Cosan S.A. Indústria e Comércio. Financial statements at December 31, 2013 and report of independent registered public accounting firm

Transcription

1 Financial statements at December 31, and report of independent registered public accounting firm

2 Financial statements December 31, Contents Report of independent registered public accounting firm... 3 Statement of financial position... 6 Statements of profit or loss and other comprehensive income... 8 Statements of changes in shareholders equity Statements of cash flows Statements of value added

3 Report of independent registered public accounting firm To the Board of Directors and Shareholders Cosan S.A. Indústria e Comércio We have audited the accompanying financial statements of Cosan S.A. Indústria e Comércio ("Parent Company"), which comprise the balance sheet as at December 31, and the statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory information. We have also audited the accompanying consolidated financial statements of Cosan S.A. Indústria e Comércio and its subsidiaries ("Consolidated"), which comprise the consolidated balance sheet as at December 31, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the nine-month period then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the Parent Company financial statements in accordance with accounting practices adopted in Brazil, and for the Consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. 3

4 In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion on the Parent Company financial statements In our opinion, the Parent Company financial statements referred to above present fairly, in all material respects, the financial position of Cosan S.A. Indústria e Comércio as at December 31,, and its financial performance and its cash flows for the nine-month period then ended, in accordance with accounting practices adopted in Brazil. Opinion on the Consolidated financial statements In our opinion, the Consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cosan S.A. Indústria e Comércio and its subsidiaries as at December 31,, and their financial performance and their cash flows for the nine-month period then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil. Emphasis of matter Preparation of Parent Company financial statements As discussed in note 2.1 to these financial statements, the Parent Company financial statements have been prepared in accordance with accounting practices adopted in Brazil. In the case of Cosan S.A. Indústria e Comércio, these practices differ from IFRS applicable to separate financial statements only in relation to the measurement of investments in subsidiaries, associates and jointly-controlled entities based on equity accounting, while IFRS requires measurement based on cost or fair value. Our opinion is not qualified in respect of this matter. 4

5 Restatement of corresponding figures As disclosed in Note (c) to the individual and consolidated financial statements, due to the adoption of the new accounting policy set forth in CPCs 19 (R2) Negócios em conjunto and IFRS 11 - Joint Arrangements, the corresponding consolidated the balance sheet, statement of income, comprehensive income, changes in equity, cash flows and value added for the ninemonth period ended December 31,, derived from the financial statements for that year, were adjusted and are being restated as under Pronouncements technical CPC 23 - Accounting Policies, Changes in Accounting Estimates and Errors and CPC 26 (R1) - Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and IAS 1 Presentation of Financial Statements. Our opinion does not contain related to this subject modification. Our opinion is not qualified in respect of this matter. Other matters Supplementary information - statements of value added We also have audited the Parent Company and consolidated statements of value added for the year nine-month period ended December 31,, which are the responsibility of the Company s management. The presentation of these statements is required by the Brazilian corporate legislation for listed companies, but they are considered supplementary information for IFRS. These statements were subject to the same audit procedures described above and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole. Audit of prior-year information The corresponding figures for consolidated opening balance sheet at April 1 st, 2012, presented for comparative purposes and including the adjustments due to the adoption of the new accounting policy set forth in IFRS 11 - Joint Arrangements, as disclosed in Note 4.2 (c) to the consolidated financial statements were audited by another firm of auditors whose report, dated February 26, 2014, expressed an unqualified audit opinion on this statement. We were not engaged to audit, review or apply any other procedures to the Company's opening balance sheet at April 1 st, 2012 and, therefore, we do not express any opinion or any form of assurance on this financial statement. 5

6 Statement of financial position December 31,, March 30, and April 1, 2012 Parent Company Consolidated March 31, March 31, Note December 31, (Restated) April, December 31, (Restated) April, Assets Cash and cash equivalents 5 256, , ,539 1,474,553 1,538, ,240 Restricted cash - 18,220 18,233-18,220 18,233 Securities - 14,276-87, ,856 - Trade receivables , , ,464 Derivative financial instruments ,301 - Inventories , , ,991 Receivables from related parties 10 26,799 22,376 26,627 64,535 52,847 70,890 Income tax 18,399 12,058 31,968 56,340 42,644 49,796 Other current tax assets ,809 85,337 63,683 16,584 Other financial assets 9 63,054 59,299-63,054 59,299 40,080 Dividends receivable 173, , ,790 26, , ,703 Other assets 48,025 17,147 25, , ,065 57, , , ,761 3,232,537 3,367,798 1,861,825 Assets held for sale ,104 85,426 - Current assets 585, , ,761 3,546,641 3,453,224 1,861,825 Trade receivables ,460 9,505 - Deferred tax assets , , ,267 Receivables from related parties , , , , , ,615 Income tax 49,268 38,840-49,268 38,840 - Other current tax assets ,366 17,881 1,006 Judicial deposits , , , , , ,354 Other financial assets 9 97, , , , , ,964 Derivative financial instruments , , ,555 - Other non-current asset 474, , , , , ,829 Equity method investments 12 8,255,137 6,634,331 3,449, ,316 50, ,577 Investment in joint ventures 13 6,425,973 8,582,741 8,189,588 8,498,259 8,582,741 8,189,588 Investment property ,281,509 2,473,438 - Property, plant and equipment 15 28,123 29,328 21,554 1,271,910 1,178,297 1,656,149 Intangible assets 16 3, ,667 10,078,040 9,614,898 1,469,382 Non-current assets 16,257,035 16,567,252 13,168,124 25,051,732 24,071,503 13,958,731 Total Assets 16,842,735 17,226,294 13,832,885 28,598,373 27,524,727 15,820,556 The accompanying notes are an integral part of these financial statements. 6

7 Statement of financial position December 31,, March 30, and April 1, 2012 Parent Company Consolidated December 31, March 31, December 31, March 31, Note (Restated) April 01, 2012 (Restated) April 01, 2012 Liabilities Loans and borrowings ,673 1,131, ,596 1,553,319 80,403 Derivative financial instruments 30-10,009-48,720 10,009 5,282 Trade payables 1,511 1,925 1, , ,479 95,318 Employee benefits 13,001 15,519 11, ,296 94,262 42,894 Income tax payable 1, ,143 12,672 7,016 Other current tax liabilities 19 81,772 59,212 62, , , ,674 Dividends payable 65, ,117 14, , ,396 15,731 Payables to related parties , , , ,463 91, ,769 Other current liabilities 17,364 19,767 62, , , ,705 Current liabilities 1,591,725 1,810, ,860 2,637,257 3,042, ,792 Loans and borrowings 17 1,381,914 1,378, ,733 7,842,563 6,748,596 1,811,641 Derivative financial instruments 30 79, , Other current tax liabilities , , ,463 1,010, ,207 1,185,907 Provision for legal proceedings , , , , , ,266 Payables to related parties 10 2,079,188 2,108,449 1,907, ,626 Pension and post-employment benefits , ,059 37,312 Deferred tax liabilities ,712 1,110,053 1,076,506 1,698,622 1,766,264 1,305,826 Other non-current liabilities 108,368 66,456 86, , , ,880 Non-current liabilities 5,514,152 5,654,298 4,435,177 12,445,746 11,176,840 5,652,458 Total liabilities 7,105,877 7,465,132 4,702,037 15,083,003 14,219,010 6,259,250 Equity 22 Share capital 4,691,822 4,691,822 4,691,822 4,691,822 4,691,822 4,691,822 Treasury shares (104,337) (50,899) (67,663) (104,337) (50,899) (67,663) Capital reserve 856, , , , , ,667 Other comprehensive income 221, ,854 17, , ,854 17,863 Profit reserve 4,071,112 4,040,994 3,816,159 4,071,112 4,040,994 3,816,159 Equity attributable to owners of the Company 9,736,858 9,761,162 9,130,848 9,736,858 9,761,162 9,130,848 Non-controlling interests ,778,512 3,544, ,458 Total equity 9,736,858 9,761,162 9,130,848 13,515,370 13,305,717 9,561,306 Total equity and liabilities 16,842,735 17,226,294 13,832,885 28,598,373 27,524,727 15,820,556 The accompanying notes are an integral part of these financial statements. 7

8 Statement of profit or loss and other comprehensive income For the nine months ended December 31, and for the year ended March 31, (In thousands of Brazilian Reais R$, except earnings per share) Note Nine months ended December 31, Parent Company Year ended March 31, Nine months ended December 31, Consolidated Year ended March 31, (Restated) Net sales ,878,214 4,586,209 Cost of sales - - (4,878,229) (3,211,309) Gross profit - - 1,999,985 1,374,900 Selling expenses - - (603,965) (459,433) General and administrative expenses (77,759) (110,453) (464,060) (400,615) Other, net 28 (22,751) 80,033 83, ,739 Operating expenses (100,510) (30,420) (984,767) (686,309) Income before financial results, equity income of associates and income taxes (100,510) (30,420) 1,015, ,591 Equity income of associates Equity pick-up in investees , ,661 5,497 70,414 Equity pick-up in jointly controlled entity , , , , ,238 1,016, , ,772 Financial results 27 Finance expense (401,445) (423,806) (793,855) (567,880) Finance income 61,536 60, , ,521 Foreign exchange losses, net (396,729) (202,633) (323,750) (80,985) Derivatives 188,146 42, ,649 74,483 (548,492) (522,597) (700,309) (410,861) Profit before taxes 47, , , ,502 Income taxes expenses 20 Current (3,425) 2,838 (129,976) (100,049) Deferred 190,339 21,655 90,782 (26,307) 186,914 24,493 (39,194) (126,356) Profit from continuing operations 234, , , ,146 Profit from discontinued operation, net of tax - 138, ,918 Profit for the year 234, , , ,064 8

9 Statement of profit or loss and other comprehensive income For the nine months ended December 31, and for the year ended March 31, (In thousands of Brazilian Reais R$, except earnings per share) Other comprehensive income Items that will not be reclassified to profit or loss: Actuarial gain (loss) on defined benefit plan 27,564 (52,253) 42,438 (52,253) Taxes on items that will not be reclassified to profit or loss (9,372) 17,766 (14,429) 17,766 18,192 (34,487) 28,009 (34,487) Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation effect (20,960) 15,821 (20,960) 15,821 (Loss) gain on cash flow hedge in jointly controlled entity (9,735) 54,083 (9,735) 54,083 Changes in fair value of available for sale securities 4,076 3,374 13,755 10,805 Taxes on items that are may be reclassified subsequently to profit or loss 1,924 87,882 (1,367) 85,355 (24,695) 244,478 (18,307) 249,382 Other comprehensive income (loss) for the year, net of tax (6,503) 209,991 9, ,895 Total comprehensive income (loss) for the year 227, , ,950 1,058,959 Net income attributable to: Owners of the Company (including discontinued operations) 234, , , ,413 Non-controlling interests , ,651 Total comprehensive income attributable to: Owners of the Company 227, , , ,404 Non-controlling interests , ,555 Basic earnings per share Continued operations 23 R$ 0.58 R$ 1.55 Discontinued operations - R$ 0.34 R$ 0.58 R$ 1.89 Diluted earnings per share Continued operations 23 R$ 0.57 R$ 1.53 Discontinued operations - R$ 0.34 The accompanying notes are an integral part of these financial statements. R$ 0.57 R$

10 Statements of changes in shareholder equity For the nine months ended December 31, and for the year ended March 31, Common Stock Treasury share Capital Reserve Others capital reserve (APIC) Others equity components Legal Statutory Reserve Profit Reverse Unrealized Earnings Retained Earnings Accumulated losses Total Noncontrolling interest April 1, ,691,822 (67,663) 672,667 17, ,411-2,454,597 1,168,151-9,130, ,458 9,561,306 Profit for the year , , , ,064 Gain on cash flow hedge in jointly controlled entity , ,695-35,695 Foreign currency translation effects , ,821-15,821 Revaluation of investment property ,735 - Actuarial loss on defined benefit plan - - (34,487) (34,487) - (34,487) Change in fair value of available for sale securities , ,227 4,904 7,131 Total comprehensive income for the year , , , ,555 1,058,959 Exercise of stock options plan - 16, ,764-16,764 Effect of distribution of dividends to non-controlling - - (1,836) (1,836) 1,836 - Dividends (250,000) - (151,578) (401,578) (163,873) (565,451) Statutory reserve ,311,393 (1,868,469) - (442,924) Legal reserve , (31,911) Share based compensation , ,295-13,295 Total contributions by and distributions to owners of the Cosan - 16,764 11,459-31,911 2,311,393 (2,118,469) - (626,413) (373,355) (162,037) (535,392) Corporate reorganization - Raízen Group , , ,422 Acquisition of non-controlling interest - - (4,589) (4,589) (77,911) (82,500) Business combination - COMGÁS ,878,932 1,878,932 Business combination - Radar ,285,430 1,285,862 Business combination - Logispot non-controlling interest (32,872) (32,872) Total contributions by and distributions to owners of the Cosan , ,265 3,053,579 3,220,844 March 31, (Restated) 4,691,822 (50,899) 851, , ,322 2,311, ,128 1,168,151-9,761,162 3,544,555 13,305,717 Profit for the nine months , , , ,248 Loss on cash flow hedge in jointly controlled entity (6,425) (6,425) - (6,425) Foreign currency translation effects (20,960) (20,960) - (20,960) Actuarial gain on defined benefit plan , ,192 9,817 28,009 Change in fair value of available for sale securities , ,690 6,388 9,078 Total comprehensive income for the year (6,503) , , , ,950 Exercise of stock options plan - 16, ,243-16,243 Effect of distribution of dividends to non-controlling - - (1,562) (1,562) - (1,562) Reflex effect on dividends prescribed in subsidiary Treasury shares - (69,681) (69,681) - (69,681) Dividends (60,611) (87,810) - (55,611) (204,032) (71,670) (275,702) Statutory reserve , (166,831) Legal reserve , (11,708) Share based compensation - - 6, ,595-6,595 Total contributions by and distributions to owners of the Cosan - (53,438) 5,519-11, ,220 (87,810) - (234,150) (251,951) (71,346) (323,297) December 31, 4,691,822 (104,337) 856, , ,030 2,417, ,318 1,168,151-9,736,858 3,778,512 13,515,370 The accompanying notes are an integral part of these financial statements. Total Equity 10

11 Statement of cash flows For the nine months ended December 31, and for the year ended March 31, Parent Company Consolidated Note December 31, March 31, December 31, March 31, Cash flows from operating activities Profit before taxes 47, , , ,502 Adjustments for: Depreciation and amortization 15 / 16 1,840 1, , ,786 Equity in income of investees 12 (454,202) (532,661) (5,497) (70,414) Equity in income of jointly controlled entity 13 (242,036) (483,358) (242,036) (483,358) Loss (gain) on disposals assets (14,558) (111,008) 6,922 (100,349) Share-based compensation expense 6,595 13,295 6,595 (138,776) Change in fair value of investment property (125,324) 49,334 Provisions for legal proceedings 83,909 (4,360) 80,944 49,334 Indexation charges, interest and exchange gains/losses, net 557, , , ,938 Other 9,694-43,907 67,439 (4,054) (176,855) 1,581, ,397 Changes in: Trade receivables - (2,959) (254,236) (62,414) Securities 14,276 (14,276) - (14,276) Restricted cash 18, ,220 - Cash from discontinued operations ,387 Inventories - - (28,324) (33,355) Recoverable taxes (26,730) (7,146) (13,166) (28,488) Related parties 30,780 27,468 (11,061) (118,825) Advances to suppliers - - 4,954 15,269 Trade payables (414) ,728 (5,280) Employee benefits (11,552) 3,940 (14,216) (55,194) Provision for judicial demands (97,811) (17,081) (107,484) (9,212) Income tax and other tax (48,168) (60,563) (156,476) (313,702) Other (52,297) (155,431) 76,277 (133,156) (173,696) (225,908) (429,784) (642,246) Net cash generated by operating activities (177,750) (402,763) 1,151, ,151 Cash flows from investing activities Acquisitions net of cash acquired - (3,415,592) - (2,995,499) Capital contribution in associates (50,300) (49,436) (79,594) (61,014) Dividends received from associates 83, ,441 3,684 - Dividends received of jointly controlled entity 406, , , ,757 Acquisition of property, plant and equipment and intangible assets 15 / 16 (4,348) (14,432) (976,119) (649,681) Proceeds from sale of discontinued operations 57, ,355 57, ,546 Redemption of shares in subsidiary 800, Proceeds from sale of property, plant and equipment, intangible and investments, net of cash contributed - 1,003,942 65, ,719 Net cash used in discontinued operation (411) Net cash used in investing activities 1,292,834 (1,381,965) (523,080) (2,710,583) Cash flows from financing activities Loans and borrowings raised - 3,300, ,623 6,197,855 Payment of principal and interest on loans and borrowings (820,495) (1,210,197) (1,394,518) (2,778,977) Acquisiton of non-controlling shareholders - (82,500) - (82,500) Related Parties (35,050) Derivative financial instruments 52,938 (3,554) 82,621 - Dividends paid (314,457) (240,837) (321,652) (392,197) Treasury shares (69,659) - (69,659) - Proceeds from exercise of share options 16,243 16,764 16,243 16,764 Net cash generated by (used in) financing activities (1,170,480) 1,779,676 (692,342) 2,960,945 Increase (decrease) in cash and cash equivalents (55,396) (5,052) (64,200) 540,513 Cash and cash equivalents at the beginning of the period 311, ,539 1,538, ,240 Cash and cash equivalents at the ended of the period 256, ,487 1,474,553 1,538,753 Supplemental cash flow information Interest paid 71, , ,924 Income taxes paid , ,640 The notes are an integral part of these financial statements. 11

12 Statements of value added Em 31 de dezembro de (exercício de nove meses iniciado em 01 de abril de ) e 31 de março de (exercício de doze meses iniciado em 01 de abril de 2012) (Em milhares de Reais R$, exceto quando indicado de outra forma) Parent Company December 31, March 31, Revenues Other operational revenues, net 67, ,042 67, ,042 Raw materials acquired from third parties Materials, energy, third parties services, others (106,650) (86,426) (106,650) (86,426) Gross value added (39,244) 37,616 Retention Depreciation and amortization (1,840) (1,301) (1,840) (1,301) Net value added (41,084) 36,315 Value added received in transfer Equity pick-up in investees 454, ,661 Equity pick-up in jointly controlled entity 242, ,358 Financial revenue 249, , ,920 1,119,861 Value added to be distributed 904,836 1,156,176 Distribution of value added Salaries 42,052 56,668 Taxes and contributions (173,463) (15,508) Financial expenses 798, ,439 Rentals and leasing 3,923 1,082 Dividends 204, ,578 Net income from continuing operations 30,118 85, ,836 1,156,176 The accompanying notes are an integral part of these financial statements. 12

13 Statements of value added Em 31 de dezembro de (exercício de nove meses iniciado em 01 de abril de ) e 31 de março de (exercício de doze meses iniciado em 01 de abril de 2012) (Em milhares de Reais R$, exceto quando indicado de outra forma) Consolidated March 31, December 31, (Restated) Revenues Sale of services and products, net 7,999,461 5,507,579 Other operational revenues, net 733, ,075 Allowance for doubtful accounts (43,321) (16,181) 8,689,628 5,785,473 Raw materials acquired from third parties Cost of sales and services rendered (5,457,011) (3,234,023) Materials, energy, third parties services, others (450,534) (410,190) (5,907,545) (3,644,213) Gross value added 2,782,083 2,141,260 Retention Depreciation and amortization (439,144) (334,786) (439,144) (334,786) Net value added 2,342,939 1,806,474 Value added received in transfer Equity pick-up in investees 5,497 70,414 Equity pick-up in jointly controlled entity 242, ,358 Financial revenue 417, , , ,776 Value added to be distributed 3,007,768 2,598,250 Distribution of value added Salaries 327, ,996 Taxes and contributions 1,002, ,254 Financial expenses 1,117, ,865 Rentals and leasing 37,695 32,989 Non-controlling interests 289, ,651 Dividends 204, ,578 Net income from continuing operations 30,118 85,917 3,007,768 2,598,250 The accompanying notes are an integral part of these financial statements. 13

14 For the nine months ended December 31, and for the year ended March 31, 1 Operations Cosan S.A. Indústria e Comércio, composed of its subsidiaries and jointly controlled entities ("Company" or "Cosan") is a publicly traded company with its shares traded on the Novo Mercado da Bolsa de Valores de São Paulo ("BM&FBOVESPA") under the ticker symbol CSAN3, and has its headquarters in the city of São Paulo, Brazil. Cosan Limited is the controlling shareholder of Cosan, in which it holds 62.30%. The primary activities in which Cosan S.A.operates, include the following business segments: (i) Piped natural gas distribution to part of the State of São Paulo through its subsidiary Companhia de Gás de São Paulo COMGÁS ( COMGÁS ), which is consolidated since November 2012 (See Note 11); (ii) Logistics services including transportation, port loading and storage of sugar, through its subsidiary Rumo Logística Operadora Multimodal S.A. ( Rumo ); (iii) Purchase, sale and leasing of agricultural land through its subsidiary, Radar Propriedades Agrícolas S.A. ("Radar"); (iv) Production and distribution of lubricants under the Mobil licensed trademark in Brazil, Bolivia, Uruguay and Paraguay, in addition to the European and Asian market using the Comma brand and corporate activities; and (v) other investments, in addition to the corporate structures of the Company ( Cosan s other business ). The Company also holds interests in two jointly controlled entities ("Joint Ventures" or "JVs"): (i) Raízen Combustíveis S.A. ( Raízen Combustíveis ), fuel distribution business, and (ii) Raízen Energia S.A. ( Raízen Energia ), production and marketing of sugar, ethanol and energy cogeneration, produced from sugar cane bagasse. Cosan and Royal Dutch Shell ( Shell ) share control of the two entities, where each owns 50% of the economic control. Up until the adoption of IFRS11 Joint Arrangements ( IFRS 11 ), these investments were accounted for using the proportional consolidation method. Upon the adoption of IFRS 11 in fiscal year endeds December 31,, these investments are accounted for under the equity method (Note 13). The Annual General Shareholders' Meeting held on July 31,, approved a fiscal year end change from March 31st to December 31st. This change was driven by changes in the Company s investment portfolio, in which other business that do not use the harvest year (March 31) have become more significant. With this change, the Company s fiscal year begins January 1st, and end December 31st each year. Accordingly, these consolidated financial statements are for the nine months ended December 31, (transition period) and years ended March 31, and 2012, therefore, they are not comparable. 14

15 For the nine months ended December 31, and for the year ended March 31, 2 Presentation of financial statements and significant accounting policies 2.1. Basis of preparation Statement of compliance The consolidated financial statements have been prepared and presented in accordance with the accounting policies adopted in Brazil, which include the rules of the Securities Commission (CVM) and the standards of the Accounting Pronouncements Committee (CPC), which are fully consistent with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The individual financial statements were prepared in accordance with accounting practices adopted in Brazil. These practices differ from IFRS, applicable to separate financial information, only in respect to the evaluation of investments in subsidiaries, affiliates and jointly controlled entities, which are accounted for under the equity method, while for IFRS purposes these would be accounted for at cost or fair value. These consolidated financial statements were authorized for issue by the Board of Directors on February 26, Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: Derivative financial instruments are measured at fair value; Non-derivative financial instruments at fair value through profit or loss are measured at fair value; Available-for-sale financial assets are measured at fair value; Investment property is measured at fair value; and Employees defined benefit obligations are presented at the present value of the actuarial obligation net of the fair value of plan assets as explained in Note 31. Functional and presentation currency There financial statements, consolidated and individual, are presented in Brasilian Real, which is the Company s functional currency. The financial statements of each subsidiary included in the consolidation of the Company and the ones used as the basis for valuation of investments by the equity method are prepared based on the functional currency of each company. For subsidiaries located abroad, their assets and liabilities were converted to Real at the year-end exchange rate and the results were calculated by the average monthly rate during the year. The effects of conversion are recorded in shareholders equity of these subsidiaries. 15

16 For the nine months ended December 31, and for the year ended March 31, Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses at the end of the reporting period. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes: Note 11 Business Combinations When the Company has the power to govern the financial and operating policies of another entity so as to obtain benefits from its activities, it is accounted for as a subsidiary and consolidated into the financial statements. We consider we have control over Radar, without owning a majority of the common shares, as Cosan S.A.'s rights under the Shareholders Agreement provides Cosan S.A. the ability to direct all relevant activities of Radar and have a majority say in the key financial and operating decisions of Radar. In addition, the vast majority of the rights of the non-controlling shareholders were considered protective in nature. Cosan is also able to appoint a majority of the members of the Board of Directors and has outstanding warrants against the non-controlling shareholders which are currently exercisable and enable Cosan the ability to purchase an additional 20% participation in Radar (Note 11). Notes 15 and 16 Property, plant and equipment and intangible assets The calculation of depreciation and amortization of intangible assets and P, P&E includes the estimation of the useful lives. Also, the determination of the acquisition date fair value of intangible assets and P, P&E acquired in business combinations or rising from the formation of a Joint Venture is a significant estimate. The Company annually performs a review of impairment indicators for intangible assets and P, P&E. Also, an impairment test is undertaken for intangible assets with undefined useful lives and goodwill. Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The key assumptions used to determine the recoverable amount for the different cash generating units for which goodwill is allocated (Note 16). 16

17 For the nine months ended December 31, and for the year ended March 31, Note 20 Income taxes and social contribuition A deferred tax asset is recognized for loss carryforwards to the extent that it is probable that future taxable income will be generated to realize such losses. Significant judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the timing and the level of future taxable income together with future tax planning strategies. Other non-current assets The Company has recognized a receivable in relation to a lawsuit filed against the Federal Government, claiming indemnification due to price controls, which receipt is virtually certain, as the Supreme Court passed final judgment and the Federal Government is unable to appeal (Note 21). Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: Note 6 Trade receivables Estimate of receivable from contract under arbitration: As described in Note 6, the Company is a defendant in legal action initiated by América Latina Logística ( ALL ), a supplier of rail transport and lessee of rolling stock, in relation to the investment and transportation contracts entered into in The Company has requested arbitration to enforce its contractual rights and for ALL to comply with the terms of the agreements. Services for rail transport continue to be provided by ALL. The amounts recorded as revenue and as a receivable are for the services provided under the terms of the contract, and represent managements best estimate of the inflow of economic benefit, and backed by guarantees provided by ALL. However, the result of the arbitration may be a settlement that is materially higher or lower than the amounts recorded in the financial statements as trade receivables. Note 30 Fair value of derivatives and other financial instruments When the fair value of financial assets and liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. 17

18 For the nine months ended December 31, and for the year ended March 31, Note 32 Pension and other post-employment benefits plans 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. Note 32 Share based payments Cosan S.A. measures employees share based compensation cost by reference to the fair value of the shares at the grant date. The estimation of fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the plan. This estimate also requires determining the most appropriate inputs to the valuation model including the assumption of the expected life of the stock option, volatility and dividend yield. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 32. Note 21 Provisions for legal proceedings recognized on business combination transactions Provisions for legal proceedings resulting from business combinations are estimated at fair value. Contingent consideration payables resulting from business combinations are estimated at fair value, with changes in fair value recognized in profit or loss. At December 31, and March 31,, the Company had contingent consideration of R$ 209,689 and R$ 194,164, respectively, in relation to the business combination of CLE in Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. 18

19 For the nine months ended December 31, and for the year ended March 31, Basis of consolidation The consolidated financial statements include the accounts of Company and its subsidiaries. The subsidiaries are listed below: Percentage December 31, March 31, Subsidiaries _Administração de Participações Aguassanta Ltda _Águas da Ponte Alta S.A _Bioinvestments Negócios e Participações S.A _CCL Cayman Finance Limited _Comma Oil Chemicals _Companhia de Gás de São Paulo - COMGÁS _Cosan Biomassa S.A _Cosan Cayman Finance Limited _Cosan Cayman II Limited _Cosan Global Limited _Cosan Infraestrutura S.A _Cosan Investimentos e Participações S.A _Cosan Lubes Investments Limited _Cosan Lubrificantes e Especialidades S.A _Cosan Luxembourg S.A _Cosan Overseas Limited _Cosan US, Inc _Logispot Armazéns Gerais S.A. (1) _Nova Agrícola Ponte Alta S.A. (2) _Nova Amaralina S.A. Propriedades Agrícolas (2) _Nova Santa Barbara Agrícola S.A. (2) _Novo Rumo Logística S.A _Pasadena Empreendimentos e Participações S.A _Proud Participações S.A _Radar II Propriedades Agrícolas S.A _Radar Propriedades Agrícolas S.A. (2) _Rumo Logística Operadora Multimodal S.A _Stallion S.A _Terras da Ponte Alta S.A. (2) _Vale da Ponte Alta S.A (1) The Company has control over this subsidiary through an interest of 51% held by Rumo; (2) See details related on gain of control in Note

20 For the nine months ended December 31, and for the year ended March 31, (a) Business combinations Business combinations are accounted for using the acquisition method i.e. when control is transferred to the Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Company takes into consideration potential voting rights that are currently exercisable. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Company. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The consideration transferred does not include amounts related to the settlement of preexisting relationships. Such amounts are generally recognized in profit or loss. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Any contingent consideration to be transferred by the Company is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss. Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss as a bargain purchase gain. Transactions costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. (b) Non-controlling interests For each business combination, the Company elects to measure any non-controlling interests in the acquiree either: At fair value; or At their proportionate share of the acquiree s identifiable net assets, which are generally at fair value. 20

21 For the nine months ended December 31, and for the year ended March 31, Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (c) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights, direct or indirectly. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. The Company also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Company s voting rights relative to the size and dispersion of holdings of other shareholders give the Company the power to govern the financial and operating policies, etc. Subsidiaries are fully consolidated from the date of acquisition of control, and continue to be consolidated until the date that control ceases to exist. The financial statements of subsidiaries are prepared for the same reporting period as that of the parent company, using consistent accounting policies. (d) Investments in associates (equity-accounted investees) Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 percent and 50 percent of the voting power of another entity. Investments in associates are accounted for under the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The financial statements include the Company s share of the profit or loss and other comprehensive income of equity method investees, after adjustments to align the accounting policies with those of the Company. When the Company s share of losses exceeds its interest in an equity method investee, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee. 21

22 For the nine months ended December 31, and for the year ended March 31, (e) Investments in jointly controlled entities The Company has interests in joint ventures, which are jointly controlled entities, whereby the ventures have a contractual arrangement that establishes joint control over the voting and economic activities of the entity. The contractual arrangements require unanimous agreement for financial and operating decisions among the ventures. The Company recognizes its interest in the joint ventures using the equity method (Note 13). (f) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company s interest in the investee. Unrealized losses are similarly eliminated, but only to the extent that there is no evidence of impairment Foreign currency (a) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of the Group entities using the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency using the exchange rate at that date. Translation differences on non-monetary assets and liabilities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency translation effects are generally recognized in profit or loss. However, foreign currency translation effects arising from the translation of the following items are recognized in other comprehensive income: Available-for-sale equity investments (except an impairment is recognized in which case foreign currency differences that have been recognized in other comprehensive income are reclassified to profit or loss); A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or Qualifying cash flow hedges to the extent the hedge is effective. 22

23 For the nine months ended December 31, and for the year ended March 31, These financial statements are presented in Brazilian Real. The results and financial position whose functional currency different from the presentation currency are translated into the presentation currency, as follows: (i) Assets and liabilities have been translated using the exchange rate at the balance sheet date; (ii) Statement of income, comprehensive income and statement of cash flows using the monthly average exchange rate; and (iii) Shareholders' equity has been translated using the historical exchange rate. Translation effects have been recognized in shareholders' equity in the "Cumulative translation adjustment" line item. (b) Foreign operations The assets and liabilities derived from foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Brazilian Reais using the exchange rates at the reporting date. Income and expenses of foreign operations are translated to Brazilian Reais using the exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) 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 that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Company disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Company disposes only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such item are considered part of the net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. (c) Translation of subsidiaries and associates financial statements The consolidated financial statements of each subsidiary included in these consolidated financial statements and equity method investments are prepared based on the respective functional currency. For subsidiaries whose functional currency is a currency other than the Brazilian Real, asset and liability accounts are translated into the Company s reporting currency using exchange rates in effect at the date of the statement of financial position, and income and expense items are translated using period average exchange rates. The resulting translation adjustments are reported in a separate component of shareholders equity, as cumulative translation adjustment. 23