Cosan Limited. Consolidated financial statements March 31, 2013

Transcription

1 Consolidated financial statements March 31, 2013

2 Consolidated financial statements March 31, 2013 Contents Independent auditors report on consolidated financial statements 3-4 Consolidated statement of financial position 5 Consolidated statement of income 6 Consolidated statement of comprehensive income 7 Statement of changes in equity 8-9 Consolidated statement of cash flows

3 Independent auditors report on consolidated financial statements The Board of Directors and Shareholders Cosan Limited We have audited the accompanying consolidated financial statements of Cosan Limited and its subsidiaries which comprise the consolidated balance sheet as at March 31, 2013 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the 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. Auditors 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. 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. 3

4 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 Limited and its subsidiaries as at March 31, 2013, and their financial performance and their cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Other matters Audit of prior-year information The financial information, as amended as detailed in Note 3.17, for the year ended March 31, 2012, presented for comparison purposes, was audited by another auditor, who issued an unmodified report, dated June 5, Our opinion is not qualified in respect of this matter. Campinas, June 05, 2013 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 F Valdir Augusto de Assunção Contador CRC 1SP135319/O-9 4

5 March 31, 2013 and 2012 (In thousands of Brazilian Reais R$) Assets Liabilities Loans and borrowings (Note 19) 2,153, ,237 Cash and cash equivalents (Note 6) 2,493,179 1,654,146 Derivative financial instruments (Note 25) 28,163 9,611 Restricted cash (Note 7) 92,596 94,268 Trade payables 1,387, ,029 Securities (Note 32) 105,856 - Employee benefits 274, ,660 Trade receivables (Note 8) 1,691, ,587 Income tax payable (Note 20) 37,984 11,973 Derivative financial instruments (Note 32) 115,364 19,590 Other current tax liabilities (Note 20) 208, ,746 Inventories (Note 9) 911, ,150 Dividends payable 67,364 9,725 Receivables from related parties (Note 12) 202, ,374 Payables to related parties (Note 12) 117, ,488 Advances to suppliers 268, ,028 Deferred revenue 41,345 38,040 Income tax (Note 10) 152, ,561 Other current liabilities 339, ,954 Other current tax assets (Note 10) 278, ,535 Other financial assets (Note 11) 59,299 40,080 Current liabilities 4,655,375 2,074,463 Dividends receivable Non-current asset held for sale (Note 31) 85,426 - Loans and borrowings (Note 19) 9,665,155 4,659,152 Other assets 96,011 70,400 Other non-current tax liabilities (Note 20) 970,310 1,202,624 Provision for judicial demands (Note 22) 1,145,348 1,051,677 Current assets 6,553,795 4,753,580 Payables to related parties (Note 12) 318, ,718 Pension and post-employment benefits (Note 33) 376,059 37,312 Trade receivables (Note 8) 73,386 81,627 Deferred tax liabilities (Note 21) 2,616,711 2,443,430 Deferred tax assets (Note 21) 388, ,024 Deferred revenue 174, ,260 Advances to suppliers 14,856 21,865 Other non-current liabilities 578, ,860 Receivables from related parties (Note 12) 681, ,153 Other non-current tax assets (Note 10) 136, ,856 Non-current liabilities 15,844,961 10,612,033 Judicial deposits (Note 22) 544, ,235 Other financial assets (Note 11) 627, ,402 Total liabilities 20,500,336 12,686,496 Derivative financial instruments (Note 32) 113,555 - Other non-current asset 434, ,107 Equity (Note 23) Equity method investments (Note 14) 168, ,029 Share capital 5,328 5,328 Investment property (Note 15) 2,473,438 - Additional paid in capital 3,856,849 3,811,808 Biological assets (Note 16) 989, ,023 Other comprehensive income (58,908) (176,500) Property, plant and equipment (Note 17) 7,435,103 7,866,963 Retained earnings 2,214,459 1,936,687 Intangible assets (Note 18) 13,161,838 4,932,255 Equity attributable to owners of the Company 6,017,728 5,577,323 Non-current assets 27,242,516 17,414,539 Non-controlling interests 7,278,247 3,904,300 Total equity 13,295,975 9,481,623 Total assets 33,796,311 22,168,119 Total equity and liabilities 33,796,311 22,168,119 The notes are an integral part of these financial statements. 5

6 Consolidated statement of income For the year ended March 31, 2013, 2012 and 2011 (In thousands of Brazilian Reais R$, except earnings per share) (Restated) 2011 Net sales (Note 27) 30,016,488 23,390,450 18,063,480 Cost of sales (Note 28) (26,684,266) (20,887,643) (15,150,079) Gross profit 3,332,222 2,502,807 2,913,401 Selling expenses (Note 28) (1,292,312) (1,052,310) (1,026,000) General and administrative expenses (Note 28) (845,460) (634,015) (545,450) Other, net (Note 30) 326, ,436 (33,828) Gain on the de-recognition of subsidiaries to form the Joint Venture (Note 26) - 2,752,730 - Operating expenses (1,811,462) 1,188,841 (1,605,278) Income before financial results, equity income of associates and income taxes 1,520,760 3,691,648 1,308,123 Equity pick-up (Note 14) 58,860 33,268 25,187 Finance expense (Note 29) (951,136) (702,730) (677,366) Finance income (Note 29) 331, , ,219 (560,768) (447,192) (125,960) Profit before tax 959,992 3,244,456 1,182,163 Income taxes (Note 21) Current (294,638) (133,914) (85,437) Deferred 153,427 (982,458) (329,071) (141,211) (1,116,372) (414,508) Profit from continuing operations 818,781 2,128, ,655 Profit from discontinued operation, net of tax 138,918 64,248 - Profit for the year 957,699 2,192, ,655 Net income attributable to Owners of the company (including discontinued operation) 431,429 1,181, ,906 Non-controlling interests 526,270 1,010, ,750 Basic earnings per share (Note 25) Continued operations R$ 1.30 R$ 4.25 R$ 1.74 Discontinued operations R$ 0.33 R$ 0.15 R$ - Diluted earnings per share (Note 25) Continued operations R$ 1.18 R$ 4.25 R$ 1.74 Discontinued operations R$ 0.33 R$ 0.15 R$ - The notes are an integral part of these financial statements. 6

7 Consolidated statement of comprehensive income For the year ended March 31, 2013, 2012 and 2011 (In thousands of Brazilian Reais R$, except earnings per share) Profit for the year 957,699 2,192, ,655 Other comprehensive income Foreign currency translation differences 2,585 20,724 (4,049) Gain (loss) on cash flow hedge 54, ,503 (217,117) Revaluation of investment property reclassified from property, plant and equipment 83, Defined benefit plan actuarial losses (52,253) (35,892) (29,448) Changes in value of available for sale financial assets from securities 10, Tax on other comprehensive income 103,121 (68,888) 83,830 Other comprehensive income for the year, net of tax 201, ,447 (166,784) Total comprehensive income for the year 1,159,358 2,346, ,871 Total comprehensive income attributable to: Owners of the Company 549,002 1,280, ,521 Non-controlling interests 610,536 1,066, ,350 The notes are an integral part of these financial statements. 7

8 Statement of changes in equity For the year ended March 31, 2013, 2012 and 2011 (In thousands of Brazilian Reais R$, except earnings per share) Capital reserve Equity Additional Other attributable Non- Share paid in comprehensive Retained to owners of controlling Total capital capital income earnings the Company interests equity At April 1, ,328 3,824,681 (170,235) 535,724 4,195,498 2,296,428 6,491,926 Profit for the year , , , ,656 Other comprehensive income Foreign currency translation differences - - (4,180) - (4,180) 131 (4,049) Gain (loss) on cash flow hedge - - (89,117) - (89,117) (54,181) (143,298) Defined benefit plan actuarial losses - - (12,087) - (12,087) (7,349) (19,436) Total comprehensive income for the year - - (105,384) 470, , , ,873 Contributions by and distributions to owners of the Company Share options exercised - (1,062) - - (1,062) 6,409 5,347 Share based compensation - 1, ,842 1,119 2,961 Acquisition of treasury shares - (9,465) - - (9,465) (5,754) (15,219) Dividends (119,294) (119,294) (100,831) (220,125) Total contributions by and distributions to owners of the Company - (8,685) - (119,294) (127,979) (99,057) (227,036) Owners of the Company transactions Business combination - Logispot non-controlling interest ,277 64,277 Issuance of common stock by Rumo to non-controlling interest - 128, , , ,000 Other - (522) - - (522) (821) (1,343) Total transactions with owners of the Company - 127, , , ,934 At March 31, ,328 3,943,837 (275,619) 887,336 4,560,882 2,767,815 7,328,697 Profit for the year ,181,342 1,181,342 1,010,990 2,192,332 Other comprehensive income Foreign currency translation differences ,790-15,790 4,934 20,724 Gain (loss) on cash flow hedge ,126-33,126 20,014 53,140 Hedge accounting reversal of OCI upon deconsolidation of subsidiaries and formation of the JVs ,961-64,961 39, ,272 Defined benefit plan actuarial losses - - (14,758) - (14,758) (8,931) (23,689) Total comprehensive income for the year ,119 1,181,342 1,280,461 1,066,318 2,346,779 Contributions by and distributions to owners of the Company Dividends - non-controlling interests - (30,065) - - (30,065) (18,193) (48,258) Share based compensation - 6, ,728 4,072 10,800 Acquisition of treasury shares - (109,392) - - (109,392) - (109,392) Dividends (140,998) (140,998) - (140,998) Total contributions by and distributions to owners of the Company - (132,729) - (140,998) (273,727) (14,121) (287,848) Owners of the Company transactions Acquisition of a new business by Raízen Combustíveis ,036 9,036 Corporate reorganization - Rumo Group (1,993) (1,993) 77,864 75,871 Other ,000 11,700 (2,612) 9,088 Total transactions with owners of the Company ,007 9,707 84,288 93,995 At March 31, ,328 3,811,808 (176,500) 1,936,687 5,577,323 3,904,300 9,481,623 The notes are an integral part of these financial statements. 8

9 Statement of changes in equity For the year ended March 31, 2013, 2012 and 2011 (In thousands of Brazilian Reais R$, except earnings per share) Capital reserve Equity Additional Other attributable Non- Share paid in comprehensive Retained to owners of controlling Total capital capital income earnings the Company interests equity At March 31, ,328 3,811,808 (176,500) 1,936,687 5,577,323 3,904,300 9,481,623 Profit for the year , , , ,699 Other comprehensive income Foreign currency translation differences - - (3,381) - (3,381) 5,964 2,583 Gain (loss) on cash flow hedge ,239-22,239 13,456 35,695 Revaluation of investment property reclassified , ,832 71, ,735 from property, plant and equipment Defined benefit plan actuarial losses - - (21,486) - (21,486) (13,001) (34,487) Changes in value of available for sale financial assets from securities - - 1,388-1,388 5,744 7,132 Total comprehensive income for the year , , , ,335 1,159,356 Contributions by and distributions to owners of the Company Share options exercised - 10, ,444 6,320 16,764 Dividends - non-controlling interests - (1,295) - - (1,295) 1,144 (151) Share based compensation - 8, ,284 5,012 13,296 Dividends (153,657) (153,657) (323,515) (477,172) Total contributions by and distributions to owners of the Company - 17,433 - (153,657) (136,224) (311,040) (447,264) Owners of the Company transactions Corporate reorganization - Raízen Group - 31, ,693 19,173 50,866 Acquisition of treasury shares - (17,250) - - (17,250) - (17,250) Acquisition of non-conrolling interest - (2,859) - - (2,859) (79,641) (82,500) Acquisition of a new business by Raízen Combustíveis ,430 16,430 Business combination - COMGÁS - 15, ,754 1,863,331 1,879,085 Business combination - Radar ,285,769 1,286,039 Business combination - Logispot non-controlling interest (32,872) (32,872) Capital increase Sabbá ,462 2,462 Total transactions with owners of the Company - 27, ,608 3,074,652 3,102,260 At March 31, ,328 3,856,849 (58,908) 2,214,459 6,017,728 7,278,247 13,295,975 The notes are an integral part of these financial statements. 9

10 Consolidated statement of cash flows For the year ended March 31, 2013, 2012 and 2011 (In thousands of Brazilian Reais R$) (Restated) 2011 Cash flows from operating activities Profit before tax 959,992 3,244,456 1,182,163 Adjustments for: Depreciation and amortization (Note 5) 1,544,087 1,141,064 1,359,000 Biological asset (Note 16) 112,511 (60,093) (381,894) Equity pick-up (Note 14) (58,860) (33,268) (25,187) Gains on disposals assets (86,436) (93,892) (35,295) Equity-settled share-based payment transactions 13,295 10,800 2,961 Change in fair value of investment property (Note 15) (138,776) - - Provision for judicial demands 51,085 80,835 23,828 Indexation charges, interest and exchange gains/losses, net 658, , ,482 Effect of the formation of Joint Ventures - (2,850,868) - Other 43,867 (5,786) 4,585 3,099,675 2,077,411 2,368,643 Changes in: Trade receivables (162,364) (369,820) 164,693 Restricted cash 1,660 79,452 (142,972) Cash provided from discontinued operations (Note 31) 116,387 21,233 - Inventories (81,309) (184,225) 84,951 Recoverable taxes (20,738) (6,930) (50,068) Related parties (125,484) (738,014) (5,536) Advances to suppliers 36,885 (103,294) 16,779 Trade payables 85, ,033 (32,361) Employee benefits (11,757) 106,675 36,224 Provision for judicial demands (9,212) 63,125 3,031 Derivative financial instruments (5,424) (112,281) 13,347 Income tax and other tax (530,092) 742,474 (9,798) Other (50,679) 151,800 (119,692) (756,609) (125,772) (41,402) Net cash from operating activities 2,343,066 1,951,639 2,327,241 Cash flows from investing activities Acquisition net of cash acquired (3,155,391) (72,930) (157,345) Cash contributed - formation of Raízen - (173,116) - Dividends received - 121,433 - Acquisition of property, plant and equipment and intangible assets (Notes 17 and 18) (1,703,619) (1,624,012) (2,291,647) Sugar-cane planting and growing costs (Note 16) (474,392) (551,974) (745,572) Proceeds from sale of discontinued operation 196, Proceeds from sale of property, plant and equipment, intangible and investments, net of cash contributed 333, ,116 48,832 Net cash used in discontinued operation (411) (2,859) - Net cash used in investing activities (4,803,540) (2,121,342) (3,145,732) The notes are an integral part of these financial statements. 10

11 Consolidated statement of cash flows For the year ended March 31, 2013, 2012 and 2011 (In thousands of Brazilian Reais R$) (Restated) 2011 Cash flows from financing activities Loans and borrowings raised 6,868,759 2,346,396 2,719,522 Payment of principal and interest of loans and borrowings (3,769,910) (1,889,362) (1,971,579) Acquisition of non-controlling interest (82,500) - - Redemption of shares in subsidiary - (99,784) - Treasury shares (17,250) (48,258) (15,219) Dividends paid (379,759) (333,659) (193,095) Proceeds from exercise of share options 16, Related parties ,072 Capital increase - - 3,996 Capital subscribed in jointly controlled entities 659, , ,000 Net cash from financing activities 3,295, , ,697 Net increase in cash and cash equivalents 834, , ,206 Cash and cash equivalents at the beginning of the fiscal year 1,654,146 1,271,780 1,110,766 Effect of exchange rate fluctuations on cash held 4,037 15,790 (1,192) Cash and cash equivalents at the ended of the fiscal year 2,493,179 1,654,146 1,271,780 Supplemental cash flow information Interest paid 260, , ,051 Income taxes paid 341, ,655 38,844 The notes are an integral part of these financial statements. 11

12 1. Operations Cosan Limited ( Cosan or the Company ) was incorporated in Bermuda on April 30, Its shares are traded on the New York Stock Exchange (NYSE CZZ) and on the São Paulo Stock Exchange (BM&FBovespa CZLT11). Mr. Rubens Ometto Silveira Mello is the ultimate controlling shareholder of the Company. Cosan Limited controls Cosan S.A. Indústria e Comércio and its subsidiaries and jointly controlled entities ( Cosan S.A. ) with a % interest. The Cosan group ( the Group ) comprises Cosan, Cosan S.A and its subsidiaries and jointly controlled entities. Cosan s, through its subsidiaries and jointly controlled entities ( the Group ), primary activities are in the following business segments: (i) Sugar & Ethanol: the production of sugar and ethanol, as well as energy cogeneration produced from sugar cane bagasse, through its joint venture, Raízen Energia S.A. ( Raízen Energia ); (ii) Fuel Distribution through its joint venture, Raízen Combustíveis S.A. ( Raízen Combustíveis ); (iii) Logistics services including transportation, port lifting and storage of sugar, through its subsidiary Rumo Logística Operadora Multimodal S.A. ( Rumo ); (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; (v) Purchase, sale and leasing of agricultural land through its subsidiary, Radar Propriedades Agrícolas S.A. ("Radar"); and (vi) Piped natural gas distribution to part of the State of São Paulo through its subsidiary Companhia de Gás de São Paulo COMGÁS ( COMGÁS ). On November 5, 2012, the Company completed the acquisition of 60.05% of COMGÁS from BG Group for R$ 3.4 billion. Accordingly, COMGÁS has been consolidated into the Company s financial statements and presented as the COMGÁS segment. On October 24, 2012, the Company signed an Amendment to the Association Agreement and Other Covenants of May 28, 2012, with Camil Alimentos SA ("Camil") whereby it agreed the sale of all of the shares issued by its subsidiary, Docelar Alimentos e Bebidas S.A., to Camil, for a total price of R$ 293,770. Of this total, R$ 88,770 will be received in cash and the remaining R$ 205,000 will be receivable in four installments. Docelar (Cosan Alimentos segment) is no longer presented as part of the Company's continuing operations. On June , the Company completed, jointly with Royal Dutch Shell ("Shell"), the formation of two entities under joint control ("joint ventures" or JVs ): (i) Raizen Combustíveis, in the fuel distribution segment, and (ii) Raizen Energia, in the segment of production and sale of sugar, ethanol and energy cogeneration. Cosan S.A. and Shell share control of the two entities, with each company holding 50% of the economic and voting interest. Cosan recorded its investments in the joint ventures through proportionate consolidation. Upon the formation of the joint venture s Cosan contributed its sugar, ethanol, cogeneration and fuel distribution business. Shell contributed its fuel distribution business in Brazil interests in two entities engaged in research and development of second generation ethanol (Iogen Co. and Codexis, Inc.), the license to use the Shell brand amounting to R$ 533 million and a cash contribution of approximately R$ 1.8 billion to be disbursed over a period of two years. The accounting effects arising from the formation of the JVs are presented in Note 26. Accordingly, the Company s consolidated financial position and results of operations for periods subsequent to 12

13 the joint venture formation are not necessarily comparable to pre-formation amounts. 2. Basis of preparation 2.1. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements were authorised for issue by the Management on June 05, 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; Biological assets are measured at fair value less costs to sell; Investment property is measured at fair value; and The net defined benefit liabilities is recognized as plan assets, plus unrecognized past service cost, less the present value of the defined benefit obligation and is limited as explained in Note Functional and presentation currency Items included in the consolidated financial statements of each of the group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Brazilian Real (R$). However, the functional currency of Cosan Limited is the U. S. Dollar (US$) Use of estimates and judgements The preparation of the Company s consolidated financial statements in conformity with IFRS requires management to make judgements, 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 judgements in applying accounting policies that have the most 13

14 significant effect on the amounts recognized in the financial statements is included in the following notes: Note 13 Business combination 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 subsidiary Radar, without owning a majority of the common shares, as Cosan's rights under the Shareholders Agreement provides Cosan 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 13). Note 16 Biological assets Biological assets are measured at fair value at each reporting date and the effects of changes in fair value between the periods are allocated directly to cost of sales. Notes 17 and 18 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. An 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 18). Note 21 Deferred income taxes and social contribution Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. 14

15 Other non-current asset In relation to a lawsuit filed against the Federal Government, claiming indemnification due to the control of prices, the Company has recorded an asset. We consider the receipt of these amounts as virtually certain, as the Federal Government cannot appeal against the judgment (Note 22). 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 32 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. Note 33 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 making 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 at each reporting date. Note 34 Share based payments Cosan S.A. measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. 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 grant. 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 34. Note 22 Provisions for judicial demands Contingent consideration, resulting from business combinations, and provision for judicial demands are valued at fair value at the acquisition date. 15

16 3. 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 Basis of consolidation The consolidated financial statements include the accounts of Company, its subsidiaries and jointly controlled entities. The subsidiaries and jointly controlled entities are listed below: Percentage Direct interest subsidiary Cosan S.A. Indústria e Comércio Interest of Cosan S.A. Indústria e Comércio in its subsidiaries and jointly controlled entities Subsidiaries Administração de Participações Aguassanta Ltda Bioinvestments Negócios e Participações S.A Vale da Ponte Alta S.A Águas da Ponte Alta S.A Proud Participações S.A Radar II Propriedades Agrícolas S.A. (6) Radar Propriedades Agrícolas S.A. (6) Nova Agrícola Ponte Alta S.A. (6) Terras da Ponte Alta S.A. (6) Nova Santa Barbara Agrícola S.A. (6) Nova Amaralina S.A. Propriedades Agrícolas (6) Cosan US, Inc Cosan Biomassa S.A Cosan Lubes Investments Limited Comma Oil Chemicals Companhia de Gás de São Paulo - COMGÁS Cosan Overseas Limited Pasadena Empreendimentos e Participações S.A Cosan Cayman Finance Limited Cosan Cayman II Limited Cosan Lubrificantes e Especialidades S.A CCL Cayman Finance Limited Cosan Luxembourg S.A Copsapar Participações S.A. (7) Novo Rumo Logística S.A Cosan Infraestrutura S.A Handson Participações S.A. (8) Docelar Alimentos e Bebidas S.A. (8) Rumo Logística Operadora Multimodal S.A. (former Cosan Operadora Portuária S.A.) Logispot Armazéns Gerais S.A. (5) Stallion S.A

17 Jointly-Controlled entities Percentage Raízen S.A. (1) Raízen Energia Participações S.A. (1) (2) (3) Raízen Energia S.A. (1) (2) Raízen Combustíveis S.A. (1) (2) IPUTI Empreendimentos e Participações S.A. (1) (4) (1) Company jointly-controlled with Shell; (2) Represents voting and economic interest. Cosan S.A. holds 50% plus one of the common stock of Raízen Energia, and 50% minus one common stock of Raízen Combustíveis; (3) Incorporated in Raizen Energia SA on November 30, 2012; (4) Disposed of through sale on June 1, 2012; (5) The Company has control over this subsidiary through an interest of 51% held by Rumo; (6) See details related to the gain of control in Note 13; (7) Incorporated into Novo Rumo on March 26, 2013; (8) See details in Note 31. (a) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date 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 exercisablet. The Company measures goodwill at the acquisition date as: The fair value of the consideration transferred; plus The recognized amount of any non-controlling interests in the acquiree; plus If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss. 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. 17

18 Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. (b) Non-controlling interests For each business combination, the Company elects to measure any noncontrolling 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. Changes in the Company s interest in a subsidiary that do not result in a loss of control are accounted for as transactions with owners in their capacity as owners. Adjustments to noncontrolling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss. (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 Company applies the acquisition method to account for business combinations. 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. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. 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 Company recognizes any non-controlling interest in the acquire on an acquisition-byacquisition basis, either at fair value or at the non-controlling interest s proportionate share of the recognized amounts of acquiree s identifiable net 18

19 assets. Acquisition-related costs are expensed as incurred. 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 remeasured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss. 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 recognised 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. 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 recognised in profit or loss. All balances held between subsidiaries, income and expenses and unrealized gains and losses derived from intercompany transactions are eliminated. The financial statement 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 recognised 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-accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence until the date that significant influence. When the Company s share of losses exceeds its interest in an equity-accounted 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. (e) Investments in jointly controlled entities (proportionaly consolidated) The Company has interests in joint ventures, which are a jointly controlled 19

20 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 venturers. The Company recognizes its interest in the joint ventures using the proportionate consolidation method. The Company combines its proportionate share of each of the assets, liabilities, income and expenses of the joint ventures with similar items, line by line, in its consolidated financial statements. The financial statements of the joint ventures are prepared for the same reporting period as the Company. Adjustments are made in the Company s consolidated financial statements to eliminate the Company s share of intercompany balances, transactions and unrealized gains and losses on such transactions between the Company and its joint ventures. Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realisable value of current assets or an impairment loss. The joint venture is proportionately consolidated until the date on which the Company ceases to have joint control over the joint venture. As discussed in Note 4, effective for the Company s fiscal year commencing on April 1, 2013, the IFRS accounting for these proportionately consolidated entities will change and the Company will then be required to account for them using the equity method of accounting and apply these changes retrospectively. (f) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company s interest in the investee. Unrealised 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 Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are retranslated to the functional currency at the exchange rate at the 20

21 date that the fair value was determined. 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 differences arising on retranslation are generally recognized in profit or loss. However, foreign currency differences arising from the retranslation of the following items are recognized in other comprehensive income: Available-for-sale equity investments (except on impairment 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. These consolidated financial statements are presented in Brazilian Reais. It was translated from the Company functional currency to Brazilian Reais using the following criteria: (i) Assets and liabilities using the exchange rate of the closing period; (ii) Statement of income, comprehensive income and statement of cash flows using the monthly average exchange rate; and (iii) Shareholders' equity using the historical exchange rate. Exchange rate differences from the translation are recognized in the specific shareholders' equity account called "Cumulative translation adjustment". (b) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Real at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Real at 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 noncontrolling 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 noncontrolling interests. When the Company disposes of 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. 21

22 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 to form 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 statemens of each subsidiary included in the consolidation and equity method investments are prepared based on the functional currency of each Company. For subsidiaries whose functional currency is a currency other than the Brazilian Reais, 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. The exchange rate of the Brazilian Real (R$) to the U.S. Dollar (US$) was R$ = US$ 1.00 at March 31, 2013, R$ = US$ 1.00 at March 31, 2012 and R$ = US$ 1.00 at March 31, Financial instruments (a) Non-derivative financial assets The Company initially recognizes loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognized initially on the trade date, which is the date that the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. 22

23 (i) Financial assets at fair value through profit or loss A financial asset is classified as at fair value through profit or loss if it is classified as held-fortrading or is designated as such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company s documented risk management or investment strategy. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend income, are recognized in profit or loss. Financial assets classified as held-for-trading comprise short-term sovereign debt securities actively managed by the Company s treasury department to address short-term liquidity needs. Financial assets designated as at fair value through profit or loss comprise equity securities that otherwise would have been classified as available-for-sale. (ii) Held-to-maturity financial assets Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to maturity when the Company has the positive intention and ability to hold them to maturity. Interest, monetary, exchange rate, less impairment losses, if any, are recognized in income when incurred in the line of financial income/expense. Held-to-maturity financial assets comprise debentures. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortised cost. (iii) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise cash and cash equivalents, and trade and other receivables. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as availablefor-sale or are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognized initially at fair value plus any directly attributable 23