were effective on December 31, 2007.
Profits determined pursuant to Law No. 11,638, or the “IFRS Profits,” may differ from the profits calculated pursuant to the accounting methods and criteria as effective on December 31, 2007, or the “2007 Profits.” While it was general market practice to distribute exempted dividends with reference to the IFRS Profits, Rule No. 1,397, issued by the Brazilian tax authorities on September 16, 2013, established that legal entities should observe the 2007 Profits in order to determine the amount of profits that could be distributed as exempted income to their beneficiaries. Any profits paid in excess of such 2007 Profits, or Excess Dividends, should, in the tax authorities’ view and in the specific case of nonresident beneficiaries, be subject to the following rules of taxation: (1) 15.0% WHT, in case of beneficiaries domiciled abroad, but not in a Low or Nil Tax Jurisdiction, and (2) 25.0% WHT in the case of beneficiaries domiciled in a Low or Nil Tax Jurisdiction.
In order to mitigate potential disputes on the subject, Law No. 12,973, dated May 13, 2014, or Law No. 12,973, in addition to revoking the RTT, introduced a new set of tax rules, or the “New Brazilian Tax Regime,” including new provisions with respect to excess dividends. Under these new provisions: (1) excess dividends related to profits assessed from 2008 to 2013 are exempt; (2) potential disputes remain concerning the excess dividends related to 2014 profits, since Law No. 12,973 has not expressly excluded those amounts from taxation and Rule No. 1,492, issued by the Brazilian tax authorities on September 17, 2014, established they are subject to taxation when distributed by companies which have not elected to apply the New Brazilian Tax Regime in 2014; and (3) as of 2015, as the New Brazilian Tax Regime is mandatory and has completely replaced the RTT, dividends calculated based on IFRS Profits should be considered fully exempt.
Recently, the Brazilian National Congress approved Constitutional Amendment 123/23, known as the Consumption Tax Reform, which enacts various changes to consumption taxes. The approved text also sets a deadline for the Brazilian federal government to present a proposal for income tax reform, including potential taxation on dividends. Therefore, there is no assurance that the current tax exemption on dividends distributed by Brazilian companies will continue in the future. Potential changes in the tax treatment of these payments would become effective in the year following the enactment of the relevant law.
Distribution of Interest on Equity
Brazilian corporations are allowed to make payments to shareholders of interest on shareholders’ equity as an alternative to carrying out dividend distributions and treat those payments as a deductible expense for the purposes of calculating Brazilian corporate income tax and social contribution on net income.
For tax purposes, this interest is limited to the daily variation of the pro rata variation of the TJLP, as determined by the Central Bank from time to time as applied to certain equity accounts, subject to certain inclusions or exclusions as set forth in the applicable law, and the amount of the distribution may not exceed the greater of:
Payments of interest on shareholders’ equity to Brazilian and non-Brazilian holders of common shares, including payments to the depositary in respect of common shares underlying ADSs, are deductible by us for Brazilian corporate income tax purposes. Any payments to U.S. holders or other non-Brazilian holders are subject to Brazilian withholding tax at the rate of 15%. If the recipient of the payment is domiciled in a tax haven jurisdiction, as defined by Brazilian law, the rate will be of 25%.
We cannot assure you that the Brazilian federal government will not increase the withholding income tax on interest on shareholders’ equity in the future or eliminate the interest on shareholders’ equity altogether.
Our common shares became listed on the B3 and began trading under the symbol “CSAN3” on November 18, 2005. Following the Merger, our ADSs began trading on the NYSE under the symbol “CSAN,” on March 8, 2021. On September 30, 2024, there were 1,865,153,386 common shares issued and outstanding (excluding 1,417,546 common shares held in treasury), out of which 60,453,543 (representing 241,814,172 common shares) were represented by ADSs outstanding, which is equivalent to 12.95% of our total outstanding shares. On September 30, 2024, we had approximately 162,411 shareholders, including approximately 195 registered U.S. resident holders of our common shares listed on the B3.
Our common shares are listed on the B3 and trade under the symbol “CSAN3” and our ADSs are listed on the NYSE and trade under the symbol “CSAN.” For further information, see “Item 9. The Offer and Listing—A. Offer and Listing Details.”
Trading on the São Paulo Stock Exchange
Settlement of transactions conducted on the São Paulo Stock Exchange, or Brasil, Bolsa, Balcão, or the “B3,” becomes effective two business days after the trade date. Delivery of, and payment for, shares is made through the facilities of separate clearinghouses for each exchange, which maintain accounts for member brokerage firms. The seller is ordinarily required to deliver the shares to the clearinghouse of the B3 on the second business day following the trade date.
In order to better control volatility, the B3 has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of these stock exchanges fall below the limits of 10% and 15%, respectively, in relation to the index registered in the previous trading session.
The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions, and may be regulated differently from the ways familiar to U.S. investors. There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States. Although any of the outstanding shares of a listed company may trade on a Brazilian stock exchange, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, governmental entities or one principal shareholder.
Trading on the B3 by non-residents of Brazil is subject to certain limitations under Brazilian foreign investment and tax legislation. See “Taxation” and “Description of Share Capital—B. Exchange Controls.”
São Paulo Stock Exchange Corporate Governance Standards
The B3 has three main listing segments:
These listing segments have been designed for the trading of shares issued by companies that voluntarily undertake to abide by corporate governance practices and disclosure requirements in addition to those already required under the Brazilian Corporation Law and the rules of the CVM. The inclusion of a company in any of these listing segments requires adherence to a series of corporate governance rules. These rules are designed to increase shareholders’ rights and enhance the quality of information provided by Brazilian corporations.
As our common shares are listed on the Novo Mercado segment of the B3, in addition to the disclosure obligations imposed by the Brazilian Corporation Law and the CVM, we also must comply with the following additional disclosure requirements set forth by the Novo Mercado rules:
No later than six months following the listing of our common shares on the Novo Mercado, we must disclose the following information together with our ITR:
The following information must also be included in our formulário de referência within seven business days of the occurrence of the following events, among others:
All members of our board of directors, our board of executive officers and our fiscal council have signed a management compliance statement (Termo de Anuência dos Administradores) under which they take personal responsibility for compliance with the Novo Mercado listing agreement, the rules of the Market Arbitration Chamber and the regulations of the Novo Mercado.
Additionally, pursuant to the Novo Mercado rules, we must, by December 10 of each year, publicly disclose and send to the B3 an annual calendar with a schedule of our corporate events. Any subsequent modification to such schedule must be immediately and publicly disclosed and sent to B3.
The following is a summary of certain significant provisions of our bylaws (estatuto social). This description does not purport to be complete and is qualified by reference to the complete text of our bylaws and the applicable laws of Brazil. This summary should not be considered as legal advice regarding these matters. You are urged to carefully review our bylaws in their entirety as they, and not this description, will control your rights as a holder of our common shares. In this section, unless otherwise stated, references to “we,” “us,” “our,” or the “Company” refer solely Cosan S.A., excluding its subsidiaries.
Pursuant to the Novo Mercado regulations, our capital stock must consist exclusively of common shares. Cosan is a corporation (sociedade anônima) of indefinite term incorporated under the laws of Brazil, having its registered office in the city of São Paulo, state of São Paulo, at Avenida Brigadeiro Faria Lima, 4,100 – 16th floor, room 1, ZIP Code 04538-132, Brazil, enrolled with the Brazilian taxpayers’ registry (Cadastro Nacional de Pessoas Jurídicas — CNPJ) under No. 50.746.577/0001-15. Cosan was incorporated on July 8, 1966. Cosan is governed by the laws of Brazil, as well as by our bylaws.
Capital Stock
As per Article 5 of our bylaws, the capital stock of Cosan, fully subscribed and paid in, is of R$8,682,543,550.97, divided into 1,874,070,932 registered common shares, with no par value. The capital stock of Cosan will be represented solely by common shares, and each common share will be entitled to one vote on the resolutions to be adopted by the shareholders.
Cosan is authorized to increase its capital stock, regardless of an amendment to our bylaws, in up to nine billion reais (R$9,000,000,000.00), upon a resolution of its board of directors, which will establish the terms of issuance, including the price and payment. The board of directors may also approve the issuance of warrants (bonus de subscrição) and convertible debentures, as well as capitalization of profits of reserves, whether or not by issuing bonus shares, within the limits of the authorized capital.
The board of directors of Cosan may grant stock purchase or subscription options, under the plan or programs approved at the shareholders’ meeting, to the managers and employees of Cosan, as well as to managers and employees of other companies directly or indirectly controlled by Cosan, without preemptive rights to the shareholders at the time of either grant or exercise of such options, subject to the balance of the authorized capital limit at the time of exercise of subscription options, analyzed together with the balance of treasury shares at the time of exercise of purchase options.
Corporate Purpose
As per Article 3 of the our bylaws, our corporate purposes are to (1) import, export, produce and trade sugar, ethanol, sugarcane, and other sugar byproducts; (2) distribute fuels in general and trade oil byproducts; (3) establish fuel supply stations, purchase and sell oil-derived fuels and lubricants; (4) provide logistics and port services, as well as technical, administrative and financial advisory services; (5) any type of transportation of passengers and cargo, including inland navigation, river and lake ferries; (6) produce and trade electricity, live steam, steam escape and other electricity co-generation byproducts; (7) farming and livestock activities in proprietary or third-party-owned lands; (8) import, export, handle, trade, produce, store, load or unload fertilizers and other agricultural inputs; (9) manage on its own account or through third parties assets and property and may lease, receive and grant in partnership, rent and lease furnishings, properties and equipment in general; (10) render technical services related to the activities mentioned above; (11) hold equity interest in other companies; and (12) processing and trading of fuel gases.
The development of activities by the companies that Cosan holds direct or indirect interest in any type considers the following factors: (1) the short- and long-term interests of Cosan and its shareholders, and (2) the short and long‑term economic, social, environmental and legal effects on its employees, suppliers, partners, clients and other creditors, as well as on the communities in which Cosan operates, both locally and globally.
Dividends
Our bylaws require that we distribute annually to our shareholders a mandatory minimum dividend, which we refer to as the mandatory dividend, equal to at least 25% of our net income after taxes, after certain deductions, including accumulated losses and any amounts allocated to employee and management participation, any amount allocated to our legal reserve, any amount allocated to our special reserve, any amount allocated to the contingency reserve and any amount written off with respect to the contingency reserve accumulated in previous fiscal years, in each case in accordance with Brazilian law.
However, the Brazilian Corporation Law permits a company to suspend the mandatory distribution of dividends if its board of directors reports to the shareholders’ meeting that the distribution would be incompatible with the financial condition of the company, subject to approval by the shareholders’ meeting and review by the fiscal council. In addition, our management must submit a report to the CVM clarifying the reasoning for any such non-payment. Net income not distributed due to such a suspension must be attributed to a separate reserve and, if not absorbed by subsequent losses, must be paid as dividends as soon as the financial situation of the company permits.
The amounts available for distribution are determined on the basis of financial statements prepared in accordance with the requirements of the Brazilian Corporation Law. In addition, amounts arising from tax incentive benefits or rebates are appropriated to a separate capital reserve in accordance with the Brazilian Corporation Law. This investment incentive reserve is not normally available for distribution, although it can be used to absorb losses under certain circumstances, or be capitalized. Amounts appropriated to this reserve are not available for distribution as dividends.
The Brazilian Corporation Law permits a company to pay interim dividends out of preexisting and accumulated profits for the preceding fiscal year or semester, based on financial statements approved by its shareholders. We may prepare financial statements semiannually or for shorter periods. Our board of directors may declare a distribution of dividends based on the profits reported in semiannual financial statements. Our board of directors may also declare a distribution of interim dividends or interest based on profits previously accumulated or in profits reserve, which are reported in such financial statements or in the last annual financial statement approved by resolution taken at a shareholders’ meeting. The board of directors may also declare dividends based on financial statements prepared for interim periods; provided that the total amount of dividends paid in each semester does not exceed the amounts accounted for in our capital reserve account set forth in paragraph 1 of Article 182 of the Brazilian Corporation Law and any dividends that fail to be claimed within a period of three years will revert to Cosan.
In general, Non-Resident Holders must register their equity investment with the Brazilian Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside of Brazil. The common shares underlying the Cosan ADSs are held in Brazil by the custodian, as agent for the Depositary, which is the registered owner on the records of the registrar for our shares.
Payments of cash dividends and distributions, if any, are made in reais to the custodian on behalf of the Depositary, which then converts such proceeds into U.S. Dollars and causes such U.S. Dollars to be delivered to the Depositary for distribution to holders of Cosan ADSs. In the event that the custodian is unable to convert immediately the foreign currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of Cosan ADSs may be adversely affected by devaluations of the Brazilian currency that occur before the dividends are converted. Under the Brazilian Corporation Law, dividends paid to Non-Resident Holders will not be subject to Brazilian withholding tax; however, it is not clear under Brazilian law whether such withholding income tax exemption is also applicable to dividends distributed to holders of Cosan ADSs abroad.
Brazilian law allows the payment of dividends solely in reais, limited to the unappropriated retained earnings in our financial statements prepared in accordance with IFRS.
Rights of Holders of Common Shares
Each of our common shares entitles its holder to one vote per common share at our annual or extraordinary general shareholders’ meetings (assembleia geral ordinária or assembleia geral extraordinária). Pursuant to our bylaws and its B3 listing agreement in connection with the listing of the common shares on the Novo Mercado, we cannot issue shares without voting rights or with restricted voting rights. As long as we are listed on the Novo Mercado, we may not issue preferred shares. In addition, our bylaws and the Brazilian Corporation Law provide that holders of common shares of Cosan are entitled to dividends or other distributions made in respect of common shares of Cosan in accordance with their respective participation in Cosan’s capital. See “—Dividends.” In addition, in the event of our liquidation and following the payment of all our outstanding liabilities, holders of common shares of Cosan are entitled to receive their pro rata interest in any remaining assets, in accordance with their respective participation in our capital. The shareholders have preemptive rights to subscribe for new shares issued by us, pursuant to the Brazilian Corporation Law, but are not obligated to subscribe for future capital increases.
Pursuant to the Novo Mercado Rules and the Brazilian Corporation Law, common shares of Cosan have tag-along rights which enable their holders, upon the sale of a controlling interest in us, to receive in exchange for their shares 100% of the price paid per common share for the controlling block.
Pursuant to the Brazilian Corporation Law, neither our bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder of: (1) the right to participate in the distribution of net income; (2) the right to participate equally and proportionally in any residual assets in the event of liquidation of our company; (3) preemptive rights in the event of issuance of new shares, convertible debentures or subscription warrants, except in some specific circumstances under the Brazilian Corporation Law; (4) the right to hold our management accountable in accordance with the provisions of the Brazilian Corporation Law; and (5) the right to withdraw from us in the cases specified in the Brazilian Corporation Law, including merger or consolidation, which are described in “—Right of Withdrawal” and “—Redemption.”
Neither our bylaws, nor the Brazilian Corporation Law, contain any restriction on voting by Non-Resident Holders of common shares of Cosan.
Pursuant to our bylaws, every shareholder, group of shareholders or holders of ADSs that holds, acquires or becomes the owner, directly or indirectly, of 2.5%, 5.0%, 7.5% or 10.0% (and successively upon 2.5% increments) or more of the total shares of our capital stock, is required to inform us of the total amount of shares, or rights of shares, owned.
Public Tender Offer upon Sale of Control
The direct or indirect disposal of controlling interest in Cosan in a single transaction or series of successive transactions must be agreed upon under a condition that the acquirer will make a tender offer to purchase the shares issued by Cosan and owned by the remaining shareholders, subject to the terms of, and within the time limits prescribed by, prevailing regulation and legislation and the Novo Mercado Regulation, so that the holders of such remaining shares may receive the same treatment as accorded to the seller pursuant to Article 254-A of the Brazilian Corporation Law and Articles 37 and 38 of the Novo Mercado Rules and Article 36 of our bylaws.
Our Bylaws contain a provision stating that any shareholder that acquires or becomes the owner, directly or indirectly, of our capital stock corresponding to 10%, until January 31, 2028, and 15% as from February 1, 2028, or more of the total shares of our capital stock, whether by means of a single transaction or through several transactions, must make or apply for registration of, as the case may be, a tender offer to purchase all shares of our capital stock of Cosan, subject to the provisions of the applicable regulations issued by the CVM and Novo Mercado Regulation and Article 37 of our bylaws.
Allocation of Net Income
Together with the financial statements for the fiscal year, the board of directors will submit to the Annual Shareholders’ Meeting the proposed allocation of net income, in compliance with the provisions of law and Cosan Bylaws.
The shareholders will be entitled to receive as dividends each year a mandatory minimum percentage of twenty five percent (25%). Pursuant to Brazilian Corporation Law, our net income may be allocated to income reserves and to the distribution of dividends. For purposes of Brazilian Corporation Law, net income is defined as a period’s result minus accumulated losses from previous years, income and social contribution tax provisions and any other amounts allocated for the payment of profit sharing authorized in our bylaws to employees and management
Under the Brazilian Corporation Law, payment of the mandatory dividend is not required if the board of directors has formally declared such distribution to be inadvisable in view of our financial condition and has provided the shareholders at the annual general shareholders’ meeting with an opinion to that effect, which has been reviewed by our fiscal council. In addition, our management must submit a report to the CVM within five days following said meeting clarifying the reasoning for any such non-payment. See “—Dividends.”
Preemptive Rights
Our shareholders have a general preemptive right to subscribe for our shares in any capital increase of the same class of shares owned by them, pro rata to their interest in our capital stock at the time of the capital increase, except in the event of a grant or assignment of any option to acquire or subscribe to our common shares.
While our shareholders also have preemptive rights to subscribe for convertible debentures and subscription warrants, no preemptive rights apply to actual conversions of debentures, acquisitions of common shares from subscription of warrants and the offer and exercise of call options. In accordance with Brazilian Corporation Law, a period of at least 30 days following the publication of a notice of issuance of shares, convertible debentures or subscription warrants is granted for the exercise of preemptive rights, which rights may be transferred or disposed of for value. However, in accordance with Article 172 of Brazilian Corporation Law, our board of directors may refuse the granting of preemptive rights, or reduce the exercise period, with respect to the issue of new shares, convertible debentures and subscription warrants, up to the maximum limit of our authorized capital stock, if the placement of those shares, debentures or warrants occurs through a stock exchange sale or a public offering, in a public tender offer, with the objective of acquiring control of another company.
Our shareholders are not entitled to preemptive rights to subscribe our shares or our subscription bonus issued and placed through the trade on a stock exchange or a public subscription or the acquisition of shares made in the context of a public offer for acquisition of control.
Arbitration
In accordance with the regulations of the Novo Mercado and our bylaws, Cosan, its shareholders, executive officers, directors and fiscal council members are required to resolve through arbitration any disputes or controversies, including those related to or arising out of the application, validity, effectiveness, interpretation and violation, among others, of the provisions of the Brazilian Corporation Law, Law No. 6,385/76, our bylaws, the rules published by the CMN, the Brazilian Central Bank, the CVM and other rules applicable to the Brazilian capital markets in general, as well as those set forth in the Novo Mercado Listing Regulations, in the Novo Mercado Listing Agreement and in other rules issued by the B3, and such arbitration is the exclusive means to settle such disputes with Cosan’s shareholders. As the holders of Cosan ADSs are not direct shareholders of Cosan, these arbitration requirements do not apply to such Cosan ADS holders; however, because the Depositary is a holder of common shares of Cosan, it would be bound by these mandatory arbitration provisions if it sought to exercise remedies against Cosan under Brazilian law.
Liquidation
Cosan shall be liquidated upon the occurrence of certain events provided for in the Brazilian Corporation Law, whereupon a meeting of the shareholders shall determine the form of liquidation, electing the liquidator(s) and the members of our fiscal council, which must operate on a mandatory basis during the liquidation period.
Redemption
According to the Brazilian Corporation Law, we may redeem common shares of Cosan subject to the approval of our shareholders at an extraordinary shareholders’ meeting where shareholders representing at least 50% of the shares that would be affected are present. The share redemption may be paid with our retained earnings, income reserves or capital reserves, with the exception of the legal reserve.
If the share redemption is not applicable to all shares, the redemption will be made by lottery. If custody shares are picked in the lottery and there are no rules established in the custody agreement, the financial institution will specify, on a pro rata basis, the shares to be redeemed.
Right of Withdrawal
The Brazilian Corporation Law provides that, in case any of our shareholders dissent from certain decisions taken at a shareholders’ meeting, they have the right to withdraw its equity interest from the company and to receive payment for the portion of shareholders’ equity attributable to its equity interest.
Pursuant to Brazilian Corporation Law, shareholder withdrawal rights may be exercised under the following circumstances, among others:
In addition, in the event that the entity resulting from incorporação de ações, or a merger of shares, a consolidation or a spin-off of a listed company fails to become a listed company within 120 days of the shareholders’ meeting at which such decision was taken, the dissenting or non-voting shareholders may also exercise their withdrawal rights.
Only holders of shares adversely affected by the changes mentioned in the first and second items above may withdraw their shares. The right of withdrawal lapses 30 days after publication of the minutes of the relevant shareholders’ meeting. We would be entitled to reconsider any action giving rise to withdrawal rights within 10 days following the expiration of such rights if the withdrawal of shares of dissenting shareholders would jeopardize Cosan’s financial condition.
The Brazilian Corporation Law allows companies to redeem their shares at their economic value, subject to certain requirements. Since our bylaws currently do not provide that our shares be subject to withdrawal at their economic value, our shares would be subject to withdrawal at their book value, determined on the basis of the last balance sheet approved by the shareholders. If the shareholders’ meeting giving rise to withdrawal rights occurs more than 60 days after the date of the last approved balance sheet, a shareholder may demand that its shares be valued on the basis of a new balance sheet that is of a date within 60 days of such shareholders’ meeting. In this case, Cosan must immediately pay 80% of the net worth of the shares, calculated on the basis of the most recent statement of financial position approved by its shareholders, and the balance must be paid within 120 days after the date of the resolution of the shareholders’ meeting.
Pursuant to the Brazilian Corporation Law, in events of consolidation, merger, incorporação de ações, participation in a group of companies, and acquisition of control of another company, the right to withdraw does not apply if the shares meet certain tests relating to liquidity and dispersal of the type or class of shares on the market (they are part of the B3 Index or other stock exchange index (as defined by the CVM)). In such cases, shareholders will not be entitled to withdraw their shares if the shares are a component of a general securities index in Brazil or abroad admitted to trading on the securities markets, as defined by the CVM, and the shares held by persons unaffiliated with the controlling shareholder represent more than half of the outstanding shares of the relevant type or class.
Registration of Shares
The common shares of Cosan are held in book-entry form with Itaú Corretora de Valores S.A. Transfer of the common shares of Cosan is carried out through a debit entry on the seller’s account and a credit entry on the purchaser’s account upon (1) written request of the seller; or (2) judicial order or authorization.
Form and Transfer
Because the common shares of Cosan are in registered book-entry form, the transfer of shares is made under Article 35 of the Brazilian Corporation Law, which determines that a transfer of shares is effected by an entry made by the registrar, by debiting the share account of the transferor and crediting the share account of the transferee. Itaú Corretora de Valores S.A. performs safe-keeping, share transfer and other related services for us.
Transfers of shares by a foreign investor are made in the same way and executed by that investor’s local agent on the investor’s behalf except that, if the original investment was registered with the Brazilian Central Bank, pursuant to Resolution No. 4,373/2014 of the Brazilian Central Bank, the foreign investor, through its local agent, should also seek amendment, if necessary, of the electronic certificate of registration to reflect the new ownership.
The B3 operates a central clearing system (the Central Depositária of the B3). A holder of common shares of Cosan may choose, at its discretion, to hold our common shares through this system and all shares elected to be put into the system will be deposited in custody with the relevant stock exchange (through a Brazilian institution duly authorized to operate by the Brazilian Central Bank having a clearing account with the relevant stock exchange). The fact that those shares are subject to custody with the relevant stock exchange will be reflected in our register of shareholders. Each participating shareholder will, in turn, be registered in our register of beneficial shareholders maintained by the relevant stock exchange and will be treated in the same way as a registered shareholder.
Shareholders’ Meetings
Pursuant to the Brazilian Corporation Law, our shareholders are generally empowered to take any action relating to our corporate purposes and to pass resolutions that they deem necessary. Shareholders at our annual general shareholders’ meeting, which is required to be held within the first four months of the end of each year, have the exclusive right to approve our audited financial statements and our management accounts, as well as to determine the allocation of our net income and the distribution of dividends with respect to the fiscal year ended immediately prior to the date of the relevant shareholders’ meeting. Generally (1) the installation of the fiscal council and election of its members, (2) the election of the members of our board of directors and (3) the determination of the annual compensation of our executive officers, board of directors and fiscal council are approved in the annual shareholders’ meeting, but such matters may also be approved at extraordinary shareholders’ meetings.
An extraordinary shareholders’ meeting may be held at any time during the year, including concurrently with the annual shareholders’ meeting. The following matters, among others, may be resolved only at a shareholders’ meeting:
Quorum
As a general rule, the Brazilian Corporation Law provides that the quorum for purposes of a shareholders’ meeting consists of the presence of shareholders representing at least 25% of our issued and outstanding shares on first call, and, if that quorum is not reached, any percentage on second call. If our shareholders meet to amend our bylaws, a supermajority quorum of shareholders representing at least two-thirds of our issued and outstanding shares shall be required on first call, and any percentage will be sufficient on second call.
A shareholder may be represented in a shareholders’ meeting by an attorney-in-fact appointed no more than one year prior to the date of the relevant shareholders’ meeting. The attorney-in-fact must be a shareholder, director or executive officer of Cosan, a lawyer or a financial institution registered by their manager.
Generally, the affirmative vote of shareholders representing at least the majority of our issued and outstanding shares present in person, or represented by proxy, at a shareholders’ meeting is required to approve any proposed action, with abstentions not taken into account. Exceptionally, according to the Brazilian Corporation Law, the affirmative vote of shareholders representing not less than one-half of our issued and outstanding shares is required to, among other measures:
Location of a Shareholders’ Meeting
Our shareholders’ meetings take place at our headquarters in the city of São Paulo, state of São Paulo, Brazil. The Brazilian Corporation Law allows our shareholders to hold meetings in another location in the event of a force majeure, provided that the meetings are held in the city of São Paulo and the relevant notice includes a clear indication of the place where the meeting will occur. All information relating to shareholders’ meetings will be available (1) at our headquarters, in the City of São Paulo, state of São Paulo, at Avenida Brigadeiro Faria Lima, 4,100, 16th floor, ZIP Code 04538-132 and (2) on the internet at our website (https://ri.cosan.com.br/en/), the website of the CVM (https://www.cvm.gov.br/cvm/en?set_language=en), and the website of B3 (www.b3.com.br). The information included on these websites does not form part of this annual report and is not incorporated by reference herein.
Who May Call a Shareholders’ Meeting
The shareholders’ meetings may be called by our board of directors and by:
Notice of a Shareholders’ Meeting
All notices of general meetings must be published at least three times in any newspaper widely circulated, which, in our case, is the Folha de São Paulo. The notice must include, in addition to the place, date and time, the agenda of the meeting and, in the case of a proposed amendment to our bylaws, a description of the subject matter of the proposed amendment.
Conditions of Admission to our Shareholders’ Meeting
In order to attend a shareholders’ meeting and exercise their voting rights shareholders must, within two days prior to the shareholders’ meeting, prove their status as shareholders and their ownership of by presenting his or her identity card/organizational documents and proof of power of attorney, if applicable, and proof of deposit issued by the financial institution responsible for the bookkeeping of the common shares of Cosan.
A shareholder may be represented at a shareholders’ meeting by a proxy, appointed less than one year before the meeting, who must be one of our shareholders, or one of our officers or directors, a lawyer or a financial institution represented by their manager.
Delisting from the Novo Mercado
At any time, Cosan may decide to delist its common shares from the Novo Mercado. In order to delist its common shares from the Novo Mercado, Cosan (or its controlling shareholders) would be required to first launch a public tender offer through which Cosan or the controlling shareholders would acquire the free float shares, or the “Delisting TO.” The Delisting TO must comply with the applicable rules of the CVM Resolution No. 85, dated March 31, 2022, as amended or “CVM Resolution No. 85,” and (1) have a “fair price,” according to the Brazilian Corporation Law; and (2) be approved by the holders of more than 2/3 of the outstanding free float shares. However, the Delisting TO requirement can be waived so long as holders of 2/3 of the free float shares approve such waiver. Our delisting from the Novo Mercado will not necessarily result in the loss of its registration as a public company on the B3.
If Cosan delists from Novo Mercado due a corporate restructuring transaction, either (1) the surviving company must submit the application for listing on the Novo Mercado within 120 days after the date of the shareholders’ meeting that approved such corporate restructuring transaction or (2) if the resulting companies do not wish to be listed on the Novo Mercado, the majority of the holders of the outstanding free float shares must approve such corporate restructuring transaction.
In certain circumstances, Cosan (or its controlling shareholders) could be required under the Novo Mercado rules to launch a Delisting TO. Novo Mercado regulation stipulates that the compulsory delisting from Novo Mercado will be applied only in the event Cosan has violated Novo Mercado listing rules for a period of more than nine months.
Under CVM rules, if the offeror in a Delisting TO, or the “Delisting TO Offeror,” subsequent transfers shareholding control within the 12-month period following the occurrence of a Delisting TO, the Delisting TO Offeror must pay to the former shareholders that tendered their shares in the Delisting TO, or the “Delisting TO Former Shareholders,” on a pro rata basis, the difference, if any, between the tender offer price paid to the Delisting TO Former Shareholders and the price the Delisting TO Offeror received in such subsequent transfer.
Purchases of Our Common Shares for Treasury
Pursuant to CVM Resolution No. 77, dated March 29, 2022, or “CVM Resolution No. 77,” the purchase or sale by us of our own shares requires shareholders’ approval in the event that the transaction:
Subject to certain conditions described in CVM Resolution No. 77, our shareholders’ approval is not required for the purchase or sale by us of our own shares:
We may acquire our own shares to be held in treasury, sold or canceled, pursuant to a resolution of our board of directors or our shareholders, as applicable. We may not acquire our shares, hold them in treasury or cancel them in the event that such transaction:
In order to authorize the purchase of our own shares, our board of directors or our shareholders (through a resolution approved at a shareholders meeting) must specify the purpose of the transaction, the maximum number of shares to be acquired, the total number of our outstanding shares and the maximum period of time to effect such purchase (not exceeding 18 months), among other information required by CVM Resolution No. 77.
Policy for the Trading of Our Securities by Us and Its Controlling Shareholder (If Any), Directors and Officers
CVM Resolution No. 44, dated August 23, 2021, or “CVM Resolution No. 44,” establishes that “insiders” must abstain from trading our securities, including derivatives backed by or linked to our securities, prior to our disclosure of material information to the market.
The following persons are considered insiders for purposes of CVM Resolution No. 44: we, any person who negotiated any of our securities and made use of any relevant nondisclosed information acquired, our controlling shareholder (if any), members of our board of directors, executive officers, members of our fiscal council and whoever by virtue of its title, duty or position in our company, our controlling shareholder, controlled companies or affiliates has knowledge of a material fact and is aware that such fact has not been disclosed to the market, including auditors, analysts, underwriters and advisors.
Such restriction on trading also applies:
For information concerning our material contracts, see “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,” “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders—Shareholders Agreement” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”
Except as otherwise disclosed in this annual report on Form 20-F (including the Exhibits), we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.
Investors who are non-residents in Brazil must register their investment in shares under Law No. 4,131, or CMN Resolution No. 4,373, and CVM Resolution No. 13 of November 18, 2020.
CMN Resolution No. 4,373 affords favorable tax treatment to foreign investors who are not residents in a low or nil tax jurisdiction, as defined by Brazilian tax laws (please refer to the section “Taxation” for further discussion on the concept of a low or nil tax jurisdiction under Brazilian law).
Under CMN Resolution No. 4,373, investors who are non-residents in Brazil may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are met. CMN Resolution No. 4,373 covers investors who are individuals, companies, mutual funds and other collective investment entities domiciled or headquartered outside of Brazil. Under CMN Resolution No. 4,373, an investor under this category must:
In addition, an investor operating under the provisions of CMN Resolution No. 4,373 must be registered with the Brazilian internal revenue service pursuant to its Normative Ruling No. 2,119/2022. This registration process is undertaken by the investor’s legal representative in Brazil.
Securities and other financial assets held by non-Brazilian investors pursuant to CMN Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or through organized over-the-counter markets licensed by the CVM, except for transfers resulting from a corporate reorganization, or occurring upon the death of an investor by operation of law or will.
Non-Brazilian investors may also invest directly under Law No. 4,131 and may sell their shares in both private and open market transactions, but these investors are subject to less favorable tax treatment on gains than Resolution No. 4,373 investors. A non-Brazilian direct investor under Law No. 4,131 must:
If a holder of ADSs decides to exchange ADSs for the underlying common shares, the holder will be entitled to (1) sell the common shares on the B3 and rely on the depositary’s electronic registration for five business days from the date of exchange to obtain and remit U.S. dollars abroad upon the holder’s sale of our common shares, (2) convert its investment into a foreign portfolio investment under of CMN Resolution No. 4,373, or (3) convert its investment into a foreign direct investment under Law No. 4,131.
If a holder of ADSs wishes to convert their investment into either a foreign portfolio investment under CMN Resolution No. 4,373 or a foreign direct investment under Law No. 4,131, they should begin the process of obtaining foreign investor registration with the Brazilian Central Bank or with the CVM as the case may be, in advance of exchanging the ADSs for common shares.
The custodian is authorized to update the depositary’s electronic registration to reflect conversions of ADSs into foreign portfolio investments under CMN Resolution No. 4,373. If a holder of ADSs elects to convert their ADSs into a foreign direct investment under Law No. 4,131, the conversion will be effected by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction.
If a foreign direct investor under Law No. 4,131 wishes to deposit their shares into the ADR program in exchange for ADSs, such holder will be required to present to the custodian evidence of payment of capital gains taxes. The conversion will be effected by the Brazilian Central Bank after receipt of an electronic request from the custodian with details of the transaction. Please refer to “Taxation” for a description of the tax consequences to an investor residing outside Brazil of investing in our common shares in Brazil.
For additional information on Brazilian tax consequences of investing in our common shares, see “Taxation.”
U.S. Federal Income Tax Considerations
The following is a description of the material U.S. federal income tax consequences of owning and disposing of our common shares or ADSs during the year ended December 31, 2023. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold the securities. This discussion applies to you only if you are a U.S. Holder (as defined below) that holds our common shares or ADSs as capital assets for U.S. federal income tax purposes.
This discussion does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the Internal Revenue Code of 1986, as amended, or the “Code,” known as the Medicare contribution tax and differing tax consequences applicable to you if you are, for instance:
If you are a partnership for U.S. federal income tax purposes holding our common shares or ADSs, the U.S. federal income tax treatment of your partners will generally depend on the status of the partners and the activities of your partnership. Partnerships holding our common shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of our common shares or ADSs.
This discussion is based on the Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, any of which is subject to change, possibly with retroactive effect. Please consult your tax adviser concerning the U.S. federal, state and local and non-U.S. tax consequences of owning and disposing of our common shares or ADSs in your particular circumstances.
As used herein, the term “U.S. Holder” means a beneficial owner of our common shares or ADSs that is, for U.S. federal income tax purposes:
In general, if you own ADSs, you will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs for the underlying shares represented by those ADSs.
This discussion generally assumes that we are not, and will not become, a passive foreign investment company, as described below.
Taxation of Distributions
The following is subject to the discussion under “—Passive Foreign Investment Company Rules” below.
Distributions paid on our common shares or ADSs (including distributions that are treated as interest on equity for Brazilian tax purposes, as discussed below under “—Brazilian Tax Considerations”), other than certain pro rata distributions of common shares or ADSs, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not expect to determine our earnings and profits in accordance with U.S. federal income tax principles, you should expect that a distribution will generally be reported as a dividend. Dividends paid by qualified foreign corporations to certain non-corporate U.S. Holders are taxable at rates applicable to long-term capital gains. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on a securities market in the United States, such as the NYSE (where our ADSs are traded). It is unclear whether these reduced rates will apply to dividends paid with respect to our common shares that are not represented by ADSs. You should consult your tax adviser to determine whether these preferential rates will apply to dividends you receive and whether you are subject to any special rules that limit your ability to be taxed at these preferential rates.
The amount of a dividend will include any amounts withheld in respect of Brazilian taxes on the distribution. The amount of the dividend will be treated as foreign-source dividend income to you and will not be eligible for the dividends-received deduction generally allowed to U.S. corporations under the Code. Dividends will be included in your income on the date of your or, in the case of ADSs, the depositary’s, receipt of the dividend. The amount of any dividend income paid in reais will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of such receipt regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of its receipt.
Sale or Other Disposition of Common Shares or ADSs
For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of our common shares or ADSs will be capital gain or loss, and will be long-term capital gain or loss if you held those shares or ADSs for more than one year at the time of disposition. The amount of gain or loss will be equal to the difference between your tax basis in the common shares or ADSs disposed of and the amount realized on the disposition. The gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. If a Brazilian tax is withheld on the sale or other disposition of common shares or ADSs, your amount realized will include the gross amount of the proceeds of such sale or other disposition before deduction of the Brazilian tax.
See “—Brazilian Tax Considerations—Income Tax—Capital Gains” for a description of when a disposition may be subject to taxation by Brazil.
Foreign Tax Credits in Respect of Brazilian Taxes
Subject to applicable limitations that may vary depending upon your circumstances, including limitations described in the following discussion, it is possible that Brazilian income taxes withheld from dividends on our common shares or ADSs might be creditable against your U.S. federal income tax liability. On December 28, 2021, new Treasury Regulations pertaining to foreign tax credits (the “FTC Regulations”) were released that impose significant new limitations on the non-U.S. taxes (including withholding taxes) for which a foreign tax credit can be claimed. Corrections with respect to the FTC Regulations were published on July 27, 2022. We have not determined whether these limitations will prevent you from claiming a foreign tax credit with respect to any withholding tax imposed on dividends on common shares or ADSs. Furthermore, recent notices from the IRS indicate that the Treasury and the IRS are considering proposing amendments to such regulations and allow taxpayers, subject to certain conditions, to defer the application of many aspects of such regulations until the date when a notice or other guidance withdrawing or modifying this temporary relief is issued (or any later date specified in such notice or other guidance). If Brazilian withholding taxes on dividends on common shares or ADSs were otherwise creditable, the availability of those credits would be subject to other applicable limitations that may vary depending on your circumstances. You should therefore consult your tax advisers as to the availability of foreign tax credits for any amounts withheld with respect to dividends on common shares or ADSs.
You will be entitled to use foreign tax credits to offset only the portion of your U.S. tax liability that is attributable to foreign-source income. This limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. In addition, you must satisfy minimum holding period requirements in order to be eligible to claim a foreign tax credit for foreign taxes withheld on dividends.
In addition, the FTC Regulations generally will preclude you from claiming a foreign tax credit with respect to any tax imposed on gains from the disposition of shares by a jurisdiction, such as Brazil, that does not have an applicable income tax treaty with the United States. As discussed above, the IRS has released notices that provide temporary relief from certain of the provisions of the FTC Regulations (including the limitation described in the preceding sentence) for taxable years ending before the date that a notice or other guidance withdrawing or modifying the temporary relief is issued (or any later date specified in such notice or other guidance). However, because any gain from dispositions of the common shares or ADSs generally will be U.S.-source gain for foreign tax credit purposes, even if the FTC Regulations do not prohibit a U.S. Holder from claiming a foreign tax credit with respect to Brazilian income taxes on disposition gains, other limitations under the foreign tax credit rules may preclude a U.S. Holder from claiming a foreign tax credit with respect to such Brazilian income taxes.
If you are precluded from claiming a foreign tax credit, it is possible that any Brazilian taxes on disposition gains may either be deductible or reduce the amount realized on the disposition. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.
Any Brazilian IOF/Exchange Tax (as discussed below under “—Brazilian Tax Considerations—Tax on Mergers Involving Bonds and Securities”) will not be treated as creditable foreign taxes for U.S. federal income tax purposes. You should consult your tax adviser regarding the tax treatment of these taxes for U.S. federal income tax purposes.
The rules governing foreign tax credits are complex and, therefore, you should consult your tax adviser regarding the creditability or deductibility of any Brazilian tax in your particular circumstances.
Passive Foreign Investment Company Rules
We expect that we were not a PFIC for our taxable year ended December 31, 2023. However, we cannot assure you that we will not be considered a PFIC for the 2023 taxable year or any future taxable year. Our PFIC status for any taxable year is an annual factual determination that can be made only after the end of that year and depends on the composition of our income and assets and the value of our assets from time to time. Moreover, we hold significant minority investments in certain entities (representing less than 25% by value of the relevant entity’s equity). Accordingly, our PFIC status for any taxable year will depend in part on the value of those minority investments relative to the value of our active assets, including goodwill. The value of our goodwill may be determined, in large part, by reference to our market capitalization. If the value of our minority (less-than-25%-owned) equity investments were to increase relative to our active assets (in particular, if our market capitalization were to decline), we could be treated as a PFIC for our taxable year 2024 and/or future taxable years. Thus, we cannot assure you that we will not be considered a PFIC for any taxable year.
If we were a PFIC for any taxable year during which you held our common shares or ADSs, gain recognized by you on a sale or other disposition (including certain pledges) of the common shares or ADSs would be allocated ratably over your holding period for the common shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate on ordinary income in effect for individuals or corporations, as appropriate for that taxable year, and an interest charge would be imposed on the resulting tax liability. Further, to the extent any distribution in respect of our common shares or ADSs exceeded 125% of the average of the annual distributions on common shares or ADSs received by you during the preceding three years or your holding period, whichever was shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above. Certain elections might be available that would result in alternative treatments (such as mark-to-market treatment) of our common shares or ADSs. You should consult your tax adviser to determine whether these elections would be available and, if so, what the consequences of the alternative treatments would be in your particular circumstances.
In addition, if we were a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the favorable tax rates applicable to long-term capital gains discussed above with respect to dividends paid to non-corporate U.S. Holders would not apply.
If a U.S. Holder owns our common shares or ADSs during any year in which we are a PFIC, the U.S. Holder generally must file annual reports containing such information as the U.S. Treasury may require on IRS Form 8621 (or any successor form) with respect to the Company, generally with the U.S. Holder’s federal income tax return for that year.
U.S. Holders should consult their tax advisers regarding the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and backup withholding unless (1) you are a corporation or other exempt recipient or (2) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding.
The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the Internal Revenue Service.
Brazilian Tax Considerations
Income Tax
Dividends paid by a Brazilian corporation, such as Cosan, including stock dividends and other dividends paid to a Non-Resident Holder of common shares, are currently not subject to withholding income tax in Brazil to the extent that these amounts are related to profits generated on or after January 1, 1996. Dividends paid from profits generated prior to January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, according to the tax legislation applicable to each corresponding year.
Notwithstanding the foregoing, it should be noted that Brazilian GAAP was subject to changes in the end of 2007 (effective as of 2008) in order to conform to IFRS accounting standards. However, until January 1, 2015, Brazilian companies were still required to adopt, for tax purposes, the accounting rules and criteria that were effective on December 31, 2007, or the old Brazilian GAAP, pursuant to a transitory tax regime (regime tributário de transição), or RTT. Law No. 12,973 of May 13, 2014, as amended, or Law No. 12,973/14, extinguished the RTT and approved new rules aimed at permanently aligning the Brazilian tax system with IFRS as of January 1, 2015, including with respect to dividend distributions. For the 2014 fiscal year, the taxpayers were entitled to elect to adopt the new rules or to adopt the RTT.
Under the RTT, there was controversy on how tax authorities would view certain situations, including whether dividends should be calculated in accordance with the IFRS rules or the old Brazilian GAAP. It was debatable whether any dividend distributions made in accordance with IFRS rules in excess of the amount that could have been distributed had the profits been ascertained based on the old Brazilian GAAP would be taxable income. In view of such controversy, Law No. 12,973/14 expressly determines that dividends calculated in accordance with the IFRS rules based on profits ascertained between January 1, 2008 and December 31, 2013 should not be subject to taxation.
Notwithstanding the provisions of Law No. 12,973/14, Brazilian tax authorities issued Normative Ruling No. 1,492, of September 17, 2014, or Normative Ruling No. 1,492/14, which provides that dividend distributions supported by IFRS profits ascertained in the year 2014 that exceed the amount resulting from the adoption of the old Brazilian GAAP should be subject to taxation. However, this rule would only apply to taxpayers that have not elected to account for the effects of Law No. 12,973/14 (i.e., taxation based on IFRS rules) for the 2014 fiscal year.
Despite our belief that the tax exemption on dividends applies to dividends distributed by Brazilian companies out of profits ascertained in accordance with IFRS principles, there can be no assurance that dividends distributed out of the profits of companies ascertained in the 2014 fiscal year and that have not elected to adopt the new rules in said fiscal year will be tax exempt. If the provisions of Normative Ruling No. 1,492/14 are applicable, dividends ascertained in the fiscal year of 2014 based on IFRS that exceed the amount that would result from the adoption of the old Brazilian GAAP could be subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a country or other jurisdiction (1) that does not impose income tax, (2) where the maximum income tax rate is lower than 20.0% or 17%, as the case may be, or (3) where the applicable local laws impose restrictions on the disclosure of the shareholding composition or the ownership of investments (a “Low or Nil Tax Jurisdiction”). See “—Discussion on Low or Nil Tax Jurisdictions.”
Finally, there is proposed legislation pending before the Brazilian Congress seeking to impose taxes on dividend income. It is not possible to predict if the taxation of dividends will be effectively approved by the Brazilian Congress and how such taxation would be implemented.
Interest Attributable to Shareholder’s Equity
Law No. 9,249, dated December 26, 1995, as amended, or Law No. 9,249/95, allows a Brazilian corporation, such as Cosan, to make distributions to shareholders of interest on equity and treat those payments as deductible expense, for purposes of calculating Brazilian corporate income tax and social contribution on net profits as long as the limits described below are observed. These distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the TJLP as determined by the Brazilian Central Bank from time to time, and the amount of the deduction may not exceed the greater of:
Payment of interest on equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a Low or Nil Tax Jurisdiction.
These payments may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable Brazilian withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend.
Distributions of interest on equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Brazilian Central Bank.
Capital Gains
According to Article 26 of Law No. 10,833, dated December 29, 2003, as amended, gains related to the sale or disposition of assets located in Brazil, such as the common shares of Cosan, by a Non-Resident Holder, are subject to withholding income tax in Brazil, regardless of whether the sale or disposition is made by a Non-Resident Holder to another non-resident of Brazil or to a Brazilian resident.
As a general rule, capital gains realized as a result of a sale or disposition of common shares are equal to the positive difference between the amount realized on the sale or disposition and the respective acquisition costs of the common shares.
There is a controversy regarding the currency that should be considered for purposes of determining the capital gain realized by a Non-Resident Holder on a sale or disposition of shares in Brazil, more specifically, if such capital gain is to be determined in foreign or in local currency.
Under Brazilian law, income tax on such gains can vary depending on the domicile of the Non-Resident Holder, the type of registration of the investment by the Non-Resident Holder with the Brazilian Central Bank and how the disposition is carried out, as described below.
Currently, capital gains realized by Non-Resident Holders on a sale or disposition of shares carried out on the B3 (including the organized over-the-counter market) are:
A withholding income tax of 0.005% will apply and can be offset against the eventual income tax due on the capital gain. Such withholding does not apply to a 4,373 Holder that is not resident or domiciled in a Low or Nil Tax Jurisdiction.
Under current law, for transactions taking place outside the B3 or the organized over-the counter market, capital gains recognized by a Non-Resident Holder would be, in principle, subject to income tax in Brazil at progressive rates from 15% to 22.5% or 25%, if such Non-Resident Holder is resident or domiciled in a Low or Nil Tax Jurisdiction. The rates mentioned above would apply unless a lower rate is provided for in an applicable tax treaty between Brazil and the country where the Non-Resident Holder is domiciled.
Law No. 13,259 of March 16, 2016 determined the new progressive taxation method over capital gains mentioned above that has been in force since January 1, 2017. Capital gains are subject to income tax based on the following rates:
(i) 15% on any capital gain not exceeding R$5,000,000.00;
(ii) 17.5% on the portion of the capital gain between R$5,000,000.00 and R$10,000,000.00;
(iii) 20% on the portion of the capital gain between R$10,000,000.00 and R$30,000,000.00; or
(iv) 22.5% on the portion of the capital gain exceeding R$30,000,000.00.
If the Non-Resident Holder is a 4,373 Holder and is not resident or domiciled in a Low or Nil Tax Jurisdiction, it is arguable that the progressive rates mentioned above should not apply and, in such case, the 4,373 Holder would be subject to income tax at a fixed rate of 15%.
In the cases above, if the capital gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with the intermediation of a financial institution the withholding income tax of 0.005% will apply and can later be offset against any income tax due on the capital gains.
The exercise of any preemptive rights relating to our common shares will not be subject to Brazilian income tax. Gains realized by a Non-Resident Holder on the disposition of preemptive rights in Brazil will be subject to Brazilian income tax according to the same rules applicable to the sale or disposition of shares.
There can be no assurance that the current favorable tax treatment of 4,373 Holders will continue in the future.
Discussion on Low or Nil Tax Jurisdictions
According to Law No 9,430, dated December 27, 1996, Low or Nil Tax Jurisdiction is a country or location that (1) does not impose taxation on income, (2) imposes the income tax at a rate lower than 20% or (3) imposes restrictions on the disclosure of shareholding composition or the ownership of the investment. On November 28, 2014, the Brazilian tax authorities issued the Ordinance No. 488, which decreased from 20% to 17% such minimum threshold for specific cases. The 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities.
Law No. 11,727/08 created the concept of Privileged Tax Regimes, which encompasses the countries and jurisdictions that: (1) do not tax income or tax it at a maximum rate lower than 20.0%; (2) grant tax advantages to a non-resident entity or individual (a) without the need to carry out a substantial economic activity in the country or jurisdiction, or (b) conditioned to the non-exercise of a substantial economic activity in the country or jurisdiction; (3) do not tax or tax proceeds generated abroad at a maximum rate lower than 20.0%; or (4) restrict the ownership disclosure of assets and ownership right or restrict disclosure about economic transactions carried out. Although we believe that the best interpretation of the current tax legislation is that the above-mentioned “privileged tax regime” concept should apply solely for purposes of Brazilian transfer pricing and thin capitalization rules, among other rules that make express reference to the concepts, we can provide no assurance that the tax authorities will not interpret the rules as also applicable to a Non-Resident Holder on payments of interest on shareholders’ equity.
In addition, Brazilian tax authorities enacted Normative Ruling No. 1,037, of June 7, 2010, or Normative Ruling No. 1,037/10, as amended, listing (1) the countries and jurisdictions considered Low or Nil Tax Jurisdictions, and (2) the Privileged Tax Regimes.
The interpretation of the current Brazilian tax legislation should lead to the conclusion that the concept of Privileged Tax Regimes should only apply for certain Brazilian tax purposes, such as transfer pricing and thin capitalization rules. According to this interpretation, the concept of Privileged Tax Regimes should not be applied in connection with the taxation of dividends, interest on equity and gains related to investments made by Non-Brazilian Holders in Brazilian corporations. Regulations and non-binding tax rulings issued by Brazilian federal tax authorities seem to confirm this interpretation.
Currently, the understanding of the Brazilian tax authorities is that the rate of 15.0% withholding tax applies to payments made to beneficiaries residing in privileged tax regimes (Answer to Advance Tax Ruling Request COSIT No. 575, of December 20, 2017). In any case, if the Brazilian tax authorities determine that payments made to a Non-Resident Holder under a privileged tax regime are subject to the same rules applicable to payments made to Non-Resident Holders located in Low or Nil Tax Jurisdictions, the withholding tax applicable to such payments could be assessed at a rate up to 25.0%.
We recommend that you consult your own tax advisors from time to time to verify any possible tax consequences arising from Normative Ruling No. 1,037 and Law No. 11,727. If the Brazilian tax authorities determine that payments made to a Non-Resident Holder are considered to be made under a “privileged tax regime,” the withholding income tax applicable to such payments could be assessed at a rate of up to 25.0%.
Sale of ADSs
We do not expect the gains realized by a Non-Resident Holder on the disposition of ADSs to another non‑Brazilian resident to be subject to Brazilian tax, based on the argument that the ADSs would not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot assure you how Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Resident Holder on the disposition of ADSs to another non-Brazilian resident. As a result, gains on a disposition of ADSs by a Non-Resident Holder to a Brazilian resident, or even to a Non-Resident Holder in the event that courts determine that the ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules described above. If this income tax does apply, it could have an adverse impact on Non-Resident Holders.
Gains on the Exchange of ADSs for Shares
Non-Resident Holders may exchange ADSs for the underlying shares, sell the shares on a Brazilian stock exchange and remit abroad the proceeds of the sale. As a general rule, the exchange of ADSs for shares is not subject to income taxation in Brazil.
Upon receipt of the underlying shares in exchange for ADSs, Non-Resident Holders may also elect to register with the Brazilian Central Bank the U.S. dollar value of such shares as a foreign portfolio investment under CMN Resolution No. 4,373/14, which will entitle them to the tax treatment referred above on the future sale of the shares.
Alternatively, the Non-Resident Holder is also entitled to register with the Brazilian Central Bank the U.S. dollar value of such shares as a foreign direct investment under Law No. 4,131/62, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not a 4,373 Holder.
Gains on the Exchange of Shares for ADSs
The deposit of shares of a Brazilian entity in exchange for the ADSs by a Non-Resident Holder may be subject to Brazilian withholding income tax on capital gains if the acquisition cost is lower than the share price verified on the exchange date. The capital gains ascertained by the Non-Resident Holder, in this case, should be subject to taxation at rates that vary from 15% to 22.5%, depending on the amount of the gain, as referred to above; or at 25% if realized by a Non-Resident Holder that is resident or domiciled in a Low or Nil Tax Jurisdiction. In certain circumstances, there may be arguments to sustain the position that such taxation is not applicable to 4,373 Holders that are not resident or domiciled in a Low or Nil Tax Jurisdiction, which would be subject to taxation at a fixed 15% rate.
Tax on Foreign Exchange Transactions
Brazilian law imposes a tax on foreign exchange transactions, or “IOF/Exchange,” due on the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) and the conversion of foreign currency into Brazilian currency. Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38%.
Effective as of December 1, 2011, however, the IOF/Exchange is levied at a rate of 0% over foreign exchange transactions entered into in connection with the inflow of proceeds to Brazil for investments made by a foreign investor (including a Non-Resident Holder) in (1) variable income transactions carried out on the Brazilian stock, futures and commodities exchanges, and (2) the acquisitions of shares of Brazilian publicly held companies in public offerings or subscription of shares related to capital contributions, provided that the company has registered its shares for trading with the stock exchange. As of June 5, 2013, this beneficial tax treatment was extended to all investments made under the rules of CMN Resolution 4,373/14 in the Brazilian financial and capital markets, including the investment in common shares. The IOF/Exchange at a rate of 0% also applies for the outflow of funds from Brazil related to these types of investments, including payments of dividends and interest on equity and the repatriation of funds invested in the Brazilian market.
Furthermore, the IOF/Exchange is currently levied at a 0% rate on the withdrawal of ADSs into shares of a Brazilian entity. Nonetheless, the Brazilian government may increase the rate at any time up to 25%. However, any increase in rates may only apply to future foreign exchange transactions.
Tax on Mergers Involving Bonds and Securities
Brazilian law imposes a tax on transactions involving bonds and securities, or “IOF/Bonds,” including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds applicable to transactions involving common shares is currently 0%, although the Brazilian government may increase such rate at any time up to 1.5% of the transaction amount per day, but only in respect of future transactions.
On December 24, 2013, the Brazilian government reduced the IOF/Bonds to zero for transactions involving the deposit of shares which are issued by a Brazilian company admitted to trade on the B3 with the specific purpose of enabling the issuance of depositary receipts traded outside Brazil.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares by a Non-Resident Holder, except for gift and inheritance taxes imposed by some Brazilian states on gifts or bequests by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such states. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of common shares.
Statements contained in this annual report as to the contents of any contract or other document referred to are not necessarily complete, and each of these statements is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit hereto. A copy of the complete annual report, including the exhibits and schedules filed herewith, may be inspected without charge at the public reference facilities maintained by the SEC at 100 F Street NE., Washington, D.C., and at the SEC’s regional offices located at 233 Broadway, New York, N.Y., 10279 and North Western Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may be obtained by mail from the Public Reference Section of the SEC, 100 F Street NE., Washington, D.C., at prescribed rates. Such reports and other information may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, N.Y. 10005, on which our ADSs are listed. In addition, the SEC maintains a website that contains information which we have filed electronically with the SEC, including our annual reports, periodic reports and other filings, which can be accessed over the internet at https://www.sec.gov.
We are subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, file periodic reports and other information with the SEC. However, as a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements and relating to short-swing profits reporting and liability.
Risk Management
We consider market risk to be the potential loss arising from adverse changes in market rates and prices. The Company, its subsidiaries and jointly controlled entities are exposed to market risks, chief of which are: (1) credit risk; (2) liquidity risk; (3) commodities risk; (4) interest rate risk; (5) foreign currency exchange rate risk; and (6) price risk. In order to manage its market risks, we have adopted policies and procedures which establish limits and monitor risk exposure and counterparties and approve financial instruments. Risk and financial instrument management activities are carried out through the definition of strategies, establishment of control systems and determination of limits to exposure to market risks. We periodically review our exposure to market risks and determine at the senior management level how to manage and reduce the impact of these risks.
The Company uses derivatives solely to manage market risk, especially commodity price and foreign exchange rate fluctuations. Although the value of these hedge instruments varies, these variations are usually offset by the value of the related hedged item. The parties to these agreements are mainly trade boards and trading companies in the case of futures, options and price setting, and major financial institutions in the case of foreign exchange derivatives and interest rate swaps. The Company does not use derivatives or other hedge instruments for speculative purposes.
As a result, we do not believe that we are subject to any material credit risk arising from these contracts, and accordingly, we do not anticipate any material credit-related losses.
Credit Risk
Credit risk is managed through specific rules concerning client acceptance which require credit rating checks and limits for customer exposure, applicable to all subsidiaries and jointly controlled entities. Raízen generally requires a letter of credit from a reputable bank for most of our sugar export sales. We do not believe that we are subject to any material credit risk and we do not anticipate any material credit-related losses. Management believes that any credit risk is covered by the allowance for doubtful accounts recorded in our statement of financial position.
Liquidity Risk
Liquidity risk arises where we may encounter difficulties in meeting the obligations associated with our financial liabilities that are settled by delivering cash or another financial asset. Our approach to managing liquidity is to ensure, as far as possible, that we will have sufficient liquidity to meet our liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. Please see note 5.12 to our audited consolidated financial statements attached hereto for measures on which our management has been working to enable us to honor our commitments.
Commodities Risk
Mainly applicable to the energy-generating business of Raízen, agricultural commodity prices and supply levels change according to unpredictable factors such as the weather, investments, government programs and policies, and changes in world demand, among others.
Raízen conducts sensitivity tests to estimate its exposure to these risks and uses derivatives to mitigate its exposure to sugar price oscillation on the international market. Derivative operations allow us to ensure an average margin for future sales. Raízen actively manages its open positions and monitors the result of these activities on a daily basis through effective mark-to-market controls and price impact simulations so that it may adjust targets and strategies due to changes in market conditions.
For risk management purposes and to evaluate the overall level of commodity price exposure, Raízen further reduces its exposure to commodity market risk related to the sugar and ethanol produced from sugarcane that is purchased from growers and sugarcane harvested from leased land, as both costs are linked to TSR. The price of sugarcane supplied by growers or the lease payments incurred to produce sugarcane harvested by Raízen from leased land are indexed to the market price of sugar and ethanol, which provides a partial natural hedge to domestic sugar and ethanol sales price exposure.
The table below provides information about our (through Raízen) sugar, diesel, gasoline, ethanol and electric power derivative contracts that are sensitive to changes in commodity prices, specifically sugar prices as of December 31, 2023. For the derivative contracts, the table presents the notional amounts in tons, the weighted average contract prices, and the total U.S. dollar contract amount by expected maturity dates.
Commodities Price Risk – Commodities Derivatives Opened as of December 31, 2023
Purchased / Sold
Market
Contract
Notional
Fair Value
(unit)
(R$ thousand)
Futures
Sold
ICE
Sugar #11
Jan/24 to Feb/26
9,441,829
t
23,188,684
2,528,304
NYSE LIFFE
Sugar #5
Feb/24 to Nov/24
476,200
1,569,707
213,323
OTC
Feb/24 to Sep/25
2,989,315
6,593,307
54,544
Options
Jan/24 to Feb/25
1,700,102
(4,687,826
(302,817
Jan/24 to Apr/25
36,171
(84,692
(2,951
Subtotal of sugar futures sold
14,643,617
26,579,180
2,490,203
Purchased
(9,277,839
(21,696,733
(1,867,796
Feb/24 to Sep/24
(169,850
(590,548
(100,505
Apr/24
(30,000
(37,244
(1,244
(1,845,550
4,453,505
283,157
Jan/24 to Nov/24
(15,596
35,928
1,499
Subtotal of sugar futures purchased
(11,338,835
(17,835,092
(1,684,889
Physical fixed
Jan/24 to Jan/31
18,036,578
41,543,113
1,012,589
428,657
1,388,323
132,858
Subtotal of sugar physical fixed sold
18,465,235
42,931,436
1,145,447
Jan/24 to Jan/28
(9,334,695
(21,407,958
(324,470
(874,877
(2,160,172
34,657
Subtotal of sugar physical fixed purchased
(10,209,572
(23,568,130
(289,813
Subtotal of sugar futures
(11,560,445
28,107,394
1,660,948
B3
Jan/24 to Dec/24
41,040
m³
99,070
(1,160
NYMEX
822,923
1,812,017
134,157
Jan/24
2,385
(4,773
(119
Subtotal of ethanol futures sold
866,348
1,906,314
132,878
(121,320
(290,339
2,655
(759,025
(1,945,742
(156,084
(18,285
39,574
164
Subtotal of ethanol futures purchased
(898,630
(2,196,507
(153,265
CHGOETHNL
Jan/24 to Dec/26
510,041
1,785,681
125,075
Jan/24 to Jun/30
(341,198
(932,467
54,045
Subtotal futures physical fixed ethanol
168,843
853,214
179,120
Subtotal of ethanol futures
136,561
563,021
158,733
50,085
140,684
6,149
(13,356
(36,914
(1,313
Subtotal of gasoline futures
36,729
103,770
4,836
Heating Oil
Jan/24 to Jun/24
1,432,861
9,829,839
108,642
246,933
474,018
17,025
-
(3,210
(1,030
Jan/24 to Feb/24
31,800
(203
(714
Subtotal of future heating oil sold
1,711,594
10,300,444
123,923
Jan/24 to Sep/24
(801,797
(1,714,740
(58,637
(41,574
(166,718
(17,276
May/25
(10,017
323
664
CME
Jan/24 to Mar/24
(63,600
407
1,427
(35,298
119,062
7,239
3,079
1,030
Subtotal of future heating oil purchased
(952,286
(1,758,587
(65,553
853,480
806,152
39,280
(1,002,980
(709,757
(104,626
Subtotal of physical fixed heating oil
(149,500
96,395
(65,346
1,480,516
697,340
4,176
Jan/24 to Jul/24
(1,018,361
(503,906
19,739
462,155
193,434
23,915
Subtotal of heating oil futures
1,071,963
8,831,686
16,939
CCEE/OTC
Energy
Jan/24 to Dec/41
56,864,953
MWh
8,231,753
1,171,798
Jan/24 to Sep/53
(40,255,372
(7,165,880
(337,269
Subtotal of energy physical fixed
16,609,581
1,065,873
834,529
Net exposure to commodity derivatives as of December 31, 2023
38,671,744
2,675,985
Interest Rate Risk
We have fixed and floating rate indebtedness and, therefore, we are exposed to market risk as a result of changes in interest rates. See “—B. Liquidity and Capital Resources—Indebtedness” for further information.
Our interest rate risk refers to the impact of an increase in the TJLP (Long-Term Interest Rate), TR (Reference Interest Rate), IGP-M (General Market Price Index), IPCA (Consumer Price Index) and CDI (Interbank Deposit Certificate) indexed debt on our finance results.
As of December 31, 2023, 18.4%, or R$10,487.9 million (27.3%, or R$14,449.6 million as of December 31, 2022), of our consolidated total debt outstanding was fixed rate debt.
The majority of our debt, except the jointly controlled subsidiary Raízen, is dollar-denominated with fixed interest rates or real-denominated debts indexed to the CDI or TJLP. Most of our outstanding debt is linked to the CDI note. We have a substantial amount of cash and cash equivalents and marketable securities indexed to the CDI, which provides a partial natural hedge to our interest rate exposure of our real-denominated debts.
Based on the foregoing, we believe that as of December 31, 2023, a hypothetical 10% increase in all interest rates would increase our financial expenses by R$1,048.8 million per year based on the net financial expenses we recorded in our consolidated statement of profit or loss for the fiscal year ended December 31, 2023.
Foreign Currency Exchange Rate Risk
The foreign exchange variations to which we are exposed are mainly related to our outstanding perpetual notes in an aggregate amount of U.S.$500 million. We use derivatives to hedge the cash flows for payment of part of the interest on this debt against a possible appreciation of the U.S. dollar against the real. In addition, basic oil imports for the lubricants business are also exposed to foreign exchange variations, hedged by derivatives on a case-by-case basis.
A significant portion of the revenue of the jointly controlled subsidiary Raízen is U.S. dollar denominated. Most of Raízen Energia’s costs are denominated in reais and, therefore, when the real appreciates against the U.S. dollar, its operating margins are adversely affected. A considerable part of Raízen’s debt is also denominated in dollars, exposing it to the risk of variations in the real to U.S. dollar exchange rate (derivative financial instruments are used to hedge the cash flows for payment of interest of these debts).
Raízen has foreign exchange derivatives in order to mitigate its exposure to the effect of foreign exchange variations on its sugar and ethanol export revenues, combined with cash outlays to cover its debt commitments in foreign currency, mainly the U.S. dollar. The exchange rate derivatives together with the sugar price derivatives allow Raízen to ensure an average margin from future sales. Raízen actively manages open positions, and the results of these activities are monitored on a daily basis through effective mark-to-market controls and price impact simulations that allow Raízen to adjust targets and strategies as a result of changes in market conditions. Raízen uses financial derivative instruments to hedge foreign exchange risk.
As of December 31, 2023, our foreign exchange exposure, net was R$12,666.0 million (R$5,246.5 million in the fiscal year ended December 31, 2022), which were represented by cash and cash equivalents, loans and derivatives contracts as disclosed in note 5.12 to our audited consolidated financial statements attached hereto.
As a measure of our market risk with respect to our foreign currency exposure, a hypothetical 10% appreciation of the real against the foreign currency would increase in profit by R$524.7 million per year, based on the foreign exchange exposure for the fiscal year ended December 31, 2023, before considering the effects on U.S. dollar derivative contracts and other foreign currency denominated assets and liabilities, as set forth below:
Foreign Currency Financial Instruments Outstanding as of December 31, 2023:
Notional Amount/ Quantity
Estimated Fair Value Asset (Liability)
Foreign Exchange Gain/ Loss – 10% FX Rate Decrease
Denominated debt(1)
(27,133.1
(2,713.3
Denominated cash and cash equivalents
285.0
28.5
Denominated derivative financial instruments (notional)
14,182.1
1,418.2
Denominated receivables
Foreign exchange exposure, net
(12,665.0
(1,266.6
Price Risk
We have electricity operations traded on an active market and natural gas derivative transactions conducted with bank counterparties. The transactions are recognized at fair value through profit or loss, based on the difference between the contracted price and the market price of outstanding contracts as of the date of the balance sheet.
In addition, we are exposed to market risks as a result of the fluctuating prices of certain equity securities and option instruments. Our exposure to changes in the price of equity securities is primarily derived from Vale’s common shares purchased on the spot market, which, as of December 31, 2023, represented 2.45% of the outstanding shares.
Additionally, we enter into equity derivative contracts that consist of a combination of call and put positions (collar) that limit the risk of devaluation of the value of the shares while allowing us to participate in the appreciation of the shares—equal to 2.4% as of December 31, 2023. These contracts are expected to offset declines in the fair value of these securities below the per-share hedge price on maturity, allowing us to retain a portion of the positive valuation of the per-share hedge price to the relevant price cap. Actual per-share contract hedge prices will vary based on average share prices in effect when the contracts were entered into. Actual maximum contract prices vary based on each contract’s maturity and terms, among other factors. If any of these contracts are terminated before their scheduled maturity date due to a contract-specified event, we will be required to repay the fair value of the guaranteed debt offset by the sum of the fair values of the underlying shares and equity collar, calculated on the date of termination. Finally, exposures resulting from derivatives are reflected in the call spread structure, representing an additional potential of 1.6% of Vale’s outstanding shares as of December 31, 2023. In this structure, we do not own the shares, but we do possess an instrument that enables us to acquire the additional shares through a derivative structure. The calculated values in the aforementioned structure’s sensitivity analysis reflect the impacts of the intrinsic values of the options on the valuation or devaluation of the shares.
In our consolidated balance sheets, the underlying shares and equity collars are recorded at fair value, while secured debt is recorded at principal amount, net of funding costs. These funding expenses are amortized over the respective debt’s term.
In addition, we face risks associated with the share prices of Cosan (CSAN3). We have entered into a total return swap with respect to 97,215,812 shares of Cosan (CSAN3).
JPMorgan Chase Bank, N.A., or the “Depositary,” has acted as depositary in relation to the ADSs program since March 5, 2021. The Depositary’s office is located at 383 Madison Avenue, Floor 11, New York, NY 10179.
Fees and Expenses
The Depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of common shares of Cosan, issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each person surrendering ADSs for withdrawal of deposited securities or whose ADSs are canceled or reduced for any other reason, U.S.$5.00 for each 100 ADSs (or any portion thereof) issued, delivered, reduced, canceled or surrendered, as the case may be. The Depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall also be incurred by the holders of American Depositary Receipts evidencing ADSs of Cosan, or “ADRs,” and beneficial owners of ADSs, by any party depositing or withdrawing common shares of Cosan or by any party surrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:
To facilitate the administration of various Depositary receipt transactions, including disbursement of dividends or other cash distributions and other corporate actions, the Depositary may engage the foreign exchange desk within the Depositary and/or its affiliates in order to enter into spot foreign exchange transactions to convert foreign currency into U.S. dollars.
The fees and charges you may be required to pay may vary over time and may be changed by us and by the Depositary. ADR holders will receive prior notice of the increase in any such fees and charges. The right of the Depositary to charge and receive payment of fees, charges and expenses as provided above shall survive the termination of the deposit agreement.
The Depositary may make available to us a set amount or a portion of the Depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and the Depositary may agree from time to time. The Depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing common shares of Cosan or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its annual fee for Depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The Depositary will generally set off the amounts owing from distributions made to ADR holders. If, however, no distribution exists and payment owing is not timely received by the Depositary, the Depositary may refuse to provide any further services to ADR holders that have not paid those fees and expenses owing until such fees and expenses have been paid. At the discretion of the ADS Depositary, all fees and charges owing under the deposit agreement are due in advance and/or when declared owing by the ADS Depositary.
Direct and Indirect Payments
The Depositary has agreed to reimburse us for certain expenses related to the establishment and maintenance of the ADR program upon such terms and conditions as we and the Depositary may agree from time to time. Under certain circumstances, including the removal of JPMorgan Chase Bank, N.A. as depositary, we are required to repay to JPMorgan Chase Bank, N.A. amounts reimbursed in prior periods. For the year ended December 31, 2023, such reimbursements paid to us by the Depositary amounted to U.S.$0.23 million.
Other Information
See Exhibits No. 2.8 and 2.9 to this annual report for the form of deposit agreement, as amended, between us and the Depositary and Exhibit No. 2.7 to this annual report for a description of the rights of holders of the ADSs.
(a) Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods. Our chief executive officer and chief financial officer evaluated the effectiveness, as of December 31, 2023, of our “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Based upon this evaluation, our chief executive officer and chief financial officer concluded that, due to a material weakness in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2023 (to ensure that information required to be disclosed under the Exchange Act is recorded, authorized, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and the information required to be disclosed is accumulated and communicated, in order to allow timely decisions regarding required disclosure).
Notwithstanding this material weakness, our consolidated financial statements included in this annual report fairly present, in all material respects, our financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with IFRS, as issued by the IASB.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed by, or under the supervision of, its chief executive officer and chief financial officer, and effected by such company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting based on the framework set forth in the “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013). Based on this assessment and considering the material weakness described below, management concluded that our internal control over financial reporting was not effective as of December 31, 2023.
The material weakness identified was that management controls were insufficient to prevent or detect inappropriate access to data and system changes implemented in certain IT systems and applications that support the operations of Sulgás and Necta.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual financial statements will not be prevented or detected on a timely basis.
Remedial actions
We are committed to continuing to improve our internal control processes and will continue to diligently review our financial reporting controls and procedures in order to ensure our compliance with the requirements of the Sarbanes-Oxley Act and the related rules promulgated by the SEC. As such, we intend to implement appropriate remedial actions in order to mitigate the risk of future errors in our consolidated financial statements.
Through the date of this annual report, we have reassessed the IT environments at both Sulgás and Necta considering the potential impact on our financial statements. Based on the risk assessment, we designed and implemented IT general controls deemed appropriate to prevent and detect material misstatement in our consolidated financial statements. These efforts were assisted by external consultants and specialists. The internal controls department of Sulgás and Necta were restructured to increase seniority and experience of the team. Training and communication regarding the requirements of Sarbanes-Oxley Act are in progress across both Sulgás and Necta to foster awareness, and a culture, of internal controls.
However, we cannot assure you that our efforts will be effective, that we will be able to remedy this material weakness or that we will be able to prevent any future material weakness or significant deficiency in our internal control over financial reporting. See also “Item 3. Key Information—D. Risk factors— A material weakness in our internal control over financial reporting has been identified, and if we fail to remediate such material weakness (and any other ones) and to maintain effective internal controls over financial reporting, we may be unable to accurately report our financial results, meet our reporting obligations and/or prevent fraud.”
(c) Attestation Report of the Registered Public Accounting Firm
The effectiveness of the internal control over financial reporting, as of December 31, 2023, has been audited by BDO RCS Auditores Independentes SS Ltda., or “BDO”, an independent registered public accounting firm. BDO has issued an adverse attestation report on our internal control over financial reporting, which appears on page F-8 of our audited consolidated financial statements included elsewhere in this annual report.
(d) Changes in Internal Control over Financial Reporting
In connection with the preparation of the audited consolidated financial statements as of and for the year ended December 31, 2022, we had previously identified evidence of internal control deficiencies which, when aggregated, had been classified as material weaknesses in our internal controls over financial reporting.
The material weaknesses identified were that management controls were insufficient to detect deficiencies in how we account for non-recurring transactions, in particular with respect to the design and execution of controls pertaining to significant unusual transactions and to business combinations.
In 2023, we adopted and implemented a remediation plan to address the material weaknesses described above, which included the following action steps: (i) involvement of external consultants to design and oversee the implementation of the remediation plan; (ii) review and improvements to our internal control processes; (iii) providing training to control owners involved in internal controls across our Company. As a result, the material weaknesses identified in the year ended December 31, 2022 were remediated as of December 31, 2023.
In 2024, we plan to review the design and improve the execution of procedures described above to address the material weakness as of December 31, 2023. However, we cannot assure you that our efforts will be effective, that we will be able to remedy the material weakness or that we will be able to prevent any future material weakness or significant deficiency in our internal control over financial reporting. See also “Item 3. Key Information—D. Risk factors— A material weakness in our internal control over financial reporting has been identified, and if we fail to remediate such material weakness (and any other ones) and to maintain effective internal controls over financial reporting, we may be unable to accurately report our financial results, meet our reporting obligations and/or prevent fraud.”
Other than the remediation of the material weaknesses identified in 2022 and remediated in 2023, as discussed above, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have an audit committee responsible for advising the board about the selection of independent auditors, reviewing the scope of the audit, validating other allowed services provided by our independent auditors, and evaluating our internal controls on a steady basis. The members of our audit committee are Ms. Carla Alessandra Trematore, Mr. José Alexandre Scheinkman and Mr. Felício Mascarenhas de Andrade.
These members are independent, and our board of directors has determined that José Alexandre Scheinkman is “Audit Committee Financial Expert” in accordance with SEC rules and regulations.
NYSE Rule 303A.10 provides that each U.S. listed company must adopt and disclose a code of business conduct and ethics for directors, officers and employees and promptly disclose any waivers of the code for directors or executive officers. The Company has adopted a code of business conduct and ethics for directors, officers and employees as provided for in NYSE Rule 303A.10, which has been filed with the SEC. See Exhibit 11.1 to our annual report.
The following table describes the total amount billed to Cosan S.A. by Ernst & Young Auditores Independentes S/S Ltda., or “EY,” and BDO RCS Auditores Independentes SS Ltda., or “BDO Brazil,” for services performed during the fiscal years ended December 31, 2023 and 2022:
Fiscal Year Ended December 31, 2023
Fiscal Year Ended December 31, 2022
(in thousands of reais)
Audit fees
57,571.7
26,736.2
Audit-related fees
14,865.1
759.5
Tax fees
381.0
309.7
Total consolidated audit fees
72,817.8
27,805.5
Audit Fees
Audit fees are fees billed for the audit of our annual consolidated financial statements and for the reviews of our quarterly consolidated financial statements furnished on Form 6-K.
Audit-Related Fees
Audit-related fees correspond to services provided in connection with assistance related to review of documents to be filed with local and foreign regulatory bodies, including documents regarding compliance with legislation and regulations, audit of specific financial statements and prospectus review, due diligence activities, assurance of special purpose reports, and other previously agreed-upon procedures.
Tax Fees
Tax fees correspond for the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning.
Pre-Approval Policies and Procedures
Our audit committee approves all audit, audit-related services, tax services and other services provided by our principal accountants. Any services provided by our principal accountants that are not specifically included within the scope of the audit must be pre-approved by the board of directors in advance of any engagement. The board of directors is permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimis exception prior to the completion of the audit engagement.
Our statutory audit committee meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The statutory audit committee is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of “independence” established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee’s authority. See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Committees of the Board of Directors— Audit Committee” and “Item 6. Directors, Senior Management and Employees—C. Board Practices—Summary of Significant Differences of Corporate Governance Practices—Audit Committee and Audit Committee Additional Requirements.”
The following table reflects purchases of our equity securities by us or our affiliates in 2023 and in 2024 through to the date of this annual report.
Months
Total Number Common Shares Purchased
Average Price Paid per Common Share in U.S.$(1)
Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Common Shares That May Yet Be Purchased Under the Plans or Programs(2)
January 2023
February 2023
March 2023
April 2023
May 2023
June 2023
July 2023
September 2023
December 2023
500,000
2.94
2,588,400
3.84
March 2024
2,000,000
3.47
April 2024 (through September 30, 2024)
4,683,300
3.24
Total(2)
9,771,700
Ernst & Young Auditores Independentes S/S Ltda, or “EY,” was previously appointed as our independent registered public accounting firm. Due to a triggering event that resulted in Cosan obtaining significant influence over Vale as of November 30, 2023, EY and the audit committee determined that EY would no longer be able to assert independence beginning December 1, 2023 due to the fact that EY provided certain impermissible non-audit services to Vale and its affiliates during the year ended December 31, 2023. On December 19, 2023, our board of directors approved the engagement of BDO RCS Auditores Independentes SS Ltda. ("BDO Brazil”) to act as our independent registered public accounting firm for our financial periods beginning as of January 1, 2023.
During the course of evaluating the independence of BDO Brazil, the Brazilian member firm of BDO Global (“BDO Global”), in contemplation of carrying out audits of Cosan S.A. ("Cosan") under Public Company Accounting Oversight Board (United States) (“PCAOB”) independence rules, the following impermissible non-audit services rendered to certain of Vale’s subsidiaries were identified; however, such services were not prohibited under the International Ethics Standards Board for Accountants Code of Ethics or applicable home country independence rules.
First, BDO Brazil was engaged by certain Vale subsidiaries and a non-profit foundation engaged in corporate social responsibility for Vale to provide accounting and bookkeeping services. The services first began in January 2016 and BDO Brazil’s engagement was terminated in late December 2023. The related fees were not material to BDO Brazil. Second, in March 2023, the Canadian member firm of BDO Global (“BDO Canada”) was engaged to provide certain support services in connection with litigation by Vale’s Canadian subsidiary against its insurers. No services were ultimately provided by BDO Canada and no fees invoiced. BDO Canada’s engagement was terminated in late December 2023.
After careful consideration of the facts and circumstances and the applicable independence rules, BDO Brazil has concluded that (i) the aforementioned matters do not impair BDO Brazil’s ability to exercise objective and impartial judgment in connection with its audits of Cosan’s financial statements, and (ii) a reasonable investor with knowledge of all relevant facts and circumstances would reach the same conclusion. After considering these matters, management and those charged with governance of Cosan S.A. concurred with BDO Brazil’s conclusions.
Except as provided below, EY’s reports on our consolidated financial statements for the fiscal years ended December 31, 2022 and 2021 did not contain an adverse opinion or disclaimer of opinion or report, nor was any report qualified or modified as to uncertainty, audit scope or accounting principles.
EY’s report dated April 24, 2023, on the effectiveness of our internal control over financial reporting as of December 31, 2022, expressed an adverse opinion related to material weaknesses over the design and execution of relevant controls pertaining to significant unusual and complex transactions and to business combinations, to fully address the requirements of the COSO criteria. EY’s report dated May 13, 2022, on the effectiveness of our internal control over financial reporting as of December 31, 2021, expressed an adverse opinion related to material weaknesses over the execution of certain information technology general controls (ITGC) over management systems access and monitoring of jobs that also affected the effectiveness of automated and IT-dependent business process controls, to fully address the requirements of the COSO criteria.
During our fiscal years ended December 31, 2022 and 2021 and the subsequent interim period through November 30, 2023, there were no disagreements with EY, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreement, if not resolved to the satisfaction of EY, would have caused EY to make a reference to the subject matter of the disagreement in connection with any reports it would have issued, and there were no “reportable events” as that term is defined in Item 16F(a)(1)(v) of Form 20-F, except as disclosed above in “Item 15. Controls and Procedures—A. Disclosure Controls and Procedures.”
We have provided EY with a copy of the foregoing disclosure, and we have requested that it furnish us with a letter addressed to the SEC stating whether or not it agrees with the above disclosures. A copy of this letter is filed as Exhibit 16.1 to this Form 20-F.
We did not consult BDO during the fiscal years ended December 31, 2022 and 2021 or any subsequent interim period through November 30, 2023, regarding the application of accounting principles to a specific transaction, either completed or proposed, or regarding the type of audit opinion that might be rendered by EY on our financial statements. Furthermore, BDO did not provide any written or oral advice that was an important factor considered by us in reaching a decision as to any such accounting, auditing or financial reporting or any matter being the subject of disagreement or a “reportable event” or any other matter as defined in Item 16F(a)(2) of Form 20-F.
For a comparison of the significant differences between our corporate governance practices and the NYSE Corporate Governance Standards, please see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Summary of Significant Differences of Corporate Governance Practices.”
Information security is a key aspect of our strategic and operational business management. Our cybersecurity operations are organized on a group-wide basis. Our chief information security officer, or “CISO,” reports to our chief financial and investor relations officers, while collaborating with the business information security officers, or “BISOs,” of each of our subsidiaries. Our CISO, Mr. Fernando Madureira, has over 25 years of experience in information security and cybersecurity and has worked in European, American, and Brazilian companies across various business sectors. The purpose of our information and cybersecurity operations is to minimize our exposure to risks associated with this area. Our concern extends across all business areas. For instance, a cyberattack on our gas supply services could disrupt supply to customers, hospitals, and industries, causing significant harm to society. Consequently, we endeavor to develop mechanisms to protect our data and the systems that drive our operations.
Governance in this area involves regular reporting and alignment of identified risks. Our board of directors has overall oversight responsibility for our cybersecurity risk management, and is charged with oversight of our cybersecurity management program. We work closely with our subsidiaries to enhance processes. Strategic reports are presented monthly to our board of executive officers and quarterly to our board of directors. Management is responsible for identifying, considering and assessing material cybersecurity risks on an ongoing basis, establishing processes to ensure that such potential cybersecurity risk exposures are monitored, putting in place appropriate mitigation measures and maintaining cybersecurity programs. Our CISO delivers periodic presentations to our audit committee and board of directors, with cybersecurity being a regular item on the audit committee’s agenda. This approach improves our management of information security, cybersecurity, and data protection by placing these topics at the heart of our strategic discussions.
The Cosan Group has a structured process to monitor, analyze and pinpoint weaknesses, threats and impacts on information assets so that suitable controls can be put in place, and their effectiveness is tested periodically. As a result, security risks are mapped and duly communicated to the responsible stakeholders for treatment and mitigation. Monthly meetings are held to report on information security, which meetings are attended by our BISOs, technology managers, CIO, CFO and CEO. The Security Maturity Program includes independent assessments conducted twice a year. The security maturity rating is also a variable of the Profit-Sharing Component. This program encompasses key international frameworks such as NIST-CSF, ISO 27001/2, and CIS Controls.
We believe that centralized cybersecurity governance is beneficial for the Cosan Group. It offers operational cost synergies, a unified threat intelligence center, a multidisciplinary team (including technicians, specialists and business interactions), and access to the latest technologies. Our shared intelligence model involves developing standardized strategies, policies, norms, risk management approaches, and educational programs (such as the “Guardian Program”) that are compatible and replicable across all of our subsidiaries. In 2024, we will continue our planning initiated in 2021, projecting strategic goals until 2025. We conduct annual reviews to keep up with best market practices. We have consolidated information security and cybersecurity operations within our operational and industrial environments as part of the phase 2 expansion. Additionally, we remain committed to enhancing our approach to safeguarding critical assets.
In March 2020, our subsidiaries and jointly controlled companies suffered a cyberattack by ransomware that caused a partial and temporary interruption of our operations. Following this incident, we have strengthened procedures and controls with the support of our chief of information security and cybersecurity, internal cybersecurity-dedicated personnel and third-party security experts to expand and improve our cybersecurity controls. Our cyber-defense center gained a security operations center which focuses on cyberattacks and operates on a 24/7 basis, and a new process for periodic pen-testing (i.e., an authorized simulated cyberattack on a computer system) exercises was introduced into our vulnerability management structure. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Businesses and the Industries in Which We Operate Generally—We were the target of a cybersecurity incident which disrupted our systems, and we could be the target of attempted cyber threats in the future, which could adversely affect our business.”
In the fiscal years ended December 31, 2021, 2022 and 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident.
We have responded to Item 18 in lieu of responding to this Item.
See our audited consolidated financial statements beginning on page F-1.
We are filing the following documents as part of this annual report on Form 20-F:
Exhibit Number
Exhibit
1.1
Bylaws of Cosan S.A.
Indenture dated November 5, 2010 among Cosan Overseas Limited, Cosan S.A. Indústria e Comércio, The Bank of New York Mellon, as Trustee, New York Paying Agent, Transfer Agent and Registrar, The Bank of New York Mellon (London Branch), as London Paying Agent and The Bank of New York Mellon (Luxembourg) S.A., as Paying Agent and Transfer Agent (incorporated by reference to Exhibit 2.5 of Cosan Limited’s annual report on Form 20‑F for the year ended March 31, 2011).
Indenture dated June 20, 2016 among Cosan Luxembourg S.A., Cosan S.A. Indústria e Comércio, Deutsche Bank Trust Company, as Trustee, New York Paying Agent, Transfer Agent and Registrar and Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent (incorporated by reference to Exhibit 2.2 of Cosan Limited’s annual report on Form 20‑F for the year ended December 31, 2016).
2.3
Indenture dated July 31, 2019 among Cosan Limited and U.S. Bank National Association, as Trustee, Principal Paying Agent, Registrar and Transfer Agent (incorporated by reference to Exhibit 2.4 of Cosan Limited’s annual report on Form 20‑F for the year ended December 31, 2019).
2.4
First Supplemental Indenture dated February 18, 2021 among Cosan Limited and U.S. Bank National Association, as Trustee, Principal Paying Agent, Registrar and Transfer Agent to the Indenture dated July 31, 2019, among Cosan Limited and U.S. Bank National Association, as Trustee, Principal Paying Agent, Registrar and Transfer Agent (incorporated by reference to Exhibit 2.5 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2021).
2.5
Second Supplemental Indenture dated May 2, 2022, among Cosan S.A. and U.S. Bank National Association, as Trustee, Principal Paying Agent, Registrar and Transfer Agent to the Indenture dated July 31, 2019, among Cosan Limited and U.S. Bank National Association, as Trustee, Principal Paying Agent, Registrar and Transfer Agent (incorporated by reference to Exhibit 2.6 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2021).
2.6
Third Supplemental Indenture dated July 15, 2022, among Cosan S.A. and U.S. Bank Trust Company National Association, as Trustee, Principal Paying Agent, Registrar and Transfer Agent to the Indenture dated as of July 31, 2019, among Cosan Limited and U.S. Bank National Association, as Trustee, Principal Paying Agent, Registrar and Transfer Agent (incorporated by reference to Exhibit 2.6 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).
Indenture dated June 27, 2023 among Cosan S.A. and The Bank of New York Mellon, as Trustee, Paying Agent, Registrar and Transfer Agent.
Indenture dated January 26, 2024 among Cosan Luxembourg S.A., Cosan S.A. and U.S. Bank Trust Company, National Association, as Trustee, Paying Agent, Registrar and Transfer Agent.
2.9
Description of Securities.
2.10
Form of Deposit Agreement among Cosan S.A., J.P. Morgan Chase Bank N.A., as depositary, and the holders from time to time of American depositary shares issued thereunder, including the form of American depositary receipts (incorporated by reference to Exhibit 99(a) to the Registration Statement on Form F‑6 (file no. 333-253471) filed with the SEC on February 24, 2021).
2.11
Amendment No. 1 to the Deposit Agreement among Cosan S.A., J.P. Morgan Chase Bank N.A., as depositary, and the holders from time to time of American depositary shares issued thereunder, including the form of American depositary receipts (incorporated by reference to Exhibit 99(a)(2) to the Registration Statement on Form F-6 POS (file no. 333-253471) filed with the SEC on May 7, 2021).
4.1
Framework Agreement dated August 25, 2010 among Cosan S.A. Indústria e Comércio, Cosan Distribuidora de Combustíveis S.A., Cosan Limited, Houches Holdings S.A., Shell Brasil Limitada, Shell Brazil Holding B.V., Shell Overseas Holdings Limited and Milimétrica Participações S.A., or Framework Agreement (incorporated by reference to Exhibit 4.3 of Cosan Limited’s annual report on Form 20‑F for the year ended March 31, 2010).
4.2
First Amendment to the Framework Agreement dated as of April 7, 2011 (incorporated by reference to Exhibit 4.4 of Cosan Limited’s annual report on Form 20‑F for the year ended March 31, 2011).
4.3
Second Amendment to the Framework Agreement dated as of June 1, 2011 (incorporated by reference to Exhibit 4.5 of Cosan Limited’s annual report on Form 20‑F for the year ended March 31, 2011).
4.4
Third Amendment to the Framework Agreement dated as of March 21, 2012 (incorporated by reference to Exhibit 4.5 of Cosan Limited’s annual report on Form 20‑F for the year ended December 31, 2017).
4.5
Amendment and Restatement Deed to the Joint Venture Agreement among Cosan S.A., Cosan Investimentos e Participações S.A., Raízen S.A., Shell Brazil Holding B.V. and Shell Overseas Holdings Limited dated as of July 11, 2021 (incorporated by reference to Exhibit 4.6 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2021).
Operating and Coordination Agreement dated June 1, 2011 relating to Raízen Energia Participações S.A., Raízen Combustíveis S.A. and Raízen S.A. (incorporated by reference to Exhibit 4.7 of Cosan Limited’s annual report on Form 20‑F for the year ended March 31, 2011).
4.7
Eight Amendment to the Shareholders’ Agreement of Raízen S.A. dated as of July 27, 2023.
Share Purchase Agreement for the acquisition of Comma Oil & Chemicals Limited dated February 29, 2012, between Esso Petroleum Company, Limited and Cosan S.A. Indústria e Comércio (incorporated by reference to Exhibit 4.11 of Cosan Limited’s annual report on Form 20‑F for the year ended March 31, 2013).
4.9
Share Purchase Agreement for the acquisition of Comgás dated May 28, 2012, between Integra Investments B.V., BG Energy Holdings Limited, Provence Participações S.A. and Cosan S.A. Indústria e Comércio (incorporated by reference to Exhibit 4.12 of Cosan Limited’s annual report on Form 20‑F for the year ended March 31, 2013).
4.10
Deed of Merger Cosan Limited and Cosan S.A. (incorporated by reference to Exhibit 4.13 of Cosan S.A.’s annual report on Form 20‑F for the year ended December 31, 2020).
4.11
English translation of the Merger and Justification Protocol between Cosan Limited and Cosan S.A. (incorporated by reference to Exhibit 4.14 of Cosan S.A.’s annual report on Form 20‑F for the year ended December 31, 2020).
4.12
English translation of the Merger and Justification Protocol between Cosan Logística and Cosan S.A. (incorporated by reference to Exhibit 4.15 of Cosan S.A.’s annual report on Form 20‑F for the year ended December 31, 2020).
4.13
English translation of the Protocol and Justification of Merger of Cosan Investimentos e Participações S.A. into Cosan S.A. dated as of October 27, 2021 (incorporated by reference to Exhibit 4.16 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2021).
4.14
English translation of the Master Derivatives Agreement dated October 5, 2022, between Cosan Oito S.A. and Banco J.P. Morgan S.A. (incorporated by reference to Exhibit 4.15 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).
4.15
Schedule dated October 5, 2022, to the Master Derivatives Agreement dated as of October 5, 2022, between Cosan Oito S.A. and Banco J.P. Morgan S.A. (incorporated by reference to Exhibit 4.16 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).
4.16
English translation of the Master Derivatives Agreement dated October 5, 2022, between Cosan Oito S.A. and Banco Citibank S.A. (incorporated by reference to Exhibit 4.17 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).
4.17
Schedule dated October 5, 2022, to the Master Derivatives Agreement dated as of October 5, 2022, between Cosan Oito S.A. and Banco Citibank S.A. (incorporated by reference to Exhibit 4.18 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).
4.18
Loan Agreement dated October 7, 2022, among Cosan Oito S.A., JP Morgan Chase Bank N.A., London Branch and Banco J.P. Morgan S.A. (incorporated by reference to Exhibit 4.19 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).
4.19
Loan Agreement dated October 7, 2022, among Cosan Oito S.A., Citibank, N.A., London Branch, and Citigroup Global Markets Brasil, Corretora de Câmbio, Títulos e Valores Mobiliários S.A. (incorporated by reference to Exhibit 4.20 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).
4.20
Confirmation of Derivative Transaction – Collar Plus Forward dated October 7, 2022, among Cosan Oito S.A. and Banco J.P. Morgan S.A. (incorporated by reference to Exhibit 4.23 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).*
4.21
Confirmation of Derivative Transaction – Collar Plus Forward dated October 7, 2022, among Cosan Oito S.A. and Banco Citibank S.A. (incorporated by reference to Exhibit 4.24 of Cosan S.A.’s annual report on Form 20-F for the year ended December 31, 2022).*
8.1
Subsidiaries of the Registrant.
11.1
Code of Ethics
12.1
Certification pursuant to section 302 of the Sarbanes‑Oxley Act of 2002 of the Chief Executive Officer.
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer.
13.1
Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer.
13.2
Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.
15.1
Financial Statements for the fiscal years ended March 31, 2024, 2023 and 2022 of Raízen S.A.
15.2
Financial Statements for the fiscal years ended December 31, 2023, 2022 and 2021 of Vale S.A.
Letter from Ernst & Young Auditores Independentes S/S Ltda. to the SEC, dated November 8, 2024, confirming that Ernst & Young Auditores Independentes S/S Ltda.. agrees with the disclosures made by the Company in Item 16F of this annual report on Form 20-F.
97.1
Clawback Policy.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
* Portions of this item have been omitted pursuant to a request for confidential treatment.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
COSAN S.A.
By:
/s/ Rodrigo Araujo Alves
Name: Rodrigo Araujo Alves
Title: Chief Financial and Investor Relations Officer
Date: November 8, 2024
.
CONTENT
The management of Cosan S.A. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). A company’s internal control over financial reporting is a process designed by, or under the supervision of, its chief executive officer and chief financial officer, and effected by such company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The material weakness identified was that management controls were insufficient to prevent or detect inappropriate access to data and system changes implemented in certain IT systems and applications that support the operations of Companhia de Gás do Estado do Rio Grande do Sul, or “Sulgás,” and Necta Gás Natural S.A., or “Necta,” both of which are indirect subsidiaries acquired by Compass in 2022. These businesses were subjected to the assessment of internal controls for the first time in 2023 due to the waiver for newly acquired businesses in the prior year.
Management assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited by BDO RCS Auditores Independentes SS Ltda., the Company’s independent registered public accounting firm, as stated in their report which appears herein.
São Paulo, Brazil
November 08, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
São Paulo - SP, Brazil
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of Cosan S.A. and its subsidiaries (the “Company”) as of December 31, 2023, the related consolidated statements of income and comprehensive income, changes in equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated November 8, 2024 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
Emphasis of matter - Reclassification of comparatives
As discussed in Notes 3.4, 4 and 8 to the consolidated financial statements, the 2022 and 2021 consolidated financial statements have been reclassified.
We also audited the adjustments described in Notes 3.4, 4 and 8 related to the 2022 and 2021 consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2022 and 2021 consolidated financial statements of the Company other than with respect to the adjustments as described in Notes 3.4, 4 and 8 and, accordingly, we do not express an opinion or any other form of assurance on the 2022 and 2021 consolidated financial statements taken as a whole.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Measurement of fair value of investment properties
As disclosed in Note 11.5 to the consolidated financial statements, as of December 31, 2023, the Company recorded investment properties in the amount of R$15,976,126 thousand. As disclosed in Note 21, for the year ended December 31, 2023, the Company reported income due to changes in fair value of investment properties in the amount of R$ 2,259,924 thousand.
We identified the valuation of investment properties as a critical audit matter due to significant management’s judgements related to assumptions used in determining fair values of investment properties. Auditing management’s assumptions used in the valuation of investment properties involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
Concession rights
As disclosed in Note 11.2(d) and 11.2(e) to the consolidated financial statements, the Company recorded concession rights related to the distribution of gas and railroads net of amortization, in the amount of R$12,307,964 thousand and R$6,512,602 thousand, respectively, as of December 31, 2023.
We identified management’s assumptions relating to the determination of expenditures that are eligible for capitalization as concession rights and the determination of estimated expected useful life of these assets as a critical audit matter. Auditing management’s assumptions involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters.
Provision for tax contingencies
As described in Note 16 to the consolidated financial statements, the Company is a party to legal and administrative proceedings at civil, labor, and tax levels, which arise from the normal course of its business. As of December 31, 2023, the Company has tax matters, being discussed at several procedural levels, in which R$15,703,294 thousand are disclosed as possible loss and R$813,732 thousand are provisioned.
We identified management’s judgments related to the assessment of tax provisions and contingencies as a critical audit matter due to the significant auditor judgments required to assess the magnitude and probability of potential losses identified and evaluate the progress of and changes to expected outcomes. Auditing these judgments involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skills or knowledge needed.
We have served as the Company's auditor since 2024.
/s/ BDO RCS Auditores Independentes SS Ltda.
November 8, 2024
São Paulo-SP, Brazil
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Cosan S.A. and its subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statement of financial position of the Company as of December 31, 2023, the related consolidated statements of income and comprehensive income, changes in equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as “the consolidated financial statements”)” and our report dated November 8, 2024 expressed an unqualified opinion thereon.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 15, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness has been identified and described in management’s assessment. This material weakness related to ineffective information technology general controls (ITGC) related to user access and program change management over certain systems of the Company’s subsidiaries Necta Gás Natural S.A. (“Necta”) and Companhia de Gás do Estado do Rio Grande do Sul (“Sulgás”) which supported substantially all internal control processes at these subsidiaries.
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated November 8, 2024, on those consolidated financial statements.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Opinion on the Financial Statements
We have audited, before the effects of the adjustments described in Notes 3.4, 4, and 8, the consolidated statement of financial position of Cosan S.A. (the Company) as of December 31, 2022, and the related consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the two years in the period ended December 31, 2022 and the related notes (collectively referred to as the “consolidated financial statements”). The consolidated financial statements, before the effects of the adjustments discussed in Notes 3.4, 4, and 8 are not presented herein. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We were not engaged to audit, review, or apply any procedures to the adjustments described in Notes 3.4, 4, and 8 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by BDO RCS Auditores Independentes Sociedade Simples Ltda.
/s/ Ernst & Young Auditores Independentes S/S Ltda.
We have served as the Company’s auditor from 2020 to 2023.
April 24, 2023
(In thousands of Brazilian reais – R$)
Note
12/31/2023
12/31/2022
Assets
5.2
14,658,481
13,301,716
Restricted cash
5.3
7,860
8,024
Marketable securities
3,407,955
2,422,470
Trade receivables
5.7
3,330,488
3,769,908
5.6
202,399
1,086,698
7
1,792,714
1,869,059
Receivables from related parties
251,471
235,541
Income tax receivable
888,942
560,789
Other current tax receivable
6
745,856
1,324,203
Dividend receivable
17
255,777
161,147
Sectorial financial assets
5.10
207,005
148,955
Other financial assets
690
88,961
Other current assets
722,386
560,080
Current assets
26,472,024
25,537,551
Current assets held for sale
8
2,138,165
40,383
28,610,189
25,577,934
114,148
157,634
96,006
19,677,296
195,392
131,909
Deferred tax assets
15
5,609,030
4,474,124
88,620
241,001
432,360
434,886
Other non-current tax receivable
1,132,703
1,074,923
Judicial deposits
16
895,901
814,444
2,344,400
3,065,054
341,695
193,378
Other non-current assets
216,694
201,811
2,423
277
Investments in associates
9.1
17,611,369
2,913,943
Investment in joint ventures
10
11,742,442
11,221,356
21,239,974
18,948,436
11.2
22,650,287
22,121,942
Contract asset
11.3
1,052,105
1,118,715
11.4
9,513,518
8,012,869
Investment property
11.5
15,976,126
14,103,060
Non-current assets
111,255,193
108,907,058
139,865,382
134,484,992
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated statement of financial position
Liabilities
Loans, borrowings and debentures
5.4
4,882,398
4,542,205
733,063
550,529
1,250,520
1,039,357
5.9
3,920,273
4,318,362
Employee benefits payables
829,329
659,521
Income tax payables
445,934
204,387
Other taxes payable
14
673,718
760,041
549,054
892,006
Concessions payable
13
250,971
256,759
Related party payables
322,160
387,736
Sectorial financial liabilities
70,013
67,419
5
476,895
924,562
Other current liabilities
1,516,084
1,195,329
15,920,412
15,798,213
Liabilities related to assets held for sale
238,393
16,158,805
52,022,256
48,445,011
4,542,731
2,981,629
2,164,625
4,251,575
264,252
61,489
163,242
153,688
1,714,403
1,801,186
3,314,402
3,094,651
1,078
Post-employment benefits
23
617,647
575,840
Deferred tax liabilities
5,225,433
5,469,368
1,740,685
1,549,197
Deferred income
19,129
624,801
29,985
Other non-current liabilities
935,514
1,478,960
72,725,397
70,517,380
Total liabilities
88,884,202
86,315,593
Shareholders’ equity
Share capital
8,682,544
8,402,544
(93,917
(107,140
Additional paid-in capital
2,561,964
2,319,928
Accumulated other comprehensive income
314,325
567,546
Retained earnings
9,490,391
9,470,289
Equity attributable to:
Owners of the Company
20,955,307
20,653,167
Non-controlling interests
9.3
30,025,873
27,516,232
50,981,180
48,169,399
Total liabilities and shareholders’ equity
Consolidated statement of profit or loss and other comprehensive income
12/31/2022 (Reclassified) (i)
12/31/2021 (Reclassified) (i)
19
39,468,497
39,322,786
26,093,154
20
(28,549,896
(30,556,819
(20,263,186
10,918,601
8,765,967
5,829,968
(1,350,570
(1,276,279
(723,419
(2,527,974
(1,758,067
(1,401,572
21
3,924,377
1,752,222
382,600
45,833
(1,282,124
(1,742,391
10,964,434
7,483,843
4,087,577
350,399
418,897
130,225
Interest in earnings of joint ventures
1,695,945
(92,179
4,590,631
2,046,344
326,718
4,720,856
(11,337,430
(4,706,535
(2,527,506
3,028,134
5,777,521
1,258,441
1,777,438
260,746
(1,099,536
(1,365,169
(6,489,668
(188,956
22
(7,897,027
(5,157,936
(2,557,557
5,113,751
2,652,625
6,250,876
(1,645,063
(1,246,990
(787,602
1,370,637
1,365,394
1,233,186
(274,426
118,404
445,584
Profit for the year from continuing operations
4,839,325
2,771,029
6,696,460
Profit for the year from discontinued operations, net of tax
45,419
49,846
4,884,744
2,820,875
Other comprehensive income:
Items that will not be reclassified to profit or loss
Actuarial gain (loss) with defined benefit plan
(71,550
80,330
63,382
Taxes over actuarial gain (loss) on defined benefit plan
24,327
(27,312
(21,550
(47,223
53,018
41,832
Items that are or may be reclassified subsequently to profit or loss
Foreign currency translation differences
(172,501
917,548
89,848
Gain (loss) on cash flow hedge
(125,233
723
(601,415
Change in fair value of financial assets, net of taxes
22,395
2,269
(297,734
940,666
(509,298
Comprehensive income from continuing operations
4,494,368
3,764,713
6,228,994
Comprehensive income from discontinued operations
Total comprehensive income for the year
4,539,787
3,814,559
Profit attributable to:
1,094,391
1,176,032
6,312,140
3,790,353
1,644,843
384,320
Total comprehensive income attributable to:
841,170
2,265,187
5,932,760
Non-controlling interest
3,698,617
1,549,372
296,234
Earnings per share of continuing operations
18
Basic
R$0.5778
R$0.6200
R$3.4407
Diluted
R$0.5751
R$0.6173
R$3.4291
Earnings per share of discontinued operations
R$0.0084
R$0.0092
Treasury share
Accumulated other comprehensive loss
Total equity
On January 1, 2021
5,328
2,007,356
(1,524,027
4,771,426
5,260,083
15,558,784
20,818,867
Other comprehensive income
Loss on cash flow hedge
(437,995
(163,420
14,017
75,831
Actuarial gain (loss) on defined benefit plan
41,959
(127
Change in fair value of financial assets
2,639
(370
(379,380
Transactions with owners of the Company contributions and distributions:
Capital increase
2,252,306
Dividends - non-controlling interests
(2,493
Share based payments
18,136
(36,708
(18,572
15,853
(2,719
(1,866,393
(164,908
(2,031,301
Business combination
2,115,554
Disposal of treasury shares
496,741
3,825
(496,916
3,650
Total contributions and distributions
514,877
(35,376
(2,363,309
(1,883,808
4,218,805
2,334,997
Transactions with owners of the Company:
Change of shareholding interest in subsidiary
1,322,716
(1,835,552
(512,836
Total transactions with owners of the Company
Total transactions with owners of the Company contributions and distributions:
1,287,340
(561,092
2,383,253
1,822,161
Predecessor adjustments
6,360,525
(583,941
(4,984,931
1,381,798
1,935,735
4,109,186
(4,109,186
On December 31, 2021
6,365,853
(69,064
(1,690,235
(521,609
10,655,992
14,740,937
14,129,085
28,870,022
Consolidated statement of changes in equity
Accumulated other comprehensive income (loss)
On January 1, 2022
Other comprehensive income (note 17)
Gain from cash flow hedge
58
665
1,032,232
(114,684
Actuarial gain on defined benefit plan
45,721
7,297
11,144
11,251
1,089,155
2,036,691
(2,036,691
7,889,251
Sale of treasury shares
1,752
618
2,370
19,678
(30,930
(11,252
5,636
(5,616
(325,044
(912,735
(1,237,779
Acquisition of treasury shares
(59,506
10,062,503
Employee share schemes - value of employee services
55,391
7,003
62,394
(38,076
25,079
(2,361,735
(338,041
17,051,658
16,713,617
Acquisition of non-controlling interest
(1,092,374
3,985,084
(4,121,509
(136,425
(5,213,883
(1,228,799
4,010,163
3,647,043
11,837,775
15,484,818
On December 31, 2022
Equity attributable to controlling shareholders
Interest of non-controlling shareholders
On January 1, 2023
Loss from cash flow hedge
(92,491
(32,742
(109,134
(63,367
(51,596
4,373
Total comprehensive income (loss) for the year
(253,221
Capital increase (note 17)
280,000
(280,000
Funds from capital increase and decrease in subsidiary (note 9.2)
6,657
Gain from capital increase in a subsidiary
60,348
10,830
71,178
13,223
(40,113
(26,890
(79,565
(106,455
Write-off of interest in subsidiary
(22,280
Dividends and allocation of results (i)
(520,691
(1,581,323
(2,102,014
Mandatory minimum dividends
(273,598
237,460
135,653
50,664
186,317
155,888
(1,074,289
(625,178
(1,377,557
(2,002,735
Gain on dividends from subsidiary
79,825
188,581
268,406
Change of shareholding interest in subsidiary (note 9.1)
6,323
86,148
274,729
242,036
)
(539,030
(1,188,976
(1,728,006
On December 31, 2023
(i) The allocation of the statutory reserve for the year 2023 will be held after the Ordinary General Meeting.
(In thousands of Brazilian Reais – R$)
(Reclassified) (i)
12/31/2021
Cash flows from operating activities
Adjustments for:
3,364,943
3,014,480
2,504,384
(350,399
(418,897
(130,225
(1,695,945
92,179
(4,590,631
Loss (gain) on disposed assets
17,016
13,035
(7,295
Share-based payment
24
207,713
99,088
53,131
Change in fair value of investment properties
(2,259,924
(1,311,691
(17,116
Legal proceedings provision
204,158
370,764
263,945
Interest, derivatives, monetary and foreign exchange, net
9,379,506
6,521,930
2,911,179
Bargain purchase gain (loss)
(99,341
(416,268
Sectorial financial assets and liabilities, net
(110,125
339,854
246,100
(Gain) loss on energy derivative transactions
(248,123
58,701
Provisions for employee benefits
419,241
380,967
358,053
Allowance for expected credit losses
74,706
28,463
(2,813
Tax credit recovery
(33,384
(110,541
(648,315
Results from the sale of investments
(988,077
(597,998
(5,366
Revenue from finance investment
(1,284,647
(32,493
278,427
381,572
(23,731
12,727,039
10,680,428
6,809,975
Variation in:
Trade receivable
573,737
(6,327
(404,016
(83,166
(423,430
(245,174
Other taxes, net
454,941
553,584
155,712
Income tax
(1,272,145
(1,090,684
(950,401
Related parties, net
(188,798
(139,621
(111,149
(252,810
510,616
591,975
Employee benefits
(356,210
(249,244
(150,087
(461,574
(328,394
(131,260
Financial instruments derivatives
2,894
(65,939
(566,058
110,659
50,856
(22,862
(2,670
(58,608
592,601
(34,235
(90,411
(34,004
Purchase of tax credits
(208,118
(168,510
Other assets and liabilities, net
(244,309
(78,936
(2,450,595
(708,196
(1,662,784
Net cash generated from operating activities
10,276,444
9,972,232
5,147,191
Cash flows from investing activities
Capital contribution to associates
(47,300
(86,205
(417,216
Acquisition of subsidiary, net of acquired cash
(702,577
(5,288,696
(592,733
Purchase of marketable securities
(507,976
(13,911,737
(514,459
(60,498
(58,179
26,313
Dividends received from associates
254,905
278,127
16,426
Dividends received from joint venture
906,534
1,174,771
819,729
Dividends received from finance investment
1,305,410
Acquisition of instruments designated at fair value
(7,485
(190,990
(14,168
Consolidated statement of cash flows
Capital reduction in subsidiaries
99,040
Acquisition of property, plant and equipment, intangible and contract assets
(6,267,962
(4,531,374
(4,774,839
Proceeds from the sale of investments
645,772
1,969,789
Net cash from sale of discontinued operations
62,700
44,969
Receipt of derivative financial instruments, except debt
168,308
146,979
197,679
Payment of derivative financial instruments, except debt
(156,600
(283,337
(227,012
Cash received on the sale of property, plant and equipment and intangible assets
4,637
9,319
3,090
1,025
Net cash used in investing activities
(4,303,092
(20,726,564
(5,476,165
Cash flows from financing activities
Proceeds from loans, borrowings and debentures
12,785,628
23,886,960
12,548,547
Principal repayment of loans, borrowings and debentures
(8,054,763
(15,278,378
(9,925,067
Payment of interest on loans, borrowings and debentures
(3,552,292
(3,441,978
(2,321,868
Payment of derivative financial instruments
(2,851,267
(2,079,805
(647,168
Proceeds from derivative financial instruments
1,193,534
291,619
4,325,918
Costs of banking operations with derivatives
(586,855
Principal repayment of leases
(490,012
(400,248
(461,040
Payment of interest on leases
(236,948
(211,611
(165,301
Transaction costs related to loans and borrowings
(94,196
Proceeds from capital contributions by non-controlling shareholders
(24,281
8,126,823
Transaction costs related to capital contributions by non-controlling shareholders
(19,217
Payments to redeem entity’s shares and acquisition of treasury shares
(103,283
(84,591
(26,101
Proceeds from the sale of treasury shares
69,155
Acquisition of non-controlling shareholders’ shares
(487,721
(698,147
Dividends paid
(2,582,447
(1,908,171
(2,558,886
Payment of share-based compensation
(13,597
(15,597
(45,024
1,397
Net cash generated from financing activities
(4,516,583
8,286,259
2,348,721
Increase (decrease) in cash and cash equivalents
1,456,769
(2,468,073
2,019,747
Cash and cash equivalents at the beginning of the year
16,174,130
13,642,918
Effect of the foreign exchange rate changes
(100,004
(404,341
511,465
Cash and cash equivalents at the end of the year
Additional information
Income taxes paid
361,726
318,845
462,120
Disclosure of interest and dividends:
Dividends and interest on shareholders’ equity are classified as cash flow from investing activities by the Company. Interest paid is classified as cash flow from financing activities.
Notes to the consolidated financial statement
(In thousands of Brazilian reais – R$, except when otherwise indicated)
Cosan S.A. (“Cosan” and together with its subsidiaries collectively, the “Company”) is a publicly traded Company on the B3 S.A. - Brasil, Bolsa, Balcão, or “B3,” on the special New Market (Novo Mercado) segment under the ticker symbol “CSAN3.” The Company’s American Depositary Shares, or “ADSs,” are listed on the New York Stock Exchange, or “NYSE,” and traded under the symbol “CSAN.” Cosan is a corporation (sociedade anônima) of indefinite term incorporated under the laws of Brazil, with its registered office in the city of São Paulo, state of São Paulo. Mr. Rubens Ometto Silveira Mello is the ultimate controlling shareholder of Cosan.
Corporate Cosan (Corporate segment) is formed by the following entities:
Parent company with direct or indirect equity interest in subsidiaries and joint venture. The main effects of its profit or loss are general and administrative expenses, contingencies, equity income and financial results attributed to loans.
On January 22, 2021, the shareholders of Cosan Limited, the former parent Company of Cosan S.A. and Cosan Logística, approved an intra-group reorganization, announced on July 3, 2020, consisting of a merger of companies under common control, as provided by art. 264, paragraph 4, of Brazilian Law No. 6,404, pursuant to which Cosan Limited and Cosan Logística were merged into Cosan S.A., or the “Corporate Reorganization.”
As part of an effort to streamline our operations, the Company carried out a corporate reorganization to enhance its corporate structure by making Cosan S.A. the sole holding Company of the group. The corporate reorganization simplified the corporate structure, unifying and consolidating the Cosan S.A., Cosan Limited and Cosan Logística free floats, in order to increase share liquidity, and unlock value within the Company’s group portfolio. As part of the corporate reorganization, each of Cosan Limited and Cosan Logística were merged into Cosan S.A., being Cosan S.A. the surviving entity. Following the completion of the merger, the outstanding shares of Cosan S.A. are now directly owned by all shareholders of Cosan Limited, Cosan S.A. and Cosan Logística as of immediately prior to the completion of the merger. As a result, Cosan S.A. issued American Depositary Shares, or ADSs, listed on the NYSE or common shares listed under the Novo Mercado segment of the B3 to the shareholders of Cosan Limited immediately prior to the approval of the merger. As for Cosan Logística, upon completion of the merger, holders of Cosan Logística shares immediately prior to the approval of the merger became owners of Cosan S.A. common shares.
The following charts set forth simplified representations of our operating structure before and after the corporate reorganization.
Figure 1: Simplified operating structure prior to the merger.
Figure 2: Simplified operating structure immediately after the merger.
The Merger Protocol also established the exchange ratio for the shares. Each Class A and Class B Shares issued by Cosan Limited and outstanding immediately prior to the consummation of the merger were automatically converted into the right to receive 1.29401595263 Cosan S.A. ADSs. The exchange ratio for the exchange of Cosan Logística shares for Cosan S.A. shares is 0.25360679585 Cosan S.A. shares for one Cosan Logística share.
This is equivalent to 0.772788 Cosan Limited shares for each Cosan S.A. share or Cosan S.A. ADS, as applicable, and 3.943112 Cosan Logística shares for each Cosan S.A. share.
1.2. COMPANY HISTORY
In February 2021, Rumo Malha Central S.A., or “Rumo Malha Central”, started its logistic rail service. The operations began with rail connecting between operations of Rumo Malha Paulista S.A., or “Rumo Malha Paulista” and Rumo Malha Norte S.A. or “Rumo Malha Norte.”
On May 20, 2021, Raízen entered into a renewal of the license agreement for the use of the "Shell" brand with Shell Brands International AG. With this renewal, Raízen S.A. keeps the right to use the “Shell” brand, in the fuel distribution sector and related activities in Brazil, for a minimum period of 13 years, which can be renewed in certain cases, upon compliance with certain conditions established in the contract.
On May 31, 2021, the subsidiary Compass Gás e Energia entered into an investment agreement with Atmos Ilíquidos 1 Fundo de Investimento em Ações, Atmos Master Fundo de Investimento em Ações, Manzat Inversiones Auu S.A. and Ricardo Ernesto Correa da Silva (together “Investors”), through which the Investors agreed to jointly subscribe 30,853,032 preferred shares issued by Compass Gás e Energia S.A. (“Compass”), representing 4.68% of its share capital, for an amount of R$810,000. In compliance with one of the contractual conditions, on August 12, 2021, Compass Gás e Energia was registered with the Brazilian stock Exchange B3. The investment agreement was concluded with the financial settlement by the Investors on August 27, 2021. On September 4, 2021, Compass entered into a second investment agreement with Bradesco Vida e Previdência S.A. (“Bradesco”), BC Gestão de Recursos Ltda., Prisma Capital Ltda. and Nucleus Capital Ltda., for the issuance subscription of new preferred shares for a total amount of R$1,440,000, representing 7.68% of share capital. On September 10, 2021, the first financial settlement of the investment made by Bradesco was concluded, via capital increase in Compass in the amount of R$810,015 through the issuance of new preferred shares representing 4.47% of Compass Gás e Energia share capital. On October 29, 2021, the remaining settlement of the investment was made for a total amount of R$630,000. The total amount of the contributions made by the non-controlling shareholders was R$2,250,015.
On June 1, 2021, the shareholders of Raízen Energia S.A. (“Raízen Energia”) contributed all the issued shares by Raizen Energia, including common shares, class A and D preferred shares, to Raízen S.A. (formerly known as Raízen Combustíveis S.A.), with the exception of two common shares that were retained by Cosan Investimentos e Participações S.A. and Shell Brasil Holding BV (“Shell”). On the same date, Raízen Energia also redeemed all of its own class B preferred shares. As a result, Raízen S.A. became the controlling holding Company of Raízen Energia (“Raízen Reorganization”). As a result of the Raizen Reorganization, Cosan S.A. and Shell terminated the Raízen Energia shareholders’ agreement and amended the Raízen S.A. shareholders’ agreement to reflect the effects of the Raizen Reorganization. The Raizen Reorganization did not have any impact in the Company’s financial statements.
On June 3, 2021, Raízen S.A., completed its registration with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM.” On September 9, 2021, Raízen completed and initial public offering (“IPO”) of 906,712,350 preferred shares at the price of R$7.40 per share with net proceeds of R$6,599,987 (R$6,709,671 net of R$109,684 issuance costs).
On August 10, 2021, Raizen S.A. completed the acquisition of Biosev S.A., or “Biosev”, for an amount of R$4,581,899. This payment was used, in turn, to pay part of Biosev’s financial debts, with the remaining balance of such debts of Biosev being paid with funds from a new financing contracted by Hédera Investimentos e Participações S.A., or “Hédera”. Also, as part of the transaction Hédera exercised the subscription bonus in amount of R$2,423,944, adjusted to market value on the transaction date by the amount of R$76,663, totaling R$2,347,281, issued at the Company’s general meeting held on June 1, 2021, becoming holder of 330,602,900 preferred shares issued by Raízen, representing approximately 3.22% of its share capital.
Biosev’s main activities are the production, processing and sale of rural and agricultural products, mainly sugarcane and its derivatives, generation and sale of energy as well, as derivatives from energy cogeneration. This business combination is in line with Raízen’s strategy of leading the transformation of the energy matrix with its own technology, by expanding the crushing capacity and increasing the share of renewable products in our portfolio.
On August 23, 2021, the Company’s subsidiary Atlântico Participações Ltda., or “Atlântico”, which is engaged in the mining segment, signed a binding proposal for the acquisition of 100% of TUP Porto São Luis S.A., or “Porto São Luis,” for an amount of R$804,803 from the controlling shareholder, São Luís Port Company SARL, a China Communications Construction Company Limited, or “CCCC,” (owner of 51% interest) and the other minority shareholders jointly holding a 49% interest. On February 11, 2022, the acquisition was completed which resulted in the Company holding 100% of the equity interest in Porto São Luis.
In addition, on August 23, 2021, Atlântico signed a Binding “MoU” with the Company Grupo Paulo Brito, founder and controller of Aura Minerals Inc. (“Aura”), a mining Company focused on gold and copper, to form a joint venture for the exploration of iron ore, which will be shipped through TUP Porto São Luis S.A. (“JV Mineração”). This MoU provides that Atlântico will hold 37% of the total capital and shared control of the new combined entity, or 50% of the common shares of the new combined entity, after the contribution of Porto São Luis and cash, depending on calls from capital by the Company’s management. JV Mineração will be an integrated mining and logistics Company, which will have, in addition to Porto São Luis, exploration rights for mining assets in three mineral projects located in the state of Pará, with significant potential for iron ore reserves, to be sold through the Port of São Luis. With the beginning of its operations expected for 2025, the first mineral project to be explored by JV Mineração is located near to Paraupebas in the state of Pará, in the Carajás region, connected to Porto São Luis by the Carajás railroad. The completion of the transaction is subject to conditions precedent that have not yet been met as of the date of these consolidated financial statements.
On September 1, 2021, Cosan S.A. anticipated the payment of obligations with non-controlling preferred shareholders of Cosan Investimentos e Participações S.A (“CIP”) for the amount of R$182,373. On December 1, 2021, CIP was merged into the Company. Considering that CIP’s net assets were represented by the investment in Raízen S.A., the effect in the Company’s consolidated financial statements was a reclassification between the lines of “Investments in associates” to “Investment in joint venture.”
On September 10, 2021, the subsidiary Rumo definitively ended the existing arbitration procedure with the non-controlling shareholders of Brado Logística e Participações S.A. (Logística Brasil – Fundo de Investimento e Participações, Dimitrio Markakis and Deminvest Empreendimentos e Participações), acquiring 2,000 shares, representing 15.42% of the share capital, for R$388,739, increasing its interest to 77.65% in Brado Logística e Participações S.A.
On September 19, 2021, the subsidiary Rumo Malha Norte S.A. (“Rumo Malha Norte”) entered into an adhesion agreement with the State of Mato Grosso, which allows Rumo Malha Norte to engage in the construction, operation, exploration and conservation of a railroad that independently connects the Rondonópolis railroad terminal to Cuiabá and Lucas do Rio Verde in the state of Mato Grosso.
On September 20, 2021, Cosan entered into a Share Purchase Agreement with Mansilla Participações Ltda. (“Mansilla,” a vehicle of the investment fund TIAA – Teachers Insurance and Annuity Association of America), for the acquisition of an additional shareholding interest in Radar. On November 3, 2021, the Company acquired control of Radar from Mansilla.
On October 19, 2021, under the Amendment to the Sale and Purchase of Member Interests, the Company and ExxonMobil International Holdings BV agreed on the payment made by Cosan Lubrificantes e Especialidades S.A. (“CLE”) of R$208,118 related to tax credits granted during the Tax Optimization Program that CLE has entered into. CLE has now the full right of these tax credits.
On October 22, 2021, Compass Um Participações S.A., a subsidiary of Compass Gás e Energia, submitted the winning bid in Auction No. 01/2021, held at the Brazilian stock Exchange B3, for the acquisition of 51% interest in Companhia de Gás do Estado do Rio Grande do Sul (“Sulgás”)’s capital, owned by the Government of the State of Rio Grande do Sul. Sulgás’s distribution network totals approximately 1,400 km, serving over 79,000 customers in 41 cities, and distributes a volume of 1.5 million cbm/day.
On January 3, 2022, the subsidiary Compass Um Participações S.A. (“Compass Um”) purchased 51% of the share capital of Companhia de Gás do Estado do Rio Grande do Sul (“Sulgás”).
On May 23 and 31, 2022, the subsidiary Cosan Lubes Investments Limited (“CLI” or “Moove” segment), through its subsidiaries, acquired 100% of Stryker Intermediate Holdings Inc. and its operating subsidiaries (together referred to as “PetroChoice”) and Tirreno Indústria e Comércio de Produtos Químicos Ltda. (“Tirreno”), respectively.
On September 30, 2022, the Company entered into a Share Purchase Agreement with Nova Gaia Brasil Participações Ltda. and Terraviva Brasil Participações Ltda. for the acquisition of an additional 12.4% equity interest in Tellus Brasil Participações S.A. (“Tellus”), Duguetiapar Empreendimentos e Participações (“Duguetiapar”) and Gamiovapar Empreendimentos e Participações S.A. (“Gamiovapar”). Additionally, the Company entered into a Share Purchase Agreement with Helios Brasil Participações Ltda. and Iris Brasil Participações Ltda. for the acquisition of an additional 12.4% equity interest in Janus Brasil Participações S.A. (“Janus”). The transaction was completed on October 20, 2022.
On November 14, 2022, the subsidiary Rumo concluded the sale of 80% of its equity interest in the wholly-owned subsidiary Elevações Portuárias S.A. (“EPSA”), which operates and controls terminals T16 and T19 in the Port of Santos/SP, to Corredor Logística e Infraestrutura Sul (“CLI SUL”), a Company wholly-owned by Corredor Logística e Infraestrutura (“CLI”), in line with the strategy of forming long-term partnerships and focusing on rail logistics and the execution of strategic expansion projects. As per Note 20, the subsidiary Rumo received a net amount of R$1,394,669, resulting in a gain of R$955,584.
1.3. ACQUISITION OF INVESTMENT IN VALE S.A.
During the fourth quarter of the fiscal year 2022, the subsidiary Cosan Oito S.A. (“Cosan Oito”) concluded the transaction related to the acquisition of a non-controlling stake in Vale S.A. ("Vale") which was divided into: a) financial assets; b) debts incurred; c) contracted derivatives; d) issuance of preferred shares and) Obtaining significant influence. The Company initially recorded its shareholding in Vale as a financial asset accounted for at fair value in accordance with IFRS 9.
On April 28, 2023, at Vale’s Ordinary General Assembly, the CEO of Cosan S.A., Luis Henrique Cals de Beauclair Guimarães (“Luis Henrique”), was elected a member of Vale’s Board of Directors, and on May 16, 2023, was appointed Coordinator of the Capital and Projects Allocation Committee (“CACP”) and member of the People and Compensation Committee (“CPR”). From January 1, 2024, Luis Henrique left the position of CEO of Cosan S.A., remaining as a member of the Board of Directors.
During the fiscal year 2023 the Company monitored the factors that could indicate significant influence in Vale. On November 30, 2023, the Company obtained sufficient evidence that demonstrated the ability to exert significant influence on Vale’s policies and operations, when the member appointed by Cosan to the Vale Board was able to participate in policymaking processes, including decisions on dividends and other distributions. Thus, from this date, Cosan began to consider Vale as a related company with significant influence, registering the investment in equity, according to IAS 28, having 4.85% shareholding, and closing the year with 4.65% of total participation as of December 31, 2023, after disposal of 0.21% of shares, as mentioned in note 1.3 (b).
With the acquisition of significant influence, the Company adopted the fair value approach to measure the opening balance of the investment on December 1, 2023, generating a premium of R$7,432,600 which was allocated as shown below:
Balances as of December 1, 2023
Fair value as of November 30, 2023
16,274,081
Fair value of Vale’s assets and liabilities according to Cosan’s participation(i)
8,841,481
Available amount to be allocated
7,432,600
Allocation(i)
Added value - Mining rights(ii)
Deferred tax on added value
(2,527,084
Goodwill(iii)
2,527,084
The goodwill generated in the acquisition of Vale shares is part of a cash-generating unit (“CGU”) that is the investment itself in Vale. Since it refers to a related investment, the value of the deferred tax liability is already part of the accounting balance of the investment, both in the individual financial statements and in the consolidated statements. Thus, for the purpose of the impairment test, the goodwill balance is net of the deferred tax liability related to capital gains and makes up the investment group in its accounting balance recognized in accordance with IAS 28, on a net basis.
The adjustment resulting from the valuation by the equity method is demonstrated as follows:
Company
Total amount of shares
Shareholders' equity of Vale S.A.
Quantity shares owned
Cosan's interest (i)
Equity in earnings
Total investment as of December 31, 2023
Vale S.A.
4,539,007,580
190,965,062
210,866,700
4.90%
96,075
15,662,485
Assumptions for assessing the fair value of assets and liabilities
Given that there is no control over Vale, we face certain difficulties accessing company information. Vale, in order to maintain equal information for all its shareholders, does not share financial data that is not publicly known, including additional details about its operations. Therefore, we used the public information available as of December 31, 2023, to perform analyses and support the determination of the fair value of the assets and liabilities identified in the allocation of the price paid. This information is in line with the financial statements disclosed to the market on 22 February 2024 and were duly audited by an independent auditor.
The methodology used for evaluation was the discounted cash flow.
Discount rate
To calculate Vale’s cost of equity, the Capital Asset Pricing Model ("CAPM") methodology was used, which aims to assess whether a stock is valued when its risk and the value of money in time are compared to its expected return.
As a risk-free rate, it was considered the average return rate of 2 years, with daily observations of the United States Treasury Bonds of 30 years ("T-Bond") on November 30, 2023, corresponding to 3.50%, reaching a Weighted Average Cost of Capital ("WACC") between 10% and 13%.
Identification of intangible assets
Brand: Vale is recognized in the market as one of the leading companies in the commodities sector. However, the company is dedicated to the production and sale of mineral commodities, a highly competitive and cost-focused segment. Commodity prices are determined by the international market, undifferentiated from the supplier, produced on a large scale and without distinction between them. Therefore, we conclude that the Vale brand does not offer a significant differential in its operations that justifies its inclusion in the allocation of the amount paid.
Customer relationship: The customers of a mining company are mostly industries looking for raw materials based mainly on price, not supplier relationship. Due to product characteristics, revenues from contracts with customers can be easily replaced. Vale, like other commodity market participants, has broad access to buyers, both local and international, and does not rely on customer relationships or customer loyalty to market its products. In this segment, contracts are established to define delivery terms, payment and technical specifications, but prices are determined by the international market. The commonly used international price references are the London Metal Exchange ("LME") and the Commodities Exchange ("COMEX").
Therefore, regardless of the regularity of supply, the Company understands that Vale’s current customers do not represent an asset that confers a significant competitive advantage and, therefore, are not considered an intangible to be evaluated.
Mining assets: It refers to the exclusive right to exploit the mining rights of the iron, nickel and copper mines operated by Vale. Without these rights, Vale could not carry out its operations. The useful life of these rights is determined by the exhaustion of mineral reserves, so they were considered in our assessments to determine the value to be allocated.
The allocation of the value of the mining asset was made by the difference of the available value to be allocated, because any remaining value should increase the value of this asset. For the projected period, the economic life of the mining rights accompanies the exhaustion of the reserves of the mines per business unit. The projections were made considering the division by business unit, aligned with Vale’s financial disclosures for the market of its numbers per business unit. These business units are: (i) Ferrous Minerals, (ii) Metals for Energy Transition, and (iii) Other Businesses.
In addition, throughout 2023, the Company made several advance payments of debts 4131 with the financial institutions JP Morgan and Citibank, as well as the permanent disposal of 9.5 million shares of Vale on December 18, 2023, equivalent to the participation of 0.21% of the total shares of the said company in the Collar Financing structure. These transactions led to the increase of its direct participation on December 31, 2023, to 2.45%, and total participation of 4.65% under the total shares of the company, which is in line with its strategy of seeing the company as an investment in affiliates, see footnote 1.3 (b). Additionally, on April 19, 2024, the Company sold an additional 33.525 million shares equivalent to a 0.74% stake in the total shares in the Collar Financing structure. With this last advance payment, the Company settled 100% of the debts linked to the operation and collar derivatives.
a) Assets acquired
Cosan Oito made the following investments in Vale: (a) acquisition of shares in the spot market and (b) purchase through a private operation with partial protection via derivatives (Collar), as shown in the table below:
Inception date
At November 30, 2023 (i)
%
Amount
Direct shareholding
4,918,245
8,220,927
Equity collar
11,117,824
8,053,154
16,036,069
b) Debt incurred and partial advances1
The following loans were contracted for the acquisition of assets, together with the banks below:
Amount (ii)
Maturities
Currency (i)
Annual interest rate (i)
JP Morgan S.A.
789,659
Oct-24
Euro
2.95%
1,825,467
Oct-25
1,785,329
Oct-26
741,320
Oct-27
Citibank S.A.
526,443
Yen
1,216,939
1,190,274
494,199
8,569,630
Cosan interest
Debt settlement
Reference date
Direct
Collar
Total (iii)
Principal
Interest
Gain/Loss Settlement Collar Financing
Inception date (October/2022)
(275,866
(4,878
28,961
(252,540
(624
28,009
(1,844,022
(41,355
30,525
December 2023 (ii)
2.20%
(561,259
(14,047
29,487
January 2024 (i)
(1,698,606
(49,773
188,140
February 2024 (i)
(2,067,956
(63,689
303,431
April 2024 (i)/(iv)
(1,918,773
(65,880
331,116
c) Structured derivatives
For protection related to the acquisition of a 3.14% stake, derivatives were contracted consisting of a combination of call and put (Collar). Additionally, the following papers were contracted: (i) forward option (Forward) which grants the right to acquire 1.60% of Vale (optional) and (ii) Derivatives consisting of a combination of call and put positions (Synthetic Collar).
The collar and synthetic collar derivatives protect the Company from the devaluation of the share’s value below the strikes of the puts, at the same time, they allow Cosan Oito to participate partially in future increases in the share’s value limited to the strikes of the calls.
Inception Date
At December 31, 2023
Amount (paid)/received
% (i)
Fair value
499,197
89,401
Call Spread
1.60%
(888,612
562,435
Forward
(1,134,933
366,296
Collar synthetic
246,321
196,139
(389,415
651,836
d) Issuance of preferred shares
Bradesco BBI S.A. (“Bradesco”) and Itaú Unibanco S.A. (“Itaú”) completed investments on December 23 and 28, 2022, acquiring 23.30% and 26.91% of the share capital of the subsidiaries Cosan Dez Participações S.A. ("Cosan Dez") and Cosan Nove Participações S.A. ("Cosan Nove") for R$4,000,000 and R$4,115,000, respectively.
As part of the issuance of preferred shares by Cosan Nove and Cosan Dez, Cosan S.A. contributed its investments in Raízen and Compass Gas and Energy. The structure after the contribution of investments follows as shown:
Disproportionate dividends
The subsidiaries Cosan Nove and Cosan Dez have outstanding preferred shares classified in equity by non-controlling interests. The Company calculates its share of profits or losses after adjusting the dividends on these shares, regardless of whether such dividends have been declared or not. This effectively means that the non-controlling interest, represented by the preferred shares, is receiving a portion of the profit or accrual of interest equivalent to the dividends.
As of December 31, 2023, the equity interest and economic benefit of Cosan S.A. on Cosan Nove and Cosan Dez, considering the disproportionate dividends were as shown below:
% Equity interest
% Economic benefit (i)
Cosan Nove
73.09%
66.16%
Cosan Dez
76.80%
72.00%
Call option
The Company has a call option which gives it the right to repurchase all preferred shares from Cosan Nove and Cosan Dez, which may be exercised from the third year after the signing of the respective agreements in December 2022.
As of December 31, 2023, the Company measured the fair value of the call option and concluded that it is out of price.
Contingent sell Option
In the shareholders’ agreements signed between the Company and Itaú and Bradesco referring to the issuance of preferred shares, it was defined that both financial institutions have a contingent sell option only when the specific material adverse effects provided for in the contract occur, which are in the control of the Company and, therefore, do not constitute a financial obligation.
The total of investments in preferred shares is calculated based on the initial amounts of R$4,115,000 and R$4,000,000 restated by a weighted average rate of CDI + 1.25% less dividends received by non-controlling shareholders in this period, which, as of December 31, 2023, is represented by the amounts of R$4,203,917 and R$4,201,215, respectively.
e) Summary of the accounting effect of the events mentioned in the previous topics.
Below is a summary of the accounting effect of the events mentioned above:
Financial asset
Investment in subsidiaries and associates
Debt incurred (vi)
Dividends receivable, net
Collar (i)
Synthetic Collar (ii)
Forward (ii)
At January 1, 2023
19,586,193
(8,808,673
(2,840,544
(1,237,907
1,954,493
22,842
- Impacts on the profit or loss
MTM of shares(iii)
(3,312,112
Interest and monetary and exchange variation (accrual)
599,515
Dividends declared by Vale (vii)/(viii)
1,339,340
(554,998
MTM of derivatives
(2,011,980
3,046,926
1,434,046
(1,588,197
Cost of selling a shareholding (ix)
(701,575
- Impacts on cash flow - (receipt) / payment
Dividends paid to minority shareholders from Cosan Nove and Dez
821,772
Dividends (received) from Vale (iv)
(1,305,410
Costs of banking operations with derivatives (v)
586,855
Partial payment of loans
2,994,592
438,138
Receipt of derivative financial instruments
(116,981
- Impacts on the financial position
Minority dividends payable referring to structure of issuance of preferred shares
(821,772
(88,629
Equity in earnings of investees and other comprehensive income
(6,096
Transfer to investments in subsidiaries and associates
(16,274,081
(6,788,408
SALE OF SHARES OF SINLOG TECNOLOGIA EM LOGÍSTICA S.A.
On March 10, 2023, the Company entered into a share purchase and sale agreement with NSTECH MK LTDA, providing for the sale of its entire equity interest in Sinlog Tecnologia em Logística S.A. The transaction was completed on May 2, 2023, for R$45,000, divided into three equal installments, the first of which was received on the same date and the remaining installments to be received annually, restated by 100% of the CDI. This operation generated gain in the Company’s profit or loss in the amount of R$14,884, registered in other operating income (expenses), net, explanatory note 21.
ISSUANCE OF SENIOR NOTES 2030
On June 20, 2023, the Company issued a senior Notes offer in the amount of US$550,000 equivalent to R$2,668,380, through its wholly owned subsidiary Cosan Luxembourg S.A (“Cosan Luxembourg”). The issuance of senior Notes occurred an annual interest rate of US$+7.50%, with maturity in June 2030 and payment of half-yearly interest.
ISSUANCE OF DEBENTURES
On April 20 and June 20, 2023, Cosan issued two debentures, not convertible into shares, in the total principal amount of R$1,000,000 each in a single series that bears interest at a rate equal to DI plus 2.4% p.a.. maturing in April and June 2028, respectively, principal due upon maturity and interest paid semiannually.
ADDITION OF RIGHT OF USE – FSRU COMPASS S.A CONTRACT
On July 1, 2023, the subsidiary Compass effected the addition as Right of Use of the contract related to the chartering of the floating storage and regasification unit (“FSRU”) in the amount of R$1,510,810 with consideration in the rental liability as explanatory notes 11.4. Right of use and 5.5. Rental liabilities. The leased asset will be used for reception, storage and regasification of LNG ("Liquefied Natural Gas") at TRSP - LNG Regasification Terminal of São Paulo S.A. ("TRSP"). The term of the contract is 10 years with reasonable certainty of extension for two periods of 5 years, that is, the term of the lease of this right of use was considered until June 2043.
TENDER OFFER SENIOR NOTES 2027
On July 18, 2023, the subsidiary Cosan Luxembourg S.A. concluded the tender-offer of the 2027 senior notes with the repurchase of debt securities in the amount of US$250,000 thousand equivalent to R$1,201,000 in aggregate principal value, with payment of accrued interest of US$8,069 thousand equivalent to R$38,763 and a premium of US$7,500 thousand equivalent to R$36,030.
ISSUE OF DEBENTURES RUMO S.A.
On September 15, 2023, the subsidiary Rumo raised R$1,500,000 by the 17th issuance of simple debentures, not convertible into shares, by the unsecured type, divided into two series, the first of which has an amount of R$750,000, with IPCA+5.76% rate and 6-year term, while the second is R$750,000 with IPCA+6.18% rate and 10-year term. Both series will have semiannual interest payments and 100% principal amortization upon maturity. The funds from this fundraising will be used for investment. These debentures have the same restrictive financial clauses (“finance covenants”) as other debts and ESG commitments, as shown in note 5.1.
EXPORT CREDIT NOTE - RUMO
On July 7, 2023, the subsidiary Rumo obtained an Export Credit Note (“NCE”), in the amount of R$725,000, equivalent to U.S.$150,000 thousands, with maturity in 18 months, quarterly amortization and cost of SOFR + 1.30%. Along with the debt, a Swap was contracted to transform the cost of debt to 108.9% of the CDI.
REALIZATION OF DEFERRED INCOME
On July 1, 2022, the indirect subsidiary “Edge Comercialização” S.A, previously denominated Compass Comercialização S.A., signed a contractual instrument for the cancellation of Liquefied Natural Gas (“LNG”) charges with deliveries planned with external suppliers for 2023. In return, a finance compensation was agreed between the parties whose receipt was initially recorded in the financial position of Edge Comercialização in the deferred income item. On July 13, 2023, after the fulfillment of all remaining performance obligations, the recognition was made under the heading of other operating income in the amount of R$923,214, being R$845,233 related to the instrument mentioned above and R$77,981 related to the recognition of bonus received, see note 22.
INTERNALIZATION OF SENIOR NOTES 2030
On September 29, 2023, the Company internalized the remaining resources arising from the 2030 senior notes, through the issuance of debentures by Cosan S.A., referenced in US dollars in the amount of R$1,491,000 (equivalent to US$300,000 thousand), with coupon annual rate of 16.04% p.a. for first interest payment and 8.02% p.a. for the other. In return, Cosan Luxembourg contracted a Total Return Swap (“TRS”) with the same amount and the counterparty in US dollars, with semi-annual payment frequency and annual remuneration of 15.52% p.a. for the first interest remuneration and 7.50% p.a. for the others, which has the issue of debentures as its underlying asset. For more information see note 5.4 (e).
INTERNALIZATION OF SENIOR NOTES 2029
In July 2019, Cosan Limited (“Cosan Limited”) held a senior Notes offer for a total volume of US$750,000, equivalent to R$4,147,650 with a 5.5% coupon and expiry date 2029 ("Bond 2029").
The Company evaluated alternatives for an Internalization of senior Notes debt and in December 2023 carried out the internalization operation with Banco Santander acquiring a position in a Total Return Swap (“TRS”) with Banco Santander (Brazil) S.A. Grand Cayman Branch (“Santander Cayman”), which will have as underlying asset foreign exchange debentures, referenced in U.S.$, issued by the Company, in the amount of US$598,000, equivalent to R$2,916,207, pursuant to Resolution CVM 160 (“Debentures”) which were fully subscribed by Banco Santander (Brazil) S.A. (“Santander”), and with this the total liquidation of the intercompany was carried out, remitting the recourse to Cosan Lux, and acquiring the position of TRS.
PARTIAL SPLIT COMMIT AND ASSET HELD FOR SALE
On October 9, 2023, the partial split of the indirect subsidiary Commit Gas S.A. (“Commit”) was approved for a new company called Norgás S.A. ("Norgás"). The split is composed of Commit’s shareholding in the following companies: Companhia de Gás do Ceará ("CEGÁS"), Companhia Potiguar de Gás ("POTIGÁS"), Gás de Alagoas S.A. ("ALGÁS"), Sergipe Gás S.A. ("SERGÁS") and Companhia Pernambucana Gás (“COPERGÁS”). The subsidiary Compass Gas e Energia holds 51% of Norgás’s shareholding, the same percentage it holds in Commit, without altering the shareholding in the companies.
The occurrence of this event reinforces Compass’ strategy of divestiture of its stake in Norgás, and with this, on the same date these investments for financial position purposes were classified as “asset and liability maintained for sale” and for the purpose of demonstrating the result were classified as 'discontinued operation'. For more details see explanatory note 8.
ACQUISITION OF 51% EQUITY INTEREST IN BVP.
On October 20, 2023, Edge Comercialização completed the acquisition of control of 51% of Biometano Verde Paulínia S.A. (“BVP”). For more details see explanatory note 9.2.
MOOVE CORPORATE REORGANIZATION
During the third quarter of 2023, the Management of the subsidiary Moove approved the execution of a corporate reorganization consisting of the creation of a new entity in the Cayman Islands, Moove Lubricants Holdings – “MLH”, and the subsequent transfer of all assets of the current holding company of the Moove Group, Cosan Lubes Investments – “CLI”, for the new entity. The new entity will become the holding company of the Moove Group and the CLI will be liquidated.
2ND ISSUANCE OF DEBENTURES LINKED TO ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") GOALS
On November 1, 2023, the subsidiary Compass issued simple and non-convertible debentures, in the amount of R$1,736,385 with semiannual remuneration equivalent to CDI + 1.55% p.a. and maturities on November 1, 2029 (50%) and November 1, 2030. The proceeds from the issuance will be used for investments and increased working capital.
This 2nd issuance of debentures is linked to ESG Goals of:
(i) Biomethane distributed volume (thousands of m³): Increase the daily volume distributed by 50 times in 2022 by 2027, reaching 0.25mln/m³ day.
(ii) Diversity in Leadership Positions: Reach 47% of people in leadership composed of Diversity Groups by 2027.
The subsidiary Compass will suffer a step-up of 12.5 basis points for each target that is not met, which would increase the rate as of April 2028 to up to CDI+1.85%p.a..
COSAN’S EIGHTH ISSUANCE OF DEBENTURES
On November 8, 2023, the Board of Directors of Cosan S.A. approved the public offering of the 8th issuance of simple debentures, under a firm placement guarantee, not convertible into shares, of the unsecured type, in a single series. The issuance will be in the total amount of R$1,250,000, with semiannual interest at a rate equal to DI plus a spread of 1.80% p.a. and principal maturity on January 21, 2031, with partial straight-line amortization on January 21, 2030, and on the maturity date. The net proceeds from the Issuance will be allocated to the ordinary management of the Company's business.
ISSUE OF COMMERCIAL BANKNOTES
On December 14, 2023, the Board of Directors of Cosan S.A. approved the public offering of the 4th issuance of commercial notes, in two tranches. The first tranche has a total value of R$550,000, charges interest at a rate equal to the DI plus a spread of 1.75% and matures on December 27, 2028. The second tranche has a total principal amount of R$450,000, charges interest at a rate equal to the ID plus a 1.80% spread and matures on January 30, 2031, with partial linear amortization on January 30, 2030 and the maturity date. The net resources obtained with the Issuance will be destined for the ordinary management of the Company’s business.
ASSET HELD FOR SALE - TUP PORTO SÃO LUÍS S.A
The Company has carried out studies for the sale of Porto and is committed to the asset sale plan, which is expected to qualify as completed within one year. In view of this, the Company reclassified to active for sale for the year ending December 31, 2023.
IMPACT OF INTERNATIONAL CONFLICTS
After the outbreak of war in Ukraine in late February 2022, several countries-imposed sanctions on Russia, Belarus and certain regions of Ukraine. There has been an abrupt shift in the geopolitical situation, with uncertainties about the duration of the conflict, changes in the scope of sanctions and retaliatory actions, including new laws. These new circumstances limit the freedom of operation of Cosan Group companies in the Russian region and lead to a distortion and volatility in the level of activity. The war also contributed to increased volatility in foreign exchange markets, energy prices, raw materials and other input costs, as well as supply chain tensions and increased inflation in many countries.
Risks related to cybersecurity, loss of reputation, possible additional sanctions, export controls and other regulations (including restrictions on the transfer of funds to and from Russia) have increased. The ongoing war may continue to affect production and consumer demand. The Cosan Group assessed the consequences of the war on the Financial Statements, mainly considering the impacts on major judgments and significant estimates in addition to the operations that may be affected, such as:
i. Transported volume of fertilizers.
ii. Production of sugar cane due to unfavorable conditions for obtaining fertilizer.
iii. Rising oil prices, as a result of a more limited supply of Russian oil, can lead to a decrease in our margins and a pressure on the costs of acquiring basic inputs such as diesel oil.
iv. Debt and capital of third parties for our financing and investment activities, impacted by the measures of the Brazilian government and the Central Bank of Brazil to contain inflation, such as the increase of the basic interest rate.
v. Purchase of railway tracks by Rumo: although Rumo is able to obtain railway tracks from other non-Russian suppliers the prices charged and the deadlines required by these suppliers may be unfavorable in relation to the commercial conditions practiced in the past.
Additionally, the Company has been monitoring the aftermath of the conflict in Israeli territory, especially in the context of volatility in the prices of natural gas oil commodities, exchange rate fluctuation and interest rates. So far, there have been no impacts on the annual financial statements. The Cosan Group will continue to monitor the facts about the conflicts, with a view to potential impacts on the business and, consequently, on the financial statements.
3. STATEMENT OF COMPLIANCE AND MATERIAL ACCOUNTING POLICIES
3.1. STATEMENT OF COMPLIANCE
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The relevant information of the financial statements, and only them, are being evidenced and correspond to those used by management in its management.
These financial statements were authorized for issue by the Board of Directors on November 08, 2024
3.2 MATERIAL ACCOUNTING POLICIES
Accounting policies are included in the explanatory notes, except for those described below:
FUNCTIONAL CURRENCY AND FOREIGN CURRENCY
The consolidated financial statements are presented in Reais, which is the functional currency of the Company, its subsidiaries and joint ventures in Brazil, because it is the currency of the primary economic environment in which they operate, consume, and generate resources. The main functional currencies of the subsidiaries located outside Brazil are the US Dollar, the Euro or the Pound Sterling. Unless otherwise specified, all balances have been rounded to the nearest thousand.
Monetary assets and liabilities denominated and calculated in foreign currencies at the financial position date are converted into the functional currency using the current foreign exchange rate. Non-monetary assets and liabilities measured at fair value in a foreign currency are converted into the functional currency using the foreign exchange rate in effect on the date the fair value was determined. Foreign currency differences resulting from conversions are generally accounted for in profit or loss. Non-monetary items measured in a foreign currency based on historical cost are converted at the foreign exchange rate on the transaction date.
Assets and liabilities arising from international operations, including goodwill and fair value adjustments resulting from the acquisition, are converted into Reais at the financial position date using the foreign exchange rates in effect at the time. Income and expenses from international operations are converted into Reais using the foreign exchange rates in effect on the dates of the transactions.
Foreign currency differences from non-monetary assets and liabilities are recognized and presented in other comprehensive income in equity. However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of such control, loss or significant influence is lost, the amount accumulated in the translation reserve related to that foreign operation is reclassified to financial result as part of the gain or loss on disposal.
The following table presents the foreign exchange rate, expressed in Reais for the years indicated, as informed by the Central Bank of Brazil (“BACEN”):
Dollar (U.S.$)
BRL 4.84
BRL 5.22
BRL 5.58
Pound Sterling (£)
BRL 6.16
BRL 6.28
BRL 7.52
Euro (€)
BRL 5.35
BRL 5.57
BRL 6.32
Yen (¥)
BRL 0.03
BRL 0.04
BRL 0.05
USE OF JUDGMENTS AND ESTIMATES
In preparing these financial statements, Management used judgments and estimates that affect the application of the Cosan Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Underlying estimates and assumptions are continually reviewed and recognized prospectively, when applicable. Information on critical judgments, assumptions and estimates of uncertainties in the application of accounting policies that have a more significant effect on the amounts recognized in the financial statements are included in the following notes:
3.3 ACCOUNTING IMPACTS RELATED TO ENVIRONMENTAL, SOCIAL AND GOVERNANCE INITIATIVES (“ESG”)
In June 2023, the International Sustainability Standards Board (“ISSB”) issued IFRS S1 - General Requirements for Disclosure of Sustainability-Related Financial Information and IFRS S2 - Climate-Related Disclosures, which provide new disclosure requirements on, respectively, sustainability-related risks and opportunities and specific climate-related disclosures.
The Company is taking the necessary steps to comply with the standards whose adoption is mandatory for years starting from January 1, 2026, in accordance with CVM Resolution 193 issued in October 2023.
Company Initiatives
Promoting more transparent management, on May 10, 2024, we published for the first time the Integrated Report of Cosan S.A. for the 2023 financial year in accordance with CVM Resolution No. 014 on Integrated Report. We also consider the guidelines of the GRI Standard 2021, indicators from the Sustainable Accounting Standards Board (“SASB”) and the recommendations of the Task force on Climate-related Financial Disclosures (“TCFD”).
The Company is committed to integrating sustainability into its business through a strategy called “Visão ESG 2030 Cosan” with a long-term vision structure, which was passed on to all companies in the group, bringing together objectives and drivers that will guide the environmental, social and governance performance of the entire Group for the coming years.
The actions within the Company's strategy with ESG initiatives are evaluated and monitored within the context of critical accounting judgments and the Company's main estimates, and future changes in the global scenario may have impacts on the result and accounting balances of assets and liabilities of the Company in subsequent fiscal years. For the year ended December 31, 2023, the Company assessed potential climate and social impacts in the main critical estimates and no material impacts were identified.
Cosan began a process of reassessing its materiality and defining priority themes for the Company. After a careful process that involved conversations with internal and external stakeholders, studying benchmarks, analyzing ESG ratings and rankings and debugging the most important material topics for our company and our business, we arrived at the result of our materiality matrix. This construction was based on the concept of dual materiality, ensuring compliance with the best market practices.
The year 2023 was dedicated to consolidating and advancing the governance and management of the “ESG 2030 Cosan Vision”, which brings together our Objectives and Guiding Principles that will guide the environmental, social and governance performance of the entire Group for the coming years, starting a transformation project to generate value for all related parties, with 5 main objectives:
Environmental and Climate Pillar
In general, we recognize the relevance that our portfolio plays in implementing and accelerating the issue of Climate Change. By investing in Brazil's potential, we offer fundamental opportunities in this transformation, through the solid and already established infrastructure of our businesses, and through the development of low-carbon alternatives for various sectors of the economy.
We built our portfolio to combine our management expertise with high potential sectors and exposure to decarbonization and energy transition in Brazil and around the world. Each company in the portfolio plays a fundamental role in enabling the energy transition, so the way we operate allows for the gradual replacement of fossil fuels, by mixing with fuels from renewable sources and proactively offering low-carbon products and solutions. In this way, we contribute to advances in the energy transition in Brazil in a phased, safe and economically viable manner, using existing infrastructure.
The ethanol produced by Raízen is less polluting than gasoline and appears as an alternative in the decarbonization of sectors in which emissions are difficult to abate (hard-to-abate sectors). Rumo's operation of trains used to transport agricultural commodities emits 7x less greenhouse gases into the atmosphere than trucks. The gas distribution operation, linked to Compass' operations, is essential to replace coal and ensure a safe energy transition, as well as the opportunities presented with biomethane. The manufacture of Moove lubricants allows you to improve productivity at a low cost, both in vehicles and industrial plants.
The agricultural land portfolio is managed by three entities: Radar, Tellus, and Janus. Radar, which has focused on environmental preservation since its inception in 2008, seeks to identify the most suitable properties for leasing to prominent producers such as Raízen. The companies collectively manage approximately 320,000 hectares, and over the past five years, they have restored an average of 200 hectares annually, amounting to approximately 1,000 hectares in total.
Since 2019, all our businesses have been taking inventory of their greenhouse gas (GHG) emissions. The mapping is carried out in accordance with the guidelines of the Greenhouse Gas Protocol and its national version, the Brazilian GHG Protocol Program.
We remain committed to reducing the carbon footprint of our portfolio, through the continuous search for efficiency, productivity and innovation in our operations.
Social Pillar
For Cosan, valuing diversity and promoting inclusion reaffirm the power of the people who make Cosan happen, in this context, the “ESG 2030 Vision” brought clear diversity, equity and inclusion (DEI) goals included in Cosan's growth ambitions and of the portfolio.
The main diversity indicator monitored by Cosan is that of women in leadership and is connected to a public commitment made by the Company and all its companies. The target is applicable to the manager, the Company's Board of Directors and all businesses. An important sign of adherence to the commitment is that both Cosan, Rumo and Raízen, companies in their ecosystem, already have two or more women on their Boards of Directors (at Rumo, there are three). The Company's other companies are also moving to expand their participation.
All initiatives carried out demonstrate a consistent and intentional trajectory of evolution of the topic. This is evident and materialized with Cosan's recognition and entry into B3's iDiversa index.
Social responsibility is a strategic pillar of the Company. All companies in Cosan's portfolio have long-term community relationship programs surrounding their operations. We understand that in addition to creating jobs and increasing tax collection in municipalities and local businesses, we can and must take on an even greater responsibility: generating a significant social impact on communities, leaving a positive legacy.
Corporate Governance and Transparency Pillar
Since 2022 through the ESG 2030 Vision, the Company has developed an additional layer of governance for the ESG management of the portfolio.
In this way, the management of the socio-environmental and climate agenda is directly supervised by Cosan's Board of Directors through the Strategy and Sustainability Committee.
The body is responsible for monitoring the ESG strategy, commitments and goals, as well as promoting broad debate on trends involving the topic such as climate change, diversity and inclusion, and stakeholder engagement. The Board of Directors considers the impacts of the Company and its subsidiaries on society and the environment when approving the strategies of their respective businesses and acts to maintain the alignment of policies and best practices in all businesses it controls, ensuring the necessary autonomy to portfolio companies. The Strategy and Sustainability Committee reports to the Board of Directors on the Company's progress related to sustainability and compliance with the Cosan ESG 2030 Vision plan.
Furthermore, the Company created the Sustainability Committee, an important governance body formed by Cosan and business sustainability teams and leaders. The Commission is responsible for implementing and monitoring the commitments and goals assumed, presenting the status of each of them to the Group's senior management, promoting debate on trends in the ESG agenda - dialoguing with different actors and proposing agendas to be taken to the Committee of Cosan's Strategy and Sustainability, as well as identifying synergies and promoting the exchange of experiences between the group's companies.
To develop best market practices and improve our performance in ESG reporting, as well as engaging senior leadership in the agenda, the variable remuneration of the Company's executives and other employees is made up of ESG metrics determined based on performance analysis. of our companies in market indices and ratings that are highly relevant to various stakeholders, including our investors and shareholders. The variable remuneration also considers strategic projects, composed of the Group's information security maturity and internal control maturity.
In this way, we guarantee that the management of socio-environmental and climate issues are interconnected with the business strategy and with the objective of boosting Brazil's potential.
Risks
The risks arising from climate change in our business operations translate into financial and strategic risks for Cosan, which may affect the growth strategy and expected returns of our portfolio. Additionally, they can enhance other risks already identified in our monitoring.
In this way, mapping risks and opportunities related to climate change in our business becomes a central part of our Sustainability Strategy - Vision 2030, boosting our understanding and compliance with the recommendations of the Taskforce on Climate-Related Financial Disclosures (Taskforce on Climate -related Financial Disclosures – TCFD).
In 2023, we worked on improving, across our entire portfolio, the process of identifying, evaluating and managing risks and opportunities related to Climate Change, incorporating the monitoring of these risks into the formal risk management process of our portfolio. Additionally, based on an in-depth study, we developed a specific climate risk matrix for each company. These matrices were integrated both into the general risk matrix of each business and, in a consolidated manner, into Cosan's matrix.
Debt contracts with ESG clauses
The 2028 Senior Notes from the subsidiary Rumo were the first green issuance in the freight railway sector in Latin America. Rumo is committed to using resources to fully or partially finance ongoing and future projects that contribute to the promotion of a low-carbon transport sector with efficient use of resources in Brazil. Eligible projects are distributed in the areas of “Acquisition, replacement and updating of rolling stock”, “Infrastructure for duplication of railway sections, new yards and yard extensions”, and “Railroad modernization”. The company annually issues a report demonstrating the progress of the projects, which can be accessed directly on the investor relations page.
Rumo's Senior Notes 2032 was an issue in Sustainability-Linked Bonds (SLBs), with the following sustainable goals: 17.6% reduction in tons of direct greenhouse gas emissions per useful kilometer (TKU) by 2026, having 2020 as a reference. The company is subject to a step-up of 25 basis points from July 2027 if it does not reach this target, which would increase the interest rate to 4.45% p.a..
The 2nd Debenture of Malha Paulista is linked to the sustainable goal of reducing greenhouse gas emissions by TKU by 15% by 2023, starting with the base date of December 2019. The Company will benefit from a stepdown of 25 Basis points in each series if it reaches this goal, which would reduce the rate from 2024 to CDI + 1.54% in the 1st series and IPCA + 4.52% in the 2nd series. As disclosed in note 25 of Subsequent Events, in April 2024 compliance with the condition for the Rate Step Down was verified and the company will benefit from the next capitalization period.
Rumo S.A.'s 17th Debenture is linked to the sustainable goal of reducing (i) 17.6% of tons of direct greenhouse gas emissions per useful kilometer (TKU) by 2026; and (ii) 21.6% until 2030, using 2020 as a reference. The company is subject to a step-up of 25 basis points in both series if it does not reach the targets.
On November 1, 2023, the subsidiary Compass issued simple, non-convertible debentures, in the amount of R$1,736,385 with semi-annual remuneration equivalent to CDI + 1.55% p.a.. and maturities on November 1, 2029 (50%) and November 1, 2030. The resources obtained from the issue will be used for investments and reinforcement of working capital. This 2nd issue of debentures is linked to ESG Targets of: (i) Distributed volume of Biomethane (thousands of m³): Increase the daily volume distributed by 50 times in 2022 until 2027, reaching 0.25mln/m³ day; (ii) Diversity in Leadership Positions: Reach 47% of people in leadership composed of Diversity Groups by 2027. The Compass subsidiary will undergo a step-up of 12.5 basis points for each target that is not achieved, which would increase the rate from April 2028 (verification date) for up to CDI+1.85% p.a..
3.4. RECLASSIFICATION IN THE INCOME STATEMENT
ARSESP (“Agência Reguladora de Serviços Públicos do Estado de São Paulo”), through deliberation 1,205 of August 18, 2021, NTF-044-2021, published a new Regulatory Accounting Manual and Chart of Accounts for the piped gas distribution sector for companies on its regulation with applicability from the 2023 financial year.
According to the technical note mentioned above, ARSESP determines that the accounting of variations, positive and negative, between the price included in the tariffs and that actually paid by the concessionaire to the supplier, which are periodically passed on to users through graphical accounts, must be recorded in the net operating revenue group. The accounting policy usually applied by the subsidiary Compass is consistent with the understanding of the essence of the operation, classifying the effects of the Regulatory Current Account (“CCR”) in its gross profit, but with allocations in the cost group of products sold and services provided. In addition, the document also mentions that the classification of expenses and costs may vary in relation to commonly adopted practices in which part of the administrative expenses are also admitted as costs of operations related to piped gas distribution services.
As a result of the foregoing, we voluntarily reassessed the way in which we present the classification of the effects of CCR and general and administrative expenses. Accordingly, we assess the adjustments in accordance with IAS 8 treating them as a change in accounting policy and we reclassified our consolidated statement of profit or loss for the fiscal year ended December 31, 2022, and December 31, 2021, in order to reflect Compass’s reclassified results, providing more consistent information in consolidations aligned with the practices adopted by the group. These reclassifications do not impact the main indicators, such as profit for the year and equity, used by the indirect subsidiary Comgás and other Compass gas distributors.
The application of the change in accounting policy generated the following reclassification in the income statement in the comparative year:
Reclassification
12/31/2022 (Reclassified)
39,737,368
(414,582
(30,753,137
196,318
8,984,231
(218,264
(1,976,331
218,264
(1,500,388
12/31/2021 (Reclassified)
25,865,001
228,153
(19,864,248
(398,938
6,000,753
(170,785
(1,572,357
170,785
(1,913,176
3.5. CORPORATE REORGANIZATION – PREDECESSOR METHOD
On January 22, 2021, the shareholders of Cosan Limited (the former parent Company of Cosan S.A. and Cosan Logística S.A.) and the shareholders of Cosan S.A. and Cosan Logística S.A. approved a corporate reorganization, pursuant to which Cosan Limited and Cosan Logística S.A. were merged into Cosan S.A. As a result of the Corporate Reorganization, Cosan S.A. became the sole holding Company of the Cosan Group.
IFRS provides no guidelines for the accounting of corporate reorganizations among entities under common control, as such, based on the guidance of International Accounting Standards (“IAS”) 8, Accounting Policies, Changes in Accounting Estimates and Errors, paragraphs 10 through 12, the Company developed and applied an accounting policy, considering the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and industry practices.
As a result, the Company accounted for the Corporate Reorganization using the predecessor method of accounting on 2021, and the consolidated financial statements are presented “as if” Cosan Limited is the predecessor of the Company. Under the predecessor method, the historical operations of Cosan Limited are deemed to be those of the Company. Thus, these consolidated financial statements reflect:
the historical operating results and financial position of Cosan Limited prior to the Corporate Reorganization;
the consolidated results and financial position of Cosan S.A. following the Corporate Reorganization;
the assets and liabilities of Cosan S.A at their historical cost;
Cosan S.A’s earnings per share for all periods presented. The number of ordinary shares outstanding of Cosan S.A., as a result of the corporate reorganization is reflected retroactively as of January 1, 2019, for purposes of calculating earnings per share in all prior periods presented.; and
Cosan S.A. owned 40,065,607 shares of Rumo S.A., representing 2.16% of its shareholders' equity, and 477,196 shares of Cosan Logística, representing 0.10% of its shareholders' equity. These shares were recorded in the financial position as a financial asset, being measured at fair value through profit or loss, as Management considered trading these shares. With the corporate reorganization, the financial asset, as well as its applicable taxes, was derecognized by R$734,903 and, consequently, an investment in subsidiary of R$329,118 was recorded. Additionally, the amount of R$313,758 was recognized in the capital reserve.
Below we present the reconciliation of the Company’s equity as of December 31, 2021 considering the predecessor method:
Cosan Limited Balance as of February 28, 2021
Predecessor
Adjustments (i)
Cosan S.A. Balance Subsequent to the Corporate Reorganization
2,006,653
(2,978,278
(1,978,092
(596,294
5,139,685
7,075,420
5,173,574
9,282,760
Equity attributable to non-controlling interest
15,638,932
11,529,746
20,812,506
(i) The predecessor adjustments amount to the difference between the Cosan Limited balance as of February 28, 2021 and the Cosan S.A. balance subsequent to the Corporate Reorganization.
The Company's senior management (the Chief Operating Decision Maker) uses segment information to evaluate the performance of operating segments and make resource allocation decisions. This information is prepared on a basis consistent with the accounting policies used in the preparation of the financial statements. Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is used by the Company to evaluate the performance of its operating segments.
Reported segments:
Reconciliation:
Although Raízen S.A. is a joint venture registered under the equity method and is not proportionally consolidated, Management continues to review the information by segment. The reconciliation of these segments is presented in the column “Deconsolidation of Joint Venture”.
The Company reassessed its structure of segments presented as reconciliation items and, on December 31, 2022, added the companies Cosan Dez and Cosan Investments to the Cosan Corporative structure.
Reported segments
Deconsolidation of Joint Venture
Elimination Between Segments
Statement of profit or loss
221,693,298
17,767,327
10,078,626
10,937,716
743,411
2,709
(221,693,298
(61,292
(202,926,764
(14,256,031
(7,359,606
(6,838,433
(153,470
(3,648
202,926,764
61,292
18,766,534
3,511,296
2,719,020
4,099,283
589,941
(939
(18,766,534
(5,773,538
(164,399
(1,144,957
(40,658
(556
5,773,538
(2,815,532
(788,015
(645,634
(559,973
(74,355
(459,997
2,815,532
1,968,248
607,226
(336
(100,780
2,253,803
1,164,464
(1,968,248
(219,896
178,978
75,333
20,015
2,647,255
219,896
(2,571,182
1,266
1,694,679
(5,962,849
(730,954
(319,136
(2,555,382
30,798
(4,322,353
5,962,849
(6,241,261
(1,658,582
(242,751
(3,621,093
(6,776
(5,808,228
6,241,261
797,560
1,283,024
116,408
1,190,685
37,577
400,440
(797,560
1,240,924
152,592
(155,618
368,259
(3
1,412,208
(1,240,924
(1,760,072
(507,988
(37,175
(493,233
(326,773
1,760,072
(1,936,598
(859,311
(332,090
(197,174
(147,636
1,261,785
1,936,598
4,026,369
1,754,821
276,867
721,915
2,672,566
1,984,338
(4,026,369
Profit (loss) from discontinued operations
20,384
(20,384
Profit (loss) attributed to:
3,863,605
1,410,630
193,888
218,886
768,162
(3,863,605
(2,591,566
162,764
389,610
82,979
503,029
1,904,404
910,331
(162,764
1,800,240
2,004,722
Other selected data
8,071,288
899,635
273,772
2,175,834
275
15,427
(8,071,288
EBITDA
19,997,104
4,244,721
1,201,865
5,650,305
2,789,679
5,060,333
(19,997,104
16,375,721
Additions to fixed assets, intangible assets and contract assets
11,396,056
2,317,889
177,971
3,689,877
39,892
42,333
(11,396,056
6,267,962
Reconciliation of EBITDA
859,311
332,090
197,174
147,636
(1,261,785
274,426
730,954
319,136
2,555,382
(30,798
4,322,353
7,897,027
12/31/2022 (Restated)
244,293,722
19,719,205
8,980,077
9,841,508
834,616
10,416
(244,293,722
(63,036
(233,658,136
(16,364,835
(6,990,171
(6,695,147
(560,274
(9,428
233,658,136
63,036
10,635,586
3,354,370
1,989,906
3,146,361
274,342
988
(10,635,586
(5,148,014
(163,256
(1,072,488
(30,619
(9,916
5,148,014
(2,425,318
(563,466
(347,591
(468,574
(45,535
(332,901
2,425,318
283,606
(91,905
29,002
348,543
1,302,442
164,140
(283,606
(119,338
98,033
40,462
20,799
3,109,119
119,338
(2,849,516
(4,105,064
(377,136
(101,872
(2,329,035
4,106
(2,353,999
4,105,064
(3,010,398
(1,291,850
(114,249
(1,521,478
(3,550
(1,775,408
3,010,398
811,948
898,100
75,817
1,108,620
7,656
3,687,328
(811,948
963,060
102,655
(15,394
374,859
(201,374
(963,060
(2,869,674
(86,041
(48,046
(2,291,036
(4,064,545
2,869,674
864,710
(329,185
(10,062
(193,116
(74,915
725,682
(864,710
(13,832
1,927,455
486,895
514,022
1,481,239
1,210,934
13,832
17,180
(17,180
(66,054
1,834,528
340,914
156,380
749,840
961,066
66,054
(2,866,696
52,222
142,773
145,981
357,642
731,399
267,048
(52,222
1,977,301
1,228,114
9,297,498
776,248
251,886
1,966,945
238
19,163
(9,297,498
12,524,020
3,410,024
850,715
5,003,118
1,552,286
2,858,414
(12,524,020
10,825,041
9,339,898
1,659,202
109,263
2,717,745
19,212
25,952
(9,339,898
4,531,374
329,185
10,062
193,116
74,915
(725,682
(118,404
377,136
101,872
2,329,035
(4,106
2,353,999
5,157,936
December 31, 2021 (Restated)
Reported Segments
Deconsolidation of joint venture
175,047,270
12,558,362
6,112,457
7,439,632
31,502
8,292
(175,047,270
(57,091
(163,367,574
(10,154,363
(4,808,643
(5,352,040
(5,231
163,367,574
57,091
11,679,696
2,403,999
1,303,814
2,087,592
3,061
(11,679,696
(3,882,690
(125,412
(551,520
(38,959
(7,528
3,882,690
(1,788,180
(331,263
(269,810
(472,739
(6,499
(321,261
1,788,180
717,792
25,569
23,414
(69,017
21,017
381,617
(717,792
(43,534
12,857
2,195,679
43,534
(2,078,311
(1,967,124
(289,616
(63,797
(1,359,940
3,199
(847,403
1,967,124
(1,606,724
(900,783
(61,870
(705,623
(51
(859,179
1,606,724
580,266
703,204
58,071
399,134
3,250
94,782
(580,266
(1,076,722
(60,953
(66,118
(489,952
(482,513
1,076,722
136,056
(31,084
6,120
(563,499
399,507
(136,056
(1,350,252
59,360
(147,138
(4,053
(4,215
541,630
1,350,252
3,365,708
1,742,637
294,963
155,741
45,004
6,536,426
(3,365,708
3,379,014
1,650,725
205,139
150,539
22,502
6,361,546
(3,379,014
(13,306
91,912
89,824
5,202
174,880
13,306
Other select data
6,393,642
559,994
96,852
1,830,683
39
16,818
(6,393,642
(2
13,076,726
2,532,887
602,750
3,350,417
46,059
6,859,017
(13,076,726
(2,078,313
11,312,817
Additions to PP&E, intangible
and contract asset
5,282,100
1,269,886
42,536
3,453,407
278
8,732
(5,282,100
4,774,839
(59,360
147,138
4,053
4,215
(541,630
(445,584
289,616
63,797
1,359,940
(3,199
847,403
2,557,557
Statement of financial position:
130,158,484
28,836,504
7,284,919
49,238,439
16,972,327
56,033,366
(130,158,484
(18,500,173
7,915,876
3,931,532
773,552
7,233,993
39,946
2,679,458
(7,915,876
349,584
800,267
77,814
1,396,107
239,361
990,412
(349,584
3,503,961
13,438,430
1,550,973
1,101,854
556,298
234,801
710
(13,438,430
3,444,636
10,888,050
175,655
1,561,493
809,651
(10,888,050
2,546,799
17,310,692
292,335
1,284,773
215,605
1
(17,310,692
548,700
103,774
(103,774
3,113
8,478,292
1,553,524
193,836
841,417
375,716
3,152,651
(8,478,292
(1,106,687
5,010,457
13,957,596
1,166,991
209,823
3,528,375
14,378
3,832,013
(13,957,596
(180,880
8,570,700
1,630,124
2
312,302
88,656
32,792,891
(17,212,606
Investments in joint ventures
1,321,982
48,566
11,693,876
(1,321,982
Biological assets
3,818,316
(3,818,316
Contract assets
3,108,696
1,041,421
10,684
(3,108,696
9,645,522
1,588,292
195,953
7,703,754
3,319
22,200
(9,645,522
30,144,420
1,255,012
755,955
19,176,386
52,597
(30,144,420
Intangible assets
9,677,254
13,299,255
2,679,983
6,664,143
6,906
(9,677,254
(102,855,068
(20,042,882
(4,964,798
(33,367,447
(797,712
(30,999,008
102,855,068
1,287,645
(88,884,202
(39,634,986
(10,017,150
(2,207,028
(18,964,841
(25,715,635
39,634,986
(56,904,654
Derivative financial instruments - liabilities
(7,870,706
(360,784
(742
(1,471,795
(1,581,824
7,870,706
(3,415,145
(20,150,654
(1,534,041
(1,494,568
(1,084,931
(68,422
(2,563
20,150,654
(4,184,525
(966,452
(301,560
(147,313
(318,550
(61,906
966,452
(829,329
(1,810,698
(10,642,734
(1,703,128
(336,080
(1,583,216
(182,298
(1,239,688
10,642,734
571,201
(4,473,209
Lease
(11,304,874
(1,636,943
(198,964
(3,406,843
(3,502
(29,542
11,304,874
(5,275,794
(12,284,662
(2,678,578
(580,103
(6,537,271
(543,490
(2,367,850
12,284,662
716,444
(11,990,848
Total assets (net of liabilities) allocated by segment
27,303,416
8,793,622
2,320,121
15,870,992
16,174,615
25,034,358
(27,303,416
(17,212,528
Shareholders’ equity attributable to:
Controlling shareholders
26,561,384
5,798,294
1,624,273
4,766,403
5,023,574
20,955,291
(26,561,384
Non-controlling shareholders
742,032
2,995,328
695,848
11,104,589
11,151,041
4,079,067
(742,032
109,894,718
25,122,185
8,081,113
45,951,748
14,830,918
57,994,289
(109,894,718
(17,495,261
4,902,800
3,403,634
865,370
7,385,421
25,582
1,621,709
(4,902,800
126,206
578,358
62,919
840,061
217,061
20,401,367
(126,206
22,099,766
10,316,720
1,931,205
1,101,336
578,324
314,834
1,843
(10,316,720
3,927,542
7,023,284
391,863
874,843
2,885,046
(7,023,284
4,151,752
16,043,114
133,881
1,509,357
225,813
(16,043,114
342,333
230,780
450
88,511
(230,780
89,238
10,285,568
1,037,586
405,314
724,415
74,623
1,690,662
(10,285,568
(1,042,433
2,890,167
8,938,318
897,654
297,616
3,385,624
7,643
3,041,082
(8,938,318
(266,513
7,363,106
2,525,292
381,469
74,505
16,118,992
(16,186,315
1,371,430
(1,371,430
3,254,850
9,992
(3,254,850
3,297,856
1,110,335
8,380
(3,297,856
9,556,152
83,059
170,120
7,732,284
3,584
23,822
(9,556,152
25,210,448
671,573
805,377
17,049,188
34
422,264
(25,210,448
9,337,192
12,015,135
2,854,874
6,774,306
477,627
(9,337,192
(83,814,462
(16,515,402
(5,731,853
(30,541,294
(1,446,694
(33,389,294
83,814,462
1,308,944
(86,315,593
(33,551,302
(8,278,839
(2,862,154
(16,758,088
(25,088,135
33,551,302
(52,987,216
(4,909,074
(400,351
(18,146
(1,412,945
(3,459,490
4,909,074
(5,290,932
(18,789,160
(1,842,810
(1,602,936
(746,433
(71,684
(115,988
18,789,160
(4,379,851
(837,208
(193,585
(112,590
(296,833
(56,513
837,208
(659,521
(1,616,616
(7,176,122
(779,928
(397,704
(1,786,009
(905,816
(1,235,770
7,176,122
484,407
(4,620,820
(10,568,042
(76,606
(166,651
(3,254,011
(3,708
(31,182
10,568,042
(3,532,158
(7,983,554
(3,326,667
(571,672
(6,286,975
(465,486
(3,402,216
7,983,554
824,537
(13,228,479
26,080,256
8,606,783
2,349,260
15,410,454
13,384,224
24,604,995
(26,080,256
(16,186,317
22,507,108
5,738,714
1,647,259
4,613,308
4,187,415
20,652,788
(22,507,108
3,573,148
2,868,069
702,001
10,797,146
9,196,809
3,952,207
(3,573,148
4.1 NET SALES TO EXTERNAL CUSTOMERS BY PRODUCTS/CUSTOMER TYPE
(i) On June 1, 2021, Raízen S.A. started to consolidate Raízen Energia and, with that, the balances between the entities started to be presented net
4.2. INFORMATION ON GEOGRAPHICAL AREA
(Reclassified)
33,816,723
33,714,249
22,757,787
12,584,481
11,957,039
Europe (i)
3,050,235
3,080,840
2,551,739
8,969
7,762
Latin America (ii)
144,853
697,117
632,235
3,275
7,294
North America (iii)
2,456,686
1,770,487
81,384
10,087
17,173
Asia and other
60,093
70,009
12,606,812
11,989,268
Main countries:
(i)
(ii)
(iii)
4.3. MAIN CUSTOMERS
On December 31, 2023, one customer contributed 3.07% of Company's net operating revenue, or approximately R$1,213,263, to the Company's net operating revenue. This same customer contributed approximately R$862,650 and R$664,034 to the subsidiary's net revenue in 2022 and 2021 respectively, accounting for approximately 2.17% and 2.57% of the Company's net revenue respectively.
Accounting policy:
Measurement of financial assets and liabilities
The Company initially measures a financial asset at its fair value plus (in case of a financial asset that is not measured at fair value through profit or loss) transaction costs, except for those measured at amortized cost and maintained within a business model with the goal of obtaining contractual cash flows that meet the principal and interest only criterion.
Debt financial instruments are subsequently measured at fair value through profit or loss, amortized cost or fair value through other comprehensive income.
The classification is based on two criteria: (i) the Company's business model for managing the assets; and (ii) whether the contractual cash flows from the instruments represent only principal and interest payments on the outstanding principal amount.
The Company recognizes its financial assets at amortized cost for financial assets held within a business model with the objective of obtaining contractual cash flows that satisfy the “Principal and Interest” criterion. This category includes trade receivables, cash and cash equivalents, receivables from related parties, other financial assets, dividends and interest on equity receivable, and other financial assets.
Purchases or sales of financial assets that require the delivery of assets within a period established by regulation or market convention (regular trades) are recorded on the trade date, i.e., the date on which the Company enters into an agreement to buy or sell the asset.
Financial assets are derecognized when the rights to receive cash flows from these assets have expired or when the Company has transferred substantially all risks and rewards associated with ownership.
Financial liabilities are categorized based on whether they are measured at amortized cost or fair value through profit or loss. A financial liability is categorized as measured at fair value through profit or loss if it is held for trading, is a derivative, or was designated as such upon initial recognition. Financial liabilities are measured at fair value and the net result, including interest, is included in finance results. Other financial liabilities are subsequently measured using the effective interest method at their amortized cost. Interest expense and foreign exchange gains and losses are accounted for in the financial result.
The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired, or when its terms are modified and the cash flows of the modified liability are materially different, in which case a new financial liability is recognized at fair value based on the modified terms. Any gain or loss on derecognition is accounted for in profit or loss.
The Company's financial assets and liabilities are as follows:
Fair value through profit or loss
3,298,142
1,134,030
9,352,015
27,474,786
Amortized cost
11,360,339
12,167,686
203,252
139,933
340,091
476,542
Dividends and interest on equity receivable
16,152,795
17,215,183
25,504,810
44,689,969
(33,952,162
(21,620,197
Consideration payable
(203,094
(223,960
Other financial liabilities (i)
(476,895
(954,547
Railroad concession payable
(3,565,373
(3,351,410
Related parties payable
(323,238
(387,736
(549,054
(892,006
Installment of tax debts
(217,348
(208,760
(50,558,181
(37,167,241
(22,952,492
(31,367,019
(26,367,637
(36,657,951
(76,925,818
(73,825,192
(In thousands of Brazilian Reais – R$, except when otherwise indicated)
The Company and its subsidiaries are required to comply with the following financial clauses per the terms of the main loan lines:
Debt
Triggers
Ratios
* 1st issue debenture
2.42
Cosan Luxembourg S.A.
* Senior Notes 2027
Proforma net debt (iv) / pro forma EBITDA (iv) cannot exceed 3.5x
2.00
* Senior Notes 2029
* Senior Notes 2030
Comgás S.A.
* 4th issue debenture
Short-term debt / total debt (iii) cannot exceed 0.6x
0.17
* Debenture 4th to 9th issues
Net debt (i) / EBITDA (ii) cannot exceed 4.0x
1.32
* BNDES
* Resolution 4131
Sulgás
Net debt (i) / EBITDA (ii) cannot exceed 3.5x
(0.02)
General indebtedness ratio (Total liabilities / Total liabilities + Shareholders' equity) may not exceed 0.8
0.69
MLH
*Syndicated Loan
Net debt (i) / EBITDA (ii) cannot exceed 3.5x at the end of each quarter
1.13
ICSD (x) cannot be less than 2.5x at the end of each quarter
5.25
Rumo S.A.
* Debenture (11th, 12th, 13th and 14th) (viii)
ICJ (ix) = EBITDA(ii) / Financial result(v) cannot be less than 2.0x
* ECA
* NCE
1.81
Rumo Luxembourg S.à r.l.
* Senior Notes 2028(vi)
* Senior Notes 2032(vii)
* Debentures (vii)
Brado
Net debt (i) / EBITDA (ii) cannot exceed 3.3x
1.18
Cash and cash equivalents consist of cash on hand, demand deposits, and highly liquid investments with maturities of three months or less from the date of acquisition and are subject to an insignificant risk of change in value.
Cash and bank accounts
209,479
307,819
Savings account
431,011
974,198
Financial Investments
14,017,991
12,019,699
Financial investments include the following:
Applications in investment funds
Repurchase Agreements (i)
3,259,210
1,181,280
Other investments
38,932
123,052
1,304,332
Applications in banks
Repurchase agreements
616,633
96,841
Certificate of bank deposits - CDB
9,807,983
10,396,376
295,233
222,150
10,719,849
10,715,367
The valuation and classification of marketable securities are based on their fair value, as determined by the financial result. Securities consist of all equity instruments with readily ascertainable fair values. The fair values of equity instruments are deemed readily determinable if the securities are listed or if a current market value or fair value can be determined even without a direct listing (for example, prices of shares in mutual funds).
Restricted cash is measured and classified at amortized cost, with an average maturity of between two and five years for government bonds, but they can be redeemed quickly and are subject to an insignificant risk of change in value.
Financial investment in listed entities (i)
Government securities (ii)
3,107,813
2,059,325
Certificate of bank deposits (CDB)
300,142
363,145
ESG Funds
91,103
Securities pledged as collateral
Initial measurement is at fair value, net of transaction costs, and subsequent measurement is at amortized cost.
When the obligation specified in the contract is satisfied, canceled, or expires, they are derecognized. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any non-monetary assets transferred or liabilities assumed, is recorded as other financial revenue or expense in the profit or loss.
Classified as current liabilities unless there is an unconditional right to defer settlement for at least one year after the date of the statement of financial position.
Initial measurement of financial guarantee contracts issued by the Company is at fair value, and if not designated at fair value in the finance result, the financial guarantee contracts are subsequently measured at the higher amount of:
i. the amount of the obligation under the contract; and
ii. the amount initially recognized less, as applicable, the accumulated amortization recognized according to revenue recognition policies.
a) Composition
Finance Charges
Annual interest rate
Objective
Segments
Prefixed
868,367
Investments
578,708
860,658
2,009,452
602,487
1,338,697
1,954,022
1,966,061
1,135,226
1,309,330
812,496
816,172
470,951
543,160
Real
2,210,390
2,221,900
Jul-31
128,494
280,919
Dec-24
29
378
Jan-24
295,058
Dec-36
304,276
99.98% of CDI
1,547,664
1,653,501
Jun-34
112,946
131,885
Apr-29
598,752
544,925
Export credit note
78,965
98,003
Feb-26
60,774
62,760
May-26
30,252
Mar-26
Capital management
52,101
50,467
Mar-25
355,770
Dec-23
Dollar
487,544
Jan-25
Bank credit note
IPCA
5.41%
954,205
806,028
Jan-48
753,435
754,785
Jun-27
759,390
759,175
773,556
632,440
Jun-31
Export Credit Agency (“ECA”)
48,849
68,455
Sep-26
140,016
73,717
Jan-30
15,172,536
17,925,055
Pound
125,707
31,920
45,124
395,285
May-23
943,486
1,000,957
Feb-25
734,191
362,774
377,705
Feb-24
2,451,160
2,641,732
Nov-40
Acquisition
2,016,330
3,587,265
Jan-27
2,178,449
2,196,083
Jan-28
3,622,922
3,953,564
Sep-29
2,642,023
Jun-30
2,066,885
2,124,051
Jan-32
3M Libor + 1.00%
104,667
Oct-23
151,871
Jul-23
396,201
518,680
1,596,910
1,523,382
413,881
367,476
Dec-30
1,208,141
1,819,837
Aug-25
1,004,762
893,852
Apr-30
1,113,820
1,048,252
Oct-29
551,709
537,261
Oct-33
1,077,141
941,203
Dec-35
254,232
80,987
Jun-36
470,177
435,780
Jun-32
753,439
Aug-29
749,252
May-33
907,366
554,147
523,837
359,639
372,171
May-28
1,117,966
1,120,577
May-32
406,471
407,308
735,565
824,866
Aug-24
399,457
399,616
Dec-26
1,764,022
Nov-30
109.20% of CDI
550,342
491,153
Aug-31
80,960
114,014
Dec-25
533,854
467,841
Aug-36
784,475
787,519
Aug-28
1,020,673
Apr-28
998,542
Jun-28
942,011
946,379
1,260,684
Jan-31
412,478
394,008
100,170
Jun-23
2,175,107
2,334,615
May-27
Commercial bank notes
547,755
Dec-28
448,165
41,732,118
35,062,161
56,904,654
52,987,216
For debts linked to derivatives, the effective rates are shown in the explanatory note 5.6.
To calculate the average rates, on an annual basis, the average annual CDI rate of 11.65% p.a. was considered. (13.65% p.a. As of December 31, 2022) and TJLP of 6.55% p.a. (7.20% p.a. as of December 31, 2022).
All debts with maturity dates denominate in foreign currency are hedged against foreign exchange risk through derivatives (note 5.6), except for perpetual notes.
Loans, borrowings and debentures that are classified as non-current have the following maturities:
4,800,498
4,534,638
2 to 3 years
6,255,752
6,663,907
3 to 4 years
6,626,698
5,631,841
4 to 5 years
7,554,468
8,550,932
5 to 6 years
8,143,128
4,836,087
6 to 7 years
6,777,099
6,527,516
7 to 8 years
2,599,593
2,180,672
Over 8 years
9,265,020
9,519,418
Balance as of January 1, 2022
45,659,037
12,825
Proceeds
Repayment of principal
Payment of interest
Interest, exchange rate and fair value
2,148,750
Balance as of December 31, 2022
Payment of interest on work in progress
(288,569
3,027,434
Balance as of December 31, 2023
c) Guarantees
The subsidiary Rumo has entered into financing contracts with development banks, intended for investments with a bank guarantee, according to each contract, with an average cost of 0.70% p.a. or by real guarantees (assets) and escrow. The balance of bank guarantees contracted was R$3,120,034 on December 31, 2023 (R$3,037,453 as of December 31, 2022).
The subsidiary CLI has a bank guarantee for a loan from Cosan Lubrificantes S.R.L. (“Moove Argentina”), with an average annual cost of 0.18%, and guarantee with top-tier banks for payment to third parties, with an average annual cost of 3.90%. As of December 31, 2023, the balance of contracted guarantees was R$31,931 (R$44,813 as of December 31, 2022).
The subsidiary Cosan Oito has loans in foreign currency (Resolution 4,131) with top banking institutions, which are guaranteed by 100% of the Vale shares that are in the Collar structure.
d) Unused lines of credit
As of December 31, 2023, the Company had credit lines with banks rated AA, which were not used, in the amount of R$2,102,756 (R$3,052,287 as of December 31, 2022). The use of these lines of credit is subject to certain contractual conditions.
e) Offset of assets and liabilities
In June 2023, the Company, through its subsidiary Cosan Luxembourg S.A. (“Cosan Lux”), carried out an offering of senior notes in the amount of US$550,000 thousand with a coupon of 7.50% and maturing in 2030 (“Senior Notes 2030”).
On September 29, 2023, the Company internalized the remaining resources arising from this debt, through the issuance of debentures by Cosan S.A., referenced in US dollars in the amount of R$1,491 million (equivalent to US$ 300,000 thousand), with coupon annual rate of 16.04% p.a. for first interest payment and 8.02% p.a. for the others. In return, Cosan Luxembourg contracted a Total Return Swap (“TRS”) with the same amount and counterparty in US dollars, with semi-annual payment frequency and annual remuneration of 15.52% p.a. for the first interest remuneration and 7.50% p.a. for the others, which has the 7th issue of the debenture as the underlying asset.
In July 2019, Cosan Limited (“Cosan Limited”) held a senior Notes offer for a total volume of US$750,000, equivalent to R$4,147,650, with a coupon of 5.5% and expiry date 2029 (“Bond 2029”).
The Company carried out the reverse incorporation of Cosan Limited, approved in January 2021, being certain that the Company succeeded Cosan Limited in all rights and obligations arising, as amended in the First Supplemental Indenture, dated February 2021.
Subsequently, the Company ceded its rights and obligations to Cosan Luxembourg ("Cosan Lux") pursuant to the Second Supplemental Indenture, dated May 2022, in conjunction with the Third Supplemental Indenture, dated July 2022. In the assignment of rights, the Company and Cosan Lux signed a mutual contract (July 2022), with the commitment of payment by the Company in the amount of interest and principal, exactly equal to Bond 2029. Two additions were made, where the Company prepaid US$30,000 thousand, equivalent to R$164,250, and US$121,313 thousand, equivalent to R$641,090, made in July and August 2022, respectively. The balance of the main contract was US$ 598,687 thousand, equivalent to R$2,919,557.
On December 2023 the Company carried out the internalization operation with Banco Santander acquiring a position in a Total Return Swap ("TRS") with Banco Santander (Brazil) S.A. Grand Cayman Branch ("Santander Cayman"), which will have as underlying asset foreign exchange debentures, referenced in U.S.$, issued by the Company, in the amount of US$598,000 thousand, equivalent to R$2,919,557, pursuant to CVM Resolution 160 ("Debentures")which were fully subscribed by Banco Santander (Brazil) S.A. ("Santander"), and with this the total liquidation of the intercompany was carried out, remitting the recourse to Cosan Lux, and acquiring the position of TRS.
Since the Company has the legally enforceable right to offset the amounts and have the intention to settle them simultaneously, for consolidation purposes, the Company made the compensation in the financial position of the asset related to the contracting of TRS with the debt liability arising from the debentures, presenting them at net value, and their respective impacts on the income statement. In this way, sensitivity analysis is also not performed because both transactions have no risk to the Company.
Gross value
Compensated amount
Net value
TRS (Notional)
4,347,487
(4,347,487
TRS (Interest)
6,704
(6,704
4,354,191
(4,354,191
Debentures (principal and exchange rate variation) (i)
Debentures (interest)
f) Fair value and exposure to financial risk
The fair value of loans is determined by discounting future cash flows at their implied discount rate. Due to the use of unobservable inputs, including own credit risk, they are classified as fair value at level 2 of the hierarchy (Note 5.12).
Details of the Company's exposure to risks arising from loans are shown in Note 5.12.
Upon inception or modification of a contract, the Company assesses whether the contract is or contains a lease.
The lease liability is initially measured at the present value of the lease payments that are not made on the commencement date, discounted at the interest rate implicit in the lease or, if that rate cannot be determined easily, at the Company's incremental borrowing rate. The Company generally uses its incremental borrowing rate as the discount rate.
The lease payments included in calculating the lease liability are as follows:
i. fixed payments, including fixed payments in essence;
ii. index or rate dependent variable lease payments, which are initially calculated using the index or rate at the start date;
iii. amounts expected to be paid by the lessee under residual value guarantees; and
iv. the purchase option exercise price if the lessee is reasonably certain to exercise that option, and the payment of lease termination penalties if the lease term reflects the lessee's option to terminate the lease.
To calculate the incremental borrowing rate, the Company:
i. where possible, uses the most recent third-party financing received by the individual tenant as a starting point, adjusted to reflect changes in financing terms since the third-party financing was received;
ii. uses an accrual approach that begins with a credit risk-adjusted risk-free interest rate for leases held by the Company that have not had any recent third-party financing; and
iii. makes specific adjustments to the lease, e.g., term, country, currency and security.
The incremental (nominal) interest rate used by the Company and its subsidiaries was determined based on interest rates, adjusted for functional currency and the terms of its contracts. Rates between 8.23% and 13.73% were used, according to the term and currency of each contract.
In addition, for the measurement of the lease liability, the Company may account for two or more contracts together provided that:
i. have been entered into with the same counterparty or related party of the counterparty; and
ii. have been concluded at close dates; or
iii. if the contracts cannot be understood without joint consideration; or
iv. if they have performance obligations/ interrelated consideration in contracts; or
v. if the rights to use the transferred underlying assets in the contracts constitute a single component of the lease.
Variable lease payments that do not depend on an index or rate are recognized as expenses in the period in which the event or condition that generates these payments occurs.
The Company is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they come into effect. When adjustments to lease payments based on an index or rate come into effect, the lease liability is revalued and adjusted against the right of use asset.
Lease payments are allocated between the principal and the financial cost. The financial cost is debited to profit over the lease period to produce a constant periodic interest rate on the remaining balance of the liability in each period.
Payments associated with short-term leases of equipment and vehicles and all leases of low value assets are recognized by the linear method as an expense in the result. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
In determining the term of the lease, the Company considers all facts and circumstances that create an economic incentive to exercise the option of extension, or not to exercise the option of termination. Extension options (or periods after termination options) are only included in the lease term if there is reasonable certainty that it will be extended (or not terminated).
For warehouse rentals, retail stores and equipment, the following factors are usually the most relevant:
• If there are significant penalties to terminate (or not extend), the group is usually reasonably certain to extend (or not terminate).
• If any improvements in leased properties are expected to have a significant remaining value, the Company typically has a reasonable certainty of extending (or not terminating).
• Otherwise, the Company considers other factors, including historical rental durations and the costs and business interruption necessary to replace the leased asset.
Most of the extension options in offices and car rentals were not included in the rental liability because the Company could replace the assets without significant cost or business interruption.
The subsequent valuation of the lease liability is at amortized cost, using the effective interest rate method. It is revalued when there is a change in future lease payments resulting from a change in index or rate, if there is a change in the amounts expected to be paid according to the residual value guarantee, if the Company changes its valuation, one the option will be exercised in the purchase, extension or termination or if there is an essentially fixed revised lease payment.
3,267,678
174,229
Additions
224,714
Write-offs
(116,157
377,449
Monetary adjustment
221,077
Transfers between liabilities
(4,973
3,532,158
Additions(i)
1,923,138
(15,329
458,507
104,280
5,275,794
The lease agreements have different terms, with the last due date occurring in December 2058. The amounts are updated annually by inflation indexes (such as IGPM and IPCA) or may incur interest calculated based on the TJLP or CDI and some of the contracts have renewal or purchase options that were considered in determining the term and classification as finance lease.
In addition to the amortization and appropriation of interest and exchange variation highlighted in the previous tables, the following impacts on income were recorded for the other lease contracts that were not included in the measurement of lease liabilities.
Variable lease payments not included in the recognition of lease obligations
43,115
56,612
35,482
Expenses related to short-term leases
37,739
14,986
30,507
Low asset leasing costs, excluding short-term leases
5,376
1,445
978
86,230
73,043
66,967
Initial recognition of derivatives at fair value occurs on the date a derivative contract is entered into, and derivatives are subsequently remeasured at fair value at the end of each reporting period. Whether subsequent changes in fair value are recorded depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The Company identifies certain derivatives as:
i. fair value hedge of recognized assets or liabilities or of a firm commitment (fair value hedge); or
ii. hedge of a particular risk associated with the cash flows of recognized assets and liabilities and highly probable forecasted transactions (cash flow hedge).
At the inception of the hedging relationship, the Company documents the economic relationship between the hedging instruments and the hedged items, including expected changes in the cash flows of the hedging instruments. The Company documents its risk management objective and strategy for hedging transactions. Changes in the fair value of any derivative instrument that do not qualify for hedge accounting are immediately registered in the income statement and included in other financial revenue (expenses).
The fair values of derivative financial instruments designated in hedging relationships are disclosed below. The total fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is greater than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
The Company evaluates, both at the beginning of the hedging relationship and on an ongoing basis, whether the hedging instruments are anticipated to be highly effective in offsetting changes in the fair value or cash flows of the respective attributable hedged items. The actual results of each hedge for the hedged risk fall between 60% and 140%.
The Company maintains a portfolio of energy contracts (purchase and sale) designed to meet supply and demand for energy consumption or supply. In addition, there is a portfolio of forward positions comprising contracts. There is no purchase commitment associated with this portfolio's sales contract.
Taking into account its policies and risk limits, the Company has the flexibility to manage the contracts in this portfolio in order to profit from changes in market prices. This portfolio contains contracts that may be settled net in cash or another financial instrument (for example: by entering an offsetting contract with the counterparty; or by "unwinding a position" from the contract prior to its exercise or expiration; or shortly after purchase, selling for the purpose of generating a profit from short-term fluctuations in price or gain on resale margin).
These energy purchase and sale transactions occur on an active market and qualify as financial instruments because they are settled at net cash value and are easily convertible to cash. These contracts are treated as derivatives and are recognized in the financial position at fair value on the date the derivative is entered into and remeasured at fair value on the financial position date.
Financial assets and liabilities are offset, and the net amount is reported in the financial position, when there is a legal right to offset the recognized amounts and intent to settle them on a net basis, or when the asset is realized and the liability is settled simultaneously. The legal right must be enforceable in the ordinary course of business and in the event of default, insolvency, or bankruptcy of the Company or the counterparty.
The estimated fair value of these derivatives is based in part on price quotations published in active markets, to the extent that such observable market data exists, and in part on valuation techniques that take into account: (i) prices established in recent purchase and sale transactions, (ii) margin of risk in the supply, and (iii) projected market price in the availability period. A fair value gain or loss is recognized at the end of the reporting date whenever the fair value at initial recognition for these contracts differs from the transaction price.
A financial asset previously accounted for in accordance with IFRS 9 may become an investee accounted for by equity when:
• the investor acquires an additional stake; or
• There is a change in circumstances that results in obtaining significant influence or joint control.
The Company uses swap instruments, whose fair value is determined from discounted cash flows discounted cash flows based on market curves, to hedge the exposure to foreign exchange risk and exposure to foreign exchange risk and interest and inflation risk. The consolidated data are presented below:
Exchange rate derivatives
Forward agreements (i)
6,716
53,012
(147
(485
FX option agreements
363,098
676,214
30,677
25,360
369,814
729,226
30,530
24,875
Commodity derivatives
Contracts for gas options
28,494
4,333
Option agreements (ii)
21,744
Foreign exchange and interest rate risk
Swap agreements (interest) (iii)
7,209,400
9,255,278
(10,686
(155,518
Swap agreements (interest and FX) (iv)
18,260,969
17,191,070
(1,546,736
790,840
Forward agreements (interest and FX) (v)
8,985,594
12,811,427
(939,559
760,152
Swap agreements (interest and inflation) (iii)
14,307,844
10,070,343
853,639
(500,444
48,763,807
49,328,118
(1,643,342
895,030
Share price risk
Swap agreements - (TRS) (vi)
1,775,341
1,515,827
88,297
43,130
Call Spread (v)
5,594,212
Collar (Vale Shares) (v)
13,114,720
16,931,662
285,540
(4,078,452
20,484,273
24,041,701
740,133
(2,080,829
Total financial instruments
(868,346
(1,139,180
(1,250,520
(1,039,357
(2,164,625
(4,251,575
To hedge exposures and expenses in foreign currency, the Company and its subsidiaries have foreign exchange forward agreements and/or options indexed to foreign exchange.
Call options on Brent for hedging purposes, intended to provide protection in the event that the commodity's price rises above the agreed-upon price due to the Ukraine-Russia war.
The Company structured derivatives to protect against exposure to pre-fixed interest in Reais in order to convert such debt into post-fixed debt.
The Company and its subsidiary Rumo conduct interest and foreign exchange swap operations, making the Company active in U.S. Dollar + fixed interest and passive in a portion of the CDI. In interest and inflation Swap operations, the Company is active in Extended National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo) ("IPCA") + fixed interest and passive in CDI percentage.
The Company structured derivatives, as described in Note 1.1, to protect against price fluctuations in Vale’s shares.
Below, we demonstrate the opening value of derivative debt and non-debt derivative financial instruments:
5.12
(990,764
(1,228,928
Non-derivative financial instruments
122,418
89,748
Derivatives are only used for economic hedging purposes and not as speculative investments.
Fair value hedge
The Company adopts fair value hedge accounting for some of its operations, both the hedging instruments and the hedged items are measured and recognized at fair value through profit or loss.
FX rate risk hedge
Designated items
Senior notes 2028 (Rumo Luxembourg)
(2,791,600
(2,178,449
(2,196,083
167,874
(336,161
Senior notes 2032 (Rumo Luxembourg)
(2,259,375
(2,066,885
(2,124,051
126,408
(629,220
NCE U.S.$ (Rumo Malha Norte)
(483,400
(487,544
3,147
PPE 1 – (Moove)
(156,884
2,389
PPE 2 – (Moove)
(104,667
2,624
Total debt
(5,534,375
(4,732,878
(4,581,685
297,429
(960,368
Swaps Senior Notes 2028 (Rumo Luxembourg)
2,791,600
(460,939
(418,674
42,265
685,200
Swaps Senior Notes 2032 (Rumo Luxembourg)
2,259,375
(239,630
(128,986
110,644
804,558
Swap exchange rate and interest (Rumo Malha Norte)
483,400
5,293
(5,293
SWAP - PPE 1 (Moove)
(11,079
SWAP - PPE 2 (Moove)
(7,067
Total derivatives
5,534,375
(695,276
(565,806
147,616
1,471,612
(5,428,154
(5,147,491
445,045
511,244
Interest rate risk hedge
5th issue - single series (Comgás)
(907,366
(33,892
BNDES Project VIII (Comgás)
(1,000,000
(803,990
(851,689
54,807
70,260
Debentures (Rumo)
(7,485,276
(7,973,671
(5,755,679
397,073
(327,290
Finem (Rumo)
(28,107
(36,301
(28,115
971
(1,644
CCB (Rumo)
(975,292
(954,205
(785,366
(10,088
(4,418
(9,488,675
(9,768,167
(8,328,215
442,763
(296,984
Swaps 5th issue - single series (Comgás)
221,000
(221,000
1,248
1,000,000
(56,085
(90,193
34,108
(61,242
Swaps Debenture (Rumo)
7,485,276
559,964
(148,662
(708,626
72,856
28,107
1,600
(558
(2,158
558
975,292
(15,221
(6,976
8,245
6,976
Derivative total
9,488,675
490,258
(25,389
(889,431
20,396
(9,277,909
(8,353,604
(446,668
(276,588
b) Fair value options
Certain derivative instruments were not designated to documented hedging structures.
The Company chose to designate the hedged liabilities (hedge objects) to be recorded at fair value through profit or loss. Considering that derivative instruments are always accounted for at fair value through profit or loss, the accounting effects are the same as those that would be obtained through hedging documentation:
Registered Value
Accumulated fair value
FX rate risk
Items
Senior Notes 2027 (Cosan Luxembourg)
U.S.$ + 7.0%
(1,897,790
(2,016,330
(3,587,265
528,855
967,778
Export Credit Agreement (Rumo)
EUR + 0.58%
(38,054
(48,849
(68,455
(1,444
377
Resolution 4131 (Rumo)
U.S.$ + 2.20%
247
Resolution 4131 (Comgás - 2021)
U.S.$ + 1.60%
(407,250
(362,774
(377,705
2,106
15,545
Resolution 4131 (Comgás - 2022)
U.S.$ + 2.51%
(1,097,400
(943,486
(1,000,957
33,324
51,798
U.S.$ + 4.76%
(749,310
(734,191
(5,468
Resolution 4131 (Comgás - 2018)
U.S.$ + 4.32%
(395,285
(2,680
(4,189,804
(4,105,630
(5,429,667
557,373
1,033,065
Derivative instruments
Swap Senior Notes 2027 (Cosan Luxembourg)
113.15% CDI
1,897,790
(46,214
1,285,454
(379,397
(736,466
FX and interest rate swaps (Rumo)
108% CDI
38,054
9,316
15,468
6,153
15,067
118% CDI
47,527
CDI + 1.25%
407,250
(63,184
(50,245
(12,939
(88,612
CDI + 1.20%
1,097,400
(212,180
(160,369
(51,811
(217,215
Resolution 4131 (Comgás - 2023)
749,310
(22,611
107.9% CDI
123,760
(123,760
(61,685
4,189,804
(334,873
1,214,068
(584,365
(1,041,384
(4,440,503
(4,215,599
(26,992
(8,319
Accumulated fair value adjustment
Interest rate risk
Debenture 4th issue - 3rd series (Comgás)
(114,818
(80,960
(114,014
(708
Debenture 6th issue - single series (Comgás)
(523,993
(554,147
(523,837
3,509
Debenture 9th issue - 1st series (Comgás)
IPCA + 5.12%
(500,000
(550,342
(491,153
19,868
(6,179
Debenture 9th issue - 2nd series (Comgás)
(533,854
(467,841
34,919
9,737
BNDES Projects VI and VII (Comgás)
(160,126
(112,946
(131,885
(150
IPCA + 3.25%
(870,149
(743,674
(801,812
5,967
BNDES Project IX (Comgás)
(565,582
(598,752
(544,925
(19,875
Debenture (Rumo)
(300,000
(396,201
(518,680
13,474
(6,070
(600,000
(774,939
(704,954
34,721
(34,745
(4,134,668
(4,345,815
(4,299,101
91,725
(2,153,730
94.64% CDI
(3,900
112.49% CDI
114,818
4,567
(778
5,345
(5,096
89.9% CDI
523,993
20,116
(10,419
30,535
(26,161
42,093
(17,705
59,798
(37,517
110.60% CDI
26,901
(40,441
67,342
(53,304
87.50% CDI
160,126
64
(2,046
2,110
(6,923
82.94% CDI
870,149
(6,578
(21,039
14,461
(48,613
98.9% CDI
565,582
46,904
(6,632
53,536
107% CDI
300,000
81,885
76,194
(5,691
(4,819
103% CDI
600,000
147,429
74,092
(73,337
8,252
4,134,668
363,381
51,226
154,099
(184,713
(3,982,434
(4,247,875
245,824
(2,338,443
c) Cash flow hedge
Natural gas purchase and sale contracts
The indirect subsidiary Edge Comercialização S.A. entered natural gas purchase (JKM risk) and sale agreements (BRENT risk) with a third party and related party. To protect and mitigate the risks arising from fluctuations in natural gas indexes, the subsidiary designated this operation subject to hedge accounting for the respective cash flow protection.
In this contracting, the expected benefits are: reducing the financial risk associated with fluctuations in natural gas prices, avoiding fluctuations in the financial result of hedge instruments, protecting the subsidiary's margins, as well as maintaining predictability in its costs or revenues, ensuring greater stability in operating results.
Highly probable revenues in US dollars (Leasing)
The indirect subsidiary TRSP adopted a hedge accounting strategy to protect its results from exposure to variability in cash flows arising from the exchange rate effects of highly probable revenues in US dollars projected for a period of 20 years, through non-derivative hedging instruments – lease liabilities in US dollars already contracted.
Investment costs
The subsidiary Rumo S.A contracted certain derivative instruments to protect certain investment costs contracted for the period of 2023 and opted to link the instruments to documented hedge structures:
As of December 31, 2023, there was no ineffective portion reclassified to profit or loss. The impacts recognized in the subsidiary's shareholders' equity and the estimated realization in shareholders' equity are shown below:
Financial instruments
Subsidiary
Risk
Unit
Notional R$
Fair value 12/31/2023
Book value 12/31/2023
Derivative futures
BRENT
Barrel
368,000
(2,843
Leasing
FX rate
BRL
1,548,942
(18,071
Effect on financial position
1,916,942
(20,914
b) Movement
Net financial result
Comprehensive income (i)
Gains or (losses) realized
Derivative futures (BRENT)
(9,785
Derivative futures (JKM) (ii)
12,012
NDF (Non deliverable forwards) (ii)
(2,280
9,732
Trade receivables are initially recognized at the unconditional consideration amount unless they contain significant financing components, in which case they are recognized at fair value. The Company holds trade receivables with the intention of collecting the contractual cash flows, and subsequently measuring them at amortized cost using the effective interest rate method.
For the purpose of estimating credit losses, trade receivables have been categorized according to their credit risk characteristics and days overdue. A loss allowance for anticipated credit losses is recognized as a component of selling expenses.
The expected loss rates are derived from historical credit losses incurred during the period. Historical loss rates may be modified to reflect current and forecasted information regarding macroeconomic factors that influence the ability of customers to settle receivables. The Company has determined that the implied interest rate in the agreement is the most significant factor, and as a result, it adjusts historical loss rates based on the anticipated changes to this factor.
Domestic market
2,790,623
3,085,227
Unbilled receivables (i)
782,813
968,147
Foreign market - foreign currency
32,308
28,786
3,605,744
4,082,160
Expected credit losses
(161,108
(154,618
Unbilled revenue refers to the portion of the monthly gas supply for which measurement and billing have not been completed.
The aging of accounts receivable is as follows:
Not overdue
3,181,795
3,514,756
Overdue
Up to 30 days
203,143
376,868
From 31 to 60 days
48,968
40,389
From 61 to 90 days
18,146
20,254
More than 90 days
153,692
129,893
Changes in the expected credit losses are as follows:
(115,052
(31,923
Provision / reversal
(28,463
Foreign exchange
(4,905
25,725
(31,053
1,353
23,210
Accounting policy
Commercial operations, involving related parties, are carried out at normal market prices. Financial and corporate transactions are carried out in accordance with the contracts established between the parties. Outstanding balances at year end are not guaranteed, are not subject to interest and are settled in cash. There were no guarantees given or received on any accounts receivable or payable involving related parties. At the end of each period, an analysis of the recovery of amounts and receivables is carried out and for the years ended December 31, 2023 and 2022 no provision was recognized.
The Company has a Cost Sharing Agreement that outlines the sharing of activities and expenses, along with reimbursement guidelines and other commercial terms for the allocation of group expenses. These expenses are classified as intercompany transactions.
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
a) Accounts receivable and payable with related parties:
Commercial operations
Raízen S.A. (i)
63,004
79,297
Elevações Portuárias S.A.
21,633
5,424
Aguassanta Participações S.A.
88
2,184
Termag - Terminal Marítimo de Guarujá S.A.
9,286
14,286
5,000
Norgás S.A.
8,976
452
6,512
108,439
107,703
Financial and corporate operations
36,032
20,586
Ligga S.A. (ii)
107,000
107,252
143,032
127,838
Total current assets
47,731
36,952
43,810
91,541
46,935
149,347
4,733
113
51,668
149,460
Total non-current assets
Related parties receivables
232,713
296,051
10,500
984
6,419
4,000
39,542
20,569
287,739
323,039
34,421
64,697
Total current liabilities
Total non-current liabilities
323,238
Current and non-current assets receivable from Raízen S.A. and its subsidiaries are, substantially, tax credits that will be reimbursed to the Company when realized. The preferred shares are used by Raízen to reimburse Cosan, with preferred dividends, when the net operating loss is consumed in Raízen.
Current liabilities represent Cosan S.A.'s obligation to reimburse Raízen S.A. and its subsidiaries for expenses related to settled legal disputes and other liabilities incurred prior to the formation of the joint venture.
Advance for future capital increase.
b) Transactions with related parties:
Operating income
974,612
908,588
679,500
15,434
56,000
6,910
1,046,046
915,498
Purchase of products / inputs / services
(2,251,896
(2,528,022
(1,576,070
(16,536
(52,000
Terminal Marítimo do Guarujá S.A.
(74,785
(2,395,217
Shared income (expenses)
(753
Raízen S.A.
(83,054
(68,120
(73,831
96
(83,809
(68,024
Financial result
(106
4,937
(92
(198
(1,432,980
(1,680,746
(965,464
(i) The amount is related to the purchase of fuels and provision of logistics transport by the subsidiary Rumo.
c) Managers’ and directors’ compensation:
The Company has a compensation policy approved by the Board of Directors. Compensation of the Company’s key management personnel includes salaries, contributions to a post-employment defined benefit plan and share-based payment. We present below the consolidated balance as follows:
Short-term benefits to officers and directors
207,026
160,020
177,405
Share-based compensation
97,510
77,210
68,209
Long-term benefits to officers and directors
60,781
26,563
5,863
2,888
2,039
750
368,205
265,832
252,227
Due to the short-term nature of trade payables, their carrying amounts are the same as their fair values, and they are generally paid within 30 to 45 days of recognition.
Material and services suppliers
3,110,114
2,923,486
Natural gas(i)/ transport and logistics suppliers
1,074,411
1,456,365
4,184,525
4,379,851
The carrying amounts of suppliers and other payables are the same as their fair values due to their short-term nature.
The purpose of sectoral financial assets and liabilities is to neutralize the economic impacts on the distributors' results, due to the difference between gas cost and tax rates contained in the ordinances issued by regulatory agencies, and those contemplated in the tariff, each adjustment/ tariff revision. These differences between the actual cost and the cost considered in the tariff adjustments generate a right as the realized cost is greater than that contemplated in the tariff, or an obligation, when the costs are lower than those contemplated in the tariff. The differences are considered in the subsequent tariff readjustment and become part of the rate readjustment index of the distributors.
In the case of distributors regulated by the Agência Reguladora de Serviços Públicos do Estado de São Paulo ("ARSESP"), as provided for in resolution 1010 of the ARSESP, any balances in the existing graphic accounts at the end of the concession will be indemnified to the distributors or returned to the users at the end of the concession period. The balance consists of: (i) the previous cycle (in amortization), which represents the balance approved by the ARSESP already contemplated in the tariff and (ii) the cycle in constitution, which are the differences that will be approved by the ARSESP in the next tariff adjustment.
In addition, this Deliberation addressed the balance in the current tax account, which accumulated amounts related to tax credits used by distributors, but which are essentially part of the tariff composition and must be passed on via tariff.
The subsidiaries Comgás and Necta recognize, as a result of the aforementioned deliberation, that there is no longer any material uncertainty that would prevent the recognition of sectorial financial assets and liabilities as amounts effectively receivable or payable. Thus, sectorial financial assets and liabilities are reflected in their financial statements.
However, for the other distribution companies, sectorial financial assets and liabilities will only be recognized after the decision of the regulatory body.
The following demonstrates the change in net sectorial financial assets (liabilities) for the year ending as of December 31, 2023:
Sectorial Assets
Sectorial liabilities
558,310
(1,372,283
(813,973
Cost of gas (i)
(466,743)
(466,743
Tax credits (ii)
16,876
Monetary update (iii)
80,996
(120,804
(39,808
Deferral of IGP-M (v)
110,013
59,757
(140,405
(80,648
(1,274,283
Cost of gas (i) | (v)
27,954
12,425
(47,144
(34,719
49,098
(146,938
(97,840
Deferral of IGP-M (iv)
116,890
(1,261,998
(70,013
136,992
(1,740,685
(1,398,990
In view of the public hearing held by ARSESP on January 9, 2023, related to the topic of returning PIS/COFINS credits to customers, resulting from the exclusion of ICMS from their bases, subsidiaries and sector representatives presented important contributions to be considered by the agency during the analysis period. According to deliberation No. 1,491 of January 24, 2024, the availability of the Detailed Report regarding the contributions received was extended by up to 120 days, counting from the day following the end date of the previous extension, that is, January 27, 2024. Therefore, until the analysis of these contributions by the regulatory agency is completed, the topic remains open and without any specification regarding next steps, thus having no impact on this financial statement.
When the fair value of financial assets and liabilities cannot be derived from active markets, their fair value is determined by means of valuation techniques, such as the discounted cash flow model. When possible, inputs to these models are obtained from observable markets; however, when this is not possible, some judgment is required to determine fair values. In determining data such as liquidity risk, credit risk, and volatility, judgment is required. Variations in these variables may impact the reported fair value of financial instruments.
Specific valuation techniques used to value financial instruments include:
i. the use of quoted market prices;
ii. for swaps we use the present value of estimated future cash flows based on observable market curves; and
iii. for other financial instruments we analyze the discounted cash flow.
Level 2 includes all resulting estimates of fair value when fair values are determined based on present values and discount rates are adjusted for counterparty or own credit risk.
The Company has an established control structure regarding the measurement of fair values.
Significant unobservable inputs and valuation adjustments are reviewed by Management on a regular basis. If third-party information, such as brokerage quotes or pricing services, is used to measure fair values, Treasury evaluates evidence obtained from third parties to support the conclusion that these valuations comply with the Company's policy, including the market level.
The Board of Directors is informed of significant valuation issues. When determining the fair value of an asset or liability, the Company makes extensive use of observable market data. A fair value hierarchy categorizes fair values into different levels based on the inputs used in valuation techniques, as follows:
• Level 1: inputs represent unadjusted quoted prices for identical instruments traded in active markets.
• Level 2: inputs consist of directly or indirectly observable data (excluding Level 1 data), including quoted prices for similar financial instruments traded in active markets, quoted prices for identical or similar financial instruments traded in inactive markets, and other observable market data. The fair value of the Company's majority of investments in securities, derivative contracts, and bonds.
• Level 3: inputs for the asset or liability that are not based on market data that are observable (unobservable inputs). Due to the lack of market activity on these instruments or related observable data that can be corroborated at the measurement date, Management is required to make its own assumptions about unobservable inputs.
If the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then the entire fair value measurement is classified at the same level as the lowest-level entry that is significant to the entire measurement. Among the specific techniques used to value financial instruments are:
i. use of quoted market prices;
ii. fair value is determined by discounting estimated future cash flows to the present. Future cash flow estimates with a variable interest rate are based on quoted swap rates, futures prices, and interbank lending rates. When pricing interest rate swaps, estimated cash flows are discounted using a yield curve constructed from similar sources and reflecting the relevant benchmark interbank rate used by market participants for this purpose. The fair value estimate is subject to a credit risk adjustment that reflects the credit risk of the Company and its counterparty; this adjustment is computed using the credit spreads derived from the current credit default swap; and.
iii. analysis of the discounted cash flow for other financial instruments.
All resulting fair value estimates are included in level 2, except for contingent consideration payables for which fair values have been determined using present values and discount rates adjusted for counterparty or own credit risk.
The carrying amounts and fair value of consolidated assets and liabilities are as follows:
Carrying amount
Assets and liabilities measured at fair value
Level 1
Level 2
Level 3
Investment funds
2,513,573
Investment properties (i)
Derivate financial instruments
25,328,141
41,748,148
9,348,902
19,675,431
7,969,657
Loans, financing and debentures (ii)
(60,319,799
(58,278,148
The fair value of investment properties was determined using the direct comparative method of market data applied to transactions involving similar properties (type, location, and quality of property) and, to a lesser extent, sales quotes for potential transactions involving comparable assets (level 3). The methodology used to determine fair value incorporates direct comparisons of market information, such as market research, homogenization of values, spot market prices, sales, distances, facilities, access to land, topography and soil, land use (crop type), and rainfall, among other data, in accordance with the standards issued by the Brazilian Association of Technical Standards ("ABNT"). The discount rates used vary between 11.12% p.a. and 11.20% p.a. as of December 31, 2023 (11.20% to 13.75% p.a. as of December 31, 2022).
For fair value assessments of investment properties in the periods between annual assessments, management considers regional market trends presented by the S&P Global Commodity Insights report for the Brazilian rural real estate market. If Management reasonably believes that property values have changed differently from the variation in the S&P Global Commodity Insights report, based on its understanding of current market conditions and evidence of proposals received for the assets, considerations may be made to determine fair value property market.
The fair value of the Company’s loans does not differ significantly from their carrying value except for the debts that are designated at fair value through the result.
For debts having a market value quoted on the Luxembourg Stock Exchange the measurement of fair value for disclosure purposes is based on the quoted market price as follows:
Senior Notes 2028
96.41%
95.04%
Senior Notes 2032
85.65%
80.36%
Senior Notes 2027
100.92%
This note describes the group's exposure to financial risks and how these risks may affect future financial performance. To provide more context, current year profit or loss information has been included where applicable:
Exposure arising from
Measurement
Management
Market risk - foreign exchange
(i) Future commercial transactions. (ii) Recognized financial assets and liabilities not denominated in Reais.
(i) Cash flow forecasting (ii)Sensitivity analysis
Foreign currency
Market risk - interest
Cash and cash equivalents, securities, loans, borrowings and debentures, leases and derivative financial instruments.
(i) Sensitivity analysis
Interest rate swap
Market risk – price
(i) Future business transactions
(ii) Investment in securities
(i) Cash flow forecasting
(ii) Sensitivity analysis
(i) Future price of electricity (purchase and sale)
(iii) Derivative protection for valuation and devaluation of shares
Credit risk
Cash and cash equivalents, marketable securities, trade receivables, derivatives, receivables from related parties, dividends and investment property
(i) Analysis by maturity
(ii) Credit ratings
Availability and lines of credit
Liquidity risk
Loans, borrowings and debentures, accounts payable to suppliers, other financial liabilities, REFIS, leases, derivatives, payables to related parties and dividends.
The Company's Management identifies, evaluates, and hedges financial risks in close collaboration with operating units. The Board of Directors provides written principles for managing global risk in addition to policies covering specific areas such as currency risk, interest rate risk, credit risk, use of derivative and non-derivative financial instruments, and excess investment of liquidity.
When all applicable criteria are satisfied, hedge accounting is used to eliminate the accounting mismatch between the hedging instrument and the hedged item. This will result in the effective recognition of interest expense at a fixed interest rate for hedged floating rate loans and inventory at the fixed foreign exchange rate for purchases hedged against foreign exchange risk.
The Company may opt for formal designation of new debt transactions for which it has swap-type derivative hedging instruments for foreign exchange rate variation and interest, as measured at fair value. The Fair Value Option is intended to eliminate inconsistencies caused by disparities between the measurement credits of certain liabilities and their hedging instruments. Consequently, both swaps and respective debts are now valued at fair value. This option is irrevocable and must be exercised upon the operation's initial accounting entry.
The policy of the Company is to maintain a sufficient capital base to foster the confidence of investors, creditors, and the market, and to ensure the business's future growth. Each of its businesses' rate of return on capital is monitored by Management.
An analysis of the risk exposure that Management intends to cover determines the use of financial instruments to protect against these areas of volatility.
a) Market risk
The objective of market risk management is to manage and control exposures to market risk within acceptable parameters, optimizing returns.
The Company uses derivatives to manage market risks. All these transactions are carried out within the guidelines defined by the Risk Management Committee. Generally, the Company seeks to apply hedge accounting to manage volatility in profit or loss.
As of December 31, 2023, and 2022, the Company had the following net exposure to foreign exchange variation on assets and liabilities denominated in US Dollars, Euros, Yen and Pound Sterling:
284,956
1,138,948
(441,768
(97,259
(24,861,084
(13,698,102
(1,627,104
(94,716
Derivative financial instruments (notional)
14,182,102
7,728,609
(12,665,992
(5,246,480
The probable scenario considers the estimated foreign exchange rates, carried out by a specialized third party, at the maturity of transactions for companies with real functional currency (positive and negative, before tax effects), as follows:
Scenarios
Instrument
Risk factor
Probable
25%
50%
(25%)
(50%)
Low FX rate
116,704
190,278
(30,445
(104,019
252
2,234
4,217
(1,731
(3,713
High FX rate
(32
(285
(538
221
473
1,637,844
7,019,308
11,124,823
(1,168,664
(5,211,482
(3,156,486
(7,857,863
(13,541,119
3,606,358
9,319,729
(1,602,279
(2,022,389
(2,442,499
(1,182,168
(500,436
(6,658
(14,979
(23,301
1,664
9,986
Effect on profit or loss before tax
(3,084,229
(2,757,270
(4,688,139
1,225,235
3,510,538
The probable scenario considers the estimated exchange rates, made by a specialized third party, upon maturity of the transactions for the companies with functional currency Reais (positive and negative, before tax effects), as follows:
Exchange rate sensitivity analysis
US$
4.8413
5.0000
6.2500
7.5000
3.7500
2.5000
5.3516
5.6500
7.0625
8.4750
4.2375
2.8250
6.1586
6.5000
8.1250
9.7500
4.8750
3.2500
JPY
0.0342
0.0379
0.0473
0.0568
0.0284
0.0189
The Company and its subsidiaries monitor fluctuations in variable interest rates associated with its loans and use derivative instruments to mitigate the risk associated with such fluctuations.
Below is a sensitivity analysis of interest rates on loans and financing and financial assets linked to the CDI rate with 25% and 50% pre-tax increases and decreases:
Interest rate exposure
1,341,723
1,677,154
2,012,584
1,006,292
670,861
301,620
377,026
452,431
226,215
150,810
20,131
25,164
30,197
15,098
10,066
Lease and concession in installments
(107,615
(134,519
(161,422
(80,711
(53,807
(441,671
(442,081
(442,493
(441,262
(440,855
(1,928,668
1,463,062
1,184,732
1,171,704
2,301,380
(2,031,467
(3,271,263
(3,793,309
(2,227,171
(1,705,125
(39,589
(48,132
(56,674
(31,046
(22,504
Impacts on the income (loss) before taxes
(2,885,536
(353,589
(773,954
(360,881
910,826
The probable scenario considers the estimated interest rate, made by a specialized third party and the Central Bank of Brazil (Banco Central do Brasil or “BACEN”) as follows:
SELIC
10.08%
12.60%
15.13%
7.56%
5.04%
9.98%
12.48%
14.98%
7.49%
4.99%
TJLP462 (TJLP + 1% p.a.)
7.20%
8.75%
10.30%
5.65%
4.10%
TJLP
6.20%
7.75%
9.30%
3.10%
3.85%
4.82%
5.78%
2.89%
1.93%
IGP-M
3.34%
4.17%
5.01%
2.50%
1.67%
Fed Funds
4.25%
5.31%
6.38%
3.19%
SOFR
6.30%
3.15%
2.10%
Natural gas derivative transactions were conducted with bank counterparties and recognized at fair value through profit or loss, based on the difference between the contracted price and the market price of outstanding contracts as of the date of the statement of financial position.
These are our open positions in natural gas derivatives:
Brent derivatives – options
Price variation US$/bbl
7,375
9,216
11,067
5,527
3,689
We use derivative financial instruments called options to limit our exposure to changes in the value of Vale shares. The widely accepted methodology used to calculate the fair value of options is based on the Black & Scholes pricing model. The values calculated in the sensitivity analysis of the framework mentioned reflect the impacts of the intrinsic values of the options as the shares appreciate or depreciate.
VALE3 (Collar) (i)
7,788,856
8,158,058
8,434,888
7,361,797
7,006,051
VALE3 (Call Spread)
563,903
826,670
1,004,452
272,147
72,611
(i) As mentioned in note 1.3 (c), 100% of Collar derivatives were settled in April 2024.
We are exposed to risks linked to CSAN3 share prices. To mitigate such exposures, total return swap derivatives of 96,185,412 shares of CSAN3 were contracted in which the Company receives the variation of the share price and proceeds on the active side and pays CDI + 1.65% on the passive side.
The sensitivity analysis considers the closing share price as shown below:
Value of the investment
41,557
470,525
941,049
(470,525
(941,049
Value of the share (CSAN3)
19.36
24.20
29.04
14.52
9.68
b) Credit risk
The Company’s regular operations expose it to the risk of default when customers, suppliers, and counterparties are unable to fulfill their financial commitments or other obligations. The Company seeks to mitigate this risk by conducting transactions with a diverse group of counterparties. However, the Company's operations remain susceptible to the unanticipated financial failures of third parties. The credit risk exposure was as follows:
2,513,574
Receivable dividends and interest on equity
24,956,110
24,761,444
The Company is exposed to risks related to its cash management activities and temporary investments.
The majority of liquid assets are invested in government bonds and other bank investments. The treasury department manages the credit risk of bank and financial institution balances in accordance with the Company’s policy.
The credit risk associated with lease receivables is divided into two customer categories: (i) Level 1 and (ii) Level 2. The majority of subsidiary investment properties are leased to customers classified as Level 1, with no history of late payments or default and a solid financial standing. To mitigate the credit risk associated with lease receivables, the Company's policy restricts its exposure to Level 2 customers. The risk associated with accounts receivable related to the sale of investment properties is mitigated by granting land ownership to the customer only after receiving a down payment for the transaction. In addition, the transfer of ownership is contingent upon receipt of all outstanding payments.
Only approved counterparties and within the credit limits assigned to each counterparty may invest surplus funds. Credit limits for counterparties are reviewed annually and may be modified throughout the period. The limits are established to minimize the concentration of risks and, consequently, to mitigate financial loss caused by potential counterparty default. The credit risk of cash and cash equivalents, marketable securities, restricted cash, and derivative financial instruments is determined by widely accepted market rating instruments and is structured as follows:
AAA
20,475,536
16,769,858
AA
172,871
3,133,455
A
124,932
138,478
Not rated
139,154
65,184
20,912,493
20,106,975
c) Liquidity risk
The Company's strategy for managing liquidity is to ensure, whenever possible, that it has sufficient liquidity to meet its liabilities when they are due, under normal and stressed conditions, without incurring unacceptable losses or risking reputational harm.
The Company's financial liabilities (based on contracted undiscounted cash flows) are categorized by maturity dates as follows:
Up to 1 year
From 1 to 2 years
From 3 to 5 years
Over 5 years
(5,504,188
(5,300,723
(23,711,254
(33,419,306
(67,935,471
(63,200,127
(3,920,273
(264,252
(924,562
(53,210
(1,505
(1,810
(160,742
(217,267
(658,131
(818,888
(1,233,690
(18,164,132
(20,874,841
(16,436,839
(266,814
(291,161
(579,320
(1,137,295
(1,137,173
(322,160
(2,149,524
(1,327,485
(3,146,345
1,705,459
(4,917,895
(84,126
(13,900,249
(8,004,014
(28,672,419
(50,038,721
(100,615,403
(87,651,180
d) Capital management risk
The group manages the capital structure and adjusts it considering changes in economic conditions and requirements of financial covenants. To maintain or adjust the capital structure, the Group may adjust the payment of dividends to shareholders, return capital to them or issue new shares. The Company monitors capital mainly through the leverage index, calculated as net debt on EBITDA. The group policy is to keep this index up to 3.3x, which represents the lowest covenants ratio of the group components.
The Company's policy is to maintain a solid capital base to foster the confidence of its parent companies, creditors, and the market, and to ensure the business's future growth.
To achieve this general objective, the Group’s capital management, among other things, aims to ensure compliance with the financial commitments associated with loans and borrowings that define capital structure requirements.
Accounting Policy:
Tax assets are measured at cost and primarily consist of (i) tax effects that are recognized when the asset is sold to a third party or recovered through amortization over the remaining economic life of the asset; and (ii) tax receivables that are expected to be recovered as refunds from tax authorities or as a reduction for future tax liabilities.
COFINS
487,160
975,878
PIS
110,904
350,867
Taredits
33,639
31,774
ICMS
924,180
845,450
ICMS - CIAP
189,813
118,809
132,863
76,348
1,878,559
2,399,126
Inventories are stated at the lower of cost and net realizable value (it is the estimated selling price in the normal course of business, minus the estimated completion costs and estimated costs necessary to make the sale). The cost of finished and work-in-progress goods comprises direct materials, direct labor and an appropriate proportion of variable and fixed overheads, the latter of which are allocated based on normal operating capacity. Costs are assigned to individual inventory items based on weighted average costs.
The provision for obsolete inventories is made for risks associated with the realization and sale of obsolete inventories, and is measured at net realizable value or cost, whichever is lower.
Finished products
1,254,818
1,504,134
Parts and accessories
178,260
168,777
Construction Materials
316,370
152,789
Warehouse and other
43,266
43,359
The balances are presented net of a provision of R$78,709 for obsolete inventories as of December 31, 2023 (R$38,747 as of December 31, 2022).
8. ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATION
The Company classifies non-current assets and disposal groups as held for sale if their carrying values are recovered mainly through a sale transaction and not through continuous use. Non-current assets and disposal groups classified as held for sale (except investment properties measured at fair value) are measured at the lower of carrying value and fair value less costs to sell. Selling costs are the incremental costs directly attributable to the disposal of an asset (disposal group), excluding finance expenses and income tax expenses.
The criteria for classifying held for sale are considered met only when the sale is highly probable and the asset or group for disposal is available for immediate sale in its current condition. The actions required to complete the sale must indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the asset sale plan and the sale is expected to be completed within one year of the classification date.
Assets and liabilities classified as held for sale are presented separately in the financial position.
a) Assets held for sale:
Properties held for sale
Other assets held for sale
268,385
Transfers
322,430
Sale of agricultural properties held for sale
(550,432
1,795,773
444,782
(142,773
342,392
As mentioned in explanatory note 2, the balances corresponding to Norgás’ and TUP Porto São Luis S.A financial position were reclassified to the heading of assets and liabilities held for sale are shown below:
Norgás
TUP Porto São Luis S.A
48,231
3,030
Dividends and interest on equity capital receivable
18,646
892,854
395,757
437,220
Other assets
35
911,500
884,273
b) Liabilities held for sale:
17,248
1,828
Other liabilities
456
Deferred income and social contribution taxes
152,255
66,606
218,861
86,138
c) Discontinued operation result:
As mentioned in Explanatory Note 2, the balances corresponding to Norgás’s income statements were reclassified to the profit or loss item of discontinued transactions as follows:
Equity income
23,164
25,421
22,255
24,425
Comparative balance reclassification:
Income before equity income and net financial result
Equity income (loss) in associates
468,743
(49,846
Equity income (loss) of jointly controlled companies
Equity income (loss)
376,564
Profit before income tax and social contribution
2,702,471
Income tax and social contribution
Net profit from continuing operations
Profit for the year from discontinued operations, net of taxes
Net profit for the year
i)Amounts after the reclassification of the discontinued operation.
d) Reclassification of comparative cash flow balance:
Cash flow from operating activities
Equity income (loss) in subsidiaries and associates
(468,743
Other items of operating
7,738,504
Net cash (used) generated in Operating activities
Cash flow from investing activities
Dividends received from subsidiaries and associates
323,096
(44,969
Discontinued operation
Other items of investing activities
(21,049,660
Net cash generated in financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate variation on the balance of cash and cash equivalents
Cash and cash equivalents at end of year
i. Subsidiaries
Subsidiaries are all entities over which the Company has control, are fully consolidated from the date of acquisition of control and deconsolidated when control ceases to exist.
Control is obtained when the Company is exposed or entitled to variable returns based on its involvement with the investee and has the ability to affect those returns through the power exercised in relation to the investee.
Specifically, the Company controls an investee if, and only if, it has:
• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);
• Exposure or right to variable returns arising from its involvement with the investee; and
• The ability to use its power over the investee to affect the value of its returns.
There is usually a presumption that a majority of voting rights results in control. To support this presumption and when the Company has less than a majority of the voting rights of an investee, we consider all relevant facts and circumstances when assessing whether it has power over an investee, including:
• The contractual agreement between the investor and other holders of voting rights;
• Rights arising from other contractual agreements; and
• The Company's voting rights and potential voting rights.
Using consistent accounting policies, subsidiaries' financial statements are prepared for the same reporting period as the parent company. Adjustments are made to the financial statements of the subsidiaries in order to conform their accounting policies to those of the Company.
On consolidation, all transactions between related parties are eliminated. Unrealized gains resulting from transactions with investees recorded using the equity method are written off against the investment in proportion to the Company's ownership interest in the investee. Unrealized losses are eliminated in the same manner, but only if no evidence of impairment exists.
ii. Associates
Associates are entities over whose financial and operating policies the Company has significant influence, but neither control nor joint control.
In preparing the consolidated financial statements, intragroup balances and transactions, as well as any unrealized income or expenses arising from intragroup transactions, are written off.
In accordance with the equity method, the equity interest of associates attributable to the Company in the profit or loss for the exercise of such investments is recorded in the income statement, under “Equity in earnings”. Unrealized gains and losses arising from transactions between the Company and its investees are written off in proportion to the Company's ownership stake in these investees. Other comprehensive income of subsidiaries, associates, and joint ventures is recorded directly under "Other comprehensive income" in the Company's shareholders' equity.
iii. Investments in affiliates with significant influence
Significant influence is the power to participate in decisions about financial and operational policies of an investee, but without individual or joint control of these policies. If the investor holds directly or indirectly less than twenty percent of the investee’s voting power, it is presumed that he has no significant influence unless that influence can be clearly demonstrated. For investments with a stake of less than 20 percent, the company conducts the appropriate valuations to determine whether it has significant influence.
Participations in investments with significant influence are valued by the equity method and, when applicable, deducted from provision for losses by recoverable value (impairment).
Unrealized gains resulting from transactions with investments recorded using the equity method are written off in proportion to the Company's ownership interest in the investee. Unrealized losses are written off in the same manner, but only if there is no evidence of an impairment loss.
The Company's subsidiaries are listed below:
Directly owned subsidiaries excluding treasury shares
Cosan Corretora de Seguros Ltda
Cosan Nove Participações S.A.
Cosan Luxembourg S.A.(i)
Cosan Overseas Limited
Pasadena Empreendimentos e Participações S.A.
Cosan Limited Partners Brasil Consultoria Ltda.
97.50%
Barrapar Participaçoes Ltda.
Aldwych Temple
Cosan Oito S.A.
Cosan Global Limited
Atlântico Participações Ltda.
Sinlog Tecnologia em Logística S.A.(ii)
57.48%
Cosan Dez Participações S.A.
Radar Propriedades Agrícolas S.A.(iii)
50.00%
Radar II Propriedades Agrícolas S.A.(iii)
Nova Agrícola Ponte Alta S.A. (iii)
Nova Amaralina S.A Propriedades Agrícolas (iii)
Nova Santa Bárbara Agrícola S.A.(iii)
Terras da Ponta Alta S.A. (iii)
Castanheira Propriedades Agrícolas S.A.(iii)
Manacá Propriedades Agrícolas S.A.(iii)
Paineira Propriedades Agrícolas S.A.(iii)
Tellus Brasil Participações S.A.(iv)
20.00%
Janus Brasil Participações S.A.(iv)
Duguetiapar Empreendimentos e Participações S.A.(iv)
Gamiovapar Empreendimentos e Participações S.A.(iv)
Moove Lubricants Holdings
70.00%
Rumo S.A.(v)
30.42%
30.35%
The following are investments in subsidiaries and related companies as of December 31, 2023, which are relevant to the Company:
The Company's associates are listed below:
Shares issued by the investee
Shares held by Cosan
Cosan ownership interest
Rhall Terminais Ltda
28,580
8,574
30.00%
99,246
19.85%
TGG - Terminal de Granéis do Guarujá S.A.
79,747,000
7,914,609
9.92%
672,397,254
134,479,451
Terminal XXXIX S.A.
200,000
49.62%
Gás de Alagoas S.A. – ALGÁS
810,896,963
238,728,878
29.44%
Companhia de Gás do Ceará – Cegás
39,400,000
11,599,428
CEG Rio S.A.
1,995,022,625
746,251,086
37.41%
Companhia Paranaense de Gás - Compagás
33,600,000
8,232,000
24.50%
Companhia Potiguar de Gás – Potigas
4,245,000
3,523,350
83.00%
Companhia de Gás de Mato Grosso do Sul - Msgás
61,610,000
30,188,900
49.00%
Companhia de Gás de Santa Catarina - Scgás
10,749,497
4,407,293
41.00%
Sergipe Gás S.A. – SERGÁS
1,593,656
661,363
41.50%
Companhia Pernambucana de Gás - Copergás
163,485,912
67,846,653
Vale S.A(i)
Capital reduction
Reclassification to held for sale
Reclassification of financial assets
Other (ii)
Dividend receivable (i)
5,654
1,716
(1,200
6,170
8,464
(2,446
6,018
17,468
8,826
(10,334
15,960
296,746
38,992
(18,960
(99,040
217,738
53,136
28,247
(14,968
66,415
424,837
36,300
(57,956
351
403,532
415,301
5,921
(19,238
(401,984
627,829
37,028
(24,525
640,332
6,957
Sergipe Gás S.A. - SERGÁS
69,430
3,230
(5,466
(67,194
Companhia de Gás do Ceará - Cegás
184,537
11,573
(13,676
(183,880
1,446
274,480
84,822
(70,916
288,386
20,708
291,543
20,828
(
14,497—
297,874
2,496
Companhia Potiguar de Gás - Potigas
168,887
14,371
(13,118
(170,140
Gás de Alagoas S.A. - Algás
68,448
10,324
(8,492
(69,656
Vale S.A
(707,671
7,183
11
(735
6,459
(273,346
(892,854
(707,233
35,836
At January 1, 2022
Change of equity interest in subsidiary
Declared dividends
Disposal of investment
Contributed capital
At December 31, 2022
4,907
1,647
(900
71
4,725
4,445
(706
151
17,563
5,689
(5,784
118
6,190
135,159
155,397
717
30,649
22,487
(6,831
411,737
44,121
19,094
(9,493
405,700
8,300
34,885
(15,524
608,468
16,214
9,015
(3,441
63,856
3,202
6,717
(4,189
182,009
29,686
(16,542
261,336
14,968
13,530
(6,160
284,173
3,837
9,066
(8,390
168,211
7,674
5,954
(2,985
66,001
(522
2,711
Tellus Brasil Participações S.A.
142,798
128,860
(30,756
58,806
(299,708
Janus Brasil Participações S.A.
183,357
150,687
(35,559
79,725
(378,210
TUP Porto São Luis S.A.
394,380
49
(393,579
(850
1,688
811
5,536
(852
780,067
(146,554
138,531
1,379,994
(2,930
102,084
\
Financial information of associates
Shareholders' equity and unsecured liabilities
Rhall Terminais Ltda.
33,060
(12,491
5,983
33,382
(14,534
18,848
5,811
1,251,643
(444,748
806,895
194,954
950,538
(243,797
706,741
127,554
298,815
(268,730
30,085
4,721
273,760
(231,119
42,641
19,881
242,779
(73,216
169,563
88,867
254,748
(78,657
176,091
58,139
481,569
(326,731
154,838
53,986
433,412
(388,882
44,530
1,208,959
(685,288
523,671
96,866
1,115,974
(458,322
657,652
161,467
1,118,237
(399,252
718,985
153,217
1,093,210
(453,632
639,578
161,504
1,944,385
(1,326,484
617,901
233,099
1,910,875
(1,351,937
558,938
150,969
390,976
(193,298
197,678
56,649
339,695
(164,774
174,921
11,448
423,626,000
(232,661,000
190,965,000
39,940,000
Business combinations are accounted for using the acquisition method when the control is transferred to the Company. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired and liabilities assumed. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity.
For each business combination, the Company measures non-controlling interests in the acquisition using one of the following methods:
i. fair value; or
ii. proportional share of the acquirer's identifiable net assets, which are typically valued at fair market price.
The transferred consideration excludes amounts related to the liquidation of preexisting relationships. Typically, these amounts are recognized in profit or loss
Contingent consideration depends on an acquired business meeting targets within a fixed period. To calculate obligations at the time of acquisition and at each subsequent reporting date, projections of future performance are required. In addition, estimates are required to value the assets and liabilities acquired in business combinations. Intangible assets, such as brands, are frequently a crucial component of an acquired business because they enable us to derive greater value than would be possible otherwise.
Measurement of fair values
In measuring fair values, valuation techniques were used considering market prices for similar items, discounted cash flow, among others.
Since this is a fair value measurement, the accounting for the acquisition will be revisited if new information obtained within one year of the acquisition date regarding the facts and circumstances that existed at the acquisition date indicates adjustments to the amounts mentioned above or any additional provision that existed at the acquisition date. Management's expectation is that only the measurements of intangible assets could have some kind of impact on this evaluation.
BIOMETANO VERDE PAULÍNIA S.A.
On October 20, 2023, Edge Comercialização acquired a 51% stake in Biometano Verde Paulínia S.A. (“BVP”) for R$247,152, of which R$100,000 via capital contribution, R$135,000 paid in a single installment to the former controlling shareholders and R$12,152 referring to contingent consideration.
BVP is a privately held company based in Brazil whose activities will involve the purification and treatment of Biogas and the production, movement and sale of Biomethane. Edge Comercialização carried out the acquisition in line with the objective of expanding the Marketing & Services segment, offering increasingly complete solutions to its customers towards a safe and efficient energy transition.
In the evaluation carried out by the Company, the acquisition price was allocated as a biogas supply contract, lending contract and licenses for a fair value of R$384,277. Intangible assets will be amortized until 2045.
The fair value of the assets and liabilities acquired is shown below:
Consideration transferred
Capital contribution
100,000
Cash transfer
135,000
Contingent consideration
12,152
247,152
Identifiable assets acquired and liabilities assumed
Cash, cash equivalents and restricted cash
100,341
582,238
(5
Other obligations
(1
Deferred Income Tax (IR) and social contribution (CS)
(197,961
(237,460
Liquid and acquired assets
(12,152
Returns on financial investments
341
Cash received
(100,341
Transferred consideration, net of cash
The consolidated income statement includes net profit in the amount of R$1,104 since the acquisition date, respectively generated by BVP. If the acquired subsidiary had been consolidated since January 1, 2023, the consolidated income statement for the year ended December 31, 2023, would show a net profit of R$2,826 (unaudited).
For the purposes of annual procedures, Management evaluated the factors of the business combination and the estimates used.
Transactions with non-controlling equity interests that do not result in a loss of control are accounted for as equity transactions – that is, as transactions with owners in their capacity as owners.
Below is summarized financial information for each subsidiary that has non-controlling interests that are material to the group. The amounts disclosed for each subsidiary are before intercompany eliminations.
Shares issued by the subsidiary
Shares held by non-controlling shareholders
119,063,044
95,250,435
80.00%
286,370,051
229,096,041
Duguetiapar Empreendimentos e Participações S.A.
3,573,842
2,859,074
Gamiovapar Empreendimentos e Participações S.A.
12,912,970
10,330,376
Radar Propriedades Agrícolas S.A.
737,500
368,750
Nova Agrícola Ponte Alta S.A.
160,693,378
80,346,689
Terras da Ponte Alta S.A.
16,066,329
8,033,165
Nova Santa Bárbara Agrícola S.A.
32,336,994
16,168,497
Nova Amaralina S.A.
30,603,159
15,301,580
Paineira Propriedades Agrícolas S.A.
132,667,061
66,333,531
Manacá Propriedades Agrícolas S.A.
128,977,921
64,488,961
Castanheira Propriedades Agrícolas S.A.
83,850,938
41,925,469
Radar II Propriedades Agrícolas S.A.
81,440,221
40,720,111
1,854,868,949
1,291,629,301
69.58%
Cosan Lubes Investments Limited
34,963,764
10,489,129
7,663,761,735
2,062,583,640
26.91%
3,473,458,687
805,963,829
23.20%
The following table summarizes information relating to each of the Company's subsidiaries that has material non-controlling interests, prior to any intra-group elimination.
Balance as of January 1, 2023
Capital (reduction) increase
Gain (loss) with capital increase
27,151
11,419
444
(6,869
32,145
Commit Gás S.A.
2,058,651
185,312
(309,324
(372,030
(109
1,562,500
372,030
Biometano Verde Paulínia S.A
521
237,981
Compass Gás e Energia
782,583
192,358
132
(183,126
(1,275
790,672
(12,250
(9,280
704
(122,165
(52,595
(78,742
(15,346
4,956
Cosan Limited Partners Brasil
9
2,634,310
338,315
32,732
(14,728
(436,566
12,956
2,567,019
1,302,661
573,987
454
(372,772
7,710
1,512,041
Sinlog Tecnologia em Logística S.A.
14,911
(1,969
21,959
(12,622
(22,279
3,773,279
924,908
(74,830
119,844
4,743,201
2,584,058
562,713
(18,400
(40,531
68,488
3,156,328
505,681
19,233
(5,004
(47,377
(289
472,244
70,857
26,185
(30,319
(8
66,715
878,879
174,346
(1,902
37,831
1,089,154
212,065
4,331
(7,275
(4,677
204,444
365,807
35,196
16,010
417,013
Nova Amaralina S.A. Propriedades Agrícolas
2,041
12,971
14,881
29,893
201,389
(3,141
(415
197,833
73,421
14,440
(3,610
84,251
157,784
40,115
1,404
199,303
160,553
40,163
(1,151
199,584
210,995
52,944
27,139
291,078
(24,022
(91,736
(1,550,643
137,399
Acquisition of non-controlling interests
28,466
(16,926
730
107,593
(64,435
2,015,493
761,432
221,871
(78
3,197
(201,024
(2,815
6,466
(26,701
(888,450
908,883
10,527,777
(21,358
2,061
(89,194
20,218
683,143
(127,123
53,353
(1,416,657
10,070
(12,434
4,000,910
(932
14,965
(2,592,096
5,073
(3,540
3,888,341
(10,082
6,549
(7,677
16,039
Payly
2,602
(1,626
(976
(10,971
(196,857
3,981,107
8,531
(7,508
2,583,035
2,900
4,975
497,806
(788
(4,534
76,179
246,698
108
(124,858
756,931
34,002
(20,516
198,579
97,035
(50,267
319,039
8,000
(31,444
25,485
53,686
(5,041
152,744
39,890
(16,778
50,309
58,604
(27,222
126,402
46,793
(23,319
137,079
77,819
(66,151
199,327
Violeta Fundo de Investimento Multimercado
2,119,102
69,200
(107,359
11,143
(132,885
(1,959,201
(95,471
(213,110
Summary statement of financial position:
Radar (Restated)
1,020,790
2,015
4,903
2,721
91,412
1,777,104
3,846,647
2,474,218
819,887
514,788
(127,876
(126,916
(392
(169,079
(3,603
(1,341,106
(1,135,917
(852,071
(184,004
(916,363
Current net assets
892,914
(124,901
4,511
(166,358
87,809
435,998
2,710,730
1,622,147
635,883
(401,575
5,798,291
5,738,715
10,373,285
9,954,431
2,218,429
2,204,878
22,572,211
20,971,764
16,152,441
14,316,130
(1,208,604
(9,611,588
(7,402,742
(613,705
(530,331
Non-current net assets
996,274
12,960,623
13,569,022
15,538,736
13,785,799
6,691,205
5,613,814
10,377,796
9,788,073
2,306,238
1,432,272
15,671,353
15,191,169
16,174,619
Summary statements of profit or loss and other comprehensive income:
Net revenue
3,842,981
2,608,680
Income before taxes
1,396,633
63,578
1,005,640
194,522
207,982
485,729
310,500
(2,301
(5,892
11,665
(15,742
Income for the year
1,394,332
999,748
497,394
294,758
Other comprehensive income (loss)
1,957
(54,731
(262,473
Total comprehensive results
1,396,289
945,017
(54,491
Comprehensive income attributable to non-controlling shareholders
52,353
149,218
88,427
372,772
571,261
150,000
Radar(Restated)
1,013,446
984,597
772,714
769,233
633,164
198,239
2,820,202
1,556,155
49,218
(49,569
(118,224
(47,701
719,664
514,940
150,538
1,481,240
45,003
1,011
2,961
720,675
517,901
360,776
104,850
122,231
35,733
530,576
948,967
15,600
Summary Cash Flow Statement:
Cash (generated (used in) in operating activities
(176
3
14,941
(359
292,204
95,461
Cash (generated (used in) in investing activities
757,196
555,408
(5,683
(41,004
77,742
Cash generated (used in) in financing activities
2,011
(571,261
21,936
7,976
(197,994
(13,766
Reduction of cash and cash equivalents
384,248
2,014
(912
1,934
53,206
159,437
761,698
492,619
Effect of FX variation on the cash balance and cash equivalents
(76
109,642
386,262
1,809
1,858
814,904
674,137
94,522
(15,679
626,057
791,779
21,690
(175,273
2,518,699
(1,469,750
(30,681
175,611
1,429
445,843
(1,235,688
714,115
(581,012
(949,277
(15,650
944,707
1,377,533
(771,314
14,364
18,113
7,469
2,169,335
791,802
1,568,667
(5,551
3,114,042
On November 30, 2023, through the subsidiary Cosan Oito, the Company obtained sufficient evidence to conclude that it had ability to exert significant influence on Vale’s policies and operations as a result of the member appointed by Cosan to the board of directors of Vale being able to participate in policy-making processes, including decisions on dividends and other distributions. Accordingly, from this date onwards, Cosan began to consider Vale as a related company over which it exercises significant influence, accounting for the investment using the equity method as required by IAS 28. See also note 1.1 (b).
Vale is a publicly traded corporation headquartered in the city of Rio de Janeiro, Brazil. Together with its subsidiaries, it is one of the largest producers of iron ore and nickel in the world, also producing iron ore and copper pellets.
The Company’s equity interest in Vale is detailed in the following table:
Treasury shares by the investee
239,153,280
Cosan ownership interest (total shares)
Market price at December 31, 2023 (in R$)
73.89
Fair value on the quoted market
15,580,940
Dividends received (i)
Summarized financial position:
The summarized financial information presented below reflects the adjustments of fair value made by the Company at the time to acquisition of significant influence.
Fair value at December 31, 2023
71,488,000
Non-current assets held for sale
19,041,000
559,608,737
69,424,316
2,714,000
234,756,474
Revenue
208,066,000
(2,467,000
Total comprehensive income
38,087,000
Equity
326,980,947
Cosan’s share in equity
4.90
Equity interest of Cosan’s Investment
16,022,066
Equity method of one month period (i)
Profit for the period of one month
2,189,734
Cosan's share in equity
Cosan's share of one month period
107,297
Amortization of fair value adjustments
(11,222
A joint venture is an agreement whereby the parties that have joint control of the agreement have rights to the net assets of the agreement.
The Company, through its subsidiary Cosan Nove, has an investment in a joint venture shown in the statement of financial position as the share of net assets under the equity method of accounting, less any impairment losses. If applicable, adjustments are made to align any different accounting policies that may exist. The Company’s share of the results and shareholder’s equity of the joint venture is included in the statement of profit or loss and other comprehensive income and statement of changes in equity, respectively. Unrealized gains and losses resulting from transactions between the Company and its joint venture are eliminated to the extent of the Company’s investment in the joint venture, except where unrealized losses provide evidence of an impairment of the transferred asset. Goodwill arising from the acquisition of joint venture is included as part of the Company’s investment in the joint venture and, when necessary, the carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (whichever is higher between the value in use and fair value less costs of disposal) with its carrying amount.
The investment in joint venture is considered as non-current assets and are shown at cost less any impairment losses.
When an investment in a joint venture is classified as held for sale, it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Changes to the investments in joint ventures were as follows:
Terminal Alvorada S.A
10,352,509,484
100,197,076
4,557,597,117
50,098,538
5.02
50.00
Cosan's indirect shareholding
25.90
Total (i)
30.92
10,936,663
Asset and liability valuation adjustment
1,053,226
(676,354
Interest in earnings of joint ventures(ii)
(7,428
Capital increase(iv)
47,300
Dividends (iii)
(1,214,731
Raízen S.A
Raízen measured and recognized on September 30, 2023, PIS and COFINS credits in the consolidated amount of R$3,765,456 relating to Complementary Law 192/22 and R$1,465,726 relating to Complementary Law 194/22, totaling R$5,231,182, which impacted the equity income for the year by R$1,617,481, net of income tax and social contribution.
Amount proposed and allocated in the year. In year ended as of December 31, 2023, dividends constituted in the period were paid in the amount of R$906,534. The joint venture’s statement of financial position and income statement are disclosed in the explanatory note 4 - Information by segment. As of December 31, 2023, the Company was in compliance with the covenants of the agreement governing the joint venture.
Terminal Alvorada S.A.
Reduction to recoverable amount
The recoverable amount is determined through value in use calculations, using the discounted cash flow determined by Management based on budgets that take into account the assumptions related to each business, using information available in the market and past performance. Discounted cash flows were prepared over a ten-year period and carried forward in perpetuity without considering an actual growth rate. Management understands the use of periods greater than five years in the preparation of discounted cash flows is appropriate for the purpose of calculating the recoverable amount, because it reflects the estimated time of use of the asset and of the business groups.
The Company reviews impairment indicators for intangible assets with defined useful lives and fixed assets on an annual basis. In addition, goodwill and intangible assets with an indefinite useful life are subjected to an impairment test. An impairment occurs when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, which is the greater of its fair value less costs to sell and its value in use.
The assumptions used in discounted cash flow projections - estimates of future business performance, cash generation, long-term growth, and discount rates - are utilized in our assessment of impairment of assets as of the date of the financial position. No plausible change to a central premise would be harmful. The primary assumptions used to determine the recoverable value of the various cash-generating units to which goodwill is allocated are described in the following section.
Identification and evaluation
Cost, less accumulated depreciation and any accumulated impairment losses is used to value fixed assets.
Subsequent expenditures are only capitalized when it is probable that the associated future economic benefits will accrue to the company. Ongoing repairs and maintenance expenses are recorded as they are incurred.
Depreciated from the date of availability for use or, for constructed assets, from the date of completion and readiness for use.
Unless it is capitalized as part of the cost of another asset, depreciation is calculated on the book value of fixed assets less estimated residual values using the straight-line method over its estimated useful life and recognized in profit or loss. Land is not depreciated.
Methods of depreciation, such as useful lives and residual values, are reviewed at the end of each fiscal year or when there is a significant change without an expected consumption pattern, such as a relevant incident or technical obsolescence. If applicable, any adjustments are recorded as changes to accounting estimates.
Buildings and improvements
4% - 5%
Machinery, equipment and installations
8% - 11%
Furniture and fixtures
10% - 15%
Wagons
2.9% - 6%
Locomotives
3.3% - 8%
Permanent ways
3% - 4%
IT equipment
20%
10% - 20%
a) Reconciliation of carrying amount:
Land, buildings and improvements
Machines, equipment and installations
Wagons and
locomotives (i)
Permanent railways
Construction in progress
Cost
2,001,165
1,974,614
7,738,889
8,755,001
3,244,653
441,742
24,156,064
310,730
227,257
133,474
163,427
834,888
5,442
12,208
772
11,120
3,387,758
(2,253
3,415,047
(3,368
(15,368
(61,536
(52
(9,024
(52,056
(141,404
Transfers (ii)
182,504
141,379
316,211
1,650,431
(2,419,014
32,921
(95,568
Exchange differences
35,544
131,160
684
142,215
309,603
Write-off by disposal of investment
(396,614
(528,452
(23,444
(5,043
(953,553
2,135,403
1,942,798
7,994,336
10,416,500
4,315,087
720,953
27,525,077
11,356
18,671
898
4,577,377
15,497
4,624,509
(199,080
(34,872
(118,414
(116,957
(2,157
(16,961
(488,441
281,621
196,158
821,701
2,552,077
(3,710,146
33,451
174,862
(11,626
(23,492
1,944
(13,668
(46,842
Assets held for sale
(89
(396,150
(535
(396,774
2,217,585
2,099,263
8,698,521
12,852,330
4,785,955
738,737
31,392,391
Depreciation
(618,618
(882,542
(2,842,050
(3,115,641
(13,379
(35,281
(7,507,511
(73,712
(187,599
(566,999
(670,921
(66,064
(1,565,295
8,170
51,591
53,031
112,800
(16,135
26,732
139
23,931
(514
34,153
(22,244
(120,943
(127,215
(270,402
208,661
406,945
4,008
619,614
(522,048
(749,237
(3,357,319
(3,762,623
(172,035
(8,576,641
(76,599
(183,965
(613,033
(806,398
(74,695
(1,754,690
(49,649
5,476
(6,838
(31,199
(45
(82,255
17,769
14,870
110,237
89,725
15,192
247,793
3,536
4,684
3,775
11,995
40
937
404
1,381
(626,951
(907,235
(3,866,953
(4,510,495
(227,404
(10,152,417
1,613,355
1,193,561
4,637,017
6,653,877
4,301,708
548,918
1,590,634
1,192,028
4,831,568
8,341,835
4,772,576
511,333
b) Capitalization of borrowing costs
In the year ended December 31, 2023, loan costs capitalized in the subsidiary Rumo were R$41,304 (R$86,614 as of December 31, 2022), using an average rate of 12.30% p.a. (13.25% p.a. as of 31 December 2022), while in the subsidiary Compass the capitalized costs were R$98,214 at a weighted average rate of 8.87% p.a. (R$62,365 and 6.27% p.a. in the year ended December 31, 2022).
a) Goodwill
Goodwill is initially recognized in accordance with the accounting policy for business combinations (see Note 9.2). Its value is determined by deducting accumulated impairment losses from its cost. Goodwill acquired in a business combination is assigned to the Company's CGUs or groups of CGUs that are anticipated to benefit from the synergies created by the business combination.
b) Other intangible assets
Other acquired intangible assets with a short useful life are measured at cost, less accumulated amortization and any accumulated impairment losses.
c) Customer relationships
Costs incurred in developing gas systems for new customers (including pipelines, valves, and other equipment) are considered intangible assets and amortized over the contract's term.
The costs associated with the customer portfolio and right-of-use and operation contracts are considered as intangible assets and amortized over the contract's term.
d) Concession rights
Some subsidiaries of the Cosan group have public concession contracts for the gas distribution service in which the Granting Authority controls which services will be provided and the price, in addition to holding significant participation in the infrastructure at the end of the concession. These concession contracts represent the right to charge users for gas supply during the contract term. Thus, the subsidiaries recognize this right as an intangible.
The assets acquired or constructed underlying the concession necessary for the distribution of gas, are amortized to correspond to the period in which the future economic benefits of the asset are expected to be reverted to the subsidiaries, or the final term of the concession, whatever happens first. This period reflects the economic life of each of the underlying assets that make up the concession.
This economic service life is also used by regulatory bodies to determine the basis of measurement of the tariff for the provision of the services object of the concession. The amortization is recognized by the linear method and reflects the expected standard for the use of future economic benefits, which corresponds to the useful life of the assets that make up the infrastructure according to the provisions of the regulatory body.
The amortization of assets is discontinued when the respective asset is used or downloaded in full and is no longer included in the basis of calculation of the tariff for the provision of concession services, whichever occurs first.
e) Rumo’s concession rights
Rumo's concession rights resulting from the business combination with Rumo Malha Norte were fully allocated to the Rumo Malha Norte concession and amortized in a straight-line basis.
f) Port authorization and license
The subsidiary TUP possesses a license that authorizes the installation of a private port terminal, with no expiration date as long as the property is used for this purpose. Given this entity's core activity, the Company allocated a significant portion of the purchase price to this authorization, which is classified as an intangible asset with an indefinite useful life. As mentioned in note 8, this investment was reclassified to assets available for sale.
g) Contract of supply
The indirect subsidiary Biometano Verde Paulínia has a signed contract for the purchase and sale of biogas produced in the landfill of Paulínia, where the purification plant is located. The term of the contract is 20 years and was calculated from the start date of the operation.
h) Subsequent expenses
Subsequent expenses are capitalized only if they increase the future economic benefits embodied in the particular asset to which they pertain. All other expenses are recorded in profit or loss as incurred.
i) Amortization
Except for goodwill and intangible assets with indefinite useful life, intangible assets are amortized using a straight-line method over their estimated useful lives, beginning on the date they are acquired or made available for use.
At each reporting date, the depreciation methods, useful lives, and residual values are evaluated and adjusted as necessary.
Goodwill
Concession right
Licenses
Brands and patents
Customer relationships
Supply Agreement
1,132,817
19,616,524
379,182
66,640
1,604,067
509,053
23,308,283
10,031
2,605
113,497
16,622
142,755
402,055
2,508,558
436,594
98,382
1,062,832
388
4,508,809
(57,723
(19
579
(57,163
Transfers (i)
837,788
(1,911
(6
61,295
897,166
(21,909
771
(1,099
47,613
(2,110
23,266
(62,922
(5,403
(317,148
(26,169
(411,642
1,460,072
22,899,744
500,093
163,923
2,827,984
559,658
28,411,474
4,731
121,806
67,600
194,137
(62,272
(64
(2,075
(64,411
1,460,012
183,996
(219,318
14,067
1,438,757
(42,012
(4,451
(8,443
(97,642
5,315
(147,233
(30,817
(436,594
(1,819
(17,060
(486,290
Business Combination
7,875
574,363
1,391,974
24,297,484
243,044
155,480
2,630,947
635,380
29,928,672
Amortization
(3,910,259
(167,287
(9,201
(1,028,608
(411,430
(5,526,785
(773,765
(8,879
(164,843
(35,667
(983,154
25,658
(155
25,504
(60
(771
22,956
(2,838
19,347
5,403
157,743
12,470
175,616
(4,652,963
(19,194
(1,170,494
(437,680
(6,289,532
(861,103
(6,969
(196,995
(28,436
(1,093,503
37,148
37,221
(37,209
75,265
19,873
57,929
156
2,453
1,526
4,135
1,213
4,152
5,365
(5,476,918
(63,216
(1,288,556
(440,494
(7,278,385
18,246,781
480,899
154,722
1,657,490
121,978
18,820,566
179,828
146,279
1,342,391
194,886
a) Amortization methods and useful lives:
Intangible assets (except goodwill)
Annual amortization rate
Concession rights:
Compass (i)
From 3.54% to 4.58%
12,307,964
11,614,163
Rumo (ii)
6,512,602
6,632,618
Licenses and authorizations
Port operation license
3.70%
47,610
44,305
5.00%
132,218
139,905
Licenses and authorizations (iii)
Indefinity
620,804
Brands and patents:
Comma
47,015
47,929
Petrochoice (iii)
96,826
104,354
Tirreno (iii)
2,438
2,439
Customers relationship
280,111
285,423
Moove (iii)
5% to 30%
1,062,280
1,227,588
4,574
1,517,585
Contract of supply
Software license
90,162
65,108
104,724
56,870
21,258,314
20,661,870
b) Goodwill and intangibles with an indefinite useful life
Below we show the carrying amount of goodwill and intangible assets with indefinite useful lives allocated to each of the cash generating units:
UGC Moove
1,254,253
1,296,266
UGC Compass
100,192
UGC Rumo
37,529
UGC Cosan corporate
26,085
In general, future cash flow projections for the Company assume growth rates of 3.5% (2.7% in 2022), which are neither higher nor greater than the long-term average growth rates for the sector and country in particular.
To determine the present value of cash flows, a pre-tax discount rate is utilized. Before taxes and in nominal terms, discount rates ranged between 11.80% and 12.40% (between 10.10% and 24.80% in 2022).
The main assumptions for the first part of the financial model consider inflation and GDP by region where the CGU is located, plus the Cosan Group's strategies and market opportunities. For the remaining years of the model, the main assumptions relate to inflation and market expansion. The discount rate used is the weighted average cost of capital, or “WACC”, for which the main assumptions are risk-free rate (return rate of an investment without risk of loss), market risk premium (excess return earned by an investment in the stock market at a risk-free rate) and inflation. Most assumptions are obtained from external sources of information.
Future cash flows were constructed considering the following factors: (i) EBITDA for the cash-generating unit, adjusted for other relevant operating cash items and recurring capital expenditures; (ii) the Cosan Group discount rate (WACC) before taxes; and (iii) a growth rate calculated using the inflation index by region.
The annual impairment test utilized the following assumptions:
Premises
% Yearly
Risk-free rate (T-Note 10y)
3.51%
Inflation (BR)
3.76%
Inflation (US)
2.00%
Inflation (UK)
Country risk premium (BR)
4.40%
Country risk premium (UK)
0.88%
Country risk premium (ARG)
17.55%
Market risk premium
4.60%
Tax rate (BR)
34.00%
Tax rate (UK)
19.00%
Tax rate (ARG)
Determining the recoverability of assets depends on certain key assumptions that are influenced by the market, technological, and economic conditions prevailing at the time this recovery is tested; therefore, it is not possible to predict whether there will be future losses due to a reduction in recoverability and, if so, whether they would be material.
During the year ended December 31, 2023, the Company did not identify any additional indicators of impairment, so no impairment test was required for tangible and intangible assets with defined useful lives. Consequently, no impairment expense was recorded for goodwill and assets with indefinite and definite useful lives as of December 31, 2023, and 2022
Contract assets are measured based on their acquisition cost, which includes capitalized borrowing costs. The depreciable amounts in the concession contract are transferred to intangible assets when the assets are put into operation. The indirect affiliate Comgás reassesses the useful life, and whenever this assessment reveals that the amortization period will exceed the term of the concession agreement, a portion of the asset is converted into a financial asset because it represents a receivable from the granting authority. This classification follows IFRIC 12 - Concession Agreements.
684,970
21,012
705,982
1,217,818
10,823
1,228,641
(25,156
87,735
(880,188
1,701
(878,487
1,494,142
33,952
1,528,094
(31,648
(1,563,056
During the year ended December 31, 2023, through its subsidiaries, R$126,522 were added to internally generated intangible assets (R$109,265 in the year ended December 31, 2022), through the capitalization of labor.
a) Investment commitments (unaudited)
The indirect subsidiary Comgás assumed commitments in its concession contract for investments (expansion, improvements, and maintenance) to be carried out during the estimated concession period until 2049. In addition to investments in administrative support, the investment values for expansion projects and operational support exceed R$20,000,000, with an expected disbursement of approximately R$3,000,000.
Considering that the concession contract provides for incentive regulation, defining an efficient business plan at each five-year cycle in light of a capital return rate defined at the time to ensure that the concessionaire is able to obtain adequate remuneration for its investments, Comgás will propose a binding regulatory plan for each tariff revision, taking into account the reality at the time and the rate of return on capital defined by the regulator.
The other distributors operating in another state do not have investment commitments to be made during the concession period.
During the year ended December 31, 2023, the indirect subsidiary Comgás capitalized R$82,441 at a weighted average rate of 12.70% p.a. (R$70,884 at 12.06% p.a. in the year ended December 31, 2022).
During the year ended December 31, 2023, the indirect subsidiary Sulgás capitalized R$973 at a weighted average rate of 5.81% p.a. (R$217 at 4.10% p.a. in the year ended December 31, 2022).
The right-of-use asset is initially measured at cost, which includes the initial measurement value of the lease liability, adjusted for any lease payments made up to the commencement date, any initial direct costs incurred by the lessee, and an estimate of the costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site where it is located, or restoring the underlying asset to the condition required by the terms and conditions of the lease, less any lease incentives received.
The right-of-use asset is then depreciated on a straight-line basis from the date of commencement until the end of the lease term, unless the lease transfers ownership of the underlying asset to the lessee at the end of the lease term, or if the cost of the lease right-of-use asset reflects the likelihood that the lessee will exercise the purchase option. In this instance, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined in the same manner as property, plant, and equipment. In addition, the right-of-use asset is periodically adjusted for certain remeasurements of the lease liability and impairment losses, if any.
The subsidiary Rumo evaluated its railway concessions within the scope of interpretation IFRIC 12 Concession Contracts and, since it did not meet the terms of this interpretation, recognizes its concession contracts as a right-of-use asset.
Machine, equipment, and installations
Wagons and locomotives
Software
Vehicles
Floating storage and regasification
Railway and port infrastructure
254,883
142,449
938,610
87,028
29,099
7,800,313
9,252,382
116,919
2,693
43
119,655
Additions (i)
91,799
73,317
1,006
4,561
111,457
282,140
Contractual readjustments
9,008
52,972
3,480
(1,079
1,540
155,734
221,655
(24,005
(724
(218
(106,363
(131,310
5,114
(2,237
(282
2,595
453,718
268,470
943,096
85,949
34,743
7,961,141
9,747,117
81,911
233,155
25,541
1,533,969
45,271
1,919,847
17,917
3,426
332
96,257
117,932
(25,110
(7,084
(6,384
(38,578
34,742
(11,347
(11,589
(120
(23,056
517,089
521,120
943,428
60,164
8,096,285
11,758,004
(67,919
(29,258
(399,218
(16,959
(15,125
(776,636
(1,305,115
(65,254
(81,349
(34,990
(4,015
(7,713
(267,094
(460,415
6,099
943
20,535
28,287
1,577
1,246
172
2,995
(125,497
(108,651
(434,208
(20,974
(21,723
(1,023,195
(1,734,248
(74,850
(47,435
(34,347
(4,380
(13,128
(38,349
(320,280
(532,769
10,166
1,151
11,317
2,913
8,187
114
11,214
(187,268
(146,748
(468,555
(25,354
(34,737
(1,343,475
(2,244,486
328,221
159,819
508,888
64,975
13,020
6,937,946
329,821
374,372
474,873
60,595
25,427
1,495,620
6,752,810
Investment properties are initially value at cost, including transaction costs. Upon initial recognition, investment properties are measured at fair value, which reflects market conditions at the date of the financial position, with changes recorded in the income statement. Revenue from the sale of agricultural properties is not recognized in income until I the sale is complete, (ii) the Company determines that payment by the buyer is probable, (iii) the revenue can be reliably measured, and (iv) the Company has transferred all risks associated with the property to the buyer and no longer has any involvement with the property. The gains from the sale of agricultural properties are reported as net income on the income statement, while the costs are reported as cost of properties sold.
The fair value of agricultural properties was determined using the direct comparative method of market data applied to transactions involving comparable properties (type, location, and quality of property) and, to a lesser extent, using sales quotes for potential transactions involving comparable assets (level 3). In accordance with the standards issued by the Brazilian Association of Technical Standards (Associação Brasileira de Normas Técnicas–“ABNT”), the methodology used to determine fair value takes into account direct comparisons of market information, such as market research, homogenization of values, spot market prices, sales, distances, facilities, access to land, topography and soil, use of land (type of crop), and rainfall, among other data. As of December 31, 2023, discount rates range between 11.12% p.a. and 11.20% p.a. (11.20% p.a. and 13.75% p.a. as of December 31, 2022).
The portfolio is evaluated annually by external specialists and periodically by internal professionals who are technically qualified to conduct this type of evaluation.
Investment properties
3,886,696
Change in the fair value of investment properties
1,311,691
9,209,626
17,477
(322,430
2,259,924
58,506
(444,782
Write off
(582
Considering the current gas supply contracts, the subsidiaries have financial commitment that totaled an estimated present value of R$44,057,687, the amount of which includes the minimum volume established in the contract, both in commodities and in transportation, with a term until December 2034.
The sub-concession agreements for which Rumo, through its subsidiaries, generally include commitments to execute investments with certain characteristics during the term of the agreement. We can highlight:
This account contains the balance of lease payments at issue in disputes with the granting authority. Upon transfer from the "lease" account, the initial registration is completed at the value of the installment at maturity. These values are then adjusted using the SELIC rate.
In this account, balances are maintained in installments with the Granting Authority. The initial registration is for the balance owed following the resolution of the dispute. These values are then adjusted using the SELIC rate.
Balances payable for granted concession rights ("Concessions and Grants"), initially recorded as a counterpart to intangible assets, are also recorded in this account (Note 11.2). The following measurement is performed at the effective rate.
Disputed lease and concession:
Rumo Malha Oeste S.A.
2,206,945
1,957,149
Lease installment payments:
Rumo Malha Paulista S.A.
1,067,256
1,138,076
Concessions and grants:
Rumo Malha Sul S.A.
76,191
81,112
190,282
156,497
Rumo Malha Central S.A.
24,699
18,576
291,172
256,185
3,565,373
3,351,410
a) Disputed lease and concession:
On July 21, 2020, Rumo filed with the National Land Transport Agency (Agência Nacional de Transportes Terrestres – “ANTT”, a request to participate in a third-party rebidding process for the Concession Agreement entered into between Malha Oeste and the Federal Government, through the Ministry of Transport (“Rebidding Process”), in accordance with Law No. 13,448 of June 5, 2017, and Decree No. 9,957 of August 8, 2019. An amendment to the concession agreement was signed, and as a result, the economic and financial rebalancing action filed by Rumo Malha Oeste against the Union, which had a decision of origin from the lower court and was awaiting a ruling from the Federal Regional Court, was suspended by joint decision of the parties.
The total amount of judicial deposits related to the cases is R$26,064 (R$24,125 as of December 31, 2022).
b) Leases and grants within the scope of IFRS 16
Leases:
452,701
542,996
422,173
539,900
131,038
185,324
Portofer Transporte Ferroviário Ltda.
11,658
1,005,912
1,279,878
Grants:
Rumo Malha Paulista S.A. (renewal)
919,011
732,727
940,456
792,374
1,859,467
1,525,101
2,865,379
2,804,979
358,464
350,719
2,506,915
2,454,260
The Company incurs various taxes and contributions, including municipal, state, and federal taxes, taxes on bank deposits and withdrawals, turnover taxes, regulatory fees, and income tax, among others. Additionally, it is subject to other taxes that the Company is obliged to collect as withholding taxes from third parties and which generally do not represent an expense.
Tax debts installments
217,348
208,760
190,474
271,688
177,720
246,501
27,073
43,524
Social Security charges
87,214
42,186
IRRF
14,133
14,553
122,998
86,517
836,960
913,729
The amounts due in non-current liabilities have the following maturity schedule:
From 13 to 24 months
881
2,255
From 25 to 36 months
572
656
From 37 to 48 months
From 49 to 60 months
Over 60 months
160,645
149,465
The total rate of income tax and social contribution is 34%. Current tax and deferred tax are recognized in profit or loss, with the exception of certain transactions which are directly recognized in shareholder’s equity or other comprehensive income.
a) Current tax
It is the expected tax payable or receivable on taxable profit or loss for the year, using tax rates enacted or substantively enacted as of the date of the financial position, as well as any adjustments to tax payable in respect of prior years.
b) Deferred tax
Deferred tax is recognized as temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation and tax loss.
The measurement of deferred tax reflects how the Company expects, at the end of the reporting period, to realize or settle the carrying value of its assets and liabilities. Deferred tax is measured at the rates anticipated to be applied to temporary differences upon their reversal, using rates enacted or substantively enacted as of the date of the financial position.
If there is a legally enforceable right to offset current tax assets and liabilities, and if they relate to taxes imposed by the same tax authority on the same taxable entity, deferred tax assets and liabilities are offset.
c) Tax exposure
In calculating the amount of current and deferred tax, the Company considers the impact of uncertain tax positions and the possibility of additional taxes and interest being owed. This evaluation is based on estimates and hypotheses and may involve a series of future event judgments. New information may become available, causing the Company to change its opinion regarding the sufficiency of existing tax liabilities; such changes in tax obligations will have an impact on tax expenses in the period in which the determination is made.
d) Recoverability of deferred income tax and social contribution
When evaluating the recoverability of deferred taxes, Management takes future taxable income projections and changes in temporary differences into account. The recoverability of the deferred tax asset in the parent company depends on taxable income projections. When it is unlikely that a portion or all the tax liability will be realized, the tax asset is reversed. No deadline exists for the utilization of tax losses and negative bases, but the utilization of these accumulated losses from prior years is limited to 30% of annual taxable income.
The Company and its subsidiaries adhere to both the letter and spirit of the tax laws and regulations of the countries in which they conduct business, being committed to good tax practices. They are also committed to the practice of transfer pricing that respects the principles of full competition and the rules defined by the tax legislation of the jurisdictions in which they operate, with transparency of operations, business ethics, and no use of practices that result in an artificial reduction in taxation.
a) Reconciliation of income tax and social contribution expenses:
Profit before taxes
Income tax and social contribution at nominal rate (34%)
(1,738,675
(901,893
(2,125,298
Adjustments for calculating the effective rate
Interest in earnings of investees (non-taxable income)
672,947
122,238
1,734,883
Differences in tax rates on earnings from operating profit
(62,870
(16,973
55,910
Granted income tax incentive
279,941
197,307
199,687
Share-based payment transactions
(73
(191,763
(26,058
(72,804
Goodwill amortization effect
1,271
Non-deductible expenses (donations, gifts, etc.)
(16,787
(13,788
(28,061
Tax losses not recorded
(308,358
(228,579
(203,809
ICMS benefit - extemporaneous tax credits
5,506
345,067
290,745
ICMS benefit - current year
68,409
242,694
118,107
Dividend income (i)
254,260
Provision for non-realization of the benefit of the Federative covenant (ii)
(307,099
Provision for non-realization of the benefit of the Federative covenant - Interest and Fine (iii)
100,731
Selic on indebtedness
147,741
22,103
Rate differential (iv)
805,725
446,293
5,577
Amortization of the effects on formation of joint venture
402,571
Benefit Membership Program Zero Litigation (iii)
23,276
(8,681
(69,934
67,626
Income tax and social contribution (current and deferred)
Effective rate - %
(5.37)%
(4.46)%
(7.13)%
b) Deferred income tax assets and liabilities
Below are presented the tax effects of temporary differences that give rise to significant parts of the company's deferred tax assets and liabilities:
Deferred tax assets from:
Income tax losses
2,714,996
2,244,654
Negative base of social contribution
929,055
809,556
Temporary differences
Foreign exchange variation - Loans and borrowings
1,292,954
1,701,529
Provision for lawsuits
218,881
204,303
Impairment provision (Rumo Malha Oeste)
27,072
34,469
Post-employment benefit obligation
150,336
152,373
Provisions for uncertain tax credits and tax losses
34,511
31,880
Provision for non-recoverability of taxes
73,641
70,815
157,825
82,480
161,840
167,962
Unrealized loss with derivatives
823,286
674,554
Provisions for profit sharing
159,994
124,833
Business Combination – Intangible assets
124,379
119,060
Business combination – fixed assets
24,795
36,535
100,264
Other provisions
691,162
581,059
Deferred tax on pre-operating income
87,454
14,009
Regulatory asset (liability)
6,661
4,843
391,444
488,299
8,070,286
7,643,477
Deferred tax liabilities from:
Exchange rate variation - Loans and borrowings
(195,232
(408
Useful life review
(456,093
(401,926
(148,872
(76,263
Tax goodwill
(618,758
(359,100
Unrealized income with derivatives
(299,965
(226,243
Fair value adjustment on debt
(281,784
(548,726
(77,437
(1,150,916
(455,773
(391,382
Goods intended for sale
(10,546
Capitalized interest
(108,616
Effects on the formation of joint ventures
(103,992
(106,254
(4,426,881
(4,486,211
Post-employment obligations
(4,641
(4,594
(10,034
(11,797
Provisions
(449,153
(79,092
Other (i)
(147,120
(687,601
(7,686,689
(8,638,721
Total deferred taxes recorded
383,597
(995,244
Deferred tax assets (ii)
(5,225,433
(5,469,368
Total deferred, net
The Company determined the period for offsetting its deferred tax assets on tax losses, social contribution negative basis and temporary differences based on the projection of its taxable income and long-term strategic planning, with the following realization expected as of December 31, 2023:
Within 1 year
808,979
1,308,994
384,929
823,923
328,555
5 to 8 years
950,882
8 to 10 years
1,002,768
Deferred income tax and social contribution inactivated
As of December 31, 2023, the balance of inactivated income tax and social contribution is R$2,678,299 and refers mainly to tax losses and temporary differences of the subsidiary Rumo S.A, of the indirect subsidiaries Rumo Malha Sul and Rumo Malha Oeste, which under current conditions do not meet the requirements for the accounting of said deferred income tax and social contribution asset due to the lack of predictability of future generation of tax profits.
c) Changes in deferred tax assets and liabilities:
Assets:
Tax loss and negative basis
Unrealized gains on derivatives
2,367,707
160,082
148,338
688,972
189,890
111,590
2,024,834
5,691,413
Credited / charged from income for the year
686,503
(7,709
58,975
233,554
(21,928
7,470
299,687
1,931,106
Recognized in shareholders' equity
(13,071
Foreign exchange differences
34,029
3,054,210
207,313
922,526
2,345,479
589,841
(2,037
110,506
122,741
(6,122
148,732
5,319
(133,596
835,384
(408,575
3,644,051
317,819
1,045,267
1,803,308
Liabilities:
Fair value adjustment
(602,673
(3,492,345
(1,028,058
(350,110
(126,174
(3,219
(11,427
(843,835
(6,457,841
496,419
369,455
807,391
(51,816
(355,946
(8,578
(67,665
(1,784,407
(599,741
(5,576
(1,469
(7,045
(1,363,321
(66,606
(144,167
(1,574,094
(2,773,878
2,262
(47
59,330
(73,722
(54,167
200,336
1,763
(370,469
1,178,542
943,828
(58,402
Liabilities available for sale
(449,561
(1,653,738
Total deferred taxes recognized
They are recognized as other expenses when the Company has a present or constructive obligation as a result of previous events, it is expected that an outflow of resources will be required to settle the obligation, and the amount can be estimated with reasonable certainty.
The chance of loss evaluation is comprised of existing facts, the hierarchy of laws, case law, the most recent court decisions, the legal system's relevance, and the opinion of outside counsel. Provisions are examined and altered for conditions, such as the expiration of the statute of limitations, the conclusion of tax audits, or the identification of additional exposures based on new matters or judicial decisions.
Provisions for lawsuits stemming from business combinations are valued at fair market value.
As of December 31, 2023, and December 31, 2022, the Corporation had contingent liabilities and judicial deposits pertaining to:
Tax
813,732
747,647
Civil, environmental and regulatory
512,979
662,052
Labor
387,692
391,487
Judicial deposit
652,236
585,988
114,724
92,411
128,941
136,045
Changes in provisions for lawsuits:
Civil, environmental, and regulatory
647,610
585,034
411,417
1,644,061
Provisioned in the year
71,063
159,758
153,789
384,610
Write-offs by reversal / payment
(56,447
(238,912
(225,044
(520,403
Conversion effect
3,994
15,786
52
19,832
Interest (i)
81,427
140,386
51,273
273,086
Balance as of December 31,2022
44,812
105,526
113,151
263,489
(33,427
(258,021
(168,160
(459,608
Transfer
3,793
607
4,400
54,700
(371
50,607
104,936
Balance as of December 31,2023
The Company has debts secured by assPlease, put the word at same font sizeets or by means of cash deposits, bank guarantees or guarantee insurance.
The Company has probable indemnity lawsuits in addition to those mentioned, and as they represent contingent assets, they were not reported.
a) Probable losses
Tax:
The main tax proceedings for which the risk of loss is probable are described below:
Compensation with FINSOCIAL(i)
326,220
312,721
INSS (ii)
100,149
98,657
ICMS credit(iii)
174,860
125,723
PIS and COFINS
33,244
30,446
IPI
63,358
60,852
IRPJ and CSLL
10,698
11,676
105,203
107,572
Labor claims:
The Company and its subsidiaries are parties to labor claims filed by former employees and outsourced service providers claiming among other things, compensation and indemnities. Additionally, the Company has public civil actions filed by the Labor Prosecutor's Office regarding alleged non-compliance with labor standards, working conditions and working environment. For claims deemed to have merit, the Company has signed Conduct Adjustment Agreements with the Brazilian authorities.
b) Possible losses
The main lawsuits for which we anticipate a risk of loss as possible are outlined below:
15,703,294
16,079,589
7,166,011
6,597,105
805,222
782,080
23,674,527
23,458,774
Isolated fine - Federal tax (i)
792,496
762,613
Income tax and social contribution (ii)
6,316,155
6,297,550
ICMS -Tax on circulation of goods (iii)
2,962,716
2,987,853
IRRF (iv)
1,226,223
1,366,268
PIS and COFINS (v)
2,293,933
2,556,050
MP 470 installment of debts (vi)
381,060
388,166
Stock Grant Plan
60,863
68,846
IOF on loans (vii)
154,606
149,323
Reward Credit Compensation (viii)
143,322
138,753
IPI - Tax on industrialized products (ix)
374,471
374,274
INSS
159,007
161,037
838,442
828,856
(iv)
The Company has not identified effects of IFRIC 23 - Uncertainty over Income Tax Treatments that could significantly affect the Company’s consolidated financial statements.
Civil, environmental and regulatory:
Civil
3,184,240
3,336,284
Environmental
2,330,683
1,764,671
Regulatory
1,651,088
1,496,150
Labor:
Labor claims
The indirect subsidiary Rumo Malha Paulista is currently a party to a pending Labor Court Public Civil Action. This lawsuit originated from an inspection conducted on the Company MS Teixeira, which was subcontracted by Prumo Engenharia Ltda. ("Prumo Engenharia"), which, in turn, was subcontracted by Rumo. According to the inspection, MS Teixeira employees worked under degrading and slave-like conditions. Prumo Engenharia assumed full liability for the condition of these employees, including labor and contractual liabilities, as well as all damages resulting from the alleged subcontractors' working conditions. With the sanction by the then-Ministry of Labor and Employment, Prumo Engenharia rescinded the employment contracts of these workers, with the caveat that Rumo did not participate in these acts. In addition, a criminal investigation against Rumo was initiated and closed. Notwithstanding the above, the Public Ministry of Labor filed a public civil action (Ação Civil Pública - ACP) against Malha Paulista, without involving Prumo in the dispute, requesting the payment of compensation for collective pain and suffering in the order of R$100,000 (among other commitments), which was held partially valid, condemning the subsidiary in obligations to act and to refrain, as well as collective moral damages in the amount of R$15,000. Rumo entered into an agreement with the Public Ministry of Labor in which it agreed to comply with several obligations pertaining to working conditions and pay a total of R$20,000 in compensation to various social entities. Superior Labor Court upheld the validity of the agreement. After approval, the Attorney General's Office filed an appeal challenging only the allocation of the indemnity, arguing that the indemnity should have been allocated to the Worker Support Fund (Fundo de Amparo ao Trabalhador – FAT). The appeal awaits a decision. The outcome of the appeal will have no effect on Rumo. We consider the risk of provision as remote.
a) Share capital
Equity is reduced by the incremental costs directly attributable to the issuance of common shares. In accordance with the policy outlined in Note 15 - Income tax and social contribution, transaction costs related to income tax are accounted for in accordance with Note 15 - Income tax and social contribution.
Transactions involving group shareholders are allocated within Equity Transactions, such as share-based payments and changes in interests in subsidiaries.
On December 31, 2023, the subscribed capital is R$8,682,544 (R$8,402,544 on December 31, 2022), fully paid-up, and represented by 1,874,070,932 registered, book-entry, non-par value common shares. The limit for authorized share capital permitted by the bylaws is R$9,000,000.
On April 27, 2023, the Extraordinary General Meeting approved the increase in the Company's share capital, in the amount of R$280,000, distribution of dividends of R$628,979, allocations of the legal reserve of R$58,802 and statutory reserve in the amount of R$488,252.
As of December 31, 2023, the Company's share capital consists of the following
Ordinary actions
Shareholding structure
35.87%
Board of directors and executive officers
25,745,154
1.37%
Free float
1,169,498,325
62.41%
Outstanding shares
99.65%
6,514,511
0.35%
b) Treasury shares
Treasury shares consists of shares that have been repurchased by the company for specific and limited purposes. Cosan holds the necessary number of shares for future employee share-based payment plans, and the volume is treated similarly to treasury shares for accounting purposes.
On August 14, 2023, the Company's Board of Directors approved the new Share Buyback Program of up to 116,000,000 common shares, representing 9.93% of the total shares available on the market, with a term of up to 18 months. The repurchased shares may be used to meet obligations arising from potential exercises of share-based compensation plans, holding in treasury, disposal or cancellations in accordance with applicable legislation.
As of December 31, 2023, the Company had 6,514,511 shares in treasury (7,432,832 shares as of December 31, 2022), whose market price was R$19.36.
c) Statutory reserve - special reserve
Its purpose is to strengthen working capital and finance the maintenance, expansion, and development of the company's core activities.
d) Legal reserve
In accordance with Law 6,404, it is created by appropriating 5% of net income for the year up to a maximum of 20% of capital.
e) Dividends
In accordance with corporate law, a mandatory minimum dividend equal to 25% of the company's annual net profit is allocated, adjusted for changes in the reserves. The next Ordinary General Meeting will discuss dividends, allocation of net income for the year, and excess of profit reserves, as determined by article 199 of the Corporate Law.
i. Receivable
Investments in associates (i)
Investments in joint venture
2,621
517,344
519,965
Proposed dividends
278,654
549,883
828,537
Proposed interest on own capital
107,544
202,968
Dividends received
(278,127
(1,174,771
(1,452,898
273,346
626,653
899,999
588,078
(88,256
(62,699
Other movements
(81,053
(254,905
(906,534
(1,161,439
219,941
Movement of dividends payable
Net income for the year
Calculation basis for distribution of dividends
Mandatory minimum dividends – 25%
Statutory reserve
820,793
Changes in dividends payable:
799,634
Dividends for the year
1,237,779
(1,145,407
Declared dividends (i)
2,239,495
f) Other comprehensive income
Comprehensive (loss) income
(1,917,194
(2,042,427
1,013,910
841,409
Actuarial loss on defined benefit plan
(186,244
(257,794
Deferred tax on actuarial losses of defined benefit plan
63,323
87,650
Loss on measurement of derivative financial instrument
15,000
Change in the fair value of a financial asset
39,726
Deferred income tax on financial asset
(13,507
396,812
(344,957
51,855
Attributable to:
(170,734
(262,470
(1,917,917
96,362
Actuarial loss of defined benefit plan
(266,574
90,635
5,794
33,932
(1,970
(11,537
(596,872
993,684
75,263
a) Basic earnings per share
Basic earnings per share is calculated by dividing:
i. the profit attributable to the company's owners, excluding equity servicing costs other than common stock;
ii. and the weighted average number of outstanding common shares during the year, adjusted for bonuses paid with common shares issued during the year and, if applicable, excluding treasury shares.
b) Diluted earnings per share
Diluted earnings per share adjusts the values used in determining basic earnings per share to account for:
i. the after-tax effect on interest income and other financing costs related to potentially dilutive common stock;
ii. the weighted average number of additional shares of common stock that would be outstanding if all potentially dilutive shares of common stock were converted;
iii. and the weighted average number of additional shares of common stock that would be outstanding if all potentially dilutive shares of common stock were converted.
Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Earnings per share after potentially dilutive instruments is computed by adjusting earnings and the number of shares for the impact of potentially dilutive instruments.
The following table presents the calculation of earnings per share (in thousands of reais, except for amounts per share):
Basic and diluted - Continued operation
Income attributable to holders of common shares of Company used in calculating basic earnings per share
1,078,737
1,158,852
Diluting effect of the share-based plan of subsidiaries
(814
(1,739
(5,249
Company used in the calculation of diluted earnings per share
1,077,923
1,157,113
6,306,891
Weighted average number of common shares outstanding - basic (in thousands of shares)
1,867,005
1,869,077
1,834,533
Dilutive effect of the share-based plan
7,341
5,503
4,687
1,874,346
1,874,580
1,839,220
Earnings per share
Basic and diluted - Discontinued operation
Net income attributable to holders of common shares of Company used in calculating basic earnings per share
15,654
Diluting instruments
The Company and its subsidiaries have two categories of possible dilutive effects: stock grants and put options. For stock grants, a calculation is performed to determine the impact of dilution on the profit attributable to the Parent Company's shareholders as a result of the exercise of stock grants in subsidiaryies. It is assumed that the put option was converted into common stock, and the profit attributable to the Parent Company's shareholders is adjusted accordingly.
Anti-dilution instruments
In the year ended December 31, 2023, 12,269,677 (61,540,876 as of December 31, 2022 and 45,765,000 as of December 31, 2021) shares related to the Company's stock option plan were considered in the earnings per share analysis, but did not affect calculations, as they increase earnings per share.
The Company recognizes revenue primarily from the following sources:
i. Sale of products
The Company operates in the production and distribution of lubricants including the brands Mobil and Comma. Products are sold in contracts identified with individual customers and in sets, as a package of goods or services.
The Company recognizes sales revenues upon delivery to the customer as long as revenue and costs can be measured reliably, receipt of the consideration is probable and there is no continuous involvement of management with the products. Delivery is considered to be the moment when the customer accepts the goods, and the risks and benefits related to the property are transferred.
Some lubricant sales contracts cannot be purchased separately from a package of services. However, the goods and services are clearly distinct in the contracts. This sales modality represents two separate performance obligations and therefore revenue is recognized for each of these performance obligations when control of the respective goods and services is transferred to the customer. The transaction price is allocated to different performance obligations based on the independent selling price, in which revenues are identified, measured and recorded separately. Trade incentives, including cash incentives, discounts and volume rebates, and free or discounted goods or services, are accounted for as a reduction of revenue.
Discounts, rebates, credits, price concessions, performance bonuses and similar incentives are treated as variable consideration and included in the transaction price at the company’s best estimate and is included in revenue to the extent that it is highly probable that there will be no significant reversal of the cumulative amount of revenue when any pricing uncertainty is resolved.
ii. Billed revenue
The Company provides gas distribution services through its natural gas distribution concessions The fair value and selling prices of individual services are broadly similar.
Gas distribution revenue is recognized when its value can be measured reliably, being recognized in profit or loss in the same period in which the volumes are delivered to customers based on the monthly measurements made.
iii. Unbilled revenue
Unbilled gas revenue refers to the amount of gas delivered that has not yet been metered and billed to customers. This estimate is based on the period between the last measurement date and the last day of the month.
Actual volume billed may vary from estimates. The Company believes, based on past experience with similar operations, that the estimated amount of unbilled services will not differ significantly from the actual amount.
iv. Concession construction revenue
The construction of the necessary infrastructure for gas distribution is regarded as a construction service provided to the Granting Authority, and revenue is recognized over time using the incurred cost method. The costs are deducted from income when they are incurred.
Advances received are accounted for as contractual liabilities.
v. Services rendered
Revenue is recognized over time as services are provided. The stage of completion to determine the amount of revenue to be recognized is evaluated based on assessments of progress of work performed.
If services under a single contract occur in different periods, consideration is allocated based on their individual sales prices. The individual selling price is determined on the basis of the list prices at which the Company sells the services in separate transactions.
vi. Electricity trading
The Company recognizes revenue from electricity supply to customers and wholesalers at fair value of the related consideration, for delivery of electricity in a given period. The volume of electric energy delivered to buyer is determined on a monthly basis. Customers obtain control of electricity from the moment they consume it. Invoices are issued monthly and are usually paid within 30 days from their issue date.
Revenue from energy trading is recorded based on bilateral contracts signed with market agents and duly registered with the Electric Energy Trading Chamber (Câmara de Comercialização de Energia Elétrica), or “CCEE.”
Revenue is recognized based on the energy sold and the prices specified in the terms of the supply and supply agreements. The subsidiary Edge Comercialização will be able to sell the generated energy in two environments: (i) in the Free Contracting Environment (Ambiente de Contratação Livre – ACL), where the commercialization of electric energy takes place through the free negotiation of prices and conditions between the parties, via bilateral contracts; and (ii) in the Regulated Contracting Environment (Ambiente de Contratação Regulada – ACR), where electricity is sold to distribution agents.
a. Short-term market
When transactions on the short-term market occur, the Company records revenue at the fair value of the consideration to be received. The energy cost for these operations is tied to the Differences Settlement Price (Preço de Liquidação de Diferenças – PLD).
b. Energy trading operations
Energy trading operations are carried out in an active market and, for accounting measurement purposes, they meet the definition of financial instruments at fair value. The Compass Trading recognizes revenue when the energy is delivered to customers at fair value of the consideration. In addition, unrealized net gains resulting from mark-to-market - difference between contracted and market prices - from open net contracted operations on the date of the consolidated financial statements are recognized in revenue.
vii. Logistics services provided
Revenues from the provision of services are recognized when the entity transfers to the counterpart the significant risks and benefits inherent to the provision of services, when it is probable that the economic benefits associated with the transaction will flow to the Company, as well as when its related value and incurred costs can be reliably measured.
Service prices are fixed based on service orders or contracts. The Company’s revenue is basically comprised of rail freight, road freight, container transport and port elevation services, which is why the above criteria are normally met to the extent that the logistics service is provided.
viii. Lease revenues
Rental income mainly corresponds to land leased by Radar and is recognized on a straight-line basis over the term of each contract, to the extent that the contracts transfer to customers the right to use the assets for a period in exchange for consideration, which can be measured reliably.
ix. Sale of investment properties
Revenue comprises the fair value of the consideration received or receivable for the disposal of investment properties in the ordinary course of the subsidiary's activities. Revenues are presented net of taxes, returns, rebates and discounts, and in the consolidated financial statements after eliminating sales within the subsidiary. Revenue is recognized when the subsidiary fulfills all obligations and promises identified in the contract for the transfer of goods to the customer.
Gross revenue from the sale of products and services
45,298,287
45,977,407
30,545,908
1,020,176
Indirect taxes and other deductions
(7,323,932
(7,872,439
(5,472,930
In the following table, revenue is disaggregated by products and service lines and timing of revenue recognition:
At a point in time
15,737,450
17,854,412
10,675,465
Lubricants, base oil and other
9,285,675
8,690,659
5,546,093
Lease and sale of property
238,544
620,495
538,445
418,847
277,571
26,304,981
28,037,078
17,119,624
Over time
Railroad transportation services
10,379,017
9,503,965
7,103,706
1,494,141
335,965
Container operations
558,699
337,543
Other services
792,951
289,418
566,364
13,224,808
11,348,744
9,026,211
Eliminations
(52,681
Total net sales
39,222,786
The Company and its subsidiaries account for natural gas distribution concession contracts using the intangible asset model in accordance with IFRIC 12 and IAS 38 and classify the amortization of the concession contract as cost of sales.
Expenses are presented in the statement of profit or loss and other comprehensive income by function. The income reconciliation by nature/purpose is as follows:
Raw materials
(7,291,453
(6,588,465
(4,631,436
Commodity cost (natural gas)
(11,919,415
(13,892,505
(7,439,698
Electricity purchased for resale
(260,891
(968,503
Railroad transport and port elevation expenses
(2,696,333
(3,074,624
(2,128,043
Other transport
(523,747
(137,255
(25,143
(3,364,943
(3,014,480
(2,504,384
Personnel expenses
(2,893,919
(2,498,912
(1,997,881
Construction cost
(1,494,141
(1,217,818
(1,020,176
Expenses with third-party services
(952,294
(888,195
(751,486
(37,451
(23,505
(23,638
Cost of properties sold (Note 10.5)
(1,101,274
(1,444,083
(897,789
(32,428,440
(33,591,165
(22,388,177
Gain from bargain purchase
99,341
416,268
Tax credits
43,835
114,812
287,049
Change in fair value of investment properties – Note 11.5
17,116
Gain (loss) on disposal of non-current assets and intangibles(i)
(17,016
975,042
7,295
Net effect of provisions for legal proceedings
(204,158
(370,765
(263,945
Settlement of disputes in the renewal process
(90,022
9,242
Outcome of judicial settlement
(396,818
Dividends received from Vale S.A – Note 1.1 (f)
Realization of deferred income – Note 2
923,214
Other income
160,604
(581,366
108,941
(90,425
Financial income consists of interest income on invested funds, dividends, gains in the fair value of financial assets measured at fair value through profit or loss, gains on remeasurement of any pre-existing interest in an acquisition in a business combination, gains on hedging instruments recognized in the results, and reclassifications of net gains previously recognized in other comprehensive income. Using the effective interest rate method, interest income is recorded as it is recognized in the results. Dividend income is recognized in the results on the date that the Company's right to receive payment is established, which is typically the ex-dividend date for listed securities.
Finance expenses consist of interest expenses on borrowings, settlement of discount provisions and deferrals, losses on the disposal of available-for-sale financial assets, dividends on preferred shares categorized as liabilities, losses on the fair value of financial assets at fair value through profit or loss contingent consideration and loss, impairment losses recognized in financial assets (other than accounts receivable), losses on hedging instruments that are recognized in income (loss) and reclassifications of net losses previously recognized in other comprehensive income.
The effective interest rate method is used to account for borrowing costs that are not directly attributable to the acquisition, construction, or production of an eligible asset.
Foreign exchange gains and losses on financial assets and liabilities are reported net as financial income or finance expense, based on whether net foreign currency fluctuations result in a gain or loss.
The details of financial income and expenses are as follows:
Interest on debt (i)
(4,267,829
(4,464,754
(3,162,853
Monetary and exchange rate variation (i)
1,921,632
549,682
(1,069,157
Derivatives and fair value measurement (ii) (iii)
(2,684,111
(4,203,149
2,193,855
(64,588
(244,344
(341,034
(38,773
(41,505
(52,082
(5,133,669
(8,404,070
(2,431,271
2,057,369
1,788,477
600,894
Changes in fair value of investments in listed entities (iv)
(3,147,031
3,385,047
(1,089,662
5,173,524
(6,223,331
(3,230,546
(1,830,377
450,478
355,634
411,394
1,777
(1,405
(372
Monetary variation on leases and concessions agreements
(514,236
(417,703
(424,946
Interest on leases
(444,850
(374,177
(407,972
Interest on shareholders' equity
(46,212
33,134
(8,288
(781,087
(593,144
(315,620
(97,845
(36,670
(107,747
(145,200
(96,983
(133,974
(747,859
115,607
(1,673,696
(1,927,390
(727,180
Financial result, net
Finance expenses
Financial income
Exchange variation, net
The cost of defined benefit pension plans and other post-employment and the present value of the pension obligation is determined using actuarial valuations. An actuarial valuation involves the use of various assumptions which may differ from actual results in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. A defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed by management at each reporting date.
A defined contribution plan is a post-employment benefit plan in which the Company pays fixed contributions to a separate entity and has no legal or constructive obligation to pay additional amounts. Obligations for contributions to defined contribution plans are recorded as an employee benefit expense in the financial results during the periods in which the related services are rendered by employees. Contributions to a defined contribution plan that are due more than 12 months after the end of the service period are discounted to their present value.
The Company sponsors a defined contribution private pension plan named Plano de Aposentadoria FuturaFlex (for the employees of Compass, Comgás and Commit), managed by FuturaMais – Complementary Pension Fund Entity (Entidade de Previdência Complementar) (formerly named RaizPrev – Private Pension Fund Entity (Entidade de Previdência Privada), which merged Futura II –Entidade de Previdência Complementar). The Entity has administrative, asset and financial autonomy, and has as object the management and execution of social security benefit plans, as defined in the Regulation of Benefit Pension Plans.
A variable contribution plan is also known as a mixed plan that brings together aspects of the BD – defined benefit and the DC – defined contribution.
The other companies of the Group sponsor a supplementary pension plan structured in the Variable Contribution modality, called the Future Retirement Plan II, also managed by FuturaMais – Complementary Pension Fund Entity (formerly called RaizPrev – Private Pension Entity, which incorporated Futura II – Complementary Pension Entity). It brings together the characteristics of the Defined Contribution for scheduled benefits (normal and early retirement) and the Defined Benefit for risk benefits (sickness benefit, disability, savings and death pension).
The defined benefit plan is a plan in which the participants have the due benefit established by means of regulatory provisions. The cost is determined through actuarial evaluations, which are conducted at least annually based on assumptions.
The Pension Plan, managed by Futura – Entidade de Previdência Complementar, is sponsored by Cosan Lubrificantes e Especialidades S.A., and is closed since 2011.
According to the regulation, which leads the Company to adopt such a provision in the present value of benefits and that assisted participants receive annuity according to the plan. The main actuarial risks are:
a) life expectancy longer than specified in the mortality table;
b) the return on equity under the actuarial discount rate plus the accrued IGP-DI; and
c) real family structure of different hypotheses of established retirement.
The Subsidiary Comgás offers the following post-employment health care benefits, granted to former employees and their dependents who retired up to May 31, 2000. After this date, only employees with 20 years contribution to Social Security (Instituto Nacional do Seguro Social), or “INSS,” and 15 years uninterrupted work at the Company up to May 31, 2000, are entitled to this defined benefit plan, provided that, on the date of retirement, they were working at the Company.
The liability recognized in the statement of financial position in respect of defined benefit post-employment plans is calculated annually by independent actuaries.
The amount recognized in the statement of financial position in relation to health plan liabilities represents the present value of the obligations less the fair value of the assets, including actuarial gains and losses. Remeasurement of the net obligation, which include: actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset cap (if any, excluding interest), are recognized immediately in other comprehensive income. Net interest and other expenses related to defined benefit plans are recognized in profit or loss.
Actuarial gains and losses based on experience adjustments and changes in actuarial assumptions are recognized directly in equity as other comprehensive income, when incurred.
Defined contribution
Futura II
333
Defined benefit
Futura
175,150
127,351
Health Insurance
442,164
448,157
617,314
575,508
a) Defined contribution
During the year ended December 31, 2023, the amount of employee contributions was R$103 (R$303 and R$217 as of December 31, 2022 and 2021 respectively).
b) Defined benefit
Futura: The subsidiary CLE sponsors Futura - Entidade de Previdência Complementar ("Futura"), formerly known as Previd Exxon - Entidade de Previdência Complementar, whose primary objective is to provide supplemental benefits within certain limits established by the Retirement Plan regulations. On 5 May 2011, the competent authorities authorized a modification to this plan to exclude new participants. The contributions totaled R$13,199 for the year ending December 31, 2023 (R$60,827 and R$5,166 for the years ended on December 31, 2022 and 2021 respectively). The obligation's weighted average duration is 8.9 years (8.7 years as of December 31, 2022).
c) Health insurance
Comgás: Obligations related to post-employment benefit plans, which include medical assistance and retirement incentives, sick pay and disability pension.
The defined benefit pension plan is governed by Brazilian labor laws, which mandate that final salary payments during retirement be adjusted for the consumer price index at the time of payment. The level of benefits provided is dependent on the member's length of service and final salary. During the year ended December 31, 2023, the contributions amounted to R$27,088 (R$27,118 and R$25,169 for the years ended December 31, 2022 and 2021 respectively). The weighted average duration of the obligation is 10.9 years (10.6 years in 2022).
Details of the present value of the defined benefit obligation and the fair value of plan assets are as follows:
Actuarial obligation at beginning of the year
1,097,982
1,161,693
1,249,156
Current service cost
157
219
487
Cost of past services
319
Interest on actuarial obligation
107,057
98,343
88,299
Early settlement in the plan
(3,081
Actuarial (gain) loss arising from financial assumptions
62,807
(88,709
(183,159
Actuarial loss (gain) arising from experience adjustment
(62,889
14,319
77,111
Actuarial gains arising from demographic assumptions
22,116
Benefit payments
(85,389
(85,121
(70,201
Actuarial obligation at the end of the year
1,141,841
Fair value of plan assets at the beginning of the year
(522,474
(492,408
(520,608
Interest income
(49,720
(42,224
(35,809
Return on investments in the year (excluding interest income)
2,443
11,405
24,143
3,698
Employer contributions
(40,278
(87,945
(30,336
85,502
85,000
70,202
Fair value of plan assets at the end of the year
(524,527
Net defined benefit liability
669,285
The total expense recognized in the financial results is as follows:
(157
(219
(487
(57,337
(56,119
(52,490
(57,494
(56,338
(52,977
Total amount recognized as accumulated other comprehensive income:
Accumulated at the beginning of the year
204,788
141,803
59,904
Actuarial gain (loss) arising from financial assumptions
(62,807
88,709
183,156
Actuarial (loss) gain arising from experience adjustment
62,889
(14,319
(77,112
Actuarial loss arising from demographic assumptions
(22,116
(2,443
(11,405
(24,145
Accumulated at the end of the year
180,311
The plan's assets consist of the following:
Value
Fixed income
523,743
496,950
95.28%
24,618
4.72%
521,568
Plan assets consist of financial assets quoted on active markets and are therefore classified as Levels 1 and 2 in the fair value hierarchy. The expected rate of return on plan assets is determined based on market expectations applicable to the period during which the obligation is to be settled at the time the rate is determined.
The following are the primary assumptions used to determine the Company's and its subsidiaries' benefit obligations:
Health insurance
9.29%
10.03%
10.12% p.a.
Inflation rate
4.50% p.a.
Future salary increases
N/A
Morbidity (aging factor)
3.00%
Future pension increases
3.00% p.a.
Overall mortality (segregated by sex)
AT-2000(smoothed in 10%)
AT-2000
Disability mortality
IAPB-1957
Entry into disability (modified)
UP-84 modified
Turnover
0.60/ (service time +1)
Sensitivity analysis
Changes in the discount rate to the date of the financial position is one of the relevant actuarial assumptions, while other assumptions are maintained, as it impacts the defined benefit obligation as shown below:
Increase 0.50%
Reduction (0.50)%
672,044
727,827
(23,123
20,998
There have been no changes regarding the biometric and demographic assumptions compared to previous years and the methods adopted in preparing the sensitivity analysis.
The fair value of share-based payment benefits at the grant date is recognized, as personnel expenses, with a corresponding increase in equity, for the period in which employees unconditionally acquire the right to the benefits and ratably over the vesting period.
The amount recognized as an expense is adjusted to reflect the number of shares for which there is an expectation that the service conditions and non-market acquisition conditions will be met, such that the amount ultimately recognized as an expense is based on the number of shares that actually meet the service conditions and non-market acquisition conditions on the date the payment rights are acquired (vesting date). For share-based payment benefits with a non-vesting condition, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no modification for differences between expected and actual benefits.
The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities during the period in which employees unconditionally acquire the right to payment. Liabilities are remeasured at each financial position date and settlement date, based on the fair value of share appreciation rights. Any changes in the fair value of the liability are recognized in profit or loss as personnel expenses.
The Company and its subsidiaries have Share-Based Compensation Plans that are payable in shares and cash. As of December 31, 2023, the Group has the following share-based payment arrangements:
Plans before 2022
Grants made in 2023
In the year ended of December 31, 2023, the following Grant Program was established:
Cosan Partners 2023.
Grants January 30, 2023.
The incentive program is conditioned on length of service (service condition) and performance targets (performance conditions). Of the program's total shares, 60% are related to length of service for a period of 3 years, with shares being granted annually. The remainder, equivalent to 40% of the program, are related to performance goals, requiring the achievement of specific metrics that can vary between 0% and 110% (to calculate the fair value, reaching 100% was considered). Stocks stay in lock-up for a year.
Grant March 28, 2023.
The incentive program is conditioned on length of service (service condition) and performance targets (performance conditions). Of the program's total shares, 49% are related to length of service for a period of 3 years, with shares being granted annually. The remainder, equivalent to 51% of the program, are related to performance goals, requiring the achievement of specific metrics that can vary between 0% and 110%. (to calculate the fair value was considered the achievement of 100%). Shares are in lock-up for one year.
The total value of shares granted in the two plans is 12,472,325.
Cosan Invest.
Grant July 31, 2023.
The incentive program is conditioned on length of service (service condition) and performance targets (performance conditions). Of the program's total shares, 41% are related to length of service for a period of 3 years, with shares being granted annually. The remainder, equivalent to 59% of the program, are related to performance goals, requiring the achievement of specific metrics that can vary between 50% and 150%.
Invest Cosan III - Partners
Grant December 01, 2023.
The incentive program in the matching model is conditioned on service time (service condition) and the investment made by the beneficiary with own resources, which must be maintained in shares during the grace period. Of the total actions of the program 50% are related to service time of 3 years and the rest, equivalent to 50% of the program, related to service time of 5 years.
Rumo Invest.
Grant September 1, 2023.
Option programs, without lock-up, with delivery of the shares at the end of the three-year grace period, conditioned on i) part of the options to the maintenance of the employment relationship (service condition) and ii) part to the achievement of each of the metrics that make up the performance goals, and the number of performance options granted may vary between 0% and 200% depending on performance.
SOP Moove.
Grant July 1, 2023.
The incentive program is conditioned on length of service (service condition) and linked to the occurrence of a liquidity event defined in the program (performance conditions). The options granted to participants may only be exercised after they become vested options, and the maximum period for exercising the Options will be 6 (six) years from the date of grant. The exercise price of the options covered by this Program is R$50.05 for Model A options, R$106.28 for Model B options and R$135.05 for Models C and D options (“Exercise Price”) and must be paid in cash, simultaneously with the formalization of the subscription or purchase. To measure fair value, the binomial model is used with premises such as price of the base asset, distribution of dividends (0% dividend yield), exercise price according to each Model within the program, expected average exit rate, risk-free rate, volatility and effect of lock-up linked to the exercise of options.
Award Type / Award Date
Life expectancy (months)
Grants under plans
Exercised / Canceled / Transferred
Available
Fair value as of grant date - R$
Share grant program
07/31/2018
60
842,408
(842,408
9.65
07/31/2019
229,020
(41,714
187,306
13.44
07/31/2020
68,972
62,268
20.93
07/31/2021 - Invest I
36
424,839
(25,722
399,117
24.38
09/10/2021 - Invest II
48
5,283,275
(1,981,231
3,302,044
22.24
10/11/2021 - Invest III
806,752
23.20
07/31/2022 - Invest I
846,506
(11,208
835,298
18.74
11/22/2022 - Invests Partners
377,173
17.14
01/30/2023 - Invest Partners
12,472,325
15.26
07/31/2023 - Invest Cosan I - Regular
1,047,845
17.53
12/01/2023 - Invest Cosan III - Associates
546,734
17.68
22,945,849
(2,908,987
20,036,862
83,683
(83,683
79.00
07/01/2023 - Program SOP A
72
699,276
142.62
07/01/2023 - Program SOP B
279,710
88.32
07/01/2023 - Program SOP C
223,768
76.54
07/01/2023 - Program SOP D
139,855
71.45
1,342,609
08/01/2018
1,149,544
(1,149,544
13.94
08/15/2019
843,152
(267,977
575,175
22.17
11/11/2020
776,142
(249,747
526,395
20.01
05/05/2021
1,481,000
(977,523
503,477
20.84
09/15/2021
1,560,393
(191,959
1,368,434
18.19
09/01/2022
1,781,640
(53,959
1,727,681
20.36
146,909
(146,909
09/01/2023
1,724,867
21.86
9,463,647
(3,037,618
6,426,029
Share-based compensation plan (settled in cash)
07/31/2019 - Invest I
132,670
(26,285
106,385
50.79
07/31/2020 - Invest II
106,952
(17,695
89,257
61.89
07/31/2021 - Invest III
80,729
(13,628
67,101
102.73
07/31/2022 - Invest IV
77,967
(3,779
74,188
135.05
07/31/2023 - Invest V
82,204
(233
81,971
150.98
08/01/2021
29,492
(29,492
25.46
Edge Comercialização
35,075
(6,001
29,074
170,647
37,572
11/01/2021
32
192,405
1,646,411
(17,873
1,628,538
02/01/2022
90,087
25.59
08/01/2022
837,439
30,651
(6,460
24,191
TRSP
31,675
08/01/2023
242,802
34.12
25,716
22,950
3,873,444
(121,446
3,751,998
37,709,232
(6,151,734
31,557,498
a) Reconciliation of outstanding share options
The change in outstanding share options is as follows:
Parent company
7,801,240
15,592,511
Granted
1,223,679
5,156,829
Exercised/cancels/other
(1,597,962
(2,872,832
7,426,957
17,876,508
14,066,904
16,868,466
(1,456,999
(3,187,476
b) Fair value measurement
The weighted average fair value of the programs granted during December 31, 2023 and 2022 and the main assumptions used in applying the Black-Scholes and Binominal model were as follows:
Average market price on the grant date
Interest rate
Volatility
Cosan S.A
16.82
6.82%
36.50%
42.21
29.20
Rumo (i)
21.87
25.84%
20.56
27.70%
Moove (ii)
105.98
4.05%
42.85%
c) Expenses recognized in profit or loss
Share-based compensation expenses included in the profit or loss for the years ended December 31, 2023, 2022 and 2021 were R$207,713, R$99,098 and R$84,052 respectively.
COSAN CORPORATE
ISSUANCE OF SENIOR NOTES 2031
On January 26, 2024, the Company issued a senior Notes offering for a total volume of US$600,000 equivalent to R$2,947,500, through its wholly owned subsidiary Cosan Luxembourg S.A ("Cosan Luxembourg"). The issuance of senior Notes occurred with an annual interest rate of US$ + 7.25%, maturing in June 2031 and semi-annual interest payments.
On February 16, 2024, the Company committed the remaining funds from Senior Notes 2031, through the issuance of debt modality Resolution 4131 (“4131”) by Cosan S.A. On February 16, 2024, the Company committed the remaining funds from Senior Notes 2031, through the issuance of debt modality Resolution 4131 (“4131”) by Cosan S.A
DISTRIBUTION OF DIVIDENDS FROM VALE
The Board of Directors of Vale approved on February 22, 2024 the remuneration of shareholders in the amount of R$11,721,894. The declared amount corresponds in full to dividends in the total amount of R$2.738548374 per share. The payment occurred on March 19, 2024 and the amount received by the subsidiary Cosan Oito was R$577,469.
SALE SHARES VALE S.A AND UNWIND OF DEBTS AND COLLAR FINANCING
On April 19, 2024, the Company sold a further 33.525 million shares equivalent to 0.74% of the total shares in the Collar Financing structure, together with the early settlement of the remaining balance of the debt. With this last advance payment, the company settled 100% of the debts linked to collar operation and derivatives, and now only holds a direct stake in Vale. After the sale, Cosan's direct stake in Vale's total shares became 3.91% and 4.14% of the voting capital, i.e. excluding treasury shares.
UNWIND CALL SPREAD - OPERATION VALE S.A
On May 8, 2024, the Company settled the 2024 tranche of the call spread structure, in which it obtained a cash inflow gain of R$14,499 and now holds the optionality of 1.35%, against the 1.60% held until then.
CAPITAL REDUCTION OF COSAN OITO S.A.
On May 23, 2024, the Ordinary and Extraordinary General Meeting (AGOE) approved the capital reduction of the subsidiary Cosan Oito S.A. in the amount of R$750,000, without the cancellation of shares or changes in the Company’s ownership structure. After observing the 60-day period for creditor opposition, the transaction was completed on July 24, 2024, with the full amount returned to the Company.
DISTRIBUTION OF INTEREST ON EQUITY OF VALE S.A.
On July 25, 2024, Vale's Board of Directors approved the distribution of interest on equity ("JCP") in the amount of R$8,940,158. The amount declared corresponds entirely to dividends in the total amount of R$2.093798142 per share. Payment took place in September 2024 in the amount of R$315,622, net of withholding taxes.
ISSUE OF DEBENTURES
On June 28, 2024, Cosan issued debentures, not convertible into shares, of the unsecured type, in the total amount of R$1,450,000, divided into two series. The first series bears interest at CDI plus 1.0% per year, matures in June 2029, pays interest every six months and amortizes the principal in June 2028 and June 2029. The second series bears interest at CDI plus 1.5% per year, maturing in June 2034, with half-yearly interest payments and principal repayments in June 2032, June 2033 and June 2034.
APPROVAL TO CANCEL TREASURY SHARES
On August 9, 2024, the Board of Directors approved the cancellation of 7,500,000 treasury shares by Cosan S.A., with no date has yet been set.
ELEVENTH ISSUE OF COSAN DEBENTURES
On October 18, 2024, the Board of Directors of Cosan S.A. approved the public offering of the 11th issue of simple debentures, under a firm placement guarantee, not convertible into shares, of the unsecured type, in three series, in the total amount of R$ 2,500,000, whose disbursement was on November 8, 2024.
The first series has an amount of R$ 1,500,000, with a DI rate plus a spread of 0.50% p.a. and principal maturing on January 8, 2028, the second series has an amount of R$ 500,000, with a DI rate plus a spread of 0.72% p.a. and principal maturing on January 8, 2030, while the third series is R$ 500,000, with a DI rate plus a spread of 1.30% p.a. and principal maturing on January 8, 2035. The three series will have interest payments every six months and the funds raised will be used to manage the company's indebtedness.
CHANGES TO COSAN'S EXECUTIVE BOARD
As of November 1, 2024, Mr. Nelson Roseira Gomes Neto stepped down the position of chief executive office of Cosan and became the chief executive office of Raízen. On the same date, Mr. Marcelo Eduardo Martins stepped down as Chief Strategy Officer and became the new chief executive office of Cosan.
COMPASS
TENTH EMISSION OF COMGÁS DEBENTURES
On February 29, 2024, the Board of Directors of the indirect subsidiary Comgás approved the public offer of the 10th issue of simple debentures, under a firm guarantee of placement, not convertible into shares, of the chirographer species, in a single series. The issue will be in the total amount of R$1,500,000, with incidence of half-yearly interest at a rate equal to DI plus a spread of 0.80% p.a. and with maturity of the principal on March 15, 2029, with amortization on the due date. The net proceeds obtained from the Issuance will be allocated to the ordinary management of the business of the indirect subsidiary Comgás.
THIRD ISSUE OF COMPASS DEBENTURES
On March 15, 2024, the subsidiary Compass Gás e Energia S.A. (“Compass”) raised its 3rd issue of simple, non-convertible debentures, in the amount of R$1,500,000, with remuneration of CDI + 1.08% p.a., semi-annual interest and principal maturing on March 15, 2029. The funds obtained from the issue will be used for general purposes and to reinforce working capital.
COMPASS DIVIDEND RESOLUTION
On March 27, 2024, the Board of Directors of the indirect subsidiary Compass Gas and Energy approved the distribution of dividends in the amount of R$1,500,000. The payment occurred on April 12, 2024 and the amount received by the subsidiary Cosan Dez was R$1,320,000.
COMPASS AND TRSP TRADE NOTES
On March 20, 2024, Compass and its subsidiary TRSP signed the 1st Issuance of Commercial Notes in the amount of R$200,000, with its maturity in March 2026 and remuneration at 100% CDI + 1.7% p.a.. The contract was signed through the depositary Laqus Depositary of Securities S.A. following the market conditions for the respective transaction.
LOAN AGREEMENT OF EDGE COMERCIALIZAÇÃO
On March 21, 2024, the subsidiary "Edge Comercialização" S.A, signed a loan agreement “Uncommitted Term Loan Facility Agreement - Loan Agreement” with the bank BNP Paribas S.A., for funding in accordance with the terms of Law No. 4,131. On March 22, 2024, the Company completed funding in the amount of EUR 78 million with maturity in March 2025 and an interest rate of 4.879% per year.
START OF TRSP OPERATIONS
The second quarter of 2024 was marked by the start of operations of TRSP, whose operating and service model includes strategic infrastructure and logistics assets for liquefied natural gas (“LNG”).
The start of operations was mainly due to the completion of the LNG regasification terminal, located in Santos/SP. As shown in note 16, this asset was transferred from “work in progress” to the relevant asset classes.
The terminal has the capacity to regasify approximately 14 million m3 of LNG per day. From April to June 2024, during the commissioning period, it regasified approximately 125 million m³ of LNG.
ACQUISITION OF SHAREHOLDINGS AND CONTROL OF COMPANHIA PARANAENSE DE GÁS - COMPAGAS
As disclosed to the market in a Material Fact on July 10, 2024, the indirect subsidiary Compass Dois LTDA ("Compass Dois") entered into a Share Purchase Agreement to acquire a 51% stake and, consequently, control of Companhia Paranaense de Gás ("Compagas").
Compagas is the distributor of piped natural gas in the state of Paraná and operates this service exclusively under a concession contract valid until June 2054. Its distribution network totals approximately 880 km of pipelines, serving more than 54,000 customers in 16 municipalities, with a distributed volume of 821,000 m3/day of natural gas.
On September 16, 2024, the indirect subsidiary Compass Dois Ltda. (“Compass Dois”) completed the acquisition of a 51% stake in Companhia Paranaense de Gás - COMPAGAS (“Compagas”) for the amount of R$962,125, and consequently took control.
ELEVENTH ISSUE OF COMGÁS DEBENTURES
On July 16, 2024, the Board of Directors of the indirect subsidiary Comgás approved the public offering of the 11th issue of simple debentures, under a firm placement guarantee, not convertible into shares, of the unsecured type, in two series. The issue will be in the total amount of R$1,500,000, bearing interest every six months and at a rate corresponding to (i) the internal rate of return of the IPCA+ Treasury with Semiannual Interest (NTN-B), maturing on July 15, 2034, for the debentures of the 1st series; and (ii) the rate corresponding to the internal rate of return of the IPCA+ Treasury with Semiannual Interest (NTN-B), maturing on July 15, 2039, plus a spread of 0.10% p.a., for the 2nd series debentures. The debentures have a term of 10 years (1st series) and 15 years (2nd series) and the net proceeds from the Issue will be used for "Comgás investment projects". Derivative financial instruments (interest rate swaps) were contracted for both series, with the 1st Series at a rate of 99.05% of the CDI and the 2nd Series at a rate of 99.95% of the CDI.
COMPASS AND TRSP COMMERCIAL NOTES
On July 25, 2024, the indirect subsidiary TRSP raised R$750,000 through Commercial Notes subscribed by Compass Gás e Energia, with bullet remuneration equivalent to CDI + 1.2% p.a. and maturity on January 15, 2025. The contract was signed through the depositary Laqus Depositária de Valores Mobiliários S.A., following the market conditions for the respective transaction. The funds obtained from the issue will be used to settle short-term debt.
BIOMETANO VERDE PAULÍNIA – FIRST DEBENTURE ISSUE
On October 18, 2024, Biometano Verde Paulinia, a subsidiary of Compass, raised funds for the company's first issue of simple, non-convertible debentures, in the amount of R$ 235,000, with semi-annual remuneration equivalent to CDI + 1.2% p.a. and maturity on October 10, 2025. The funds obtained from the issue will be used for a bridge loan to set up a biogas purification plant to produce biomethane.
NORGÁS – COMPLETION OF THE SALE OF ASSETS HELD FOR SALE
On November 6, 2024, Compass concluded the full sale of its 51% stake in Norgás, in the amount of R$ 629,155.
MOOVE
MOOVE DIVIDEND RESOLUTION
On June 12, 2024, the Board of Directors of the subsidiary Moove Lubricants Holdings (“MLH”) approved the distribution of dividends in the amount of US$167,003 thousand, equivalent to R$900,000. The payment took place on June 21, 2024 and the Company received the amount of US$116,903 thousand, equivalent to R$630,000.
NEW LOANS
On June 14, 2024, the indirect subsidiary Cosan Lubrificantes e Especialidades S.A. (“CLE”) contracted two loans, one in the form of an export prepayment and the other in the form of an export credit note, with the banks Bank of America Merrill Lynch (“BofA”) and Citibank N. A. (“Citibank”). A. (“Citibank”), respectively, in the amounts of R$536,240 (corresponding to U.S.$100,000 thousand) and R$269,456 (corresponding to U.S.$50,000 thousand). The export prepayment loan has semi-annual interest payments and repayments will take place in June 2026 and June 2027, while the export credit loan has annual interest payments with the principal maturing in June 2027.
On June 14, 2024, Moove Lubrificants Limited (“MLL”) contracted two loans with BofA and Citibank, respectively, in the amounts of R$242,396 (corresponding to £35,000) and R$14,341 (corresponding to £2,500). For the first loan, interest payments are quarterly and the principal is due in June 2026, while for the second loan, interest and principal payments are due in August 2024.
MOOVE´S ACQUISITION OF DIPI HOLDINGS S.A
On September 29, 2024, Moove’s subsidiary Cosan Lubrificantes e Especialidades S.A. entered into a sale and purchase agreement to acquire all of the shares of DIPI Holdings S.A. for the price of R$410,000, with R$310,000 to be paid at closing, subject to closing price adjustments, and R$100,000 to be paid by 2027, subject to earn-out price adjustments related to the performance of the acquired company. Moove intends to fund the acquisition substantially using cash on hand. DIPI Holdings S.A. is a lubricant and grease manufacturer in Brazil, which operates two lubricant blending plants and one plastic blow molding facility. Completion of the transaction is subject to customary conditions, including without limitation, approval by antitrust authorities, which took place on October, 2024, and other precedent conditions determined in the agreement. The closing is expected to take place in the first quarter of 2025. The acquisition is not expected to have a material impact on Cosan S.A. financial position or results of operations.
IPO MOOVE
On October 1, 2024, the company announced to the market the initial public offering of 25,000,000 common shares of the Moove subsidiary, pursuant to a registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission on July 10, 2024. However, on October 9, 2024, due to adverse capital market conditions and a sharp deterioration in risk perception indicators on the global stage, the Moove subsidiary decided not to proceed with the initial public offering at this time. The splits of the amounts recorded in the context of the preparation of Moove's initial public offering, in the order of R$30,609, as well as the expenses related to the recognition of the Stock Option Plan linked to the liquidity event, in the total amount of R$204,296, will be fully evaluated and duly recognized in the fourth quarter of 2024.
RADAR
SALE OF AGRICULTURAL PROPERTIES - RADAR
On July 19, 2024, the indirect subsidiary Jequitibá Propriedades Agrícolas Ltda signed a contract for the sale of the rural property called Fazenda Vista Alegre, located in the region of Araçatuba, in the northwest of the state of São Paulo, with a total registered area of 3,124.35 hectares and suitable for growing sugar cane. The sale price is R$213,000, to be received in installments until January 2029.
On October 3, 2024, the indirect subsidiary Esus Brasil Participações S.A. signed a purchase and sale agreement for the rural property called Fazenda Santo Antônio, located in the municipality of Martinópolis, state of São Paulo, with a total registered area of 3,399.24 hectares and suitable for growing sugarcane. The amount of the sale is R$ 172,000, to be received in installments until February 2027.
On October 8, 2024, the indirect subsidiary Duguetiapar Empreendimentos e Participações S/A signed a purchase and sale agreement for the rural property called Fazenda São Jorge, located in the municipality of Paraguaçu Paulista, state of São Paulo, with a total registered area of 578.89 hectares and suitable for growing sugarcane. The sale price is R$37,093, payable in cash.
On October 15, 2024, the indirect subsidiary Duguetiapar Empreendimentos e Participações S/A signed a purchase and sale agreement for the rural property called Fazenda Ipiranga, located in the municipality of Echaporã, state of São Paulo, with a total registered area of 567.41 hectares and suitable for growing sugarcane. The sale price is R$34,907, payable in cash.
RUMO
RENEWAL OF THE SUDAM TAX BENEFIT
On December 20, 2023, Rumo Malha Norte S.A. presented the incorporation report number 143/2023 to the Federal Revenue of Brazil – RFB, issued by SUDAM on December 6, 2023, attesting to compliance with the legal conditions and requirements required to renew the tax benefit for another 10 years. In view of the above, the RFB, through the use of its powers, decided on March 13, 2024, through executive declaratory act number 024213308, to recognize the right to a 75% reduction in income tax and additional amounts referred to in art. 1 of Provisional Measure No. 2,199-14, of August 24, 2001, calculated based on the exploration profit, of the legal entity Rumo Malha Norte.
PORT TERMINAL PROJECT - SEEDS
On March 25, 2024, the Companies Rumo S.A. and EMBRAPORT - Empresa Brasileira de Terminais Portuários S.A. signed a binding agreement for the implementation a new port project (terminal) which will handle grains and fertilizers at the Santos Port. The estimated investment to build the Terminal is BRL2.5 billion and it will be funded through a combination of loans, in addition to the possibility of potential strategic partnerships throughout the implementation of the Project. The beginning of construction is subject to the fulfillment of certain conditions precedent which are usual for this type of transaction, including licensing and legal and regulatory approvals. After the satisfaction of such conditions precedent, the construction time is estimated in 30 months.
INCORPORATION OF ELEVAÇÕES PORTUÁRIAS S.A.
On April 30, 2024, CLI SUL S.A. (“CLI SUL”) completed the process of incorporating Elevações Portuárias S.A. (“EPSA”), after obtaining the necessary regulatory approvals. As a result of this corporate reorganization, the subsidiary Rumo S.A. (“Rumo”) received from CLI SUL, on the same date, the amount of R$168,855. This amount refers to the additional acquisition price that CLI SUL undertook to pay to Rumo, under the terms of the share purchase agreement signed between the parties on July 15, 2022, and corresponds to 20% of the outstanding balance of the acquisition financing, plus accrued interest and other charges, deducted from the cash held by CLI SUL. After the merger, CLI SUL’s shareholders became CORREDOR LOGÍSTICA E INFRAESTRUTURA S.A. (“CLI”) and Rumo, with the shareholding split remaining at 80% for CLI and 20% for Rumo.
ADDENDUM TO THE RUMO MALHA PAULISTA CONCESSION AGREEMENT
On May 28, 2024, the subsidiary Rumo signed with the Federal Government, through the National Land Transport Agency (“ANTT”), the 6th Amendment to the Concession Agreement of the indirect subsidiary Rumo Malha Paulista.
In order to update the Book of Obligations, the indirect subsidiary Rumo Malha Paulista will need to restore the economic and financial balance of the contract in an amount estimated at approximately R$1,170,000, of which R$500,000 will be converted into investments in its railway network and the rest will be paid in 4 annual installments of R$167,500. The amount of each annual installment will be adjusted by the accumulated variation of the IPCA between June 2023 and two months prior to the date of actual payment.
SALE OF SHARES IN TERMINAL XXXIX
On May 29, 2024, the subsidiary Rumo entered into a share purchase agreement, selling 50% of its equity interest in Terminal XXXIX de Santos S.A. (“T-XXXIX”) to a consortium formed between Bunge Alimentos S.A. and Zen-noh Grain Corporation, as disclosed in a material fact on the same date.
The sale of the stake in T-XXXIX represents a move towards financial discipline and capital recycling, strengthening the company's cash position so that it can concentrate its efforts on projects that support the ongoing capacity increase program and strengthen the structural competitiveness of the rail modal.
The effectiveness of the operation depends on compliance with the binding conditions set out in the instrument, which has not yet occurred as of the date of this report.
ISSUANCE OF DEBENTURES RUMO MALHA PAULISTA S.A.
On March 25, 2024, the subsidiary Rumo Malha Paulista raised R$ 1,200,000 with the 5th issue of simple debentures, non-convertible into shares, of the unsecured type, divided into two series, the first of which has an amount of R$532,243, with an IPCA rate + 5.7970% p.a., term of 10 years, semiannual interest payments and bullet amortization, while the second is R$667,757 with IPCA rate + 5.9284% p.a., term of 15 years, semiannual interest payments and amortizations in the last three years.
On June 26, 2024, Rumo Malha Paulista raised R$704,000 with the 6th issue of simple debentures, not convertible into shares, of the unsecured type, divided into two series. The first series has an amount of R$547,950, with a rate of IPCA + 6.42% p.a., a term of 10 years, half-yearly interest payments and bullet amortization, while the second series has an amount of R$156,050, with a rate of IPCA + 6.5318% p.a., a term of 15 years, half-yearly interest payments and amortization in the last three years.
On August 29, 2024, the subsidiary Rumo Malha Paulista raised R$800,000 with the 7th issue of simple debentures, not convertible into shares, of the unsecured type, divided into two series. The first series has an amount of R$500,000, while the second has an amount of R$300,000, both with a rate of IPCA + 6.0470% p.a., a term of 12 years, semi-annual interest payments and amortization in the last two years.
COMPLIANCE WITH THE ESG GOAL - 2ND DEBENTURE OF MALHA PAULISTA
As indicated in note 3.3, the 2nd Malha Paulista Debenture of the subsidiary Rumo is linked to the sustainable goal of reducing greenhouse gas emissions per ton of useful kilometer (TKU) by 15% by 2023, with the base date of December 2019 as the starting point. Compliance with the Rate Step Down Condition was verified based on Rumo’s Annual Sustainability Report (“ASR”), which contains the consolidated data of Malha Paulista for the fiscal year ending December 31, 2023. Therefore, the company will benefit from a step-down of 25 basis points in each series, which will reduce the rate from the next Capitalization Period to CDI+1.54% in the 1st series and IPCA+4.52% in the 2nd series.
EARLY REDEMPTIONS OF RUMO MALHA PAULISTA S.A. DEBENTURES
On June 26, 2024, the indirect subsidiary Rumo Malha Paulista made the optional early redemption of R$757,944, the total amount of the first series of the 2nd issue of simple debentures, not convertible into shares.
On the occasion of the optional early redemption, the holders of the debentures, on the date of the optional early redemption, were entitled to payment of: (a) the balance of the nominal unit value of the debentures of the first series; plus (b) the remuneration of the first series, calculated pro rata temporis, from the date of payment of the remuneration of the first series immediately preceding, on June 17, 2024, until the date of the optional early redemption; (c) plus a premium, apartment, levied on the amount of the early redemption, corresponding to 0.25% multiplied by the remaining term of the debentures of the first series.
On August 29, 2024, Rumo Malha Paulista made the optional early redemption of R$790,084, the total amount of the first series of the 3rd issue of simple debentures, not convertible into shares, of the unsecured type. On the occasion of the optional early redemption, the holders of the debentures, on the date of the optional early redemption, were entitled to payment of: (a) the balance of the nominal unit value of the debentures of the first series; plus (b) the remuneration of the first series, calculated pro rata temporis, from the date of payment of the remuneration of the first series immediately preceding, on April 15, 2024, until the date of the optional early redemption; (c) plus a premium, apartment, levied on the amount of the early redemption, corresponding to 0.30% multiplied by the remaining term of the debentures of the first series.
PROVISION OF ASSET WRITE-OFFS AND IMPAIRMENT LOSS OF RUMO MALHA SUL
In the 2nd quarter of 2024, Rio Grande do Sul was impacted by extreme weather events. This force majeure event caused damage to the railway infrastructure of indirect subsidiary Rumo Malha Sul.In this context, in the quarter ended June 30, 2024 and in accordance with Circular Letter No. 01/2024-CVM/SNC/SEP, Management identified the existence of indications that led to the anticipation of the recoverability test of the permanent assets (fixed assets, intangible assets and rights of use) of the cash generating unit of the subsidiary Rumo ("Rumo Malha Sul"), considering the event described above, including with regard to the term of use of the assets, the subsidiary Rumo provisioned the amount of R$2,392,776 as provision for impairment loss and the amount of R$ 182,041 of provision for asset write-off.
NEW JOINT VENTURE BETWEEN RUMO AND CHS FOR NEW TERMINAL IN SANTOS
According to a material fact communicated to the market, on August 7, 2024, the subsidiary Rumo entered into a strategic partnership in the context of the development of the new port terminal for grain and fertilizer operations in Santos ("Terminal").
The subsidiary Rumo and CHS Agronegócio - Indústria e Comércio Ltda., a subsidiary of CHS INC, entered into a binding agreement to create a joint venture with shared control, which will implement the new Terminal, located in the area of EMBRAPORT - Empresa Brasileira de Terminais Portuários S.A., a company part of DP World Group.
The Terminal will have the capacity to handle up to 12.5 million tons a year, of which 9 million tons will be grain and 3.5 million tons fertilizer. The start of construction of the Terminal is subject to compliance with the usual conditions precedent for this type of operation, including environmental licensing and legal and regulatory approvals.
RAÍZEN
EXCLUSION OF ICMS FROM THE PIS AND COFINS CALCULATION BASIS
On April 10, 2024, joint venture Raízen S.A, through the indirect subsidiary Blueway, obtained approval from the Brazilian Federal Revenue Service for the request to qualify for a tax credit in the amount of R$1,824,019, determining the exclusion of ICMS from the PIS and COFINS calculation basis.
DISTRIBUTION OF DIVIDENDS RAÍZEN S.A.
The subsidiary together with Raízen S.A. approved on July 30, 2024 the distribution of additional dividends in the amount of R$103,488. The amount declared corresponds entirely to dividends in the total amount of R$0.01001412421 reais per share, disregarding treasury shares. The additional dividends declared herein will be paid by the Company in a single installment by the end of the fiscal year ending March 31, 2025.
26.1 RECENT ACCOUNTING STANDARDS ADOPTED BY THE COMPANY
Applicable standard
Main requirements
Impact
Amendments to IAS 8 - Accounting Policies, Change of Estimate and Error Rectification Effective as of January 1, 2023
IAS 8 introduces the new definition of accounting estimate "Accounting estimates are monetary amounts in financial statements that are subject to measurement uncertainty" and clarifies how entities should distinguish changes in accounting estimates from changes in accounting policies. The impacted paragraphs are items 5, 32, 34, 38 and 48 and the title of item 32. A distinction is made between accounting estimates (which are applied prospectively) and accounting policies (which are applied retrospectively).
These changes had no impact on the Cosan Group’s consolidated financial statements because the Company’s accounting estimates already met the new definition.
Amendments to IAS 1- Presentation of Financial Statements Effective as of January 1, 2023.
IAS 1 introduces guidance for deciding which accounting policies to disclose in your financial statements. The paragraphs impacted to support the identification of material accounting policy are items 114, 117, 122, 117A, 117E, 139V and exclusion of items 118, 119 and 121.
These changes had no impact on the consolidated financial statements of the Cosan Group because the policies disclosed by the Company already met the new definition of material policies.
Amendments to IAS 12 -Taxes on Profit Effective as of January 1, 2023.
Change of scope of initial recognition exemption and clarifies how entities should account for deferred tax in certain transactions such as: leases and liabilities for disassembly and removal. The impacted paragraphs are: Alteration of items (i) and (ii) of letter b of item 15, letters b and c of item 22 and b of item 24; includes item (iii) of letter b of item 15, item 22A, letter c of item 24, items 98K and 98L and example 8 of Appendix B
These changes had no impact on the consolidated financial statements of the Cosan Group as it is not applicable to the Company.
Amendments to Standard IFRS 17 - Insurance Contracts
The amendment adds a new transition option to IFRS 17 (the ‘classification overlay’) to alleviate operational complexities and one-time accounting mismatches in comparative information between insurance contract liabilities and related financial assets on the initial application of IFRS 17. It allows presentation of comparative information about financial assets to be presented in a manner that is more consistent with IFRS 9 Financial Instruments.
These amendments had no impact on the consolidated financial statements of Grupo Cosan as it is not applicable to the Company.
Amendment IAS 12- item 4A referring to the new tax rule Pillar Two In force as of 2023
Given that in 2023 many countries enacted tax regulation aimed at implementing the rules of global models against erosion of the tax base at the global level (Globe model Rules) members of the project called "Pillar Two" and coordinated by the Organization for Economic Cooperation and Development (OECD), this legislation caused uncertainties in the calculation of deferred tax assets and liabilities in the context of CPC 32 ("Taxes on Profit").
In view of this scenario, the IASB and the AASB proposed changes in IAS 12, which were implemented in Brazil through the publication of CVM Resolution 197, on 12/28/2023, introducing changes in the corresponding Brazilian standard (CPC 32). These changes introduced a mandatory temporary exemption with respect to the recognition and disclosure of deferred tax assets and liabilities related to Pillar Two income taxes (item 4A of CPC 32).
The Company applied this temporary exemption for the financial statements ending December 31, 2023. Additionally, we assess what is in the scope of tax regulations that have been enacted or substantially enacted in some of the countries in which certain entities consolidated by the group operate. In spite of the fact that the implementation of these regulations is still very recent and that no country applied a concrete minimum global tax requirement in 2023, the Company, considering the points above, carried out a preliminary assessment, supported by expert advice, and concluded that there are no expected significant impacts in relation to the jurisdictions where it operates. However, the Company will continue with the studies and further evaluation of the application of the new rules, for disclosure of any exposure, if any, in the financial statements of the coming quarters.
26.2 NEW STANDARDS AND INTERPRETATIONS NOT YET IN FORCE
The following new standards, interpretations and amendments were issued by CPC and by IASB but are not effective for annual periods started after January 1, 2023. Early adoption is not allowed.
Additionally, based on an initial review, the Company currently believes that the adoption of these following standards/amendments will not significantly affect the consolidated result or financial position of the Company.<0}
Key requirements or changes in accounting policy
Amendments to IFRS 16 - Leases Effective as of January 1, 2024.
Inclusion of requirements on variable payments for a sale-leaseback that aims to provide guidance on how to account for variable payments to the seller-lessee in a Sales and leaseback transaction. These changes did not have a significant impact on the consolidated financial statements of the Cosan Group, as it is not applicable to the Company.
Changes to IAS 1 - Presentation of Financial Statements Effective as of January 1, 2024.
The change in the standard provides further clarification for classification of debt between circulating and non-circulating aimed at the right of an entity to defer settlement should exist on the base date, exclusion of the application for the right to be unconditional and included the application to have substance. It also carried out further clarification for liabilities with covenants that guides only the covenants that must comply to the base date affect the classification of a liability as circulating or non-circulating. For covenants after the base date do not affect the classification of liabilities. For December 2023, the Company did not implement it in advance, however, no significant impacts are expected, since the classification between short and long term is already carried out within the new definitions. As for covenants, the Company constantly monitors and will make any required disclosures, if applicable.
Amendments to IAS 7 and IFRS 7) - Supplier financing agreements ("Risk Taken") Effective as of January 1, 2024.
The changes introduce two new disclosure objectives - one in IAS 7 and one in IFRS 7 - for the company to provide information on its supplier financing arrangements that would allow the reader of the statements to assess the effects of those arrangements on liabilities and cash flows of the company. It will also be necessary to disclose the type and effect of non-monetary changes in the book values of financial liabilities that are part of a supplier financing agreement. For December 2023, the Company did not implement it in advance, however, we do not expect significant changes.
Changes to IAS 21 - Effects of Changes in Exchange Rates and Conversion of Financial Statements Effective as of January 1, 2025.
The changes bring greater clarification about an entity being able to perform activities abroad in two ways: (i) carrying out transactions in foreign currency or (ii) owning entities abroad. The purpose of the standard is to determine how to include transactions in foreign currency and how to convert the financial statements of this entity into another currency. For December 2023, the Company did not implement it in advance, but is evaluating all the impacts for adoption of the standard.
New Accounting Standard - IFRS 18 - Presentation and Disclosure in Financial Statements Effective from January 1, 2027.
This new standard aims to provide investors with a deeper understanding of companies' financial performance by offering consistent benchmarks for their analyses, enabling better investment decisions. Given that the standard was only published in April 2024, there are no impacts for December 2023. Therefore, the Company has not yet assessed the impacts, but this will be done for future fiscal years, considering that the standard takes effect in 2027.