Cosan S.A. Indústria e Comércio. Consolidated financial statements as of December 31, 2017 (A free translation of the original in Portuguese)

Transcription

1 Consolidated financial statements as of 2017 (A free translation of the original in Portuguese)

2 Consolidated financial statements ended at 2017 Contents Independent auditors report financial statements... 3 Consolidated statement of financial position Consolidated statements of profit or loss Consolidated statements of other comprehensive income Consolidated statements of changes in shareholders equity Consolidated statements of cash flows Consolidated statements of value added Notes to the consolidated interim financial statements... 19

3 Independent Auditor s Report on the Individual and Consolidated Financial Statements To the Board of Directors and Shareholders of Cosan S.A. Indústria e Comércio São Paulo SP Opinion We have audited the individual and consolidated financial statements of Cosan S.A. Indústria e Comércio ( the Company ), respectively referred to as Parent and Consolidated, which comprise the statement of financial position as at 2017, the statements of profit or loss, comprehensive income, changes in equity and cash flows for the year then ended, as well as the corresponding notes, comprising the significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements present fairly, in all material respects, the individual and consolidated financial position of Cosan S.A. Indústria e Comércio as at 2017, and its individual and consolidated financial performance and its cash flows for the year then ended, in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS) issued by International Accounting Standards Board (IASB). Basis for Opinion We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in section Auditors Responsibilities for the Audit of the Individual and Consolidated Financial Statements of our report. We are independent of the Company in accordance with the relevant ethical requirements included in the Accountant Professional Code of Ethics ( Código de Ética Profissional do Contador ) and in the professional standards issued by the Brazilian Federal Accounting Council ( Conselho Federal de Contabilidade ), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the individual and consolidated financial statements of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Measurement of financial instruments (Notes 3.3 and 32) Parent and Consolidated To finance its operations and investments in non-monetary assets, the Company and its subsidiaries raise funds from third parties whose conditions expose them to risks related to fluctuations in foreign currency and interest rates. In order to reduce such exposure, the Company and its subsidiaries enter into derivative financial instruments, mainly interest rate and foreign exchange swaps, and forward contracts. Derivative financial instruments, including instruments designated for risk protection (fair value hedge) and certain debt instruments designated at fair value through profit or loss, are valued using valuation techniques that

4 generally involve the exercise of judgment, use of assumptions and estimates. Due to the relevance, this matter was considered significant for our audit. How our audit addressed this matter Our audit procedures included tests of internal controls on the process of identification, measurement, management, recognition and classification of these financial instruments. We obtained the list of financial institutions with which the Company and its subsidiaries hold financial instrument contracts and obtained a confirmation letter on outstanding balances at With the assistance of our specialists in financial instruments, we performed an independent recalculation of the fair value of derivative financial instruments and debt instruments designated at fair value through profit or loss using observable data such as quoted prices in active markets or discounted cash flows based on market curves. We also evaluated the adequacy of the disclosures made in the financial statements, especially in relation to sensitivity analysis, interest rate and foreign exchange risks and the classification of the instruments. Based on the evidence obtained from the procedures described above, we considered that the measurement of derivative financial instruments and debt instruments designated at fair value through profit or loss is acceptable in the context of the financial statements taken as a whole, for the year ended Designation and effectiveness of derivative financial instruments for hedge accounting - fair value hedges (Notes 3.3 and 32) Parent and Consolidated The Company and its subsidiaries contract derivative financial instruments to manage their exposure to exchange rate and interest rate risks arising during the normal course of their business. When appropriate, certain derivative financial instrument contracts (swaps) are designated for hedge accounting (fair value hedge) in order to offset the Company and its subsidiaries exposure to interest rate changes. Due to the relevance of the hedged financial instruments, the high degree of judgment and estimates used and the possible impacts on the financial statements, this matter was considered significant for our audit. How our audit addressed this matter Our audit procedures included tests of internal controls on the process of identification, designation, measurement and management of these financial instruments. With the assistance of our specialists in financial instruments, we evaluated the adequacy of the documentation prepared by the Company and its subsidiaries to demonstrate the reconciliation between the hedged item versus the instrument designated for hedge accounting and we performed the recalculation of the prospective and retrospective coverage effectiveness test prepared by Company. We also considered the adequacy and sufficiency of the disclosures made in the financial statements. Based on the evidence obtained from the summarized procedures above, we considered that the assumptions and methodologies used to prove the designation and effectiveness of derivative financial instruments for hedge accounting - fair value hedge, are acceptable in the context of the financial statements taken as a whole, for the year ended Recoverability of deferred income and social contribution taxes (Notes 3.14 and 23) Consolidated 5

5 The Company's subsidiary of the lubricants segment recognized deferred tax assets related to temporary differences and unused tax losses, which are considered recoverable based on the availability of future taxable profits. The estimated availability of future taxable profits requires judgment and interpretation of tax laws. The recoverable amount of the deferred tax assets recognized may vary significantly if different assumptions are applied to the projection of future taxable profits and to the capacity to use tax losses, which may impact the deferred tax asset recognized in the financial statements and at the effective tax rate of period. For these reasons, this matter was considered significant for our audit. How our audit addressed this matter We evaluated the design, implementation and operational effectiveness of internal controls related to the preparation and review of the projection of future taxable profits, specifically the business plan and budget. We compared the budget approved in previous year with the actual results incurred in order to verify the ability of the Company's subsidiary to project future results. With the assistance of our corporate finance specialists, we evaluate the reasonableness of the key assumptions used to support the projection of future taxable profits, including growth and discount rates. Additionally, with the assistance of our tax specialists, we considered the appropriateness of applying tax laws and tax deductions. We also assessed whether the projections of the Company's subsidiary indicated sufficient future taxable profit against which unused tax losses and deductible temporary differences could be used, as well as the adequacy of the disclosures made in the financial statements. Based on the evidence obtained from the procedures described above, we considered that the assumptions and methodologies used to estimate the realization of the deferred income tax and social contribution balance are acceptable in the context of the financial statements taken as a whole, for the year ended Impairment of goodwill (Notes 3.7 and 18) Parent and Consolidated As a result of the acquisition of the lubricant business in previous years a subsidiary of the Company has recognized a significant goodwill for which recoverable amount must be tested for impairment annually. The valuation of the recoverable amount of the Company's cash generating units involves significant judgments in determining the assumptions used in cash flow projections, including growth and discount rates. For these reasons, this matter was considered significant for our audit. How our audit addressed this matter We have evaluated the internal controls related to the identification and measurement of the recoverable value of the Company's cash generating unit. With the assistance of our corporate finance specialists, we evaluated key assumptions used in discounted cash flows, including growth and discount rates based on historical information. We evaluated the sensitivity of results considering reasonably possible changes in the key assumptions and compared the budgets approved for the previous year with the actual amounts calculated in order to verify the Company's ability to project future results. Additionally, we compared the recoverable amount calculated based on the discounted cash flows of the cash generating unit with the corresponding carrying amounts of the cash generating unit and we evaluated the adequacy of the disclosures made in the financial statements. Based on the evidence obtained from the procedures described above, we considered that the assumptions and methodologies used in the impairment test of goodwill are acceptable in the context of the financial statements taken as a whole, for the year ended

6 Equity method on jointly-controlled entity (Notes 3.1 and 14) Parent and Consolidated The Company has an indirect interest in a jointly-controlled entity, which operates in the production and trade of sugar, ethanol and cogeneration of energy, mainly produced from sugarcane bagasse. Due to the segment in which it operates, the valuation of biological assets is subject to a significant judgment involving: estimated harvest area, productivity forecast, discount rates, quantity and projected prices. Due to the relevance of the investment in the jointly-controlled entity and due to the degree of judgment and estimates used in the valuation of biological assets, this matter was considered significant for our audit. How our audit addressed this matter We planned and communicated the scope of our work, discussed the risks of material misstatement and sent instructions to the auditors of the jointly-controlled entity. We held meetings with the auditors responsible for the jointly-controlled entity, and evaluated the work performed on the valuation of biological assets, the audit evidence obtained and the documentation of the experts involved in the audit of the jointly-controlled entity. We have analyzed the communications and reports submitted by the jointly-controlled entity's auditor, as well as the procedures performed and the conclusions reached, specifically the determination of materiality, the effect of uncorrected misstatements and audit procedures performed to address the risks. We also evaluated the adequacy of the disclosures made in the financial statements. As a result of the evidence obtained from the procedures described above we considered that the procedures performed for the valuation of the biological assets of the jointly-controlled entity and consequently their effect on the equity pick-up recognized by the Company are acceptable in the context of the financial statements taken as a whole, for the year ended Other matters Statements of value added The individual and consolidated financial information related to the statements of value added (DVA) as at 2017, prepared under the responsibility of the Company s management, presented herein as supplementary information for IAS 34 purposes, have been subject to audit procedures jointly performed with the Company s financial information. In order to form our conclusion, we assessed whether those statements are reconciled with the financial information and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement CPC 09 - Demonstração do Valor Adicionado. In our opinion, these statement of value added have been adequately prepared, in all material respects, in accordance with the criteria defined in that Technical Pronouncement and are consistent with the individual and consolidated financial statements taken as a whole. Other information accompanying the individual and consolidated financial statements and the auditor's report Management is responsible for the other information comprising the management report. Our opinion on the individual and consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. 7

7 In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the individual and consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. Responsibilities of Management and Those Charged with Governance for the Individual and Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), 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. In preparing the individual and consolidated financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and subsidiaries or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s financial reporting process. Auditors Responsibilities for the Audit of the Individual and Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and international standards on auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Brazilian and international standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Company s internal control. 8

8 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the individual and consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the individual and consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. February 22, 2018 KPMG Auditores Independentes CRC 2SP014428/O-6 Original report in Portuguese signed by Rogério Hernandez Garcia Accountant CRC 1SP213431/O-5 9

9 Consolidated statement of financial position 2017 and 2016 (In thousands of Brazilian Reais - R$) Note 2017 Parent Company Consolidated 2016 Assets Cash and cash equivalents 7 144,005 1,066,930 3,150,328 3,990,930 Marketable securities 8 54, , , ,167 Trade receivables , ,468 Derivative financial instruments , ,102 17,771 Inventories , ,173 Receivables from related parties 13 31,571 48,508 55,597 50,257 Income tax receivable 165, , , ,580 Other current tax receivable 11 3,704 3, ,174 94,806 Dividends and interest on capital receivable 126, ,856 13, ,856 Other financial assets 12 1,686,718 70,487 1,686,718 70,487 Other current assets 123, , , ,362 Total current assets 2,439,746 1,886,852 7,780,048 6,303,857 Trade receivables ,278 40,501 Deferred income tax and social contribution 22-6, , ,212 Receivables from related parties , , , ,853 Other non-current tax receivable 11 38,926 36,708 80,763 79,044 Judicial deposits , , , ,214 Derivative financial instruments , , , ,640 Other non-current assets 73, , , ,534 Investments in associates 14 10,512,569 10,165, , ,100 Investments in joint ventures 15 2,601,411 2,713,044 8,447,799 8,506,395 Property, plant and equipment 16 22,503 21, , ,329 Intangible assets 17 5,214 6,621 9,350,598 9,328,150 Total non-current assets 14,154,927 14,158,798 20,759,225 20,995,972 Total Assets 16,594,673 16,045,650 28,539,273 27,299,829 The accompanying notes are an integral part of these consolidated financial statements 10

10 Consolidated statement of financial position 2017 and 2016 (In thousands of Brazilian Reais - R$) Note 2017 Parent Company Consolidated 2016 Liabilities Loans, borrowings and debentures ,611, ,000 Derivative financial instruments 31-9, ,991 Trade payables 20 3,713 3,330 1,805,385 1,467,570 Employee benefits payable 27,642 24, , ,009 Income tax payables 531 1,294 19,007 47,124 Other taxes payable ,569 82, , ,555 Dividends payable 338,985 23, ,277 94,055 Payables to related parties , , , ,107 Other financial liabilities ,725 25,734 Other current liabilities 34,265 21, , ,660 Total current liabilities 1,074, ,635 4,991,391 3,222,805 Loans, borrowings and debentures ,063,447 8,202,129 Preferred shareholders payable in subsidiaries 24 1,442,680 1,769,427 1,442,680 1,769,427 Derivative financial instruments , , , ,550 Other taxes payable , , , ,720 Provision for legal proceedings , , , ,542 Provision for uncovered liability of associates 14 92, Payables to related parties 13 3,463,476 3,872, Post-employment benefits , ,480 Deferred tax liabilities ,168-1,611,867 1,108,748 Other non-current liabilities 237, , , ,089 Total non-current liabilities 6,073,595 6,607,409 13,250,617 13,284,685 Total liabilities 7,148,003 7,080,044 18,242,008 16,507,490 Shareholders' equity 25 Share capital 3,999,075 3,824,648 3,999,075 3,824,648 Treasury shares (114,413) (34,966) (114,413) (34,966) Capital reserve 699, , , ,318 Other equity (55,646) (295,923) (55,646) (295,923) Profit reserve 4,917,834 4,515,529 4,917,834 4,515,529 Equity attributable to: Owners of the Company 9,446,670 8,965,606 9,446,670 8,965,606 Non-controlling interests ,595 1,826,733 Total shareholders' equity 9,446,670 8,965,606 10,297,265 10,792,339 Total shareholders' equity and liabilities 16,594,673 16,045,650 28,539,273 27,299,829 The accompanying notes are an integral part of these consolidated financial statements 11

11 Consolidated statements of profit or loss and other comprehensive income 2017 and 2016 (In thousands of Brazilian Reais R$, except earnings per share) Parent Company Consolidated Note December , Net sales - - 7,670,777 7,541,793 Cost of sales - - (5,045,884) (4,586,552) Gross profit - - 2,624,893 2,955,241 Selling expenses - - (1,039,817) (1,032,893) General and administrative expenses (127,224) (134,933) (597,430) (570,465) Other income (expense), net ,147 (86,021) 880,983 (115,764) Operating expenses 798,923 (220,954) (756,264) (1,719,122) Income (loss) before equity in earning and financial results 798,923 (220,954) 1,868,629 1,236,119 Equity in earnings of associates 14 1,109,844 1,875,845 12,930 (12,820) Equity in earnings of joint ventures 15 (111,633) (108,162) 985,090 1,570,132 Equity in earnings of investees 998,211 1,767, ,020 1,557,312 Finance expense (691,178) (744,408) (1,728,300) (1,720,365) Finance income 377, , , ,912 Foreign exchange (losses) gain, net (62,726) 828,401 (81,201) 1,001,581 Derivative Financial Instruments 185,659 (1,260,595) 182,509 (1,388,997) Net financial results 30 (190,943) (792,012) (898,394) (1,307,869) Net income before taxes 1,606, ,717 1,968,255 1,485,562 Income tax (expenses) benefits 22 Current (7,158) (15,008) (88,470) (112,633) Deferred (283,709) 372,433 (369,255) 52,420 (290,867) 357,425 (457,725) (60,213) Net income from continuing operations 1,315,324 1,112,142 1,510,530 1,425,349 Net loss from discontinued operation, net of tax - (76,057) - (35,262) Net income for the year 1,315,324 1,036,085 1,510,530 1,390,087 Total net income attributable to: Owners of the Company 1,315,324 1,036,085 1,315,324 1,036,085 Non-controlling interests , ,002 1,315,324 1,036,085 1,510,530 1,390,087 Basic earnings (loss) per share from: Continuing operations 26 R$ R$ R$ R$ Discontinuing operations 26 - (R$ ) - (R$ ) R$ R$ R$ R$ Diluted earnings (loss) per share from: Continuing operations 26 R$ R$ R$ R$ Discontinuing operations 26 - (R$ ) - (R$ ) R$ R$ R$ R$ The accompanying notes are an integral part of these consolidated financial statements 12

12 Consolidated statements of profit or loss and other comprehensive income 2017 and 2016 (In thousands of Brazilian Reais R$, except earnings per share) Parent Company December 31, 2017 Consolidated 2016 Net income for the year 1,315,324 1,036,085 1,510,530 1,390,087 Other comprehensive income Items that will never be reclassified to profit or loss Gain on share subscription of subsidiary 9,000 6,000 9,000 6,000 Actuarial loss on defined benefit plan (13,107) (36,140) (24,121) (85,621) Taxes over actuarial loss on defined benefit plan - - 8,201 28,988 (4,107) (30,140) (6,920) (50,633) Items that are or may subsequently be reclassified to profit or loss: Foreign currency translation differences (25,035) 72,399 (25,035) 72,399 Gain on cash flow hedge in joint ventures 204,611 46, ,611 46,605 Realization of fair value of investment property - (190,735) - (190,735) Fair value realization of financial assets - (9,296) - (9,296) Changes in fair value of available for available for sale securities 4,176 (65) 4,176 (65) 183,752 (81,092) 183,752 (81,092) Total other comprehensive income (loss), net of tax 179,645 (111,232) 176,832 (131,725) Total comprehensive income - Continuing operations 1,494, ,853 1,687,362 1,258,362 Total comprehensive income 1,494, ,853 1,687,362 1,258,362 Total net income attributable to: Owners of the Parent 1,315,324 1,036,085 1,315,324 1,036,085 Non-controlling interests , ,002 1,315,324 1,036,085 1,510,530 1,390,087 Total comprehensive income attributable to: Owners of the Company 1,494, ,853 1,494, ,853 Non-controlling interests , ,509 1,494, ,853 1,687,362 1,258,362 The accompanying notes are an integral part of these consolidated financial statements 13

13 Consolidated statements of changes in shareholder equity 2017 and 2016 (In thousands of Brazilian Reais - R$) Profit reserve Common stock Treasury share Other capital reserve Others equity components Legal Statutory reserve Unrealized earning Retained earning Profit reserve Total Non-controlling interest Total equity At January 1, ,824,648 (34,966) 956,318 (295,923) 284,960 2,963, ,021 1,096,016-8,965,606 1,826,733 10,792,339 Net income for the year ,315,324 1,315, ,206 1,510,530 Other comprehensive income: Gain on cash flow hedge in joint ventures , , ,611 Foreign currency translation differences (25,035) (25,035) - (25,035) Actuarial loss on defined benefit plan net of taxes (13,107) (13,107) (3,130) (16,237) Financial instruments - common transactions , (60,632) - 9,000-9,000 Changes in fair value of available for available for sale securities , ,176-4,176 Total comprehensive income for the period , (60,632) 1,315,324 1,494, ,076 1,687,045 Contributions and distributions for shareholders Capital increase 174,427 - (14,427) - (160,000) Dividends - non-controlling interests - - (13,120) (13,120) 13,120 - Share options exercised , ,135-33,135 Dividends proposed (379,998) - - (312,389) (692,387) (428,603) (1,120,990) Constitution legal reserve , (65,766) Constitution statutory reserve , (937,169) Redemed entity's shares - (79,447) (79,447) - (79,447) Share-based payment transactions - - 9, , ,889 Total contributions by and distributions to owners of the Parent 174,427 (79,447) 15,189 - (94,234) 557, (1,315,324) (742,218) (415,195) (1,157,413) Transactions with owners of the Company Change of shareholding interest in subsidiary - - (271,687) (271,687) (753,019) (1,024,706) Total transactions with shareholders - - (271,687) (271,687) (753,019) (1,024,706) At ,999,075 (114,413) 699,820 (55,646) 190,726 3,520, ,021 1,035,384-9,446, ,595 10,297,265 The accompanying notes are an integral part of these consolidated financial statements 14

14 Consolidated statements of changes in shareholder equity 2017 and 2016 (In thousands of Brazilian Reais - R$) Profit reserve Common stock Tresuary share Other capital reserve Others equity components Legal Statutary reserve Unrealized earning Retained rearning Accumulated earning Total Non-controlling interest Total equity At January 1, ,822,725 (58,694) 955,326 (184,691) 284,960 2,731, , ,375-8,680,767 3,688,488 12,369,255 Profit for the year ,036,085 1,036, ,002 1,390,087 Other comprehensive income: Loss on cash flow hedge in joint ventures and subsidiary , ,605-46,605 Foreign currency translation differences , ,399-72,399 Actuarial loss on defined benefit plan net of taxes (36,140) (36,140) (20,493) (56,633) Gain in mensuration financial instrument derivative , ,000-6,000 Write off in fair value of of investment property (190,735) , Write off in fair value of financial assets (9,296) , Changes in fair value of available for available for sale securities (65) (65) - (65) Total comprehensive income for the year (111,232) ,031 1,036,085 1,124, ,509 1,458,393 Contributions and distributions for shareholders Capital increase 1,923 - (1,923) Dividends - non-controlling interests - - (12,973) (12,973) 12,973 - Share options exercised - 23,728 9, ,359-33,359 Write-off of investment (1,622,004) (1,622,004) Dividends proposed (414,298) - (62,390) (390,000) (866,688) (563,371) (1,430,059) Constitution statutory reserve , (646,085) Share-based payment transactions - - 8, ,369-8,369 Total contributions by and distributions to owners of the Parent 1,923 23,728 3, ,787 - (62,390) (1,036,085) (837,933) (2,172,402) (3,010,335) Transactions with shareholders Shareholding change in subsidiary - - (2,112) (2,112) (22,862) (24,974) Total transactions with shareholders - - (2,112) (2,112) (22,862) (24,974) At ,824,648 (34,966) 956,318 (295,923) 284,960 2,963, ,021 1,096,016-8,965,606 1,826,733 10,792,339 The accompanying notes are an integral part of these consolidated financial statements, 15

15 Consolidated statement of cash flows 2017 and 2016 (In thousands of Brazilian Reais - R$) Cash flows from operating activities Note Parent Company Consolidated 2016 Profit before taxes 1,606, ,717 1,968,255 1,485,562 Adjustments for: Depreciation and amortization 6,832 6, , ,314 Equity in earnings of associates 14 (1,109,844) (1,875,845) (12,930) 12,820 Equity in earnings of jointly controlled entity , ,162 (985,090) (1,570,132) Loss on disposals assets 40-43,141 14,824 Option shares granted 9,033 8,369 9,889 8,369 Provision for judicial demands 72,816 66, ,551 77,953 Indexation charges, interest and exchange, net 265, ,475 1,159,201 1,581,571 Provisions for employee benefits 24,763 17,006 84,499 81,181 Allowance for doubtful accounts ,640 25,849 Credit sales to third party (1,039,966) - (1,039,966) - Other 1,827 (273) 14,193 4,792 (51,021) (77,088) 1,974,070 2,338,103 Changes in: Trade receivables - - (193,701) (23,904) Inventories - - (47,874) 55,916 Taxes receivables (30,029) (15,212) (116,257) 119,018 Related parties, net (88,538) (325,264) (52,719) 10,365 Trade payables (1,696) 1, ,923 (115,234) Employee benefits payables (24,462) (10,036) (84,749) (57,278) Provision for judicial demands (2,452) (145) (6,758) (2,010) Other financial assets ,532 (4,335) Taxes payables 24,558 (10,898) (18,704) (41,478) Judicial deposits , Discontinued operation ,087 Post-employment benefits - - (30,617) (30,262) Other assets and liabilities, net 271,532 20, ,200 (83,977) 149,664 (338,477) (181,161) (102,865) Net cash generated by (used in) operating activities 98,643 (415,565) 1,792,909 2,235,238 Cash flows from investing activities Capital contribution in associates (101,271) (223,370) (15,321) (18,698) Acquisition of subsidiary, net of cash acquired - - (116,514) - Marketable securities 81,570 (120,367) (288,354) (363,807) Cash received on sale of fixed assets and intangible assets - - 1,097 - Acquisition of non-controlling interests - (54,122) - (54,122) Dividends received from investees 1,276,237 1,494,551 7,226 4,036 Dividends received from jointly controlled entity 197,210 80,085 1,346,460 1,230,367 Other financial assets (321,048) (186,052) (321,048) (186,052) Acquisition of property, plant and equipment, intangible assets and investments (6,528) (1,910) (408,489) (491,279) Net cash from sale of discontinued operations - 1,032,271-1,053,768 Related parties - 11,338-11,338 Discontinued operation (13,934) Net cash generated by investing activities 1,126,170 2,032, ,057 1,171,617 16

16 Consolidated statement of cash flows 2017 and 2016 (In thousands of Brazilian Reais - R$) Cash flows from financing activities Loans, borrowings and debentures raised ,642 3,529,668 Amortization of principal on loans, borrowings and debentures - (335,170) (877,809) (3,233,588) Payment of interest on loans, borrowings and debentures - (11,914) (568,156) (543,091) Derivative financial instruments (260,201) (129,183) (256,423) (414,538) Capital internalization ,043 40,000 Related parties (651,615) Payments to redeem entity's shares (79,447) - (79,447) - Non-controlling interest subscription 20,375 28,764 20,375 28,764 Acquisition of non-controlling interests (833,306) - (833,306) - Dividends paid (376,679) (866,834) (1,239,363) (1,899,978) Discontinued operation (53,272) Proceeds from exercise of share options 33,135 33,359 33,135 33,359 Net cash used by financing activities (2,147,738) (1,280,978) (2,849,309) (2,512,676) (Increase) decrease in cash and cash equivalents (922,925) 335,881 (851,343) 894,179 Cash and cash equivalents at beginning of year 1,066, ,049 3,990,930 3,129,530 Effect of exchange rate fluctuations on cash held ,741 (32,779) Cash and cash equivalents at end of year 144,005 1,066,930 3,150,328 3,990,930 Additional information Income tax paid ,359 76,125 The accompanying notes are an integral part of these consolidated financial statements 17

17 Consolidated statement of value added 2017 and 2016 (In thousands of Brazilian Reais - R$) Parent Company Consolidated Revenue Net sales - - 9,696,735 9,245,524 Other operating revenue 1,007,455 3,640 (32,067) 357,738 Allowance for doubtful accounts - - (19,640) (25,383) 1,007,455 3,640 9,645,028 9,577,879 Raw materials acquired from third parties Cost of goods sold and services rendered - - (3,869,562) (5,346,336) Materials, energy, third party services, others (127,683) (151,373) (640,721) (596,009) (127,683) (151,373) (4,510,283) (5,942,345) Gross value added 879,772 (147,733) 5,134,745 3,635,534 Retention Depreciation and amortization (6,832) (6,542) (596,687) (615,314) (6,832) (6,542) (596,687) (615,314) Net value added 872,940 (154,275) 4,538,058 3,020,220 Value added transferred in Equity pick-up in investees 1,109,844 1,875,845 12,930 (12,820) Equity pick-up in jointly controlled entity (111,633) (108,162) 985,090 1,570,132 Financial income 500,235 1,212, ,226 1,248,970 Profit from discontinued operations - (76,057) - (35,262) 1,498,446 2,904,616 1,684,246 2,771,020 Value added to be distributed 2,371,386 2,750,341 6,222,304 5,791,240 Distribution of value added Personnel 59,365 52, , ,130 Taxes and contributions 302,272 (348,739) 2,650,065 1,426,325 Financial expenses and rent 694,425 2,010,577 1,611,433 2,587,698 Non-controlling interests , ,002 Dividends proposed 692, , , ,688 Profit from continued operations 622, , , ,659 Loss from discontinued operations - (76,057) - (35,262) 2,371,386 2,750,341 6,222,304 5,791,240 The accompanying notes are an integral part of these consolidated financial statements 18

18 2017 (In thousands of Brazilian Reais R$, unless otherwise stated) 1 Operations Cosan S.A. Indústria e Comércio composed of its subsidiaries and jointly controlled entities ("Company" or "Cosan") is a publicly traded company with its shares traded on the Novo Mercado da Bolsa de Valores de São Paulo ("BM&FBOVESPA") under the ticker symbol CSAN3, and has its headquarters in the city of São Paulo, Brazil. Cosan Limited is the controlling shareholder of Cosan, in which it holds 58.21%. The primary activities in which Cosan S.A. operates, include the following business segments: (i) Piped natural gas distribution to part of the State of São Paulo through its subsidiary Companhia de Gás de São Paulo COMGÁS ( COMGÁS ); (ii) Production and distribution of lubricants, through its indirect subsidiaries Cosan Lubrificantes e Especialidades S.A. ( CLE ) and Comma Oil & Chemicals Ltd. ( Comma ), under the Mobil licensed trademark in Brazil, Bolivia, Uruguay, Paraguay and European market through Stanbridge Group Limited, in addition to the European and Asian market using the Comma s brand and corporate activities ( Moove ) and; and (iv) Other investments, in addition to the corporate structures of Company ( Cosan Corporate ). The Company also holds interests in two jointly controlled entities ("Joint Ventures" or "JVs"): (i) Raízen Combustíveis S.A. ( Raízen Combustíveis ), fuel distribution business, and (ii) Raízen Energia S.A. ( Raízen Energia ), production and marketing of sugar, ethanol and energy cogeneration, produced from sugar cane bagasse. On September 30, 2016 the Company disclosed a material fact stating that it has signed a Share Purchase Agreement with Mansilla Participações Ltda. (Vehicle TIAA investment fund - Teachers Insurance and Annuity Association of America), also a shareholder of the company Radar and Radar II. In the material fact, the Company sold part of its shares of Radar e Radar II, for the amount of R$ 1,053,768 received on November 04, see note 15. On February 23, 2017, TPG VI Fundo de Investimento em Participações ("TPG ), a shareholder of Rumo S.A ("Rumo"), exercised its right to exchange 11,479,987 shares issued by Rumo for shares issued by Cosan S.A in pursuant to the shareholders agreement entered into in 2010, subsequently added, between Cosan Logística, TPG VI, GIF, Cosan S.A and the Company. Cosan S.A and GIF agreed to settle financially the stock replacement obligation through of payment of R$ 275,780 and the shares received were valued at fair value in the amount of R$ 97,924 and recorded as other financial assets. The variation between the payment and the fair value of the shares was R $ 177,856 recognized under Interest on other liabilities "in the financial result. 2 Basis of preparation 2.1 Statement of compliance The individual financial statements have been prepared and presented in accordance with the accounting policies adopted in Brazil. From 2014 IFRS started to allow the application of the equity method in subsidiaries in separate financial statements, therefore the individual financial statements also comply with International Financial Reporting Standards (International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB)) The consolidated financial statements were prepared and are presented in accordance with accounting practices adopted in Brazil, which comprise the Brazilian s Law of Corporations, the Securities and Exchange Commission (CVM) and the pronouncements of the Accounting Pronouncements Committee (CPC), that comply with international accounting standards (IFRS) issued by the International accounting Standards Board (IASB). The relevant information specific to the financial statements, and only them, are being evidenced and that correspond to those used by it in its management. 19

19 2017 (In thousands of Brazilian Reais R$, unless otherwise stated) Certain amounts of the comparative balances in the statements of income and statements of cash flows were reclassified to improve the disclosures in the financial statements for the year. These financial statements were authorized for issue by the Board of Directors on February 22, Functional and presentation currency These financial statements, individual and consolidated, are presented in Brazilian Real, which is the Company s functional currency. The financial statements of each subsidiary included in the consolidation of the Company and the ones used as the basis for valuation of investments by the equity method are prepared based on the functional currency of each company. For subsidiaries located abroad, their assets and liabilities were converted to Real at the year-end exchange rate and the results were calculated by the average monthly rate during the year. The effects of conversion are recorded in shareholders equity of these subsidiaries, the main functional currency for the subsidiaries located outside Brazil is U.S. Dollar (US$) or the Pound Sterling (GBP). 2.3 Use of estimates and judgments The preparation of the financial statements in conformity with CPC and 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 16 e 17 - Property, plant and equipment and intangible assets The Company annually performs a review of impairment indicators for intangible assets with defined useful lives and property, plant and equipment. Also, an impairment test is undertaken for goodwill and intangible assets with indefinite useful lives. 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 of the different cash generating units to which goodwill is allocated are explained in note 17. The subsidiary COMGÁS has an agreement for the public concession of gas distribution service, in accordance to which the Conceding Authority, at the end of the concession, will hold a significant portion of the infrastructure and controls what services must be rendered and what prices will be applied. This concession agreement represents the right to charge from customers for the supply of gas during the effective period of the agreement. Therefore, the Company recognizes this right as an intangible asset. Thus, the infrastructure construction necessary for gas distribution is considered a service to the Grantor and the related revenue is recognized at fair value. Financing costs directly related to construction are also capitalized. The Company does not recognize a margin on the infrastructure construction. Subject to approval of the Granting Authority, the Company may request only once the extension of the distribution services for another 20 years. When the concession is terminated, the assets linked to the rendering of gas distribution services will be returned to the Granting Authority, and the Company will be entitled to receive an indemnity to be determined based on assessments and evaluations to be calculated at the time. Currently the figures for compensation are not predetermined or determinable, which is why the Company did not apply the bifurcated model for the accounting of financial assets. 20

20 2017 (In thousands of Brazilian Reais R$, unless otherwise stated) The amortization of intangible assets reflects the pattern expected for the utilization of the future economic benefits by the Company, which corresponds to the useful lives of the assets comprising the infrastructure consonant to the São Paulo State Sanitation and Energy Regulatory Agency ( ARSESP ) provisions, as disclosed in Note 17. The amortization of the intangible assets is discontinued when the related asset is fully used or writtenoff, and no longer is included in the calculation basis of the tariff for the rendering of the concession services, whichever occurs first. Note 22 - Income taxes and social contribution A deferred tax asset is recognized for loss carry forwards 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 asset The subsidiary Comgás has natural gas supply contracts with specific characteristics, such as minimum withdrawal obligations by Comgás (take or pay for commodity and ship or pay for transportation), that is, if Comgás consumes below contractual obligations, it must pay for of the differences between the volume consumed and the minimum contracted volumes, and may compensate them (through consumption) over the period of validity of the respective contract, provided that consumption exceeds the contracted minimum quantity. In addition, the supplier allows in contractual clause that there is recovery of the volume eventually accumulated for the term of 365 days after the termination of the contracts. Therefore, the current forecast is to recover all the cumulative volume since, during the recovery period stated in the agreement, there will be no new accumulation related to the minimum commitments contracted for this period. Given the recoverable nature of this inventory, the amounts paid and not used were recognized in assets under Paid and unused transportation. Note 31 - Fair value of derivatives and other financial instruments When the fair value of financial assets and liabilities 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 when this is not feasible, a degree of judgment is required in determining fair values. Judgment is required in the determination of inputs such as liquidity risk, credit risk and volatility. Changes in these variables could affect the reported fair value of financial instruments. Note 33 - Post-employment benefit 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. 21