Cosan 6-K CZZITR2Q20_6K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

Report of Foreign Issuer
Pursuant To Rule 13a-16 Or 15d-16 of the
Securities Exchange Act of 1934

For the month of August 2020

Commission File Number: 1-33659

COSAN LIMITED

(Translation of registrant’s name into English)

Av. Brigadeiro Faria Lima, 4100, – 16^th floor
São Paulo, SP 04538-132 Brazil
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒      Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ☐       No ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ☐       No ☒

Contents

Independent Auditor´s report on review of interim consolidated financial statements	3
Consolidated statement of financial position	5
Consolidated statement of profit or loss and other comprehensive income	7
Consolidated statement of changes in equity	9
Consolidated statement of cash flows	11
Notes to the consolidated financial statements	14

2 

 

São Paulo Corporate Towers Av. Presidente Juscelino Kubitschek, 1.909 Vila Nova Conceição 04543-011 - São Paulo – SP - Brasil   Phone: +55 11 2573-3000 ey.com.br

Independent Auditor´s Report on Review of Interim financial information

To

Shareholders, Board of Director and Officers of

Cosan Limited

Bermuda

Introduction

We have reviewed the accompanying consolidated interim financial information of Cosan Limited (the “Company”) for the quarter ended June 30, 2020, which comprises the consolidated statement of financial position as of June 30, 2020, and the related consolidated statements of profit or loss and of comprehensive income, for the three and six month periods then ended, and the statements of changes in equity and of cash flows for the six month period then ended, including the explanatory notes.

Management is responsible for the preparation and presentation of this consolidated interim financial information in accordance with IAS 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on this consolidated interim financial information based on our review.

Scope of review

We conducted our review in accordance with International Standards on Review Engagements ISRE 2410 - Review of Interim Financial Information performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards of Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

3 

 

São Paulo Corporate Towers Av. Presidente Juscelino Kubitschek, 1.909 Vila Nova Conceição 04543-011 - São Paulo – SP - Brasil   Phone: +55 11 2573-3000 ey.com.br

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information, is not prepared, in all material respects, in accordance with IAS 34 - Interim Financial Reporting.

Other matters

Audit and review of the corresponding amounts

The audit of consolidated statement of financial position, as of December 31, 2019 and the review of consolidated interim financial information for the three and six month periods ended June 30, 2019, presented for comparison purposes, originally prepared prior to the amendments as described in Note 25 regarding the period ended June 30, 2019, were conducted under the responsibility of another auditor, which issued audit and review reports without modification, dated May 28, 2020 and August 15, 2019, respectively.

São Paulo, August 19, 2020.

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP034519/O-6

Marcos Alexandre S. Pupo

Accountant CRC-1SP221749/O-0

4 

 

Consolidated statements of financial position

(In thousands of Brazilian Reais - R$)

	Note		June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents		5.1		10,953,572		8,472,274
Marketable securities		5.2		2,658,608		3,115,503
Trade receivables		5.3		1,796,514		1,786,095
Derivative financial instruments		5.8		219,105		144,422
Inventories		7		869,598		787,322
Receivables from related parties		5.4		68,146		58,619
Income tax receivable				179,003		215,578
Other current tax receivable		6		1,055,462		950,246
Dividends receivable				42,217		23,252
Sector financial assets		12		404,907		—
Other financial assets				92,475		81,972
Other current assets				482,110		356,554
Total current assets				18,821,717		15,991,837
Trade receivables		5.3		28,558		28,299
Restricted cash		5.2		42,672		147,910
Deferred tax assets		14		1,665,304		1,607,566
Receivables from related parties		5.4		120,190		114,722
Income taxes receivable				219,291		168,089
Other non-current tax receivable		6		766,370		726,766
Judicial deposits		15		823,746		943,457
Other financial assets				1,168		69,791
Derivative financial instruments		5.8		9,350,821		3,679,988
Contract asset		10.4		719,382		600,541
Dividends receivable				15,725		—
Other non-current assets				261,370		245,716
Investments in associates		8.1		374,093		377,707
Investments in joint ventures		9		7,598,440		7,548,960
Property, plant and equipment		10.1		12,759,902		12,153,136
Intangible assets and goodwill		10.2		17,067,413		16,843,659
Right-of-use assets		10.3		7,883,327		4,469,730
Total non-current assets				59,697,772		49,726,037
Total assets				78,519,489		65,717,874
The accompanying notes are an integral part of these interim financial statements.

5 

 

Consolidated statements of financial position

(In thousands of Brazilian Reais - R$)

	Note		June 30, 2020			December 31, 2019
Liabilities
Loans, borrowings and debentures		5.5		4,810,360			3,518,225
Leases		5.6		1,134,841			542,475
Derivative financial instruments		5.8		11,578			30,784
Trade payables		5.7		2,377,310			2,190,264
Employee benefits payables				289,163			381,337
Income tax payables				193,448			424,138
Other taxes payable		13		437,755			363,051
Dividends payable				8,596			214,104
Sector financial liabilities		12		93,587			—
Concessions payable		11		111,652			9,847
Payables to related parties		5.4		398,644			392,458
Deferred revenue				6,358			7,300
Other financial liabilities				405,798			543,879
Other current liabilities				354,482			299,349
Total current liabilities				10,633,572			8,917,211
Loans, borrowings and debentures		5.5		34,666,904			25,533,990
Leases		5.6		6,867,114			4,052,413
Preferred shareholders payable in subsidiaries				446,984			611,537
Derivative financial instruments		5.8		124,401			50,267
Other taxes payable		13		150,476			155,070
Provision for legal proceedings		15		1,374,249			1,354,171
Concessions payable		11		2,851,064			3,445,033
Payables to related parties		5.4		741			—
Post-employment benefits		23		715,063			705,003
Deferred tax liabilities		14		3,609,989			3,883,564
Sector financial liabilities		12		403,467			—
Deferred revenue				46,099			48,036
Other non-current liabilities				778,503			721,098
Total non-current liabilities				52,035,054			40,560,182
Total liabilities				62,668,626			49,477,393
Shareholders' equity		16
Share capital				5,328			5,328
Additional paid-in capital				631,031			887,165
Accumulated other comprehensive loss				(1,590,933	)		(805,471	)
Retained earnings				5,180,179			5,314,843
Profit for the period				748,552			—
Equity attributable to:
Owners of the Company				4,974,157			5,401,865
Non-controlling interests		8.3		10,876,706			10,838,616
Total shareholders' equity				15,850,863			16,240,481
Total shareholders' equity and liabilities				78,519,489			65,717,874
The accompanying notes are an integral part of these interim financial statements.

6 

 

Consolidated statement of profit or loss

and other comprehensive income

(In thousands of Brazilian Reais - R$, except earnings per share)

	Note		April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated) 1			January 1, 2019 to June 30, 2019 (Restated) 1
Net sales		18		4,174,911			9,097,417			5,072,851			9,792,758
Cost of sales		19		(2,793,309	)		(6,343,520	)		(3,477,315	)		(6,946,642	)
Gross profit				1,381,602			2,753,897			1,595,536			2,846,116
Selling expenses		19		(315,013	)		(603,618	)		(267,902	)		(532,032	)
General and administrative expenses		19		(316,488	)		(611,807	)		(281,770	)		(539,734	)
Other expenses, net		20		214,457			86,595			7,075			5,788
Operating expenses				(417,044	)		(1,128,830	)		(542,597	)		(1,065,978	)
Profit before equity in earnings of investees, finance results and taxes				964,558			1,625,067			1,052,939			1,780,138
Interest in earnings of associates		8.1		7,180			10,420			6,004			(22,112	)
Interest in earnings of joint ventures		9		(221,151	)		(29,808	)		58,410			362,243
Equity in earnings of investees				(213,971	)		(19,388	)		64,414			340,131
Finance expense				(755,660	)		(2,983,294	)		(1,120,766	)		(1,924,801	)
Finance income				61,129			381,062			191,623			318,039
Foreign exchange, net				(766,358	)		(3,967,798	)		177,485			106,668
Derivatives				1,246,203			5,970,945			437,113			666,158
Finance results, net		21		(214,686	)		(599,085	)		(314,545	)		(833,936	)
Profit before taxes				535,901			1,006,594			802,808			1,286,333
Income taxes		14
Current				(242,315	)		(404,329	)		(253,209	)		(405,479	)
Deferred				46,272			263,071			(4,167	)		66,814
				(196,043	)		(141,258	)		(257,376	)		(338,665	)
Profit from continuing operations				339,858			865,336			545,432			947,668
Profit (loss) from discontinued operation, net of tax		25		—			—			(4,769	)		(10,576	)
Profit for the period				339,858			865,336			540,663			937,092
Other comprehensive income
Items that may not be reclassified to profit or loss
Actuarial loss on defined benefit plan				—			4			—			(2	)
				—			4			—			(2	)
Items that are or may subsequently be reclassified to profit or loss:
Foreign currency translation effect				(20,417	)		(200,027	)		(19,152	)		(52,246	)
Gain on cash flow hedge in joint ventures				(262,828	)		(418,462	)		27,957			(151,920	)
Changes in fair value of financial assets				40			40			65			75
				(283,205	)		(618,449	)		8,870			(204,091	)
Total other comprehensive (loss) income, net of tax				(283,205	)		(618,445	)		8,870			(204,093	)

7 

 

Consolidated statement of profit or loss

and other comprehensive income

(In thousands of Brazilian Reais - R$, except earnings per share)

Comprehensive income	56,653		246,891		549,533	743,575
Comprehensive income (loss) - Discontinued operation	—		—		—	(10,576	)
Total comprehensive income for the period	56,653		246,891		549,533	732,999
Profit attributable to:
Owners of the Company	101,899		748,552		208,401	398,617
Non-controlling interests	237,959		116,784		332,262	538,475
	339,858		865,336		540,663	937,092
Total comprehensive income attributable to:
Owners of the Company	(158,798	)	(36,910	)	228,318	282,294
Non-controlling interests	215,451		283,801		321,215	450,705
	56,653		246,891		549,533	732,999
Earnings per share from continued operation
The accompanying notes are an integral part of these consolidated interim financial statements. ¹ For details on this restated, see Note 25.

8 

 

Consolidated statement of changes in equity

(In thousands of Brazilian Reais - R$)

	Share capital		Additional  paid-in capital			Accumulated other comprehensive loss			Retained earnings			Equity attributable to owners of the Company			Non-controlling interest			Total equity
At December 31, 2019		5,328		887,165			(805,471	)		5,314,843			5,401,865			10,838,616			16,240,481
Net income for the period		—		—			—			748,552			748,552			116,784			865,336
Other comprehensive income (Note 16):
Loss on cash flow hedge in joint ventures		—		—			(274,029	)		—			(274,029	)		(144,433	)		(418,462	)
Foreign currency translation effects		—		—			(511,460	)		—			(511,460	)		311,433			(200,027	)
Actuarial loss on defined benefit plan		—		—			—			—			—			4			4
Change in fair value of financial assets		—		—			27			—			27			13			40
Total comprehensive income for the period		—		—			(785,462	)		748,552			(36,910	)		283,801			246,891
Contributions by and distributions to owners of the Company:
Capital increase in subsidiary		—		—			—			—			—			6,666			6,666
Dividends - non-controlling interests		—		(6,145	)		—			—			(6,145	)		(7,516	)		(13,661	)
Dividends		—		—			—			(134,664	)		(134,664	)		—			(134,664	)
Stock option exercised		—		(12,911	)		—			—			(12,911	)		(6,539	)		(19,450	)
Share-based payment transactions		—		34,233			—			—			34,233			7,423			41,656
Total contributions by and distributions to owners of the Company		—		15,177			—			(134,664	)		(119,487	)		34			(119,453	)
Transactions with owners of the Company
Change of shareholding interest in subsidiary		—		(271,311	)		—			—			(271,311	)		(245,745	)		(517,056	)
Total transactions with shareholders		—		(271,311	)		—			—			(271,311	)		(245,745	)		(517,056	)
At June 30, 2020		5,328		631,031			(1,590,933	)		5,928,731			4,974,157			10,876,706			15,850,863
The accompanying notes are an integral part of these consolidated interim financial statements.

9 

 

Consolidated statement of changes in equity

(In thousands of Brazilian Reais - R$)

	Share capital		Additional  paid-in capital			Accumulated other comprehensive loss			Retained earnings			Equity attributable to owners of the Company			Non-controlling interest			Total equity
At December 31, 2018		5,328		3,112,274			(587,173	)		4,083,974			6,614,403			11,354,953			17,969,356
Adjustment on initial application of IFRS 16, net of tax		—		—			—			(97,971	)		(97,971	)		(377,420	)		(475,391	)
At January 1, 2019		5,328		3,112,274			(587,173	)		3,986,003			6,516,432			10,977,533			17,493,965
Net income for the period		—		—			—			398,617			398,617			538,475			937,092
Other comprehensive income:
Loss on cash flow hedge in joint ventures		—		—			(91,541	)		—			(91,541	)		(60,379	)		(151,920	)
Foreign currency translation effects		—		—			(24,827	)		—			(24,827	)		(27,419	)		(52,246	)
Actuarial loss on defined benefit plan		—		—			—			—			—			(2	)		(2	)
Change in fair value of financial assets		—		—			45			—			45			30			75
Total comprehensive income for the period		—		—			(116,323	)		398,617			282,294			450,705			732,999
Contributions by and distributions to owners of the Company:
Dividends - non-controlling interests		—		(5,667	)		—			—			(5,667	)		5,667			—
Share options exercised - Subsidiaries		—		—			—			—			—			—			—
Dividends		—		—			—			—			—			(12,131	)		(12,131	)
Treasury shares acquired		—		(473,456	)		—			—			(473,456	)		—			(473,456	)
Share-based payment transactions		—		23,502			—			—			23,502			5,587			29,089
Total contributions by and distributions to owners of the Company		—		(455,621	)		—			—			(455,621	)		(877	)		(456,498	)
Transactions with owners of the Company
Change of shareholding interest in subsidiary		—		(639,499	)		—			—			(639,499	)		(939,053	)		(1,578,552	)
At June 30, 2019		5,328		2,017,154			(703,496	)		4,384,620			5,703,606			10,488,308			16,191,914
The accompanying notes are an integral part of these consolidated interim financial statements.

10 

 

Consolidated statement of cash flows

(In thousands of Brazilian Reais - R$)

	Note		June 30, 2020			June 30, 2019 (Restated)
Cash flows from operating activities
Profit before taxes				1,006,595			1,286,333
Adjustments for:
Depreciation and amortization				1,244,856			1,118,126
Lease and concession				(348,319	)		—
Interest in earnings of associates		8.1		(10,420	)		22,112
Interest in earnings of joint ventures		9		29,808			(362,243	)
Loss on disposals assets				2,309			7,346
Share-based payment				35,501			30,091
Legal proceedings provision				64,101			64,739
Indexation charges, interest and exchange, net				656,039			912,844
Sectorial financial assets and liabilities		12		101,812			—
Deferred revenue				(3,162	)		(5,080	)
Provisions for employee benefits				64,999			104,351
Allowance for doubtful accounts				67,699			(6,786	)
Contractual obligations for sales of credit rights		20		68,311			—
Gas paid and not used				—			(91,821	)
Recovering tax credits		20		(18,062	)		(48,285	)
Other				11,048			(45,801	)
				2,973,115			2,985,926
Changes in:
Trade receivables				181,313			(450,877	)
Inventories				(40,621	)		(99,728	)
Other current tax, net				(59,623	)		132,276
Income tax				(603,065	)		(120,840	)
Related parties, net				(36,252	)		4,578
Trade payables				4,608			173,007
Employee benefits				(151,381	)		(150,718	)
Provision for legal proceedings				(59,183	)		(59,298	)
Other financial liabilities				(213,886	)		(67,244	)
Judicial deposits				(7,636	)		(36,295	)
Discontinued operation		25		—			1,377
Contractual obligations for sales of credit rights		20		(1,278	)		—
Post-employment benefits				(17,885	)		(16,645	)
Gas paid and not used				—			161,463
Concessions payable				—			(7,730	)
Other assets and liabilities, net				(190,201	)		(250,357	)
				(1,195,090	)		(787,031	)
Net cash (used in) generated by operating activities				1,778,025			2,198,895
Cash flows from investing activities
Capital contribution in associates		8.1		(1,142	)		(26,045	)
Acquisition of subsidiary, net of cash acquired in consolidated		8.2		(90,247	)		(8,785	)
Sale (purchase) of marketable securities				497,553			2,071,851

11 

 

Consolidated statement of cash flows

(In thousands of Brazilian Reais - R$)

Restricted cash		112,954		(52,818	)
Dividends received from associates		6,274		8,246
Dividends received from joint ventures		—		688,120
Other financial assets		9		—
Acquisition of property, plant and equipment, intangible assets and contract assets		(1,791,888	)	(1,315,448	)
Net cash from sale of discontinued operations	25	—		1,108
Discontinued operation		(22,586	)	—
Cash received on sale of fixed assets, and intangible assets		—		8,028
Net cash generated (used) in investing activities		(1,289,073	)	1,374,257
Cash flows from financing activities
Loans, borrowings and debentures raised	5.5	5,511,144		3,019,872
Repayment of principal on loans, borrowings and debentures	5.5	(2,413,001	)	(1,801,878	)
Payment of interest on loans, borrowings and debentures	5.5	(736,372	)	(614,254	)
Payment of derivative financial instruments		(39,856	)	(93,007	)
Receipt of derivative financial instruments		619,595		137,171
Payment of derivative financial instruments, except debt		(101,461	)	—
Receipt of derivative financial instruments, except debt		106,519		—
Payment of principal on leases	5.6	(184,578	)	(108,214	)
Payment of interest on leases	5.6	(254,651	)	(85,255	)
Equity contribution from non-controlling interest	8.3	75,000		434,000
Equity contribution from shareholders interest	8.3	6,666		—
Payments to redeem entity's shares		(318,828	)	(473,456	)
Non-controlling interest subscription		—		1,192
Acquisition of non-controlling interests		(269,977	)	(2,141,675	)
Dividends paid		(341,417	)	(171,945	)
Dividends paid - Preferential shares		(174,227	)	(242,965	)
Receipts of consideration assets	8.1	65,478		—
Discontinued operation	25	—		(10,702	)
Share options exercised		(20,431	)	—
Net cash used in financing activities		1,529,603		(2,151,116	)
Decrease (increase) in cash and cash equivalents		2,018,555		1,422,036
Cash and cash equivalents at beginning of period		8,472,274		3,621,798
Effect of exchange rate fluctuations on cash held		462,797		(41,071	)
Cash and cash equivalents at end of period		10,953,626		5,002,763
Additional information
Income tax paid		539,604		115,554
The accompanying notes are an integral part of these interim financial statements.
1 For details on this restated, see Note 25.

12 

 

Consolidated statement of cash flows

(In thousands of Brazilian Reais - R$)

Non-cash transaction

i. At the Cosan Logística subsidiary, provision was made for social security tax assets related to the recovery of credits on the salary limit for contributions on behalf of third parties and taxation of the co-participation expenses of health plans, food vouchers and transportation vouchers, in the amount of R$ 20,022, of the of which R$ 18,062 (Note 20) are recorded under the heading “Recovering tax credits” and R$ 2,014 as “Interest, monetary and exchange variations, net”.

ii. Acquisition of assets for construction of the distribution network with payment in installments in the amount of R$ 24,894, (R$ 60,493 on June 30, 2019).

iii. Contribution of Comgás assets and liabilities, as detailed in note 8.2;

iv. Refinancing of some debts with BNDES.

v. Capital contribution in the subsidiary Payly Soluções de Payments S.A. (“Payly”) in the amount of R$ 10,000, through the capitalization of reimbursable expenses.

vi. Recognition of interest on equity decided by the Raízen Combustíveis S.A. in the amount of R$ 37,500

vii. Recognition of contractual obligations for sales of credit rights, in the amount of R$ 68,311 (Note 20).

viii. Registration of rights of use in the amount of R$ 3,434,832 related to new contracts covered by the lease (Note 5.6).

ix. In the period ended June 30, 2020, the subsidiary controlled by Compass, Comgás, recorded the net sectoral financial liability balance of (R$ 92,747) against net sales (Note 18) and costs and expenses by nature (Note 19).

Disclosure of interest and dividends

The Company discloses the dividends and interest on shareholders' equity received as cash flow from investing activities.

Interest received or paid is classified as cash flow in financing activities.

13 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

1 Operations

Cosan Limited (“Cosan”) was incorporated in Bermuda on April 30, 2007. Cosan’s class A common shares are traded on the New York Stock Exchange, or “NYSE,” (ticker—CZZ). Mr. Rubens Ometto Silveira Mello is the ultimate controlling shareholder of Cosan. Cosan controls its subsidiaries Cosan S.A. and Cosan Logística S.A. (“Cosan Logística”) through a 66.28% and 73.49% interest, respectively. Cosan, Cosan S.A., Cosan Logística and its subsidiaries are collectively referred to as the “Company.”

On January 14, 2020, the subsidiary Cosan S.A. contributed to the share capital of the subsidiary Compass Gás e Energia S.A. (“Compass Gás e Energia”), the totality of the shares it held in Companhia de Gás de São Paulo - COMGÁS (“Comgás” ), that is, 103,699,333 common shares and 27,682,044 preferred shares equivalent to 99.15% of the share capital, for the amount of R$ 2,861,936. Contributed shareholders' equity was that of December 31, 2019 and, therefore, as of January 1, 2020, Compass Gás e Energia became the holder of its control.

On January 30, 2020, the Company acquired, through its subsidiary Comercializadora de Gás S.A. (“Comercialização”), control of Black River Participações Ltda. (“Black River”), Compass Comercializadora de Energia Ltda., Compass Geração Ltda. and Compass Energia Ltda. jointly called “Compass Trading” for an amount equivalent to R$ 95,000. The purpose of the investment is to enter the electricity trading business.

On March 9, 2020, Cosan S.A. announced the creation of the “Gas and Energy” segment. This segment will integrate the operations of Comgás, TRSP - LNG Regasification Terminal of São Paulo S.A. (“TRSP”), Rota 4 Participações S.A. (“Rota 4”) and Compass Trading. Our new gas and energy segment will be the vehicle through which we will develop the activities of (i) distribution of piped natural gas in part of the State of São Paulo to customers in the industrial, residential, commercial, automotive and cogeneration sectors; (ii) sale of electricity and natural gas; (iii) infrastructure in a regasification terminal and offshore flow pipeline; and (iv) thermal generation through natural gas.

14 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Cybersecurity Incident

On March 11, 2020, the Company, its subsidiaries, jointly controlled and affiliated companies were subject to a ransomware cyberattack that caused a partial and temporary interruption of its operations. The affected entities within our group implemented their contingency plans, continued operating partially during the cyberattack, and have been progressively reconnecting their operating systems since the attack.

Following the incident, we have taken certain additional preventative measures to reduce cyber risks, including engaging a company to carry out a forensic analysis of the cyberattack we suffered, which affected the data center located at our Shared Service Center as well as user desktops and laptops connected to our network. Based on the experience and tools of the company we engaged, interviews with our information technology personnel and technical evidence present in the environment, we identified a number of servers to be examined in more detail. Although the entrance vector of the cyber-attack could not be identified, the process and characteristics of the cyber-attack could be satisfactorily identified. We believe this will assist us in reviewing our information technology systems to prevent further cyber-attacks.

Until June 30, 2020, Cosan Group companies had spent R$ 7,595 in relation to the cyber attack, including the costs of prevention, detection, response and management, implementation of additional cybersecurity technologies and hiring of specialized labor.

Renewal of Malha Paulista’s concession

On May 27, 2020, Cosan Logística, through its subsidiary Rumo Malha Paulista, celebrated with the union through the regulatory agency, the National Land Transportation Agency (ANTT), the 2nd amendment to the Rumo Malha Paulista Concession Agreement. The amendment was reviewed and authorized by the TCU - Federal Audit Court according to the order of May 20, 2020, a statement issued under TC 009.032 / 2016-9. As a result, the concession term for Malha Paulista was extended until 2058, through a series of financial commitments, in addition to the operational obligations stipulated in the renewal amendment:

15 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

· Payment of an additional grant in the amount of R$ 3,382,030, which is divided into quarterly installments over the term of the contract;

· Resumption of payment of the lease and concession of the original contract, quarterly payments that extend until December 2028;

· Payment of the remaining balance of the meeting of accounts related to the economic imbalance action, in the amount of R$ 1,347,609, in eight annual installments;

· Execution of a set of investment projects to increase capacity and reduce urban conflicts, estimated by the agency at R$ 6,100,000 (updated value until December 2017).

The extension of the concession of Rumo Malha Paulista fits as a relevant amendment to a contract registered in accordance with the provisions of IFRS 16. In this context, the present value of the additional grant, as well as the variation of the pre-existing lease due to the recalculation at the rate of implicit interest of the addendum (regulatory WACC), were recorded in lease liabilities against the corresponding use rights asset. In addition, future investments related to the concession contract will be recorded in property, plant and equipment as incurred.

Covid-19

On March 11, 2020, the World Health Organization officially declared this Covid-19 outbreak a pandemic. Our business has been and will continue to be adversely affected by the coronavirus pandemic and, as a consequence, some of our businesses decided to suspend the guidance for 2020.

The Company implemented a contingency plan with the objective of preserving the health and integrity of its employees and partners, in addition to ensuring the safety and continuity of operations considered essential activities, as it is a strategic input in hospitals, safety, food and energy.

16 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Despite the measures taken to curb the progress of Covid-19 and the aid measures announced by governments worldwide, including the Brazilian government, to date, we cannot predict the extent, duration and impacts of these containment measures. or the results of aid measures in the countries where we operate and / or sell our products. Based on the information available, the main assessments and, where applicable, the main effects of the Covid-19 pandemic on our results of operations are:

a) Government assistance measures

Several measures of economic and financial assistance were introduced by the federal entities, with the objective of assisting companies in mitigating the effects of the pandemic, with emphasis on the following, which were adopted by the companies of the Group:

i. Ordinance of the Ministry of Economy No. 139 and No. 150 postponed the term for collecting the following federal taxes, due to the COVID-19 pandemic. The (a) Social contributions due by employers and domestic employers related to March and April, 2020 should be paid in August and October, 2020, respectively; and (b) PIS/PASEP and COFINS contributions regarding March and April, 2020 were also postponed to August and October, 2020, respectively.

ii. Provisional Measure No. 927 suspended the enforceability of the FGTS payments by employers concerning March, April and May of 2020, with maturity in April, May and June, respectively, which can be paid as from July in up to six installments.

iii. Provisional Measure No. 932. The Provisional Measure No. 932 reduces, until June 30, 2020, the rates of contributions to autonomous social services. The reductions were different for each entity that belongs to autonomous social services, varying from 0.05% to 1.25%.

iv. Federal Decree No. 10,305. The Federal Decree No. 10,305 reduces to zero the tax on financial transactions (Imposto sobre Operações Financeiras), or “IOF,” applicable to credit transactions contracted between April 3 and July 3, 2020.

17 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

v. Ordinance of the Ministry of Economy No. 201. Ordinance No. 201 extended the maturity date of the monthly installments related to the installment programs administered by the Special Secretariat of the Federal Revenue of Brazil (Receita Federal do Brasil), or “RFB,” and by the National Treasury Attorney's Office (Procuradoria-Geral da Fazenda Nacional), or “PGFN.” As a result, the installments due in May, June and July 2020 are extended until the last business day of August, October and December 2020, respectively.

vi. Commitment signed between Comgás and the Government of the State of São Paulo to maintain the supply of gas to defaulting customers until July 31, 2020.

b)Impact on interim financial statements

The Company ended the period ended June 30, 2020 with cash of R$10,953,572, positive net working capital of R$ 8,188,145 and a profit of R$ 865,336 million.

In order to preventively reinforce the liquidity level during this period of high volatility, in March to June 2020, financing lines were contracted and used with financial institutions in the amount of R$ 7,697,300, (R$ 2,276,000 contracted by joint ventures) without any financial covenant clauses. Considering the current level of liquidity, the additional initiatives mentioned above, other lines of credit under negotiation and the prospects for the short and medium term, the Company does not foresee a material impairment of its operational and financial capacity that could affect the Company's continuity.

Our covenants are assessed monthly for our need to generate sufficient cash flows to meet indebtedness and our ability to meet the covenants contained in the contracts that govern our indebtedness. As of June 30, 2020, the Company's leverage (gross debt / pro forma EBITDA) was 2.48x (2.3x as of December 31, 2019). As of June 30, 2020, the Company and its subsidiaries have been complying with all restrictive financial clauses.

18 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Amid high market volatility, the Company believes that, at that moment, there will be a shift in cash flow between the months with circulation restrictions for the following months. Additionally, considering the low level of interest rates in Brazil and in the locations of our subsidiaries, we believe that despite the short-term fluctuations in some macroeconomic assumptions due to the impacts of the Covid-19 pandemic, our weighted average cost of capital should not change materials.

The Company assessed the circumstances that could indicate the impairment of its non-financial assets and concluded that there were no changes in the circumstances that would indicate an impairment loss. Therefore, the main long-term assumptions applied in the preparation of the cash flow models remain unchanged for the assessment of the impairment indicator. As a conclusion, it was verified that the discounted cash flows when compared to the book value of each segment, would result in a recoverable value higher than the book value. Our tax recovery projections are based on the same scenarios and assumptions above.

Losses due to the non-recoverability of financial assets were calculated based on the credit risk analysis, which includes the history of losses, the individual situation of customers, the situation of the economic group to which they belong, the real guarantees for debts and macroeconomic indicators. , and is considered, on June 30, 2020, sufficient to cover possible losses on the amounts receivable, in addition to a prospective assessment that takes into account the change or expected change in economic factors that affect the expected credit losses, which will be determined based on weighted probabilities and measured at an amount equal to the expected credit loss for life.

The maximum exposure to the Company's credit risk, net of losses due to the non-recoverability of financial assets, is the value of accounts receivable. The credit quality of accounts receivable falling due is considered adequate, and the amount of the effective risk of possible losses in accounts receivable from customers is presented as losses due to the non-recoverability of financial assets. Other counterparty credit risks for cash and cash equivalents, marketable securities, restricted cash and derivative financial instruments are determined by rating agencies widely accepted by the market. Balances are allocated to institutions with a minimum grade of “A”. As of June 30, 2020, there was no deterioration in credit risk in these counterparties.

19 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The Company will continue, throughout 2020, its constant monitoring of the market seeking to identify any deterioration, significant drop in demand from the sectors in which we operate, relevant changes in the economy or financial market that lead to an increase in the perception of credit risk on accounts a receive from customers. Eventual changes that deteriorate the economic and business environment, if manifested at a greater intensity than anticipated in the scenarios evaluated by the Company, may result in an additional expected credit loss recognition.

Inventories are valued based on the loweer of the historical acquisition or production cost and the net realizable value. The Company uses the estimated sale price in the normal course of business to estimate the net realizable value, therefore, a decline in the level of activity in the domestic or international markets in which the Company operates, as a result of the Covid-19 pandemic and measures to contain it, can affect the demand and price of these products and have an adverse effect on the realizable value of inventories. As our inventories are substantially comprised of lubricants, basic oil and materials for the construction of gas pipelines that are products that are not valid or have a long duration, we have identified any indicators of impairment.

To date, there have been no changes in the scope of the Company's leases, no adjustments to the right of use, including adding or terminating the right to use one or more underlying assets, or extending or reducing the term of the contractual lease. We also believe that there has been no change in the consideration for the leases that we are both lessees and lessors.

2 Statement of compliance

The consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB). They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual consolidated financial statements as at and for the period ended June 30, 2020.

20 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

These interim financial statements were prepared following the basis of preparation and accounting policies consistent with those adopted in the preparation of the financial statements of December 31, 2019 and should be read together.

The information in the explanatory notes that have not undergone significant changes compared to December 31, 2019 has not been fully presented in this quarterly information.

On December 2, 2019, Cosan S.A. sold its shares in Cosan Biomassa S.A. to Raízen Energia S.A.. The comparative consolidated statement of profit or loss and statements of cash flows have been restated to show the discontinued operation separately from continuing operations (See Note 25).

These consolidated financial statements were authorized for issue by the Board of Directors on August 07, 2020.

3 Accounting policies

These interim consolidated financial statements were prepared based on the preparation basis and accounting policies consistent with those adopted in the preparation of the financial statements as of December 31, 2019. All balances have been rounded to the nearest thousand, except where otherwise indicated.

21 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

4 Segment information

Segment information is used by the Company's top management (the Chief Operating Decision Maker) to assess the performance of the operating segments and make decisions regarding the allocation of resources. This information is prepared in a manner consistent with the accounting policies used in the preparation of the financial statements. The Company evaluates the performance of its operating segments based on earnings before interest, depreciation and amortization (“EBITDA - Earnings before interest, taxes, depreciation, and amortization”).

Reported segments:

i. Raízen Energia: production and marketing of a variety of products derived from sugar cane, including raw sugar (Very High Polarization, or “VHP”), anhydrous and hydrated ethanol, and activities related to energy cogeneration from sugarcane bagasse. In addition, this segment holds interests in companies engaged in research and development on new technology;

ii. Raízen Combustíveis: distribution and marketing of fuels, mainly through a franchised network of service stations under the “Shell” brand throughout Brazil, petroleum refining, the operation of fuel resellers, a convenience store business, the manufacture and sale of automotive and industrial lubricants, and the production and sale of liquefied petroleum gas throughout Argentina;

iii. Gas and Energy: its main activities are: (i) distribution of piped natural gas in part of the State of São Paulo to customers in the industrial, residential, commercial, automotive and cogeneration sectors; and (ii) commercialization of electricity, comprising the purchase and sale of electricity to other traders, to consumers who have a free choice of supplier and to other agents permitted by law.

iv. Logistics: logistics services for rail transportation, storage and port loading of commodities, mainly for grains and sugar, leasing of locomotives, wagons and another railway equipment;

22 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

v. Moove: production and distribution of lubricants under the Mobil brand in Brazil, Argentina, Bolivia, Uruguay, Paraguay, the United States of America and Europe, as well as in the European and Asian markets under the “Comma” trademark and corporate activities;

Reconciliation:

i. Cosan Corporate: digital wallet platform and other investments, in addition to the corporate activities of the Company. The Cosan corporate segment includes the financing subsidiaries for the Cosan group.

Although Raízen Energia and Raízen Combustíveis are joint ventures recorded under the equity method and are no longer proportionally consolidated, Management continues to review the information by segment. The reconciliation of these segments is shown in the “Deconsolidated effects” column.

23 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	April 1, 2020 to June 30, 2020
	Reported segments																		Reconciliation									Consolidated
	Raízen Energia			Raízen Combustíveis						Gas and Energy			Moove			Logistics			Cosan Corporate			Deconsolidated effects			Segment elimination
				Brazil			Argentina
Statement of profit or loss:
Gross sales		5,293,288			14,346,684			2,738,951			2,552,575			1,017,223			1,925,826			228			(22,378,923	)		(9,881	)		5,485,971
Domestic market (i)		4,023,825			14,346,684			2,738,951			2,552,575			986,387			1,925,826			228			(21,109,460	)		(9,881	)		5,455,135
External market (i)		1,269,463			—			—			—			30,836			—			—			(1,269,463	)		—			30,836
Net sales		4,993,446			13,751,175			1,791,114			1,559,752			796,866			1,827,960			214			(20,535,735	)		(9,881	)		4,174,911
Cost of sales		(4,505,679	)		(13,432,855	)		(1,982,828	)		(1,033,876	)		(617,878	)		(1,150,885	)		(551	)		19,921,362			9,881			(2,793,309	)
Gross profit		487,767			318,320			(191,714	)		525,876			178,988			677,075			(337	)		(614,373	)		—			1,381,602
Selling expenses		(167,878	)		(326,632	)		(165,421	)		(202,166	)		(104,256	)		(8,169	)		(422	)		659,931			—			(315,013	)
General and administrative expenses		(162,586	)		(105,013	)		(41,386	)		(107,140	)		(57,172	)		(86,130	)		(66,046	)		308,985			—			(316,488	)
Other income (expenses), net		(28,916	)		53,329			24,189			29,677			688			205,683			(21,591	)		(48,602	)		—			214,457
Interest in earnings of associates		—			(275,205	)		—			3			—			4,264			71,487			275,205			(68,574	)		7,180
Interest in earnings of joint ventures		(82,759	)		518			—			—			—			—			(221,151	)		82,241			—			(221,151	)
Finance results, net		(178,825	)	��	(49,579	)		(4,604	)		(45,256	)		(30,977	)		(201,031	)		62,578			233,008			—			(214,686	)
Finance expense		(463,470	)		(95,977	)		(47,768	)		(83,117	)		(7,653	)		(452,400	)		(212,490	)		607,215			—			(755,660	)
Finance income		90,918			47,470			2,218			68,999			6,782			42,217			(56,869	)		(140,606	)		—			61,129
Foreign exchange, net		(131,889	)		(657,122	)		50,386			(48,507	)		(41,827	)		(389,353	)		(286,671	)		738,625			—			(766,358	)
Derivatives		325,616			656,050			(9,440	)		17,369			11,721			598,505			618,608			(972,226	)		—			1,246,203
Income tax (expense)benefit		29,228			48,245			103,731			(70,122	)		(905	)		(185,182	)		60,166			(181,204	)		—			(196,043	)
Profit for the period		(103,969	)		(336,017	)		(275,205	)		130,872			(13,634	)		406,510			(115,316	)		715,191			(68,574	)		339,858
Profit (loss) attributable to:
Owners of the Company		(106,647	)		(335,679	)		(275,205	)		128,408			(10,001	)		86,104			(113,856	)		717,531			11,244			101,899
Non-controlling interests		2,678			(338	)		—			2,464			(3,633	)		320,406			(1,460	)		(2,340	)		(79,818	)		237,959
		(103,969	)		(336,017	)		(275,205	)		130,872			(13,634	)		406,510			(115,316	)		715,191			(68,574	)		339,858
Other select data
Depreciation and amortization		618,630			73,766			172,773			119,518			26,221			532,028			3,963			(865,169	)		—			681,730
EBITDA		664,258			(260,917	)		(201,559	)		365,768			44,469			1,324,751			(234,097	)		(201,782	)		(68,574	)		1,432,317
Additions to PP&E, intangible and Contracts assets		574,010			54,912			55,627			234,702			7,219			722,215			7,388			(684,549	)		—			971,524
Reconciliation of EBITDA
Profit (loss) for the period		(103,969	)		(336,017	)		(275,205	)		130,872			(13,634	)		406,510			(115,316	)		715,191			(68,574	)		339,858
Income tax and (expense) benefit		(29,228	)		(48,245	)		(103,731	)		70,122			905			185,182			(60,166	)		181,204			—			196,043
Finance results, net		178,825			49,579			4,604			45,256			30,977			201,031			(62,578	)		(233,008	)		—			214,686
Depreciation and amortization		618,630			73,766			172,773			119,518			26,221			532,028			3,963			(865,169	)		—			681,730
EBITDA		664,258			(260,917	)		(201,559	)		365,768			44,469			1,324,751			(234,097	)		(201,782	)		(68,574	)		1,432,317

24 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	January 1, 2020 to June 30, 2020
	Reported segments																		Reconciliation									Consolidated
	Raízen Energia			Raízen Combustíveis						Gas and Energy			Moove			Logistics			Cosan Corporate			Deconsolidated effects			Segment elimination
				Brazil			Argentina
Statement of profit or loss:
Gross sales		14,748,306			35,957,615			6,926,719			5,651,450			2,331,065			3,424,177			328			(57,632,640	)		(17,542	)		11,389,478
Domestic market (i)		8,934,768			35,957,615			6,926,719			5,651,450			2,247,093			3,424,177			328			(51,819,102	)		(17,542	)		11,305,506
External market (i)		5,813,538			—			—			—			83,972			—			—			(5,813,538	)		—			83,972
Net sales		13,988,779			34,288,848			4,777,566			4,035,097			1,828,033			3,251,524			305			(53,055,193	)		(17,542	)		9,097,417
Cost of sales		(12,685,462	)		(33,177,384	)		(4,715,762	)		(2,714,337	)		(1,422,616	)		(2,222,053	)		(2,056	)		50,578,608			17,542			(6,343,520	)
Gross profit		1,303,317			1,111,464			61,804			1,320,760			405,417			1,029,471			(1,751	)		(2,476,585	)		—			2,753,897
Selling expenses		(377,123	)		(695,473	)		(356,180	)		(360,994	)		(223,879	)		(17,321	)		(1,424	)		1,428,776			—			(603,618	)
General and administrative expenses		(307,048	)		(232,071	)		(78,634	)		(192,808	)		(103,842	)		(184,565	)		(130,592	)		617,753			—			(611,807	)
Other income (expenses), net		240,905			166,371			48,678			40,364			29,028			113,781			(96,578	)		(455,954	)		—			86,595
Interest in earnings of associates		—			(288,511	)		—			8			—			6,684			540,206			288,511			(536,478	)		10,420
Interest in earnings of joint ventures		(87,097	)		967			—			—			—			—			(29,808	)		86,130			—			(29,808	)
Finance results, net		(514,835	)		(214,724	)		(56,277	)		(45,852	)		(70,017	)		(731,696	)		248,480			785,836			—			(599,085	)
Finance expense		(691,550	)		(374,478	)		(71,543	)		(172,598	)		(15,765	)		(1,792,512	)		(1,002,419	)		1,137,571			—			(2,983,294	)
Finance income		188,250			122,628			9,709			124,617			16,769			78,660			161,016			(320,587	)		—			381,062
Foreign exchange, net		(740,100	)		(3,536,461	)		19,662			(199,787	)		(115,840	)		(1,965,117	)		(1,687,054	)		4,256,899			—			(3,967,798	)
Derivatives		728,565			3,573,587			(14,105	)		201,916			44,819			2,947,273			2,776,937			(4,288,047	)		—			5,970,945
Income tax (expense)benefit		(80,004	)		(48,315	)		92,098			(253,018	)		(14,516	)		(86,351	)		212,627			36,221			—			(141,258	)
Profit for the period		178,115			(200,292	)		(288,511	)		508,460			22,191			130,003			741,160			310,688			(536,478	)		865,336
Profit (loss) attributable to:
Owners of the Company		137,736			(198,395	)		(288,511	)		500,604			15,284			27,060			741,108			349,170			(535,304	)		748,752
Non-controlling interests		40,379			(1,897	)		—			7,856			6,907			102,943			52			(38,482	)		(1,174	)		116,584
		178,115			(200,292	)		(288,511	)		508,460			22,191			130,003			741,160			310,688			(536,478	)		865,336
Other select data
Depreciation and amortization		1,816,150			151,987			315,357			236,280			49,690			951,213			7,673			(2,283,494	)		—			1,244,856
EBITDA		2,589,104			214,734			(8,975	)		1,043,610			156,414			1,899,263			287,726			(2,794,863	)		(536,478	)		2,850,535
Additions to PP&E, intangible and Contracts assets		1,642,320			129,834			142,999			485,460			10,359			1,283,310			12,759			(1,915,153	)		—			1,791,888
Reconciliation of EBITDA
Profit (loss) for the period		178,115			(200,292	)		(288,511	)		508,460			22,191			130,003			741,160			310,688			(536,478	)		865,336
Income tax and (expense) benefit		80,004			48,315			(92,098	)		253,018			14,516			86,351			(212,627	)		(36,221	)		—			141,258
Finance results, net		514,835			214,724			56,277			45,852			70,017			731,696			(248,480	)		(785,836	)		—			599,085
Depreciation and amortization		1,816,150			151,987			315,357			236,280			49,690			951,213			7,673			(2,283,494	)		—			1,244,856
EBITDA		2,589,104			214,734			(8,975	)		1,043,610			156,414			1,899,263			287,726			(2,794,863	)		(536,478	)		2,850,535

(i) Domestic markets: sales within the countries where each entity is located; external markets: sales export.

25 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	April 1, 2019 to June 30, 2019
	Reported segments																		Reconciliation									Consolidated
	Raízen Energia			Raízen Combustíveis						Gas and Energy			Moove			Logistics			Cosan Corporate			Deconsolidated effects			Segment elimination
				Brazil			Argentina
Statement of profit or loss:
Gross sales		6,414,950			23,106,912			4,361,663			2,956,167			1,255,566			1,821,590			—			(33,883,525	)		828			6,034,151
Domestic market (i)		5,322,458			23,106,912			4,361,663			2,956,167			1,239,762			1,821,590			—			(32,791,033	)		828			6,018,347
External market (i)		1,092,492			—			—			—			15,804			—			—			(1,092,492	)		—			15,804
Net sales		6,084,101			22,026,216			3,084,782			2,338,800			1,004,483			1,728,740			—			(31,195,099	)		828			5,072,851
Cost of sales		(5,690,189	)		(21,209,525	)		(2,806,390	)		(1,550,871	)		(784,921	)		(1,140,694	)		(1	)		29,706,104			(828	)		(3,477,315	)
Gross profit		393,912			816,691			278,392			787,929			219,562			588,046			(1	)		(1,488,995	)		—			1,595,536
Selling expenses		(172,208	)		(386,104	)		(166,731	)		(152,088	)		(120,743	)		7,258			(2,329	)		725,043			—			(267,902	)
General and administrative expenses		(150,989	)		(121,047	)		(31,390	)		(89,503	)		(39,713	)		(88,385	)		(64,169	)		303,426			—			(281,770	)
Other income (expenses), net		423			117,241			28,825			17,450			(972	)		(5,489	)		(3,914	)		(146,489	)		—			7,075
Interest in earnings of associates		—			51,242			—			—			(774	)		3,825			655,127			(51,242	)		(652,174	)		6,004
Interest in earnings of joint ventures		(8,947	)		—			—			—			—			—			58,410			8,947			—			58,410
Finance results, net		(243,951	)		(106,568	)		(19,125	)		(36,898	)		13,049			(258,617	)		(32,079	)		369,644			—			(314,545	)
Finance expense		(443,947	)		(295,372	)		(14,614	)		(100,418	)		(15,793	)		(624,910	)		(379,645	)		753,933			—			(1,120,766	)
Finance income		122,308			89,958			7,106			63,480			14,647			45,354			68,142			(219,372	)		—			191,623
Foreign exchange, net		27,268			127,255			21,498			9,232			20,685			86,300			61,268			(176,021	)		—			177,485
Derivatives		50,420			(28,409	)		(33,115	)		(9,192	)		(6,490	)		234,639			218,156			11,104			—			437,113
Income tax (expense)benefit		56,939			(94,478	)		(38,729	)		(180,473	)		(17,560	)		(61,621	)		2,278			76,268			—			(257,376	)
Profit (loss) from continuing operations		(124,821	)		276,977			51,242			346,417			52,849			185,017			613,323			(203,398	)		(652,174	)		545,432
Loss from discontinued operations		—			—			—			—			—			—			(4,769	)		—			—			(4,769	)
Profit (loss) attributable to:
Owners of the Company		(138,456	)		262,621			51,242			335,897			36,302			50,751			606,418			(175,407	)		(820,967	)		208,401
Non-controlling interests		13,635			14,356			—			10,520			16,547			134,266			2,136			(27,991	)		168,793			332,262
		(124,821	)		276,977			51,242			346,417			52,849			185,017			608,554			(203,398	)		(652,174	)		540,663
Other select data
Depreciation and amortization		626,195			67,620			119,623			115,211			20,597			416,978			3,368			(813,438	)		—			556,154
EBITDA		688,386			545,643			228,719			678,999			77,957			922,233			646,492			(1,462,748	)		(652,174	)		1,673,507
Additions to PP&E, intangible and Contracts assets		629,734			66,391			145,082			174,205			6,119			438,729			2,787			(841,207	)		—			621,840
Reconciliation of EBITDA
Profit (loss) for the period, continuing operations		(124,821	)		276,977			51,242			346,417			52,849			185,017			613,323			(203,398	)		(652,174	)		545,432
Income tax and (expense) benefit		(56,939	)		94,478			38,729			180,473			17,560			61,621			(2,278	)		(76,268	)		—			257,376
Finance results, net		243,951			106,568			19,125			36,898			(13,049	)		258,617			32,079			(369,644	)		—			314,545
Depreciation and amortization		626,195			67,620			119,623			115,211			20,597			416,978			3,368			(813,438	)		—			556,154
EBITDA		688,386			545,643			228,719			678,999			77,957			922,233			646,492			(1,462,748	)		(652,174	)		1,673,507

26 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	January 1, 2019 to June 30, 2019
	Reported segments																		Reconciliation									Consolidated
	Raízen Energia			Raízen Combustíveis						Gas and Energy			Moove			Logistics			Cosan Corporate			Deconsolidated effects			Segment elimination
				Brazil			Argentina
Statement of profit or loss:
Gross sales		13,975,948			44,180,317			8,752,357			5,563,600			2,537,914			3,544,027			3			(66,908,622	)		(8,604	)		11,636,940
Domestic market (i)		11,071,665			44,180,317			8,752,357			5,563,600			2,512,321			3,544,027			3			(64,004,339	)		(8,604	)		11,611,347
External market (i)		2,904,283			—			—			—			25,593			—			—			(2,904,283	)		—			25,593
Net sales		13,204,129			42,059,356			6,212,905			4,398,851			2,038,823			3,363,686			2			(61,476,390	)		(8,604	)		9,792,758
Cost of sales		(12,341,464	)		(40,329,972	)		(5,585,410	)		(3,049,798	)		(1,611,279	)		(2,294,168	)		(1	)		58,256,846			8,604			(6,946,642	)
Gross profit		862,665			1,729,384			627,495			1,349,053			427,544			1,069,518			1			(3,219,544	)		—			2,846,116
Selling expenses		(407,658	)		(729,049	)		(330,344	)		(301,326	)		(232,767	)		4,416			(2,355	)		1,467,051			—			(532,032	)
General and administrative expenses		(275,426	)		(251,744	)		(63,264	)		(173,110	)		(77,356	)		(171,610	)		(117,658	)		590,434			—			(539,734	)
Other income (expenses), net		48,453			377,873			48,830			20,919			72			(27,015	)		11,812			(475,156	)		—			5,788
Interest in earnings of associates		—			161,986			—			—			951			8,575			1,017,766			(161,986	)		(1,049,404	)		(22,112	)
Interest in earnings of joint ventures		(4,258	)		1			1			—			—			—			362,243			4,256			—			362,243
Finance results, net		(399,001	)		(72,700	)		(124,033	)		(89,375	)		9,930			(583,062	)		(171,429	)		595,734			—			(833,936	)
Finance expense		(760,252	)		(472,174	)		(31,905	)		(199,457	)		(26,496	)		(1,060,028	)		(638,820	)		1,264,331			—			(1,924,801	)
Finance income		247,679			151,653			12,379			110,114			18,156			87,229			102,540			(411,711	)		—			318,039
Foreign exchange, net		53,756			185,961			(71,392	)		5,916			11,433			59,355			29,964			(168,325	)		—			106,668
Derivatives		59,816			61,860			(33,115	)		(5,948	)		6,837			330,382			334,887			(88,561	)		—			666,158
Income tax (expense)benefit		63,829			(319,948	)		3,301			(279,805	)		(32,930	)		(89,431	)		63,501			252,818			—			(338,665	)
Profit (loss) from continuing operations		(111,396	)		895,803			161,986			526,356			95,444			211,391			1,163,881			(946,393	)		(1,049,404	)		947,668
Loss from discontinued operations		—			—			—			—			—			—			(10,576	)		—			—			(10,576	)
Profit (loss) attributable to:
Owners of the Company		(125,811	)		860,635			161,986			495,728			65,693			57,730			1,158,280			(896,810	)		(1,378,814	)		398,617
Non-controlling interests		14,415			35,168			—			30,629			29,751			153,661			(4,976	)		(49,583	)		329,410			538,475
		(111,396	)		895,803			161,986			526,357			95,444			211,391			1,153,304			(946,393	)		(1,049,404	)		937,092
Other select data
Depreciation and amortization		1,354,792			150,935			222,153			230,605			41,078			839,432			7,011			(1,727,880	)		—			1,118,126
EBITDA		1,578,568			1,439,386			504,871			1,126,141			159,522			1,723,316			1,278,820			(3,522,825	)		(1,049,404	)		3,238,395
Additions to PP&E, intangible and Contracts assets		1,707,755			139,386			163,562			320,387			9,401			981,337			4,323			(2,010,703	)		—			1,315,448
Reconciliation of EBITDA
Profit (loss) for the period, continuing operations		(111,396	)		895,803			161,986			526,356			95,444			211,391			1,163,881			(946,393	)		(1,049,404	)		947,668
Income tax and (expense) benefit		(63,829	)		319,948			(3,301	)		279,805			32,930			89,431			(63,501	)		(252,818	)		—			338,665
Finance results, net		399,001			72,700			124,033			89,375			(9,930	)		583,062			171,429			(595,734	)		—			833,936
Depreciation and amortization		1,354,792			150,935			222,153			230,605			41,078			839,432			7,011			(1,727,880	)		—			1,118,126
EBITDA		1,578,568			1,439,386			504,871			1,126,141			159,522			1,723,316			1,278,820			(3,522,825	)		(1,049,404	)		3,238,395

27 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020
	Reported segments																		Reconciliation									Consolidated
	Raízen Energia			Raízen Combustíveis						Gas and Energy			Moove			Logístics			Cosan Corporate			Deconsolidated effects			Segment elimination
				Brazil			Argentina
Statement of financial position:
Cash and cash equivalents		4,725,142			900,239			338,587			2,435,638			850,984			5,472,459			2,194,491			(5,963,968	)		—			10,953,572
Marketable securities		—			—			—			1,011,180			136,022			404,289			1,107,117			—			—			2,658,608
Trade receivables		1,041,650			1,877,915			277,716			937,810			405,608			481,604			50			(3,197,281	)		—			1,825,072
Derivative financial instruments		5,098,514			3,447,669			—			589,830			64,342			4,577,814			4,337,940			(8,546,183	)		—			9,569,926
Inventories		3,314,212			2,434,004			1,334,341			118,346			471,852			279,195			205			(7,082,557	)		—			869,598
Sectorial financial assets		—			—			—			404,907			—			—			—			—			—			404,907
Other financial assets		489,328			—			—			—			70,375			—			23,268			(489,328	)		—			93,643
Other current assets		4,047,930			3,464,107			962,113			324,087			242,751			648,721			1,164,398			(8,474,150	)		(553,019	)		1,826,938
Other non-current assets		5,515,217			4,176,914			108,577			89,758			250,516			2,552,016			1,360,898			(9,800,708	)		(338,520	)		3,914,668
Investments in associates		—			3,269,149			375			—			350			45,310			13,674,413			(3,269,524	)		(13,345,980	)		374,093
Investments in joint ventures		521,544			739,546			—			—			—			—			7,598,440			(1,261,090	)		—			7,598,440
Biological assets		1,035,981			—			—			—			—			—			—			(1,035,981	)		—			—
Contract asset		—			—			—			710,290			9,092			—			—			—			—			719,382
Right-of-use assets		4,363,427			126,233			539,981			10,614			40,374			7,797,233			35,106			(5,029,641	)		—			7,883,327
Property, plant and equipment		12,386,191			2,553,751			4,287,440			5,797			328,321			12,346,973			78,811			(19,227,382	)		—			12,759,902
Intangible assets and goodwill		3,610,737			2,531,372			11,032			8,468,538			1,259,221			7,317,067			22,587			(6,153,141	)		—			17,067,413
Loans, borrowings and debentures		(18,844,883	)		(7,715,335	)		(1,285,892	)		(7,336,786	)		(881,134	)		(17,878,557	)		(13,380,787	)		27,846,110			—			(39,477,264	)
Derivative financial instruments		(4,049,558	)		(361,956	)		(6,991	)		(8,906	)		(2,671	)		—			(124,402	)		4,418,505			—			(135,979	)
Trade payables		(4,080,912	)		(3,433,845	)		(638,401	)		(1,271,962	)		(524,069	)		(577,816	)		(3,463	)		8,153,158			—			(2,377,310	)
Employee benefits payable		(538,807	)		(138,756	)		(71,319	)		(52,899	)		(59,452	)		(152,043	)		(24,769	)		748,882			—			(289,163	)
Sectorial financial liabilities		—			—			—			(497,054	)		—			—			—			—			—			(497,054	)
Other current liabilities		(3,088,771	)		(2,515,628	)		(1,280,063	)		(440,318	)		(263,789	)		(736,831	)		(540,568	)		6,884,462			64,773			(1,916,733	)
Preferred shareholders payable in subsidiaries		—			—			—			—			—			—			(446,984	)		—			—			(446,984	)
Leases		(3,798,443	)		(135,955	)		(494,126	)		(11,409	)		(43,325	)		(7,908,724	)		(38,497	)		4,428,524			—			(8,001,955	)
Other non-current liabilities		(1,840,973	)		(5,495,402	)		(813,846	)		(2,016,750	)		(535,593	)		(5,912,196	)		(1,888,411	)		8,150,221			826,766			(9,526,184	)
Total assets (net of liabilities) allocated by segment		9,907,526			5,724,022			3,269,524			3,470,711			1,819,775			8,756,514			15,149,843			(18,901,072	)		(13,345,980	)		15,850,863
Total assets		46,149,873			25,520,899			7,860,162			15,106,795			4,129,808			41,922,681			31,597,724			(79,530,934	)		(14,237,519	)		78,519,489
Shareholders' equity attributable to:
Equity attributable to owners of the Company		9,800,838			5,464,994			3,269,524			3,408,949			1,266,602			1,775,657			4,974,157			(18,535,356	)		(6,451,208	)		4,974,157
Non-controlling interests		106,688			259,028			—			61,762			553,173			6,980,857			10,175,686			(365,716	)		(6,894,772	)		10,876,706
Total shareholders' equity		9,907,526			5,724,022			3,269,524			3,470,711			1,819,775			8,756,514			15,149,843			(18,901,072	)		(13,345,980	)		15,850,863

28 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	December 31, 2019
	Reported segments																		Reconciliation
	Raízen Energia			Raízen Combustíveis						Gas and Energy			Moove			Logistics			Cosan Corporate			Deconsolidated effects			Segment elimination			Consolidated
				Brazil			Argentina
Statement of financial position:
Cash and cash equivalents		2,715,055			1,036,151			266,309			1,083,410			610,605			1,963,018			4,815,241			(4,017,515	)		—			8,472,274
Marketable securities		—			—			—			200,233			43,856			1,751,853			1,119,561			—			—			3,115,503
Trade receivables		1,135,079			2,455,365			442,204			987,397			427,714			399,249			34			(4,032,648	)		—			1,814,394
Derivative financial instruments		2,139,240			911,874			5,165			374,730			17,005			1,624,023			1,808,652			(3,056,279	)		—			3,824,410
Inventories		4,592,428			3,007,893			1,099,632			89,586			449,211			248,456			69			(8,699,953	)		—			787,322
Other financial assets		602,542			—			—			—			134,636			—			17,127			(602,542	)		—			151,763
Other current assets		7,125,332			4,026,776			882,624			315,744			165,070			604,988			1,307,714			(12,034,732	)		(789,267	)		1,604,249
Other non-current assets		4,196,166			4,231,350			62,869			90,662			150,683			2,638,286			1,562,822			(8,490,385	)		(488,227	)		3,954,226
Investments in associates		—			2,612,576			276			—			365			52,012			12,760,443			(2,612,852	)		(12,435,113	)		377,707
Investments in joint ventures		577,008			727,936			—			—			—			—			7,548,960			(1,304,944	)		—			7,548,960
Biological assets		734,495			—			—			—			—			—			—			(734,495	)		—			—
Contract asset		—			—			—			594,602			5,939			—			—			—			—			600,541
Right-of-use assets		4,017,503			97,374			476,251			10,128			22,592			4,410,952			26,058			(4,591,128	)		—			4,469,730
Property, plant and equipment		11,342,326			2,595,878			3,304,040			—			310,007			11,770,168			72,961			(17,242,244	)		—			12,153,136
Intangible assets and goodwill		3,666,186			2,548,927			9,637			8,291,608			1,161,426			7,375,033			15,592			(6,224,750	)		—			16,843,659
Loans, borrowings and debentures		(15,653,705	)		(5,745,735	)		(912,807	)		(5,244,942	)		(670,263	)		(11,720,477	)		(11,416,533	)		22,312,247			—			(29,052,215	)
Derivative financial instruments		(1,422,923	)		(325,018	)		—			—			(1,801	)		(482	)		(78,768	)		1,747,941			—			(81,051	)
Trade payables		(5,101,474	)		(2,568,885	)		(943,789	)		(1,154,206	)		(515,759	)		(513,325	)		(6,974	)		8,614,148			—			(2,190,264	)
Employee benefits payable		(360,414	)		(77,692	)		(48,752	)		(59,928	)		(70,068	)		(216,685	)		(34,656	)		486,858			—			(381,337	)
Other current liabilities		(4,317,609	)		(5,859,807	)		(856,185	)		(683,555	)		(217,706	)		(711,305	)		(1,113,182	)		11,033,601			471,622			(2,254,126	)
Preferred shareholders payable in subsidiaries		—			—			—			—			—			—			(611,537	)		—			—			(611,537	)
Leases		(3,504,501	)		(103,807	)		(439,860	)		(10,843	)		(27,431	)		(4,529,139	)		(27,475	)		4,048,168			—			(4,594,888	)
Other non-current liabilities		(2,046,961	)		(4,492,725	)		(734,762	)		(1,998,107	)		(408,385	)		(6,531,054	)		(2,180,301	)		7,274,448			805,872			(10,311,975	)
Total assets (net of liabilities) allocated by segment		10,435,773			5,078,431			2,612,852			2,886,519			1,587,696			8,615,571			15,585,808			(18,127,056	)		(12,435,113	)		16,240,481
Total assets		42,843,360			24,252,100			6,549,007			12,038,100			3,499,109			32,838,038			31,055,234			(73,644,467	)		(13,712,607	)		65,717,874
Equity attributable to owners of the Company		10,358,052			4,808,076			2,612,852			2,861,954			1,107,137			1,746,668			5,401,864			(17,778,980	)		(5,715,758	)		5,401,865
Non-controlling interests		77,721			270,355			—			24,565			480,559			6,868,903			10,183,944			(348,076	)		(6,719,355	)		10,838,616
Total shareholders’ equity		10,435,773			5,078,431			2,612,852			2,886,519			1,587,696			8,615,571			15,585,808			(18,127,056	)		(12,435,113	)		16,240,481

29 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

4.1 Net sales by segment

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Restated)
Reported segment
Raízen Energia
Ethanol		2,087,864			5,757,665			1,912,101			4,862,646
Sugar		1,085,080			3,387,961			751,317			2,332,914
Gas		196,147			1,020,194			731,409			1,354,939
Diesel		1,095,068			2,607,602			1,736,908			2,936,184
Cogeneration		437,989			1,105,270			911,268			1,647,148
Other		91,298			110,087			41,098			70,298
		4,993,446			13,988,779			6,084,101			13,204,129
Raízen Combustíveis
Fuels		15,350,786			38,591,263			24,745,688			47,551,699
Other		191,503			475,151			365,310			720,562
		15,542,289			39,066,414			25,110,998			48,272,261
Gas and Energy
Distribution of natural gas
Industrial		758,015			2,245,829			1,512,161			2,900,568
Residential		309,596			620,736			308,026			518,953
Cogeneration		55,740			149,935			110,597			214,120
Automotive		26,783			103,078			87,980			167,950
Commercial		36,710			163,022			125,582			229,508
Construction revenue		219,098			416,319			182,114			342,050
Other		8,696			22,289			12,340			25,702
Electricity trading		145,114			313,889			—			—
		1,559,752			4,035,097			2,338,800			4,398,851
Moove
Finished goods		735,814			1,689,164			839,959			1,810,948
Basic oil		36,230			87,624			155,676			212,261
Services		24,822			51,245			8,848			15,614
		796,866			1,828,033			1,004,483			2,038,823
Logistics
North operations		1,383,083			2,468,044			1,283,959			2,523,962
South operations		386,188			654,067			371,811			700,233
Container operations		58,689			129,413			72,970			139,491
		1,827,960			3,251,524			1,728,740			3,363,686
Reconciliation
Cosan Corporate		214			305			—			2
Deconsolidated effects and eliminations		(20,545,616	)		(53,072,735	)		(31,194,271	)		(61,484,994	)
Total		4,174,911			9,097,417			5,072,851			9,792,758

30 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

5 Financial assets and liabilities

The carrying amount of financial assets and financial liabilities are as follows:

	Note		June 30, 2020		December 31, 2019
Assets
Fair value through profit or loss
Cash and cash equivalents		5.1		2,051,887		3,279,170
Marketable securities		5.2		2,658,608		3,115,503
Other financial assets				93,643		134,637
Derivate financial instruments		5.8		9,569,926		3,824,410
				14,374,064		10,353,720
Amortized cost
Cash and cash equivalents		5.1		8,901,685		5,193,104
Trade receivables		5.3		1,825,072		1,814,394
Restricted cash		5.2		42,672		147,910
Receivables from related parties		5.4		188,336		173,341
Sector financial assets		12		404,907		—
Dividends receivable				57,942		23,252
				11,420,614		7,352,001
Total assets				25,794,678		17,705,721
		Note		June 30, 2020		December 31, 2019
Liabilities
Amortized cost
Loans, borrowings and debentures		5.5		16,250,050		12,682,049
Leases		5.6		8,001,955		4,594,888
Trade payables		5.7		2,377,310		2,190,264
Other financial liabilities				405,798		543,879
Payables to related parties		5.4		399,385		392,458
Preferred shareholders payable in subsidiaries				446,984		611,537
Dividends payable				8,596		214,104
Sector financial liabilities		12		497,054		—
Tax installments - REFIS		13		204,281		213,360
				28,591,413		21,442,539
Fair value through profit or loss
Loans, borrowings and debentures		5.5		23,227,214		16,370,166
Consideration payable				219,362		184,370
Derivative financial instruments		5.8		135,979		81,051
				23,582,555		16,635,587
Total liabilities				52,173,968		38,078,126

31 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

5.1 Cash and cash equivalents

	June 30, 2020		December 31, 2019
Cash and bank accounts		872,518		364,151
Savings account		1,219,980		885,740
Financial investments		8,861,074		7,222,383
		10,953,572		8,472,274

Financial investments are composed as follows:

	June 30, 2020		December 31, 2019
Investment fund
Repurchase agreements		477,736		2,799,706
Bank certificate of deposits - CDB		1,574,151		479,464
		2,051,887		3,279,170
Bank investments
Repurchase agreements		1,305,833		1,400,735
Bank certificate of deposits - CDB		5,429,059		2,339,058
Other		74,295		203,420
		6,809,187		3,943,213
		8,861,074		7,222,383

The Company’s onshore financial investments are remunerated at rates around 97% of the Brazilian interbank offering rate (Certificado de Depósito Interbancário), or “CDI,” at June 30, 2020 (100% of CDI in 2019) and offshore financial investments are remunerated at rates around 100% of Fed Funds. The sensitivity analysis on interest rate risks is in Note 22.

32 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

5.2 Marketable securities and restricted cash

	June 30, 2020		December 31, 2019
Marketable securities
Government security (i)		2,544,394		2,719,630
Bank certificate of deposit - CDB		83,698		125,413
Repurchase agreements		30,516		270,460
		2,658,608		3,115,503
Restricted cash
Investments linked to loans		—		86,681
Securities pledged as collateral		42,672		61,229
		42,672		147,910

(i)       Government securities have stated interest connected to Special System for Settlement and Custody (Sistema Especial de Liquidação e de Custódia), or “SELIC”.

5.3 Trade receivables

	June 30, 2020			December 31, 2019
Domestic – Local currency		1,952,961			1,874,400
Export – Foreign currency		56,915			60,401
		2,009,876			1,934,801
Expected credit losses (i)		(184,804	)		(120,407	)
		1,825,072			1,814,394
Current		1,796,514			1,786,095
Non-current		28,558			28,299
		1,825,072			1,814,394

(i) Of the total recognized, approximately R$ 54,000 was added to the subsidiary Comgás due to higher defaults due to the COVID-19 pandemic.

33 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

5.4 Related parties

a) Summary of balances to related parties

	June 30, 2020		December 31, 2019
Current asset
Corporate operation / Agreements
Raízen Energia S.A. (i)		63,002		50,296
Aguassanta Participações S.A.		626		444
Raízen Combustíveis S.A. (i)		4,334		7,588
Other		184		291
		68,146		58,619
Total current assets		68,146		58,619
Non-current assets
Corporate operation / Agreements
Raízen Combustíveis S.A. (i)		41,277		36,410
Other		460		—
		41,737		36,410
Preferred shares
Raízen Energia S.A. (i)		78,304		78,304
Janus Brasil Participações S.A		8		8
Raízen Combustíveis S.A. (i)		141		—
		78,453		78,312
Total non-current assets		120,190		114,722
Total assets		188,336		173,341

34 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020		December 31, 2019
Current liabilities
Corporate operations / agreements
Raízen Energia S.A. (i)		260,025		262,612
Raízen Combustíveis S.A. (i)		137,099		127,773
Radar Propriedades Agrícolas S.A.		—		150
Other		1,520		1,923
Total current liabilities		398,644		392,458
Non-current liabilities
Corporate operations / agreements
Other		741		—
Total non-current liabilities		741		—

(i) Current and non-current assets receivable from Raízen Energia and Raízen Combustíveis are, primarily, tax credits which will be reimbursed to the Company when realized. The preferred shares are used to Raízen reimburse Cosan, with preferential dividends, when the net operating loss is consumed in Raízen.    Current liabilities represent reimburse to Raízen Energia and Raízen Combustíveis related to expenses regarding legal disputes and other liabilities, generated before the formation of joint ventures, which are responsibility of Cosan S.A..

35 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

b) Related party transactions

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restatement)			January 1, 2019 to June 30, 2019 (Restatement)
Product sales
Raízen Energia S.A.		63,493			174,327			68,954			176,758
Raízen Combustíveis S.A		34,622			77,728			56,125			105,909
Other		550			818			2,265			6,204
		98,665			252,873			127,344			288,871
Purchase of goods / inputs
Raízen Energia S.A.		—			—			(2,204	)		(2,400	)
Raízen Combustíveis S.A		(250,514	)		(501,411	)		(300,038	)		(578,372	)
Other		(14	)		(27	)		(256	)		(256	)
		(250,528	)		(501,438	)		(302,498	)		(581,028	)
		—			—			—			(133	)
Shared expense
Raízen Energia S.A.		(20,040	)		(43,476	)		(17,992	)		(37,026	)
		(20,040	)		(43,476	)		(17,992	)		(37,026	)
Financial result
Usina Santa Luiza		—			—			—			(41	)
Raízen Energia S.A.		4			5			—			—
Raízen Combustíveis S.A		1,946			4,013			1,392			2,760
Other		4			4			(101	)		(130	)
		1,954			4,022			1,291			2,589

c) Officers’ and directors’ compensation

The Company has a compensation policy approved by the Board of Directors. Compensation of the Company’s key management personnel includes salaries, non-cash benefits and contributions to a post-employment defined benefit plan.

	April 1, 2020 to June 30, 2020		January 1, 2020 to June 30, 2020		April 1, 2019 to June 30, 2019		January 1, 2019 to June 30, 2019
Short-term benefits to officers and directors		10,780		30,199		29,017		52,290
Share-based payment transactions		1,652		6,591		5,224		7,758
Post-employment benefits		215		431		307		476
Other long-term benefits		—		—		547		547
Benefits from termination of employment contract		—		—		1,193		1,193
		12,647		37,221		36,288		62,264

36 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

5.5 Loans, borrowings and debentures

	Interest
Description	Index	Annual interest rate			June 30, 2020		December 31, 2019		Maturity		Objective
With guarantee
BNDES	URTJLP		7.41	%		3,495,824		2,213,704		Dec-29	Expansion project
	Fixed		5.59	%		740,650		834,039		Jan-25	Expansion project
	TJ462		7.89	%		—		144,573		Oct-20	Investment
	Selic		5.52	%		—		73,540		Oct-20	Investment
	Selic		5.68	%		—		52,031		Jun-23	Investment
	TJLP		7.09	%		—		83,174		Jun-23	Investment
	TJLP		5.09	%		—		1,667		Jun-23	Investment
	Selic		3.52	%		371		1,118		Sep-20	Expansion project
	Fixed		3.50	%		1,251		1,426		Jan-24	Expansion project
	IPCA		9.48	%		1,591		1,528		Nov-21	Expansion project
	URTJLP		7.10	%		2,001		4,952		Mar-22	Expansion project
Export credit agreement (ECA)	Euribor + 0.58%		0.58	%		104,733		79,528		Sep-26	Investment
EIB	U.S.$		3.88	%		—		31,770		Jun-20	Investment
	U.S.$		2.94	%		19,864		29,081		Sep-20	Investment
	U.S.$ + LIBOR		1.11	%		65,308		71,129		May-21	Investment
	U.S.$ + LIBOR		1.35	%		92,051		89,336		Sep-21	Investment
						4,523,644		3,712,596
Without guarantee
Foreign loans	GBP + Libor		1.29	%		135,549		106,643		Dec-21	Acquisition
	GBP + Libor		1.84	%		237,264		186,604		Dec-22	Acquisition
	GBP + Libor		2.05	%		170,605		150,253		Jul-21	Acquisition
	Fixed		1.16	%		3,342		3,561		Mar-22	Investment
NCE	CDI + 0,80%		2.97	%		508,166		512,078		Dec-23	Working capital
	CDI + 1,03%		3.63	%		80,974		—		Feb-23	Working capital
	CDI + 3,05%		5.27	%		203,280		—		Mar-21	Working capital
	CDI + 3,15%		5.37	%		455,501		—		Mar-21	Working capital
Perpetual Notes	U.S.$		8.25	%		2,772,510		2,040,752		Nov-40	Acquisition
Resolution 4131	U.S.$		4.79	%		13,411		20,688		Oct-20	Working capital
	U.S.$ + Libor		2.90	%		—		81,107		Feb-20	Working capital
	U.S.$		3.67	%		439,848		313,493		May-23	Working capital
	U.S.$		1.36	%		514,716		217,537		Nov-22	Working capital
	U.S.$		1.59	%		408,013		—		Apr-21	Working capital
	CDI		4.86	%		201,707		—		Apr-21	Working capital
Senior Notes Due 2023	U.S.$		5.00	%		602,861		438,985		Mar-23	Acquisition
Senior Notes Due 2027	U.S.$		7.00	%		4,565,361		3,234,647		Jan-27	Acquisition
Senior Notes Due 2024	U.S.$		7.38	%		5,033,761		3,318,895		Feb-24	Acquisition
Senior Notes Due 2024	U.S.$		5.95	%		1,297,701		903,636		Sep-24	Acquisition
Senior Notes Due 2025	U.S.$		5.88	%		3,290,398		2,182,089		Jan-25	Acquisition
Senior Notes Due 2029	Fixed		5.50	%		4,142,356		3,071,052		Sep-29	Acquisition
Guaranteed account	122% of CDI		2.69	%		3,120		—		Aug-20	Working capital
	125.5% of CDI		5.53	%		—		740		Jan-20	Working capital
Prepayment	U.S.$+Libor		4.87	%		55,442		—		Mar-21	Working capital
	100% Libor		1.43	%		109,734		80,932		Nov-21	Working capital
	100% Libor 0,76%		2.72	%		55,739		40,474		Oct-20	Working capital
Debentures	IGPM + 6,10%		12.23	%		252,248		240,900		May-28	Working capital
	IPCA + 5.57%		7.29	%		110,106		108,133		Sep-20	Working capital
	IPCA + 7.14%		8.89	%		331,762		318,412		Dec-20	Working capital
	IPCA + 7.48%		9.23	%		298,734		286,271		Dec-22	Working capital
	IPCA + 7.36%		9.11	%		98,418		94,367		Dec-25	Working capital
	IPCA + 5.87%		7.60	%		903,517		859,996		Dec-23	Working capital
	IPCA + 4.33%		6.03	%		444,278		431,817		Oct-24	Working capital
	IPCA + 4.68%		6.39	%		578,955		570,098		Feb-26	Working capital
	IPCA + 4.50%		6.20	%		677,168		668,034		Feb-29	Working capital

37 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	IPCA + 3,90%	5.59	%	977,971	895,249	Oct-29	Working capital
	IPCA + 4,00%	5.70	%	239,466	219,466	Oct-29	Working capital
	IPCA - 3.25% base 252	4.93	%	540,663	—	Apr-29	BNDES
	IPCA - 4.10% base 252	5.80	%	184,920	—	Apr-29	BNDES
	CDI - 2.75%	4.96	%	100,047	—	Jun-22	Working capital
	IPCA + 6,80%	8.54	%	766,952	—	Apr-30	Debentures
	CDI - 3.00% base 252	5.21	%	584,914	—	Apr-21	Promissory note
	CDI - 3.40% base 252	5.62	%	505,689	—	Apr-21	Promissory note
	106 % of CDI	4.67	%	—	1,727,459	Feb-21	Acquisition (i)
	100% CDI + 0,50%	2.66	%	2,056,453	2,015,251	Oct-22	Working capital
				34,953,620	25,339,619
Total				39,477,264	29,052,215
Current				4,810,360	3,518,225
Non-current				34,666,904	25,533,990

(i) On December 20, 2019, Cosan S.A. announced a tender offer with an optional early redemption of the debentures from its second issuance of non-convertible, single series, unsecured debentures issued in February 28, 2019 and due on February 28, 2021. The optional early full redemption took place on January 16, 2020. Cosan S.A. redeemed debentures in aggregate amount of R$1,735,203.

The Company used the annual average rate of the CDI of 2.15% and Brazilian long-term interest rate (taxa de juros de longo prazo), or “TJLP,” of 4.94 %.

Non-current borrowings are scheduled to fall due as follows:

	June 30, 2020		December 31, 2019
13 to 24 months		1,903,483		1,813,849
25 to 36 months		4,502,025		3,240,861
37 to 48 months		6,747,001		2,294,198
49 to 60 months		5,653,443		5,032,388
61 to 72 months		715,662		2,520,671
73 to 84 months		5,104,217		456,983
85 to 96 months		1,276,692		3,821,149
Thereafter		8,764,381		6,353,891
		34,666,904		25,533,990

The carrying amounts of loans, borrowings and debentures are denominated in the following currencies:

38 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020		December 31, 2019
Brazilian reais (R$)		15,346,697		12,360,022
U.S. Dollar (U.S.$)		23,479,073		16,165,604
British pound (GBP)		543,419		443,500
Euro (EUR)		108,075		83,089
		39,477,264		29,052,215

Below are the movements that occurred for the period ended June 30, 2020:

At December 31, 2019	29,052,215
Raised	5,511,144
Amortization of principal	(2,413,001	)
Payment of interest	(736,372	)
Interest, exchange rate and fair value	8,063,278
June 30, 2020	39,477,264

a) Guarantees

Some financing agreements with the Brazilian National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES,” of the subsidiaries Comgás and Rumo, are guaranteed by bank guarantee, or by real guarantees (assets) and escrow account. On June 30, 2020, the balance of bank guarantees contracted was R$180,464 with an average cost of 0.99% p.a. (R$532,558 as of December 31, 2019).

b) Available credit line

As of June 30, 2020 and on December 31, 2019, the subsidiary Rumo S.A. had available credit lines from BNDES, which were not used, in the total amount of R$1,946,194.

At June 30, 2020, the subsidiary Cosan S.A. had available credit lines from financial institutions AA, which were not used, in the total amount of R$501,000.

39 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The use of these credit lines is subject to certain contractual conditions.

c) Financial covenants

Under the terms of the major borrowing facilities, the Company and its subsidiaries are required to comply with the following financial covenants:

Debt	Triggers	Ratios
Debenture 3rd and 4th Issue – Comgás	Short-term indebtedness / Total indebtedness cannot exceed 0.6		0.31
Debenture 3rd to 8th Issue – Comgás	Net debt / EBITDA cannot exceed 4.00		1.40
BNDES	Net debt / EBITDA cannot exceed 4.00		1.40
Loan 4131	Net debt / EBITDA cannot exceed 4.00		1.40
Promissory note	Net debt / EBITDA cannot exceed 4.00		1.40
Senior Notes 2027 - Cosan S.A.	Net debt (i)/ EBITDA not higher than or equal to 3.5		2.39
Senior Notes Due 2024 – Cosan Limited	Net debt (i)/ EBITDA not higher than or equal to 3.5		2.30
Senior Notes Due 2029 – Cosan Limited	Net debt (i)/ EBITDA not higher than or equal to 3.5		2.30
Senior Notes Due 2024 – Rumo	Net debt / EBITDA not higher than or equal to 3.3		1.97
Senior Notes Due 2025 - Rumo	Net debt / EBITDA not higher than or equal to 3.3		1.97
BNDES - Rumo	Net debt / EBITDA not lower than or equal 3.3x in December 2020		1.97
BNDES - Rumo	EBITDA / Consolidated Financial Result not lower than or equal 2.0x in December 2020		9.68

(i)Net debt and EBITDA pro forma, including joint ventures numbers;

(ii)Net debt consists of current and non-current debt (including preferred shareholders payable in subsidiaries), net of cash and cash equivalents, marketable securities and derivatives on debt recorded in our consolidated financial statements as other non-current assets. Net debt is a non-GAAP measure.

(iii)Net debt consists of current and non-current loans and financing, net of cash and cash equivalents and of securities and securities recorded in these interim financial statements;

(iv)The effects of initial recognition of IFRS 16 are not part of triggers measures for financial covenants purposes.

For the other loans, borrowings and debentures of the Company there are no financial clauses.

The loan terms include provisions for cross-default.

As of June 30, 2020, the Company and its subsidiaries were in compliance with all restrictive financial clauses.

40 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

d) Fair value and exposure to financial risk

The fair value of the loans is based on the discounted cash flow using its implicit discount rate. They are classified as a level 2 fair value in the hierarchy (Note 5.9) due to the use of unobservable data, including own credit risk.

The details of the Company’s exposure to risks arising from loans are shown in Note 22.

5.6 Leases

The balance sheet shows the following amounts relating to leases:

	Finance leases			Operating leases			Total
At January 1, 2020		429,591			4,165,297			4,594,888
Recognition of interest		—			1,849			1,849
Transfer of liabilities (i)		31,795			307,906			339,701
Payment of principal		(50,420	)		(134,158	)		(184,578	)
Payment of interest		(31,080	)		(223,624	)		(254,704	)
Additions		87,976			3,416,823			3,504,799
At June 30, 2020		467,862			7,534,093			8,001,955
Current		257,931			876,910			1,134,841
Non-current		210,282			6,656,832			6,867,114
		468,213			7,533,742			8,001,955

(i)Transfer of parcels under litigation to lease and concessions (Note 11).

The lease agreements have varying expirations, with last due to expire in June 2043. The amounts are adjusted annually for inflation rates (General Market Price Index (Índice Geral de Preços – Mercado), or “IGP-M,” or Extended National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or “IPCA”) or may incur interest based on the TJLP) or CDI and some contracts have renewal or purchase options that were considered in determining the classification as lease.

41 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

In addition to the amortization and appropriation of interest and exchange variation highlighted in the previous tables, the following impacts on income during the period ended June 30, 2020 were recorded for other lease agreements that were not included in the measurement of lease liabilities:

	June 30, 2020
Variable lease payments not included in the measurement of lease liabilities		11,567
Expenses relating to short-term leases		498
Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets		23,552
		35,617

Additional Information

The Company, in full compliance with the rules, in measuring and remeasuring its lease liabilities and the right to use, proceeded to discount the present value of future lease installments without projecting the projected future inflation in the installments to be discounted.

The incremental interest rate (nominal) used by the Company and its subsidiaries was determined based on the interest rates to which the Company has access, adjusted to the Brazilian market and the terms of its contracts. Rates between 10.9% and 14.2% were used, according to the term of each contract.

5.7 Trade payables

The carrying amounts of trade and other payables are the same as their fair values, due to their short-term nature.

42 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020		December 31, 2019
Materials and service suppliers		1,274,379		1,356,978
Natural gas suppliers		1,001,351		815,798
Other		101,580		17,488
		2,377,310		2,190,264

5.8 Derivative financial instruments

Accounting policy (new operations)

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedge instrument and, if so, the nature of the hedged item. The Company designates certain derivatives as:

(i)       fair value hedge of recognized assets or liabilities or a firm commitment (fair value hedge); or

(ii)       hedge of a particular risk associated with cash flows from recognized assets and liabilities and highly probable forecast transactions (cash flow hedge).

At the beginning of the hedge relationship, the Company documents the economic relationship between the hedge instruments and the hedged items, including changes in the cash flows of the hedge instruments, which should offset the changes in the cash flows of the hedged items. The Company documents its risk management objective and strategy for carrying out its hedge operations. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognized immediately in the income statement and are included in other gains / (losses).

The fair values of the derivative financial instruments designated in hedge relationships are disclosed below. The total fair value of a hedge derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is greater than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

43 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The Company makes an assessment, both at the beginning of the hedge relationship and on an ongoing basis, on whether the hedge instruments should be highly effective in offsetting changes in fair value or in the cash flows of the respective attributable hedged items. For the hedged risk, and if the actual results of each hedge are within a range of 60% to 140%.

The Company has a portfolio of energy contracts (purchase and sale) aimed at meeting demands and offers for consumption or supply of energy. In addition, there is a portfolio of contracts that comprises forward positions, usually short-term. For this portfolio, there is no purchase commitment with a sales contract.

The Company has the flexibility to manage the contracts in this portfolio in order to obtain gains from variations in market prices, considering its policies and risk limits. Contracts in this portfolio can be settled at the net cash value or by another financial instrument (for example: entering into a clearing contract with the counterparty; or “undoing its position” of the contract before its exercise or prescription; or shortly after purchase) , make a sale for the purpose of generating profit through short-term price fluctuations or gain with resale margin).

Such energy purchase and sale transactions are traded on an active market and meet the definition of financial instruments, due to the fact that they are settled at the net cash value, and are readily convertible into cash. Such contracts are accounted for as derivatives and are recognized in the balance sheet at fair value, on the date the derivative is entered into, and are revalued at fair value on the balance sheet date.

Financial assets and liabilities are offset and the net amount is shown in the balance sheet when there is a legal right to offset the recognized amounts and there is an intention to settle them on a net basis, or to realize the asset and settle the liability simultaneously. The legal right must not be contingent on future events and must be applicable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

The fair value of these derivatives is estimated based, in part, on price quotes published in active markets, insofar as such observable market data exist, and, in part, by the use of valuation techniques, which considers: (i ) prices established in recent purchase and sale operations, (ii) risk margin in supply and (iii) projected market price in the availability period. Whenever the fair value at initial recognition for these contracts differs from the transaction price, a gain in fair value or loss in fair value is recognized on the base date.

44 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	Notional				Fair value
	June 30, 2020		December 31, 2019		June 30, 2020			December 31, 2019
Fuel derivative agreements
Forward agreements (i)		13,422		—		(2,671	)		—
Energy derivative agreements
Forward agreements (ii)		450,357		—		31,353			—
Exchange rate derivatives
Forward agreements		1,626,880		1,542,535		95,561			(30,784	)
Interest rate and exchange rate risk
Swap agreements (shares) (iii)		600,000		—		34,284			—
Swap agreements (interest rate)		2,284,808		2,633,796		724,272			692,642
Swap agreements (exchange and interest rate)		12,032,704		10,888,474		8,551,148			3,081,501
		14,917,512		13,522,270		9,309,704			3,774,143
Total financial instruments						9,433,947			3,743,359
Assets						9,569,926			3,824,410
Liabilities						(135,979	)		(81,051	)

(i) Forward contracts for fuels contracted by the subsidiary Moove, which seek to reduce possible impacts on the price fluctuation of the commodity that interferes with our lubricant costs.

(ii) The subsidiary Compass Gás e Energia has a portfolio of energy contracts (purchase and sale) aimed at meeting demands and offers for consumption or supply of energy. In addition, there is a portfolio of contracts that comprises forward positions, usually short-term. For this portfolio, there is no purchase commitment with a sales contract.

(iii) On April 9, 2020, the Company entered into a shares purchase and derivatives negotiation plan, or the Total Return Swap, with Banco Santander (Brasil) S.A. – Cayman Branch and Santander Fundo de Investimento Amazonas Multimercado Crédito Privado Investimento no Exterior. Pursuant to the Total Return Swap, the Santander Fund will be able to purchase, on its own behalf, common shares issued by Cosan S.A., and Santander Cayman will be able to enter into equity swap transactions on its own behalf and on our behalf in connection with such shares. The maximum aggregate amount of derivatives which may be negotiated pursuant to the Total Return Swap and the maximum aggregate number of underlying Cosan S.A. shares thereunder are R$600,000 and 19,500,000, respectively.

45 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Debt derivative financial instruments are used only for economic hedge purposes and not as speculative investments.

Fair value hedge

Currently the Company has adopted the hedge accounting of fair value for some its operations that both the hedging instruments and the hedged items are accounted for at fair value through profit or loss.

46 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The effects of the foreign currency-related hedging instruments and interest rate swaps on the Company’s financial position and performance are as follows:

				Book value						Accumulated fair value adjustment
	Notional			June 30, 2020			December 31, 2019			June 30, 2020			December 31, 2019
Loans, financing and debentures
Designated items
Debenture 3rd issue - 3rd series (Comgás)		79,299			(110,106	)		(108,133	)		(1,749	)		(14,822	)
Debenture 5th issue - single series (Comgás)		684,501			(903,517	)		(859,996	)		(34,899	)		(90,110	)
Senior notes 2023 (Cosan S.A.)		547,600			(602,861	)		(438,985	)		(208,263	)		(99,541	)
Senior notes 2024 (Rumo S.A.)		4,107,000			(5,033,761	)		(3,318,895	)		(1,834,922	)		(471,159	)
Senior notes 2025 (Rumo S.A.)		2,738,000			(3,290,398	)		(2,182,089	)		(1,169,094	)		(295,208	)
Senior notes 2024 (Cosan Limited)		1,095,200			(1,297,701	)		(903,636	)		(13,453	)		(865,908	)
Total debt		9,251,600			(11,238,344	)		(7,811,734	)		(3,262,380	)		(1,836,748	)
Derivative financial instruments
Hedge instruments
Debenture 3rd issue swaps - 3rd series (Comgás)		(79,299	)		27,161			24,842			2,319			5,510
Debenture 5th issue swaps - single series (Comgás)		(684,501	)		205,778			175,262			30,516			88,583
Senior swaps notes 2023 (Cosan S.A.)		(547,600	)		431,091			227,315			30,981			128,357
Senior swaps notes 2024 (Rumo S.A.)		(4,107,000	)		2,618,855			989,022			1,657,767			340,264
Senior swaps notes 2025 (Rumo S.A.)		(2,738,000	)		1,553,448			479,481			1,074,801			201,679
Senior swaps notes 2024 (Cosan Limited)		(1,095,200	)		537,876			154,523			83,345			805,312
Derivative total		(9,251,600	)		5,374,209			2,050,445			2,879,729			1,569,705
Total		—			(5,864,135	)		(5,761,289	)		(382,651	)		(267,043	)

There is an economic relationship between the hedged item and the hedge instrument, since the terms of the interest rate and exchange rate swap correspond to the terms of the fixed rate loan, that is, notional amount, term and payment. The Company established a 1: 1 hedge ratio for hedging relationships, since the underlying risk of the interest rate and exchange rate swap is identical to the hedged risk component. To test the effectiveness of the hedge, the Company uses the discounted cash flow method and compares the changes in the fair value of the hedge instrument with the changes in the fair value of the hedged item attributable to the hedged risk.

47 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

5.9 Recognized fair value measurements

The market value of the Senior Notes are listed on the Luxembourg Stock Exchange (Note 5.5) is based on their quoted market price are as follows:

	Company	June 30, 2020			December 31, 2019
Senior notes 2023	Cosan S.A		99.73	%		101.46	%
Senior notes 2024	Rumo S.A		105.41	%		107.90	%
Senior notes 2024	Cosan Limited		102.53	%		105.18	%
Senior notes 2025	Rumo S.A		105.56	%		107.27	%
Senior notes 2027	Cosan S.A		105.30	%		109.18	%
Senior notes 2029	Cosan Limited		95.53	%		104.48	%
Perpetual notes	Cosan S.A		100.73	%		104.06	%

All of the resulting fair value estimates are included in level 2 except for a contingent consideration payable where the fair values have been determined based on present values and the discount rates used were adjusted for counterparty or own credit risk.

48 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The carrying amounts and fair value of financial assets and financial liabilities are as follows:

			Carrying amount						Assets and liabilities measured at fair value
			June 30, 2020			December 31, 2019			June 30, 2020								December 31, 2019
Assets	Note								Level 1		Level 2			Level 3			Level 1		Level 2			Level 3
Investment funds		5.1		2,051,887			3,279,170			—		2,051,887			—			—		3,279,170			—
Marketable securities		5.2		2,658,608			3,115,503			—		2,658,608			—			—		3,115,503			—
Other financial assets				93,643			134,637			93,643		—			—			134,637		—			—
Derivate financial instruments		5.8		9,569,926			3,824,410			—		9,569,926			—			—		3,824,410			—
Total				14,374,064			10,353,720			93,643		14,280,421			—			134,637		10,219,083			—
Liabilities
Loans, borrowings and debentures		5.5		(23,227,214	)		(16,370,166	)		—		(23,227,214	)		—			—		(16,370,166	)		—
Consideration payable (i)				(219,362	)		(184,370	)		—		(202,246	)		(17,116	)		—		(158,275	)		(26,095	)
Derivative financial instruments		5.8		(135,979	)		(81,051	)		—		(135,979	)		—			—		(81,051	)		—
Total				(23,582,555	)		(16,635,587	)		—		(23,565,439	)		(17,116	)		—		(16,609,492	)		(26,095	)

(i) Composed of: (i) consideration payable related to the intangible asset of the contract with ExxonMobil in the amount of R$202,246 (level 2); and (ii) variable contingent consideration payable of R$17,116 (level 3), which considers the present value of the expected payment discounted, using a risk-adjusted discount rate. The expected payment is determined considering the most likely scenario of revenue and projected EBITDA, which, in turn, determine the cash generation capacity. Significant unobservable inputs are the expected annual growth rate of revenue, the expected EBITDA margin and the 9,41% risk-adjusted discount rate.

49 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

6 Other tax receivables

	June 30, 2020		December 31, 2019
COFINS - Revenue tax		784,075		706,165
ICMS - State VAT		638,674		602,127
ICMS CIAP - State VAT		133,045		141,514
PIS - Revenue tax		171,647		150,099
Credit installment		41,919		41,516
Other		52,472		35,591
		1,821,832		1,677,012
Current		1,055,462		950,246
Non-current		766,370		726,766

7 Inventories

	June 30, 2020		December 31, 2019
Finished goods		483,590		457,447
Spare parts and accessories		244,860		236,347
Raw material for construction process		117,636		55,347
Warehouse and other		15,699		31,287
Fuels and lubricants		7,813		6,894
		869,598		787,322

50 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

8 Investments in associates

8.1 Investments in subsidiaries and associates

Cosan’s subsidiaries are listed below:

	June 30, 2020			December 31, 2019
Directly owned subsidiaries
Cosan Logística S.A.		73.49	%		73.49	%
Cosan S.A. (iii)		66.28	%		64.59	%
Cosan Limited Partners Brasil Consultoria Ltda.		60.00	%		60.00	%
Sinlog Tecnologia em Logística S.A.		64.52	%		47.62	%
Interest of Cosan S.A. in its subsidiaries
Comgás		—			99.15	%
Compass Gás e Energia		99.01	%		—
Cosan Lubes Investments Limited (CLI) (i)		70.00	%		70.00	%
Cosan Cayman II Limited		100.00	%		100.00	%
Cosan Global Limited		100.00	%		100.00	%
Cosan Investimentos e Participações S.A.		100.00	%		100.00	%
Cosan Luxembourg S.A. (ii)		100.00	%		100.00	%
Cosan Overseas Limited		100.00	%		100.00	%
Pasadena Empreendimentos e Participações S.A.		100.00	%		100.00	%
Payly Soluções de Pagamentos S.A.		75.00	%		75.00	%
Rumo S.A.		1.71	%		1.71	%
Cosan Logística S.A.		0.10	%		0.10	%
Interest of Cosan Lubes Investments Limited in its subsidiaries
Cosan Cinco S.A.		100.00	%		100.00	%
Cosan Lubrificantes e Especialidades S.A.		100.00	%		100.00	%
Moove Lubricants Limited		100.00	%		100.00	%
Stanbridge Group Limited		100.00	%		100.00	%
Wessesx Petroleum Limited		100.00	%		100.00	%
Airport Energy Limited		100.00	%		100.00	%
Airport Energy Services Limited		100.00	%		100.00	%
Cosan Lubrificantes S.R.L.		100.00	%		100.00	%
Lubrigrupo II - Comércio e Distribuição de Lubrificantes S.A.		100.00	%		100.00	%
Commercial Lubricants Moove Corp		100.00	%		100.00	%
Cosan Paraguay S.A.		100.00	%		100.00	%
Cosan US, Inc.		100.00	%		100.00	%
Ilha Terminal Distribuição de Produtos Químicos		100.00	%		100.00	%
Zip Lube S.A.		100.00	%		100.00	%
TTA – SAS Techniques et Technologie Appliquées		75.00	%		75.00	%

51 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020			December 31, 2019
Interest of Cosan Logística S.A. in its subsidiaries
Rumo S.A.		28.47	%		28.47	%
Rumo Malha Oeste S.A.		28.47	%		28.47	%
Rumo Malha Paulista S.A.		28.47	%		28.47	%
Rumo Malha Sul S.A.		28.47	%		28.47	%
Rumo Malha Norte S.A.		28.40	%		28.40	%
Rumo Malha Central S.A.		28.47	%		28.47	%
Elevações Portuárias S.A.		28.47	%		28.47	%
Logispot Armazéns Gerais S.A.		14.52	%		14.52	%
Rumo Luxembourg Sarl		28.47	%		28.47	%
Rumo Intermodal S.A.		28.47	%		28.47	%
Boswells S.A.		28.47	%		28.47	%
ALL Argentina S.A.		28.47	%		28.47	%
Paranaguá S.A.		28.47	%		28.47	%
ALL Armazéns Gerais Ltda.		28.47	%		28.47	%
Portofer Ltda.		28.47	%		28.47	%
ALL Mesopotâmica S.A.		20.09	%		20.09	%
ALL Central S.A.		20.94	%		20.94	%
Servicios de Inversión Logística Integrales S.A		28.47	%		28.47	%
Brado Logística e Participações S.A.		17.71	%		17.71	%
Brado Logística S.A.		17.71	%		17.71	%

(i) On March 31, 2020, Cosan Lubes Investments Limited (“CLI”) received R$65,478 due to the satisfaction of conditions precedent on December 31, 2019, as a result and pursuant to the terms of the investment agreement between the CLI and CVC Fund VII (“CVC”).

(ii) Management concluded that there are no material uncertainties that put the subsidiaries' operational continuity in doubt. Despite presenting on June 30, 2020 a combined investment amount with an unsecured liability of R$ 413,988, as shown below, no events or conditions were identified that, individually or collectively, could raise significant doubts as to the ability to maintain their continuity operational. The subsidiaries have the financial support of the Company.

(iii) On June 30, 2020, 6,291,200 shares were repurchased ordinary shares in the amount of R$ 318,828, with a maximum unit cost of R$ 61.24, a minimum unit cost of R$ 47.37 and an average unit cost of R$ 52.01. These shares represent 4.87% of Cosan's issued and outstanding common shares.

52 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Set out below are the associates as at June 30, 2020 which are material to the Company:

	Shares issued by the associate		Shares held by Cosan		Cosan ownership interest			Economic benefit (%)
Radar II Propriedades Agrícolas S.A.		81,440,222		24,920,708		51.00	%		3.00	%
Radar Propriedades Agrícolas S.A.		1,735,703		531,125		51.00	%		2.51	%
Tellus Brasil Participações S.A.		120,920,492		61,359,624		50.74	%		5.00	%
Janus Brasil Participações S.A.		136,928,272		69,361,678		50.77	%		5.00	%

	At January 1, 2020		Interest in earnings of subsidiaries		Other comprehensive income		Dividends			Increase of capital		Other			At June 30, 2020
Tellus Brasil Participações S.A.		102,342		1,768		—		(1,126	)		—		—			102,984
Janus Brasil Participações S.A.		126,087		426		—		(2,148	)		1,132		—			125,497
Radar Propriedades Agrícolas S.A		59,861		706		32		—			—		—			60,599
Radar II Propriedades Agrícolas S.A		31,976		438		6		—			—		—			32,420
Other		57,441		7,082		1,267		(7,184	)		10		(6,023	)		52,593
		377,707		10,420		1,305		(10,458	)		1,142		(6,023	)		374,093

53 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

8.2 Acquisition of subsidiaries

On January 30, 2020, the subsidiary Cosan completed the acquisition of 100% of the capital of the following companies:

Acquired name	Description of the operation
Compass Comercializadora de Energia Ltda	Commercialization of natural gas and electricity
Compass Geração Ltda	Commercialization of natural gas and electricity
Compass Energia Ltda	No operation
Black River Participações Ltda	No operation

The acquisition aims to reinforce the strategy of expansion and consolidation of the gas and energy operation, which tends to grow significantly.

The fair value on the acquisition date of the consideration transferred from the three combined businesses totaled R$ 95,000 with cash payment, without additional installments (fixed or variable).

Accurate and reliable estimates of the purchase price were made to determine the amount of goodwill paid on the transaction. Goodwill is the difference between the value of the net assets acquired and the price paid for the shares.

The Company, through independent consultants, assessed whether the fair value of all assets and liabilities in the opening balance sheet is different from the declared book value. Assets and liabilities assessed include fixed assets, customer portfolios, brands and, possibly, also long-term loans. No material differences were identified between fair value and book value, and the net price paid was fully allocated to goodwill.

The balances of the acquired entities are substantially composed of assets and liabilities measured at fair value and, therefore, no adjustment should be made.

54 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

a) Identifiable assets acquired and liabilities assumed

The fair value of the assets and liabilities acquired is shown below:

	Compass Comercializadora			Compass Geração			Compass Energia		Total
Cash and cash equivalents		4,539			177			37		4,753
Trade receivables		12,384			149,163			—		161,547
Advance of suppliers		15			—			—		15
Other current tax receivable		134			89			31		254
Derivative financial instruments		1,377			—			—		1,377
Investments in associates		9			28			—		37
Property, plant and equipment		69			—			—		69
Trade payables		(13,585	)		(83,669	)		—		(97,254	)
Other taxes payable		—			(162	)		—		(162	)
Other current liabilities		(97	)		—			—		(97	)
Other financial liabilities		—			(48.007	)		—		(48,007	)
Dividends payable		—			(508	)		—		(508	)
Payables to related parties		—			(17,063	)		—		(17,063	)
Deferred tax liabilities		(468	)		—			—		(468	)
Total identifiable assets, net		4,377			48			68		4,493

b) Preliminary goodwill

The fair value on the date of acquisition of goodwill consisted of the following:

	Total
Total net assets acquired and liabilities assumed at fair value		4,493
Consideration transferred (i) (ii)		95,000
Preliminary goodwill		90,507

(i)Effect of consideration transferred net of acquired cash R$ 90,247.

(ii)On July 17, 2020, the subsidiary Compass made an additional payment for the acquisition of Compass Trading in the amount of R$ 4,385, as provided for in the contract.

Information obtained about facts and circumstances existing on the acquisition date may result in adjustments to the allocation of goodwill. The goodwill of R$ 90,507 comprises the amount of future economic benefits from the acquisition.

55 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	Nature	Evaluation methodology	Fair value	Useful life
Goodwill	It represents the part of the purchase price greater than the sum of the net fair value of all assets acquired in the acquisition and the liabilities assumed in the process.	Discounted cash flow	90,507	Undefined

If the acquired subsidiaries had been consolidated since January 1, 2020, the subsidiary Cosan SA in its consolidated statement of income for the period on June 30, 2020, would have net income of R$ 5,951,670 and a loss of R$ 58,954 .

8.3 Non-controlling interests in subsidiaries

Set out below is summarized financial information for each subsidiary that has non-controlling interests that are material to the group. The amounts disclosed for each subsidiary are before inter-company elimination.

	Shares issued by the subsidiary		Shares held by non-controlling shareholders		Non-controlling interest
Compass Gás e Energia		628,487,690		5,402,779		0.99	%
Comgás		132,520,587		1,124,363		0.85	%
Logispot		2,040,816		1,000,000		49.00	%
Rumo		1,559,015,898		1,115,164,072		71.53	%
Brado Participações		12,962,963		4,897,407		37.78	%
Rumo Malha Norte		1,189,412,363		3,144,187		0.26	%
Cosan Lubes		34,963,764		10,489,129		30.00	%
Cosan S.A.		394,210,000		132,924,458		33.72	%
Cosan Logística S.A.		463,224,241		122,813,171		26.51	%
Payly		44,861,170		11,215,293		25.00	%
Sinlog Tecnologia em Logística S.A.		21,000		10,000		35.48	%
TTA		10,521		2,630		25.00	%

The following table summarizes the information relating to each of the Company’s subsidiaries that has material non-controlling interests, before any intra-group elimination.

56 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	At January 1, 2020		Interest in earnings of subsidiaries		Sales or purchase of interests			Other comprehensive income		Dividends			Capital increase		Other			At June 30, 2020
Cosan S.A.		3,604,875		1,564		(276,335	)		91,760		—			—		(3,849	)		3,418,015
Cosan Logística S.A.		630,185		9,767		159			618		—			—		135			640,864
Comgás		24,569		4,236		—			15		(1,158	)		—		14			27,676
Compass Gás e Energia (i)		—		3,620		30,431			—		—			—		35			34,086
Cosan Lubes		470,497		6,550		—			62,141		—			—		—			539,188
Rumo S.A.		6,058,973		90,245		—			5,850		(2,262	)		—		4,513			6,157,319
Logispot Armazéns		34,218		385		—			—		—			—		—			34,603
Other		15,299		417		—			6,633		(4,096	)		6,666		36			24,955
		10,838,616		116,784		(245,745	)		167,017		(7,516	)		6,666		884			10,876,706

(i) On January 30, 2020, a capital increase was made at Compass Gás e Energia, through the subscription of 6,222,650 registered shares in favor of non-controlling shareholders, totaling a total amount of R$ 75,000 (equivalent to 0 , 99% of the share capital of Compass Gás e Energia), generating a equity gain in the subsidiary Cosan S.A. of R$ 44,569.

9 Investments in joint ventures

Changes to investments in joint ventures were as follows:

	Raízen Combustíveis S.A.			Raízen Energia S.A.			Total
Shares issued by the joint venture		1,661,418,472			7,243,283,198
Shares held by Cosan		830,709,236			3,621,641,599
Cosan ownership interest		50	%		50	%
Interest in earnings of joint ventures as at June 30, 2019		425,897			(63,654	)		362,243
At January 1, 2020		3,212,601			4,336,359			7,548,960
Interest in earnings of joint ventures		(98,330	)		68,522			(29,808	)
Other comprehensive (losses) income		465,702			(348,497	)		117,205
Interest on capital (i)		(37,500	)		—			(37,500	)
Dividends		—			(417	)		(417	)
At June 30, 2020		3,542,473			4,055,967			7,598,440

(i)Amount proposed but not paid in the period.

57 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

According to the terms of the jointly-controlled subsidiary - Raizen, the subsidiary Cosan is responsible for certain legal proceedings that existed before the formation of Raízen, net of judicial deposits on April 1, 2011, as well as tax installments under the terms of the tax amnesty and Refinancing program recorded in “Other taxes payable”. In addition, Cosan granted Raízen access to a credit line (stand-by) in the amount of US$ 350,000 thousand, unused on June 30, 2020.

The statement of financial position and statement of profit or loss of the joint ventures are disclosed in Note 4 – Segment information.

As of June 30, 2020, the Company was in compliance with the convenants of the contracts that govern the respective joint ventures.

10 Property, plant and equipment, intangible assets, goodwill, right-of-use assets and contract asset

10.1 Property, plant and equipment

a) Reconciliation of carrying amount

	Land, buildings and improvements			Machinery, equipment and facilities			Railcars and locomotives (i)			Permanent railways			Construction in progress			Other			Total
Cost
At December 31, 2019		1,186,365			1,163,862			6,000,272			6,724,322			1,509,025			434,555			17,018,401
Additions		61			1,438			8,459			2,281			1,350,336			752			1,363,327
Business combinations (ii)		—			69			—			—			—			—			69
Disposals		(44	)		(806	)		(65,918	)		—			(123	)		(4,464	)		(71,355	)
Transfers (iii)		20,919			63,444			402,622			254,970			(809,566	)		38,963			(28,648	)
Effect of exchange rate fluctuations		17,280			26,412			—			—			349			14,818			58,859
At June 30, 2020		1,224,581			1,254,419			6,345,435			6,981,573			2,050,021			484,624			18,340,653
Depreciation and impairment losses
At December 31, 2019		(360,434	)		(532,019	)		(1,914,789	)		(2,020,767	)		(6,870	)		(30,386	)		(4,865,265	)
Additions		(30,557	)		(69,771	)		(286,352	)		(253,962	)		—			(16,258	)		(656,900	)
Disposals		7			562			62,336			—			—			3,783			66,688
Transfers (iii)		—			—			7,941			—			75			1			8,017
Impairment		(2,811	)		(8,614	)		(27,391	)		(52,224	)		(19,364	)		4,264			(106,140	)
Effect of exchange rate fluctuations		(6,190	)		(13,394	)		—			—			—			(7,567	)		(27,151	)
At June 30, 2020		(399,985	)		(623,236	)		(2,158,255	)		(2,326,953	)		(26,159	)		(46,163	)		(5,580,751	)
At December 31, 2019		825,931			631,843			4,085,483			4,703,555			1,502,155			404,169			12,153,136
At June 30, 2020		824,596			631,183			4,187,180			4,654,620			2,023,862			438,461			12,759,902

58 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

(i) On June 30, 2020 and December 31, 2019, wagons and locomotives in the amount of R$ 745,203 were pledged to guarantee bank loans. (Note 5.5);

(ii) For more details, see Note 8.2.

(iii) They are substantially transfers from property, plant and equipment under construction as a result of the capitalization of said assets.

In the period ended June 30, 2020, the Company identified impairment indicators for the cash generating unit represented by the Rumo Malha Oeste concession: i) the network recorded a significant reduction in the volume transported due to operational problems on the road caused by the strong rains in the first quarter, causing management to seek alternatives to perform certain contracted volumes, volumes that supported the cash flow projection of that cash-generating unit until then; ii) the Management's decision to file the request for re-bidding creates uncertainty about the period in which Malha will be the operator, since it depends on the progress of the process. Accordingly, the Company recorded a provision for impairment of R$ 107,106 (of which R$ 106,041 related to fixed assets and R$ 996 related to the right to use, equivalent to the remaining balance of the permanent assets of this cash-generating unit. as a counterpart to “Other net income (expenses)”.

The determination of the recoverability of the assets depends on certain key assumptions, as described above, which are influenced by the market, technological and economic conditions in force at the time that this recovery is tested and, therefore, it is not possible to determine whether further losses by reduction recovery will occur in the future and, if they occur, whether they would be material.

59 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

10.2 Intangible assets and goodwill

	Goodwill		Concession rights			Operating license			Trademarks			Customer relationships			Other			Total
Cost
At December 31, 2019		904,977		18,024,518			435,795			46,170			829,091			387,278			20,627,829
Additions		3,778		1,078			—			—			36,715			7,926			49,497
Business combination (i)		90,507		—			—			—			—			—			90,507
Disposals		—		(18,052	)		—			—			(80	)		(2,525	)		(20,657	)
Transfers		—		241,024			—			—			(11,377	)		65,891			295,538
Effect of exchange rate fluctuations		65,547		—			—			11,045			54,472			13,250			144,314
At June 30, 2020		1,064,809		18,248,568			435,795			57,215			908,821			471,820			21,187,028
Amortization and Impairment:
At December 31, 2019		—		(2,884,699	)		(236,122	)		(9,201	)		(410,449	)		(243,699	)		(3,784,170	)
Additions		—		(246,443	)		(5,887	)		—			(40,741	)		(42,637	)		(335,708	)
Disposals		—		12,572			—			—			67			2,269			14,908
Transfers		—		(10	)		—			—			4,853			842			5,685
Effect of exchange rate fluctuations		—		—			—			—			(13,787	)		(6,543	)		(20,330	)
At June 30, 2020		—		(3,118,580	)		(242,009	)		(9,201	)		(460,057	)		(289,768	)		(4,119,615	)
At December 31, 2019		904,977		15,139,819			199,673			36,969			418,642			143,579			16,843,659
At June 30, 2020		1,064,809		15,129,988			193,786			48,014			448,764			182,052			17,067,413

(i)For more details, see Note 8.2.

a)Capitalization of borrowing costs

Capitalized borrowing costs for the period ended June 30, 2020, R$ 23,621 was capitalized at an average rate of 6,12% p.a. (R$3,202 and 8.60 % p.a. on December 31, 2019).

60 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

b)Amortization methods and useful lives

Intangible assets (excluding goodwill)	Annual rate of amortization	June 30, 2020	December 31, 2019
Comgás (i)	During the term of the concession and extension of this date	8,179,565	8,129,822
Rumo(ii)		6,944,536	7,009,997
		15,124,101	15,139,819
Operating license for port terminal (iii)	4.00%	199,674	199,673
Trademarks:
Comma	Undefined	48,014	36,969
		48,014	36,969
Customers relationship:
Comgás	20.00%	167,858	161,786
Moove	6.00%	280,906	256,856
		448,764	418,642
Other
Software license	20.00%	126,845	81,669
Other		55,206	61,910
		182,051	143,579
Total		16,002,604	15,938,682

(i)	Refers to the intangible asset for the public gas distribution service concession, which represents the right to charge users for the supply of gas, comprised of: (i) the concession rights recognized in the business combination and (ii) concession assets;
(ii)	Refers to the concession right agreement of Rumo Malha Norte S.A., which will be amortized until the end of the concession in 2079;
(iii)	Port operating license and customer relationships of Rumo S.A., from the business combination.

c)Impairment testing of cash-generating units (“CGU”) goodwill

The Company annually tests the recoverable amounts of goodwill arising from business combinations. Property, plant and equipment and intangible assets with finite lives that are subject to depreciation and amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

61 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

For the purpose of impairment analysis, concession contracts were defined as cash generating units, each recorded on separated legal entities. The basis for annual assessment and testing on September 30, 2020.

During the period ended June 30, 2020, we did not identify any provisions for impairment indicators, so that no impairment test was necessary for property, plant and equipment and intangible assets with a defined useful life.

62 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

10.3 Right-of-use assets

	Land, buildings and improvements			Machinery, equipment and facilities			Railcars and locomotives			Software			Vehicles			Port and rail infrastructure			Total
Cost:
At December 31, 2019		247,430			10,718			1,038,641			66,931			14,259			3,803,954			5,181,933
Additions (i)		96,652			4,479			—			—			—			3,406,560			3,507,691
Contractual adjustments		17,212			8,234			1,450			14,219			(176	)		13,830			54,769
Disposals		(203	)		—			—			—			—			—			(203	)
Currency translation adjustments		3,500			1,173			—			—			—			—			4,673
At June 30, 2020		364,591			24,604			1,040,091			81,150			14,083			7,224,344			8,748,863
At December 31, 2019		(78,965	)		(3,074	)		(365,657	)		(7,594	)		(6,457	)		(250,456	)		(712,203	)
Additions		(12,233	)		(3,473	)		(25,394	)		(1,638	)		(6,392	)		(97,068	)		(146,198	)
Transfers		(44	)		—			—			—			—			—			(44	)
Impairment		—			(1,643	)		—			—			—			(966	)		(2,609	)
Currency translation adjustments		(3,415	)		(58	)		(4,123	)		—			3,114			—			(4,482	)
At June 30, 2020		(94,657	)		(8,248	)		(395,174	)		(9,232	)		(9,735	)		(348,490	)		(865,536	)
At December 31, 2019		168,465			7,644			672,984			59,337			7,802			3,553,498			4,469,730
At June 30, 2020		269,934			16,356			644,917			71,918			4,348			6,875,854			7,883,327

(i)Recognition of the grant amount and update of the lease, by renewing the concession contract of the subsidiary Rumo Malha Paulista S.A.

10.4 Contract asset

Accounting policy

Contract assets are measured at acquisition cost, including capitalized borrowing costs. When the assets enter into operation, the depreciable amounts in the concession contract are transferred to intangible assets. Comgás reassesses the useful life, whenever this assessment indicates that the amortization period will exceed the term of the concession contract, part of the asset is converted into a financial asset, as it represents an accounts receivable from the granting authority. This classification is in accordance with IFRIC 12 - Concession Contracts.

63 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	Contract asset
At December 31, 2019		600,541
Additions		419,473
Transfer to intangible (i)		(300,632	)
At June 30, 2020		719,382

(i)The amount of the transfers also includes a portion of the intangible asset that was reclassified to a financial asset in accordance with IFRIC 12.

11 Concessions payable

Accounting policy:

The Company records in this account the balance of the lease installments involved in disputes with the Granting Authority. The initial registration takes place at the amount of the installment at maturity, by transferring the “Liabilities for lease” account. Subsequently, the values are corrected by Selic.

Balances in installments with the Granting Authority are maintained in this account. The initial registration takes place at the amount that was left over from the resolution of the dispute. The amounts are corrected by Selic until payment.

Balances payable as a concession for concession rights (“Concessions”) are also recorded in this account, initially recorded against intangible assets. Subsequent measurement occurs at the effective rate.

The Company, through its subsidiaries, is a party to sub-concession and lease agreements with the Government. The main liabilities and provisions generated by the contracts are:

64 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

a) Installment of leases and concessions under litigation

	June 30, 2020		December 31, 2019
Lease and concession in dispute:
Rumo Malha Paulista		151,727		1,870,018
Rumo Malha Oeste		1,578,684		1,528,238
		1,730,411		3,398,256
Installment leases:
Rumo Malha Paulista		1,174,703		—
		1,174,703		—
Concessions:
Rumo Malha Sul		36,423		36,621
Rumo Malha Paulista		21,179		20,003
		57,602		56,624
Total		2,962,716		3,454,880
Current		111,652		9,847
Non-current		2,851,064		3,445,033
		2,962,716		3,454,880

Lease and concession under litigation:

Rumo Malha Oeste pleads for the reestablishment of the economic and financial balance, lost due to the cancellation of transportation contracts existing at the time of privatization, constituting a change in the regulatory scenario and conditions established in the Privatization Notice - besides, the growth forecasts that defined the value of the business did not materialize. The lawsuit is pending before the Federal Regional Court of the 2nd Region. The amount referring to the Company's overdue installments was guaranteed by the acquisition of public debt securities (Financial Treasury Bills - FTB). In March 2008, the Company obtained authorization to replace the guarantee with a bank guarantee and in May 2008 the Company redeemed the amounts. In December 2014, a decision was handed down that upheld the lawsuit, recognizing the occurrence of economic and financial imbalance in the contracts. In December 2015, a request for replacement of letters of guarantee presented by the Company with guarantee insurance was granted. An appeal judgment is pending before the TRF. Management, supported by the opinion of its lawyers, assesses the chances of success as probable but maintains the record of the liability because it is a contractual obligation not yet withdrawn from the Company and because the amount is still pending.

65 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Also in the context of the disputes involving the Western Network, in January 2020, the National Land Transport Agency (ANTT) decided to initiate an Ordinary Administrative Process to generate a conclusive report as to the suitability, or not, of the declaration of expiry of the concession of the Malha Oeste by the Union. The analysis will be conducted by a commission to be appointed by the Infrastructure and Railroad Cargo Transport Services area. Management, supported by the opinion of its lawyers, assesses the risk of loss as possible.

Judicial deposits at June 30, 2020 and December 31, 2019 concerning the above claims totaled:

	June 30, 2020		December 31, 2019
Rumo Malha Paulista S.A.		—		119,806
Rumo Malha Oeste S.A.		22,119		21,703
		22,119		141,509

The judicial deposits of the Subsidiary Rumo Malha Paulista linked to the balance in litigation on rebalancing the lease and concession contract were converted in favor of the Brazilian Federal Government in the offsetting of balances resulting from the agreement signed between the parties in the process of renewing the contract.

Installment leases:

As a condition for entering into the renewal amendment for Malha Paulista, there was a need for the Company to resolve the dispute involving the economic and financial rebalancing of the original contract. To this end, an agreement was signed between Rumo Malha Paulista, Brazilian Federal Government and ANTT, in which it was agreed: i) a credit in favor of the Company related to labor liens paid up to 2005; ii) the conversion of existing judicial deposits in favor of the Union; iii) an uncontroversial balance in favor of the Federal Government, divided into eight annual installments adjusted by Selic (balance transferred from the “Lease and concession under litigation” account to “Leased installments”); iv) a portion of liabilities to be offset against potential credits in favor of the Company, these credits, subject to the assessment to be carried out by a working group involving the parties (balance maintained in the “Lease and concession under litigation” account).

66 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The effects of the offsetting of balances were updated up to the registration date and resulted in a reversal of R$ 479,563 (R$ 348,319 in other expenses and income and R$ 131,243 in the financial result).

As a result of the agreement, suspensions of the proceedings for return lawsuits filed by Rumo against the Brazilian Federal Government were required to determine labor claims that were not part of the agreement (from 2005) and which will be the subject of an investigation to be carried out by working group involving the parties. In parallel, the parties will submit a request for judicial approval of the agreement in the records of the economic and financial rebalancing action of the contract.

67 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

b) Leases and grants under IFRS16

	June 30, 2020		December 31, 2019
Leases:
Rumo Malha Sul		516,304		532,496
Rumo Malha Paulista		416,961		377,944
Rumo Malha Oeste		218,989		216,096
Elevações Portuárias		78,303		74,584
Portofer		13,470		13,435
		1,244,027		1,214,555
Grants:
Rumo Malha Paulista (renewal)		3,321,964		—
Malha Central		2,721,916		2,728,931
		6,043,880		2,728,931
Total		7,287,907		3,943,486
Current		821,295		402,991
Non-current		6,466,612		3,540,495
		7,287,907		3,943,486

c) Investment commitments

Sub-concession contracts to which the Company, through its subsidiaries, is a party, often includes commitments to execute investments with certain characteristics during the term of the contract. Can be highlighted:

The renewal addendum to the concession of Malha Paulista, which foresees the execution of a set of investment projects to increase capacity and reduce urban conflicts, estimated by the agency at R$ 6,100,000 (value updated until December 2017).

The Malha Central sub-concession contract provides for investments with a fixed term (one to three years from the signing of the contract), estimated by ANTT at R$ 620,050. As of June 30, 2020, the subsidiary’s investments for R$ 178,972.

68 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The Elevações Portuárias concession and lease agreement provide for investments aimed at improving and modernizing the facilities and equipment allocated therein, estimated for R$ 340,000. At the balance sheet date, the subsidiary had made investments for R$ 261,506.

12 Sectorial financial assets and liabilities

Accounting policy

The sectorial financial assets and liabilities are intended to neutralize the economic impacts on the result of the subsidiary Comgás, due to the difference between the cost of gas and rates contained in the ordinances issued by ARSESP (Sanitation and Energy Regulatory Agency of the State of São Paulo), and those effectively included in the tariff, at each tariff adjustment / review.

These differences between the real cost and the cost considered in the tariff adjustments generate a right to the extent that the realized cost is greater than that contemplated in the tariff, or an obligation, when the costs are lower than those contemplated in the tariff. The differences are considered by ARSESP in the subsequent tariff adjustment, and are now included in the Company's tariff adjustment index.

On June 10, 2020, ARSESP published Resolution No. 1,010, which provides for the mechanism for updating the weighted average cost of gas and transportation in piped gas tariffs and the mechanism for recovering the balance of the graphic account, due to variations the price of gas and transport. This mechanism aims at monthly calculation by segment of users and considering the recovery installments previously established and in the process of compensation. As provided in such ordinance, any balances in the graphic accounts existing at the end of the concession will be indemnified to the subsidiary Comgás or returned to users within 12 months before the end of the concession period. The balance consists of: (i) the previous cycle (in amortization), which represents the balance approved by ARSESP already included in the tariff and (ii) by the cycle being constituted, which are the differences that will be approved by ARSESP in the next tariff adjustment.

In addition, this resolution dealt with the balance contained in the current account of taxes, which accumulated amounts related to tax credits taken advantage of by Comgás, but which essentially are part of the tariff composition and must subsequently be transferred via the tariff.

With the advent of this resolution, the subsidiary Comgás understands that there is no longer significant uncertainty that would hinder the recognition of sectorial financial assets and liabilities as amounts actually receivable or payable. Accordingly, as of June 10, 2020, it recognizes the sectorial financial assets and liabilities in its financial statements. In the period ended June 30, 2020, the subsidiary Comgás recorded a net sectoral financial liability balance of (R$ 92,147), of which (R$ 101,812) against net operating revenue and cost of products sold, and R$ 9,665 against the financial result.

69 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The balance of the net sectorial financial asset (liability) is shown below:

	At June 30, 2020
Cost of gas		404,907
Credits of taxes		(497,054	)
Total		(92,147	)

The change in the net sectorial financial liability (liability) for the period ended June 30, 2020 was as follows:

	Assets Sectorial		Liabilities Sectorial			Total
At January 1, 2020		—		—			—
Cost of gas (i)		368,297		—			368,297
Credits of taxes (ii)		—		(497,054	)		(497,054	)
Monetary variation (iii)		9,665		—			9,665
Other revenue (iv)		26,945		—			26,945
At June 30, 2020		404,907		(497,054	)		(92,147	)

70 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Current	404,907	(93,587	)	311,320
Non-current	—	(403,467	)	(403,467	)
	404,907	(497,054	)	(92,147	)

(i) Refers to the cost of gas purchased in excess of the ordinance that will be collected from consumers.

(ii) Credits, mainly, from the exclusion of ICMS on the basis of PIS and COFINS that will be returned to consumers when the lawsuit is final.

(iii) Monetary update on the cost of gas

(iv) Reimbursement of expenses with regulatory losses in accordance with Resolution ARSESP 977 of April 8, 2020 that will be collected from consumers.

13 Other taxes payable

	June 30, 2020		December 31, 2019
Tax amnesty and refinancing program - REFIS		204,281		213,360
ICMS – State VAT		144,179		161,254
COFINS – Revenue tax		139,405		84,953
PIS – Revenue tax		33,031		19,426
Social Security Charges		34,621		10,513
Withholding Income Tax		3,930		4,941
ISS – Service tax		769		578
IOF – Financial tax		309		309
Other		27,706		22,787
		588,231		518,121
Current		437,755		363,051
Non-current		150,476		155,070

71 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

14 Income tax and social contribution

a)Reconciliation of income and social contribution tax expenses

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Restated)
Profit before taxes		535,901			1,006,594			802,808			1,286,333
Income tax and social contribution nominal rate (34%)		(182,206	)		(342,242	)		(272,955	)		(437,353	)
Adjustments to determine the effective rate
Interest in earnings of investees (non-taxable income)		(72,557	)		(6,398	)		23,891			120,058
Differences in tax rates on earnings / losses of overseas companies		48,818			223,248			(27,159	)		(38,656	)
Granted income tax incentive		37,744			37,744			44,129			72,103
Share-based payment transactions		7,165			8,024			(276	)		(553	)
Interest on shareholders’ equity		(6,290	)		(12,750	)		(6,800	)		(14,790	)
Non-deductible expenses (donations, gifts, etc.)		(5,018	)		(738	)		(3,029	)		(7,686	)
Tax losses not recorded (i)		(29,157	)		(63,520	)		(28,964	)		(68,377	)
Goodwill amortization effect		318			635			317			635
Other		5,140			14,739			13,470			35,954
Income tax and social contribution benefit (expense) - current and deferred		(196,043	)		(141,258	)		(257,376	)		(338,665	)
Effective rate - %		36.58	%		14.03	%		32.25	%		26.55	%

(i) Refers mainly to tax losses not recorded in subsidiaries of Rumo which under current conditions do not attend the requirements of future taxable profits that justify the recognition of the deferred tax assets. In accordance with Brazilian Federal Taxes rules those losses do not expire.

72 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

b)Deferred income tax assets and liabilities

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are presented below:

	June 30, 2020			December 31, 2019
Assets credit of:
Income tax loss carry forwards		2,548,689			2,136,077
Social contribution tax loss carry forwards		932,101			779,252
Temporary differences
Foreign exchange - Loans and borrowings		2,245,310			921,811
Legal proceedings provision		309,900			305,473
Impairment provision		227,934			203,057
Provisions for employee benefits		221,620			214,496
Allowance for doubtful accounts		45,478			26,969
Regulatory asset (liability)		—			53,875
Impairment of tax credit		81,613			79,928
Share-based payment transactions		13,566			9,879
Profit sharing		14,808			63,987
Interest on preferred shareholders payable in subsidiaries		125,654			89,931
Property, plant and equipment - useful life review		405,661			408,581
Miscellaneous provisions		353,373			348,212
Other		186,384			112,240
Total		7,712,091			5,753,768
(-) Deferred taxes assets net not recognized		(2,255,335	)		(2,198,164	)
Liabilities credit of:
Temporary differences
Business combination - property, plant and equipment		18,090			27,666
Tax deductible goodwill		(390,249	)		(390,249	)
Leases		(45,927	)		(36,347	)
Unrealized gains on derivatives instruments		(2,576,338	)		(923,672	)
Fair value option in loans		534,678			174,596
Income on formation of joint ventures		(1,135,036	)		(1,135,036	)
Business combination - Intangible asset		(3,634,100	)		(3,663,085	)
Provision for realization - Goodwill recorded in equity (i)		(449,155	)		—
Other		276,596			114,525
Total		(7,401,441	)		(5,831,602	)
Total of deferred taxes recorded		(1,944,685	)		(2,275,998	)
Deferred income tax - Assets		1,665,304			1,607,566
Deferred income tax - Liabilities		(3,609,989	)		(3,883,564	)

73 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

(i) In January 2020, Cosan subsidiary contributed to the capital of the subsidiary Compass Gás e Energia the investment it held in the subsidiary Comgás. As a result, the costs recorded in shareholders' equity, derived from the goodwill paid on the acquisitions of Comgás shares in voluntary tender offer occurred during the year 2019, totaling R$ 1,321,000 capital loss. Associated with this amount, a deferred income tax loss of R$ 449,000 was recorded. On the other hand, deferred income tax liabilities were recorded, canceling the effect of the result in the accounting, to be reversed when the future write-off of said goodwill.

c)Analytical movement in deferred tax

Assets	Tax loss and negative basis		Post-employment obligations		Employee benefits			Provisions		Property			Other			Unregistered credits			Total
Balance on January 1, 2020		2,915,329		214,496		73,866			963,639		408,581			1,177,857			(2,218,619	)		3,535,149
Credited to the profit for period		564,413		7,124		(45,492	)		54,659		(2,920	)		(11,412	)		—			566,372
Other comprehensive income (loss)		1,048		—		—			—		—			67,404			—			68,452
Exchange differences		—		—		—			—		—			1,323,499			(57,171	)		1,266,328
Balance on June 30, 2020		3,480,790		221,620		28,374			1,018,298		405,661			2,557,348			(2,275,790	)		5,436,301

Liabilities	Effects on the formation of jointly-owned subsidiaries			Intangible			Unrealized income from derivatives			Leases			Debt Fair Value Adjustment		Other			Unregistered credits			Total
Balance on January 1, 2020		(1,135,036	)		(3,663,085	)		(923,672	)		(36,347	)		174,596		(248,058	)		20,455			(5,811,147	)
Credited to the profit for period		—			28,985			(1,652,666	)		(9,801	)		360,082		(296,231	)		2			(1,569,629	)
Other comprehensive income (loss)		—			—			—			221			—		(429	)		(2	)		(210	)
Business combination		—			—			—			—			—		—			—			—
Balance on June 30, 2020		(1,135,036	)		(3,634,100	)		(2,576,338	)		(45,927	)		534,678		(544,718	)		20,455			(7,380,986	)
																						(1,944,685	)

The Company expects to realize the full deferred tax on tax losses and social contribution.

74 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

15 Provision for legal proceedings and judicial deposits

The Company had provision for legal proceedings and judicial deposits recorded in the financial position at June 30, 2020 and December 31, 2019 in respect of:

	Provision for legal proceedings		Judicial deposit
	June 30, 2020	December 31, 2019	June 30, 2020	December 31, 2019
Tax	591,819	589,180	459,077	476,706
Civil, environmental and regulatory	365,449	332,527	99,512	220,933
Labor	416,981	432,464	265,157	245,818
	1,374,249	1,354,171	823,746	943,457

Changes in provision for legal proceedings:

	Tax			Civil, environmental and regulatory			Labor			Total
At December 31, 2019		589,180			332,527			432,464			1,354,171
Provisions		1,322			29,155			29,286			59,763
Settlement / Write-offs		(2,373	)		(14,600	)		(57,372	)		(74,345	)
Exchange rate		—			—			92			92
Interest and exchange variation (i)		3,690			18,367			12,511			34,568
At June 30, 2020		591,819			365,449			416,981			1,374,249

(i) Includes interest reversal.

The Company’s debts with legal proceedings are secured by assets, cash deposit, bank guarantee or insurance guarantee.

The subsidiary Cosan S.A. has indemnity actions in addition to those mentioned, which, since they are considered probable, were not recorded because they represent contingent assets.

a) Probable losses

Tax: The principal tax proceedings for which the risk of loss is probable are described below:

75 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020		December 31, 2019
Compensation with FINSOCIAL		295,337		293,291
INSS - Social security		96,697		95,979
State VAT - ICMS credit		98,533		97,534
PIS and COFINS		2,764		2,889
IPI - Excise tax credit - NT		53,980		53,693
Federal income taxes		1,352		1,707
Other		43,156		44,087
		591,819		589,180

Civil, regulatory, environmental and other claims: Company and its subsidiaries are parties to a number of civil legal claims related to (i) indemnity for material and moral damages; (ii) termination of different kinds of agreements (iii) public civil claims related to sugarcane stubble burning; and (iv) compliance with terms of conduct adjustment, among other issues.

Labor claims: Cosan and its subsidiaries are also parties to a number of labor claims filed by former employees and service providers challenging, among other matters, the payment of overtime, night shift premiums and risk premiums, the recognition of employment relationships and the reimbursement of discounts from payroll, such as social contribution and trade union charges. Additionally, we are involved in several labor administrative and judicial proceedings such as labor investigations and class actions filed by the labor prosecutor’s office regarding alleged non-compliance with certain labor regulations, including work and safety rules, labor conditions and work environment, and social assistance plans. Moreover, we entered into certain consent orders (Termos de Ajustamento de Conduta) with Brazilian authorities and in the event, we fail to comply with such consent orders, we could be subject to fines.

b) Possible losses

The principal proceedings for which we deem the risk of loss as possible are described below:

76 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020		December 31, 2019
Civil		3,570,891		3,493,260
Labor		960,608		968,426
Tax		13,048,541		11,382,113
Regulatory		850,794		860,025
Environmental		702,421		679,621
		19,133,255		17,383,445

Tax:

	June 30, 2020		December 31, 2019
ICMS - State VAT		2,900,516		2,869,089
Federal income taxes (i)		4,980,690		3,619,834
IRRF - Withholding tax		1,219,876		1,030,981
PIS and COFINS - Revenue taxes		1,579,802		1,529,885
INSS - Social security and other		213,876		226,857
Goodwill Rumo		84,524		83,734
IPI - Excise tax credit - NT		454,921		451,781
Penalties related to tax positions		489,761		483,577
MP 470 - Tax installments		307,231		304,961
Foreign financial operation		28,983		28,701
Compensation with IPI - IN 67/98		182,906		181,655
Stock option		70,741		70,072
Financial transactions tax on loan		54,144		53,765
Other		480,570		447,221
		13,048,541		11,382,113

(i) On February 14, 2020, the subsidiary Comgás received tax assessment notices from the Brazilian tax authorities, for the years ended in 2015 and 2016, related to the amortization of the goodwill paid for the acquisition in the reverse merger of Provence Participações S.A., in the amount of R$ 1,228,416.

The Company's lawyers assessed the probability of loss as possible, with a remote loss bias and, therefore, no provision was recorded in accordance with IAS 37. ”

In addition, the effects of IFRIC 23 - Uncertain Tax Position that could affect the accounting policies of the Company and its subsidiaries and these interim financial statements were not identified.

77 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

c) Contingent assets

(i) On March 15, 2017, the Federal Supreme Court (“STF”) concluded the judgment of Extraordinary Appeal No. 574,706 and, under the system of general repercussion, established the thesis that the Tax on Circulation of Goods and Services (“ICMS” ) does not compose the basis for calculating the Social Integration Program (“PIS”) and the Contribution for the Financing of Social Security (“COFINS”), since this amount does not constitute company revenue / billing. That is, taxpayers have the right to exclude the amount related to ICMS highlighted in the invoice of the PIS / COFINS calculation base. There is still an approximate amount of R$ 932,000 in Comgás, related to the exclusion of ICMS on the basis of PIS and COFINS, arising from the period prior to the decision of the STF and without final judgment, which remains a contingent asset.

(ii) On December 6, 2019, ARSESP published Resolution 933, for the purpose of non-tariff compensation to the Concessionaire, in the amount of R$ 697,233 in April 2018 currency, before monetary restatements, as a result of the 3rd Ordinary Tariff Review, a be applied in the form that may be defined by the Granting Authority until May 31, 2020. With the publication of the aforementioned Resolution, there are no more tariff discussions related to previous periods with the Regulatory Agency. The amount indicated in the resolution was not recognized in these interim financial statements for not complying with the accounting criteria.

On May 27, 2020, in continuation of Resolution 933, ARSESP approved, by means of Resolution 995, the amount of R$ 683,358 plus monetary restatement since April 2018, as a result of the Third Ordinary Tariff Review, to be applied to value of assets returned by Comgás, at the end of the concession, or any amount payable by the subsidiary Comgás, if the concession is renewed or in connection with any renewal of the concession contract.

78 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

(iii) The Company has an action for damages due to the economic and financial imbalance of the Concession Agreement, with regard to tariff reviews. The right to recomposition is the result of mistaken criteria regarding the tariff review. The updated value of the share is R$ 419,900 as an economic-financial rebalancing of Comgás.

16 Shareholders’ equity

a) Share capital

At June 30, 2020, Cosan Limited’s share capital is composed of the following:

Shareholders - Common shares	Class A common shares		%			Class B common shares		%
Controlling group		20,603,636		13.61	%		96,332,044		100	%
Renaissance Technologies LLC		9,228,442		6.10	%		—		—
Free Float		104,873,623		69.30	%		—		—
Total shares outstanding		134,705,701		89.01	%		96,332,044		100	%
Treasury shares		16,638,275		10.99	%		—		—
Total		151,343,976		100.00	%		96,332,044		100	%

b) Treasury shares

The Company holds 16,638,275 Class A treasury shares on June 30, 2020 and December 31, 2019, with a market value of US$ 15.06 and US$ 22.84 respectively.

c) Other comprehensive (loss) income

	December 31, 2019			Comprehensive (loss) income			June 30, 2020
Loss on cash flow hedge in joint ventures		(790,403	)		(418,462	)		(1,208,865	)
Foreign currency translation effects		49,281			(200,027	)		(150,746	)
Actuarial loss on defined benefit plan		(180,958	)		4			(180,954	)
Financial instruments with subsidiaries		15,000			—			15,000
Change in fair values of financial assets		1,277			40			1,317
Total		(905,803	)		(618,445	)		(1,524,248	)
Attributable to:

Owners of the Company	(805,471	)	(785,462	)	(1,590,933	)
Non-controlling interests	(100,332	)	167,017		66,685

79 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

17 Earnings per share

The Company’s subsidiaries have two categories of potential dilutive effects: share options and put options. For the share options, a calculation is done to determine the effect of the dilution in the profit attributable to shareholders of the parent due the exercise of the share options at subsidiaries. For the put option, is assumed to have been converted into ordinary shares, and the profit attributable to shareholders of the parent is adjusted.

The following table sets forth the calculation of earnings per share (in thousands of Brazilian reais, except per share amounts):

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Restated)
Profit attributable from to ordinary equity holders for basic earnings - basic		101,899			748,552			208,401			398,617
Profit attributable from to ordinary equity holders for basic earnings - continued operation - basic		101,899			748,552			213,170			409,193
Effect of dilution:
Dilutive effect of subsidiary's stock option plan		(901	)		(1,947	)		(967	)		(1,685	)
Profit attributable to ordinary equity holders adjusted for the effect of dilution		100,998			746,605			207,434			396,932
Profit attributable to ordinary equity holders adjusted for the effect of dilution - Continued operation		101,899			746,605			212,203			409,193
Weighted-average number of shares outstanding (In thousands of shares)
Basic		221,809			221,809			230,448			230,692
Dilutive effect of stock option plan		7,844			7,844			8,964			9,206
Dilutive		229,653			229,653			239,412			239,898
Earnings per share
Basic earnings per share		R$ 0.4594			R$ 3.3748			R$ 0.9043			R$ 1.7279
Diluted earnings per share		R$ 0.4594			R$ 3.2510			R$ 0.8664			R$ 1.6546
Earnings per share from continued operation
Basic earnings per share		R$ 0.4398			R$ 3.3748			R$ 0.9250			R$ 1.7738
Diluted earnings per share		R$ 0.4437			R$ 3.2510			R$ 0.8864			R$ 1.7057

80 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

18 Net sales

Accounting policy (new operations)

The Company recognizes revenue from the supply and supply of electricity at the fair value of the consideration, through the delivery of electricity in a given period. The volume of energy delivered to the buyer is determined on a monthly basis. Customers obtain control of electricity from the moment they consume it. Invoices are issued monthly and are usually paid within 30 days of being issued.

Revenue from energy commercialization is recorded based on bilateral contracts signed with market agents and duly registered with the Electric Energy Trading Chamber (“CCEE”).

Revenue is recognized based on the energy sold and at prices specified under the terms of supply and supply contracts. The subsidiary will be able to sell the energy in two environments: (i) in the Free Contracting Environment (FCE), where the sale of electric energy occurs through the free negotiation of prices and conditions between the parties, through bilateral contracts; and (ii) at Regulated Contracting Environment (RCE), where electricity is sold to distribution agents.

(a) Short-term market

The Company recognizes revenue at the fair value of the consideration receivable when transactions in the short-term market occur. The price of energy in these operations is characterized by the link with the Differences Settlement Price – PLD (short-term price).

(b) Trading operations

Energy trading operations are traded on an active market and, for accounting measurement purposes, they meet the definition of financial instruments at fair value.

The subsidiary recognizes revenue when the energy is delivered to the customer at the fair value of the consideration. In addition, unrealized net gains resulting from mark-to-market - difference between contracted and market prices - from open net contracted operations on the date of the financial statements are recognized as revenue.

81 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

 The following is an analysis of the Company's revenue for the period from continuing operations:

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Restated)
Gross revenue from sales of products and services		5,266,874			10,973,158			5,852,037			11,294,889
Construction revenue		219,098			416,319			182,114			342,050
Indirect taxes and deductions		(1,311,061	)		(2,292,060	)		(961,300	)		(1,844,181	)
Net sales		4,174,911			9,097,417			5,072,851			9,792,758

In the following table, revenue is disaggregated by products and service lines and timing of revenue recognition:

82 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)		January 1, 2019 to June 30, 2019 (Restated)
At a point in time
Gas distribution		1,186,845			3,282,600			2,144,345		4,031,099
Commercialization of energy		145,114			313,889			—		—
Lubricants and basic oil		772,044			1,776,788			995,634		2,023,209
		2,104,003			5,373,277			3,139,979		6,054,308
Over time
Transportation		1,723,999			3,084,403			1,654,735		3,223,160
Port elevation		92,431			155,590			74,005		140,526
Construction revenue		219,098			416,319			182,114		342,050
Other services		45,260			85,370			21,172		41,300
		2,080,788			3,741,682			1,932,026		3,747,036
Elimination		(9,880	)		(17,542	)		846		(8,586	)
Total of net sales		4,174,911			9,097,417			5,072,851		9,792,758

83 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

19 Costs and expenses by nature

The costs and expenses are presented in the statement of profit and loss by function. The reconciliation of income by nature/purpose is as follows:

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Restated)
Raw materials		(474,152	)		(1,060,973	)		(617,805	)		(1,277,776	)
Cost of gas and electricity (i)		(814,770	)		(2,298,018	)		(1,368,757	)		(2,707,748	)
Transportation expenses		(592,526	)		(1,159,870	)		(624,063	)		(1,232,275	)
Depreciation and amortization		(525,997	)		(1,064,917	)		(555,343	)		(1,117,991	)
Salaries and wages		(382,252	)		(781,531	)		(408,468	)		(783,348	)
Construction cost		(219,098	)		(416,319	)		(182,114	)		(342,050	)
Expenses with third-party services		(170,565	)		(330,326	)		(148,012	)		(288,240	)
Selling expenses		(5,582	)		(10,558	)		(11,314	)		(20,178	)
Other		(239,868	)		(436,433	)		(111,111	)		(248,802	)
		(3,424,810	)		(7,558,945	)		(4,026,987	)		(8,018,408	)
Cost of sales		(2,793,309	)		(6,343,520	)		(3,477,315	)		(6,946,642	)
Selling expenses		(315,013	)		(603,618	)		(267,902	)		(532,032	)
General and administrative expenses		(316,488	)		(611,807	)		(281,770	)		(539,734	)
		(3,424,810	)		(7,558,945	)		(4,026,987	)		(8,018,408	)

(i) Includes the amount of R$ 368,297 resulting from the recognition of the financial sectorial asset and liabilities, Note 12.

84 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

20 Other income (expenses), net

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Restated)
Contractual obligations for sales of credit rights (ii)		—			(68,311	)		—			—
Recovering tax credits		7,587			18,062			38,847			48,285
Revenue from sale of scrap		9,634			16,885			5,264			14,498
Loss from impairment (v)		(107,106	)		(107,106	)		—			50,284
Gain (loss) from port operations		(5,139	)		(3,532	)		—			—
Reimbursement of losses in the gas process (iv)		26,945			26,945			—			—
Loss on disposal of non-current assets and intangibles		(1,638	)		(1,693	)		(2,140	)		(7,212	)
Depreciation of right-of-use (i)		(24,206	)		(48,413	)		—			—
Settlement of disputes in the renewal process (iii)		348,319			278,496			—			—
Net effect of legal proceedings, recoverable and tax installments		(35,908	)		(61,730	)		(19,014	)		(64,739	)
Other		(4,031	)		36,992			(15,882	)		(35,328	)
		214,457			86,595			7,075			5,788

(i) Depreciation cost of the grant of "Malha Central" (subsidiary in pre-operating phase).

(ii) On December 21, 2017, the subsidiary Cosa S.A. entered into a “Credit Rights Assignment and Other Covenants Agreement”. In return, it received R$ 1,340,000 (“acquisition price”), resulting from certain indemnity actions. In addition to the acquisition price, Cosan S.A. will be entitled to additional payments related to these credit rights, provided that its result is positive. The additional payment will be determined by applying 95% of the difference between the net amount received from the Union's credit rights by the transferee, less the return of the transferees. Being recognized in the results only upon receipt.   In September and December 2019, there was an assignment of the additional payment mentioned in the previous paragraph, plus credit related to the portion of the controversial share of the action of Açucareiro Corona S.A.   In both contracts there are clauses of the Company's obligations towards buyers, in the event of any discounts, retentions or compensations that may be promoted by Copersucar, higher than certain percentages, in which the Company will indemnify buyers.

85 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

On January 2, 2020, the first installment of the second precatory and second installment of the first precatory was received, with Copersucar retaining the amount referring to taxes, expenses and other withholdings. The Company indemnified the Buyers at R$ 132,200 on February 11, 2020, as represented in the cash flow statement, comprising: (i) R$ 28,700 taxes and expenses; (ii) R$ 103,500 other retentions, R$ 130,922 was received on April 2, 2020. Copersucar retained the credit for Corona's share to cover the interest that will be incurred.

In relation to the other retentions, accounts receivable were created against Copersucar, referring to the reimbursement of the installments received from the court orders, totaling R$ 134,903, consisting of: (i) the first installment of the first court order R$ 31,403 recorded in May 2019; and (ii) first installment of the second precatory and second installment of the first precatory in the total amount of R$ 103,500 recorded in February 2020.

On March 31, 2020, the Company made a provision of R$ 68,311 related to the taxes and expenses of the installments falling due that the Company will have to indemnify the Fund for the remaining installments of the first precatory and the second precatory.

(iii) R$ 348,319 with a positive effect related to the reversal of lease liabilities in litigation registered in May and R$ 69,823 of negative effect recorded in January due to administrative and judicial disputes involving the Granting Authority and Malha Paulista, whose discussion the Company gave up as a prerequisite for the conclusion of the concession's early renewal process, one of the requirements imposed by TCU - Federal Audit Court.

(iv) Reimbursement of expenses with regulatory losses in accordance with Resolution ARSESP 977 of April 8, 2020, which was recognized, as detailed in note 12 .

(v) Details note 10.2

86 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

21 Finance results

Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either finance income or finance cost depending on whether the net foreign currency fluctuations result in a gain or loss position.

Details of finance income and costs are as follows:

	April 1, 2020 to June 30, 2020			January 1, 2020 to June 30, 2020			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Restated)
Cost of gross debt
Interest on debt		(426,705	)		(862,550	)		(414,739	)		(777,024	)
Monetary and exchange rate variation		(761,439	)		(3,919,288	)		168,567			96,921
Derivatives and fair value measurement		983,082			4,393,001			635			65,225
Amortization of borrowing costs		(13,469	)		(28,811	)		(9,533	)		(23,846	)
Finance and warranties on debt		(13,152	)		(22,478	)		(20,426	)		(40,217	)
		(231,683	)		(440,126	)		(275,496	)		(678,941	)
Income from financial investment and exchange rate in cash and cash equivalents		74,734			153,963			95,726			183,853
		74,734			153,963			95,726			183,853
Cost of debt, net		(156,949	)		(286,163	)		(179,770	)		(495,088	)
Other charges and monetary variations
Interest on other receivables		31,563			68,926			79,527			101,546
Interest on other liabilities		(2,276	)		(9,673	)		(17,858	)		(33,274	)
Monetary variation on leases and concessions agreements		83,362			9,802			(49,780	)		(98,391	)
Monetary variation on leases		(159,717	)		(295,381	)		(89,087	)		(137,521	)
Interest on shareholders' equity		—			—			(925	)		(925	)
Interest on contingencies and contracts		(43,744	)		(84,618	)		(40,628	)		(129,634	)
Bank charges and other		2,535			(18,992	)		(24,942	)		(49,651	)
Exchange variation and non-debt derivatives		30,540			17,014			8,918			9,002
		(57,737	)		(312,922	)		(134,775	)		(338,848	)
Finance results, net		(214,686	)		(599,085	)		(314,545	)		(833,936	)
Reconciliation
Finance expense		(755,660	)		(2,983,294	)		(1,120,766	)		(1,924,801	)
Finance income		61,129			381,062			191,623			318,039
Foreign exchange, net		(766,358	)		(3,967,798	)		177,485			106,668
Derivatives		1,246,203			5,970,945			437,113			666,158
Finance results, net		(214,686	)		(599,085	)		(314,545	)		(833,936	)

87 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

22 Financial risk management

a) Market risk

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Company uses derivatives to manage market risks. All such transactions are carried out within the guidelines set by the risk management committee. Generally, the Company seeks to apply hedge accounting to manage volatility in profit or loss.

i. Foreign exchange risk

At June 30, 2020 and December 31, 2019, the Company had the following net exposure to the exchange rate variations on assets and liabilities denominated in U.S.Dollar (U.S.$.) and Euro (EUR):

	June 30, 2020			December 31, 2019
Cash and cash equivalents		3,431,801			901,718
Trade receivables		27,564			22,771
Trade payables		(107,877	)		(86,732	)
Loans, borrowings and debentures		(23,587,148	)		(16,245,131	)
Leases		(101,337	)		(65,348	)
Consideration payable		(219,362	)		(184,370	)
Derivative financial instruments (notional)		19,803,476			13,621,791
Foreign exchange exposure, net		(752,883	)		(2,035,301	)

The sensitivity of profit or loss to changes in the exchange rates arises mainly from U.S. Dollar denominated financial instruments and the impact on other components of equity arises from foreign forward exchange contracts designated as cash flow hedges though its joint ventures.

A reasonably possible strengthening (weakening) of the real to U.S. dollar and Euro at December 31, 2020 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. Stressed scenarios (positive and negative effects, before tax effects) were defined based on changes of a 25% and 50% to the U.S. dollar and Euro exchange rates used in the probable scenario. The Company’s exposure to foreign currency changes for all other currencies is not material.

88 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

				Variation scenario
Instrument	Risk factor	Probable		25	%	50	%	-25	%	-50	%
Cash and cash equivalents	Currency fluctuation	42,172		69,489		97,180		14,668		(12,837	)
Trade receivables	Currency fluctuation	15,558		22,165		28,772		8,952		2,345
Trade payables	Currency fluctuation	(100,945	)	(126,783	)	(152,536	)	(75,279	)	(49,527	)
Derivative financial instruments (Notional)	Currency fluctuation	1,775,675		5,937,018		10,013,564		(2,216,074	)	(6,292,622	)
Loans, borrowings and debentures	Currency fluctuation	748,299		(3,642,870	)	(8,012,976	)	5,033,612		9,382,475
Leases	Currency fluctuation	4,182		(20,106	)	(44,394	)	28,471		52,759
Consideration payable	Currency fluctuation	(210,310	)	(262,887	)	(315,465	)	(157,733	)	(105,155	)
Impacts on profit or loss		2,274,631		1,976,026		1,614,145		2,636,617		2,977,438

The probable scenario considers the estimated exchange rates, made by a specialized third part, at the due date of the transactions for the companies with functional currency Real (positive and negative, before tax effects), as follows:

	Exchange rate sensitivity analysis (R$/U.S.$) and (R$/Euro)
			Scenario
		June 30, 2020		Probable	25	%	50	%	-25	%	-50	%
U.S.$		5.4760		5.2500	6.5625		7.8750		3.9375		2.6250
Euro		6.1539		5.9300	7.4125		8.8950		4.4475		2.9650

ii. Interest rate risk

The Company and its subsidiaries monitor the fluctuations in variable interest rates in connection with its borrowings, especially those that accrue interest using LIBOR, and uses derivative instruments in order to minimize variable interest rate fluctuation risks.

89 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

A sensitivity analysis on the interest rates on loans and borrowings in compensation for the CDI investments with pre-tax increases and decreases of 25% and 50% is presented below:

			Variation scenario
Exposure interest rate	Probable		25	%	50	%	-25	%	-50	%
Cash and cash equivalents	218,020		272,090		327,031		(70,379	)	(124,884	)
Marketable securities	57,160		71,450		85,740		25,486		11,196
Consideration asset	65,163		81,454		97,745		48,872		32,582
Restricted cash	917		1,147		1,376		(1,147	)	(1,376	)
Other financial assets	(6,073	)	(7,591	)	(9,110	)	7,591		9,110
Leases	(821,151	)	(788,729	)	(790,447	)	(785,295	)	(783,577	)
Derivative financial instruments	64,342		2,038,682		2,256,996		546,300		(17,638	)
Loans, borrowings and debentures	(1,710,606	)	(314,503	)	(432,460	)	(78,592	)	39,365
Impacts on profit or loss	(2,132,228	)	1,353,999		1,536,871		(307,164	)	(835,222	)

The probable scenario considers the estimated interest rate, made by a specialized third part and Central Bank of Brazil (Banco Central do Brasil), or BACEN, as follows:

	Probable		25	%	50	%	-25	%	-50	%
SELIC	2.15	%	2.69	%	3.23	%	1.61	%	1.08	%
CDI	2.15	%	2.69	%	3.23	%	1.61	%	1.08	%
TJLP462 (TJLP + 1% p.a.)	5.80	%	7.00	%	8.20	%	4.60	%	3.40	%
TJLP	4.80	%	6.00	%	7.20	%	3.60	%	2.40	%
IGPM	3.84	%	4.80	%	5.75	%	2.88	%	1.92	%
IPCA	3.07	%	3.83	%	4.60	%	2.30	%	1.53	%
Fed Funds	0.15	%	0.19	%	0.23	%	0.11	%	0.08	%
Libor	0.61	%	0.76	%	0.92	%	0.46	%	0.31	%

iii. Price risk

As of January 2020, the Company entered the energy trading market, with the objective of obtaining results with variations in the price of energy, within the limits of risk and pre-established counterparties by Management, exposing the Company to risk price of this commodity.

90 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Equity position and unrealized gains on energy trading operations, net. Trading operations are traded on an active market and recognized at fair value through profit or loss, based on the difference between the contracted price and the market price of the open contracts on the balance sheet date.

This fair value is estimated, in large part, in the price quotations used in the active over-the-counter market, insofar as such observable market data exist, and, to a lesser extent, by the use of valuation techniques that consider prices established in operations of purchase and sale and market prices projected by specialized entities, in the period of availability of this information.

The equity balances referring to the open trading transactions are shown below.

						June 30, 2020
	Assets		Liabilities			Net gain
Trading operations		40,260		(8,906	)		31,354

The main risk factor that impacts the pricing of trading operations is exposure to energy market prices. The scenarios for sensitivity analysis for this factor are prepared using market data and specialized sources, considering future prices, applied to the market curves of June 30, 2020, as follows:

		Variation scenario
	Probable	25	%	50	%	-25	%	-50	%
Unrealized gains on trading operations	31,354	(53,140	)	(137,633	)	115,847		200,340
	31,354	(53,140	)	(137,633	)	115,847		200,340

b) Credit risk

The Company’s regular operations expose it to potential defaults when customers, suppliers and counterparties are unable to comply with their financial or other commitments. The Company seeks to mitigate this risk by entering into transactions with a diverse pool of counterparties. However, the Company continues to remain subject to unexpected third party financial failures that could disrupt its operations. The exposure to credit risk was as follows:

91 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020		December 31, 2019
Cash and cash equivalents		10,953,572		8,472,274
Trade receivables		1,825,072		3,115,503
Marketable securities		2,658,608		1,814,394
Derivative financial instruments		9,569,926		3,824,410
Receivables from related parties		188,336		173,341
Dividends receivable		57,942		23,252
Restricted cash		42,672		147,910
		25,296,128		17,571,084

The Company is also exposed to risks in connection with its cash management activities and temporary investments.

Liquid assets are invested primarily in government security and other investments in Banks with a minimum grade of “A.” Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in accordance with the Company’s policy.

Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed on an annual basis and may be updated throughout the period. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure to make payments. The credit risk on cash and cash equivalents, marketable securities, restricted cash and derivative financial instruments are determined by rating instruments widely accepted by the market and are arranged as follows:

92 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	June 30, 2020		December 31, 2019
AAA		18,823,518		11,538,846
AA		4,378,190		4,021,251
B-		23,070		—
		23,224,778		15,560,097

c) Liquidity risk

The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The financial liabilities of the Company sorted by due dates (based on undiscounted cash flows contracted) are as follows:

	June 30, 2020															December 31, 2019
	Up to 1 year			1 - 2 years			3 - 5 years			More than 5 years			Total			Total
Loans, borrowings and debentures		(6,440,102	)		(3,967,672	)		(23,372,652	)		(19,711,336	)		(53,491,762	)		(42,443,289	)
Trade payables		(2,377,234	)		—			—			—			(2,377,234	)		(2,190,264	)
Other financial liabilities		(405,798	)		—			—			—			(405,798	)		(543,879	)
Tax installments - REFIS		(8,441	)		(4,553	)		(9,271	)		(183,939	)		(206,204	)		(207,416	)
Leases		(1,266,908	)		(1,032,579	)		(3,018,545	)		(20,024,275	)		(25,342,307	)		(11,666,959	)
Payables to related parties		(402,610	)		(741	)		—			—			(403,351	)		(392,458	)
Dividends payable		(21,590	)		—			—			—			(21,590	)		(214,104	)
Preferred shareholders payable		—			(446,984	)		—			—			(446,984	)		(611,537	)
		(10,922,683	)		(5,452,529	)		(26,400,468	)		(39,919,550	)		(82,695,230	)		(58,269,906	)

93 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

23 Post-employment benefits

	June 30, 2020		December 31, 2019
Defined contribution
Futura II		437		361
Defined benefit
Futura		75,567		74,093
Comgás		639,059		630,549
		715,063		705,003

During the period ended June 30, 2020, the amount of sponsor contributions to the plans was R$ 21,153 (R$ 8,462 on December 31, 2019).

24 Share-based payment

The plans have been administered by the Board of Directors, at its option, by a Committee, within the limits established in the guidelines for the elaboration and structuring of each plan and in the applicable legislation.

The detail of plans, including the quantity of granted shares and expected life in years is as follow:

a) Description of share-based payment arrangements

According to the plan, eligible employees can receive common shares annually without payment in cash. The number of shares issued to program participants is the value of the offer divided by the weighted average price at which the Company's shares are traded on the Stock Exchange.

For share-based compensation settled with shares, the expense is based on the date of granting the fair value of the premiums that must be acquired during the grace period. For awards with graduated vesting, the fair value of each tranche is recognized during the respective grace period. At the end of each reporting period, the Company reassesses its estimates of the number of premiums that must be acquired and recognizes the impact of the revisions in the income statement.

94 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

The Black-Scholes methodology was used to calculate the fair value under the terms of the Share-Based Compensation Plan.

Type of award / Grant date	Company	Expected life (years)		Granted		Exercised / canceled / transferred			Available
Stock grant programs
April 27, 2017	Cosan S.A.		5		274,000		(76,900	)		197,100
July 31, 2017	Cosan S.A.		5		298,107		(78,948	)		219,159
July 31, 2018	Cosan S.A.		5		210,602		—			210,602
July 31, 2019	Cosan S.A.		5		31,031		—			31,031
					813,740		(155,848	)		657,892
April 20, 2017	Comgás		5		61,300		(4,725	)		56,575
August 12, 2017	Comgás		5		97,780		(6,000	)		91,780
August 1, 2018	Comgás		5		96,787		—			96,787
July 31, 2019	Comgás		5		83,683		—			83,683
February 01, 2020	Compass Gás e Energia		5		1,858,959		—			1,858,959
					2,198,509		(10,725	)		2,187,784
October 1, 2015	Rumo S.A		5		1,485,900		(258,300	)		1,227,600
January 2, 2017	Rumo S.A		5		1,476,000		(226,900	)		1,249,100
September 1, 2017	Rumo S.A		5		870,900		(131,300	)		739,600
August 1, 2018	Rumo S.A		5		1,149,544		(155,621	)		993,923
August 15, 2019	Rumo S.A		5		843,152		(19,956	)		823,196
					5,825,496		(792,077	)		5,033,419
August 18, 2017	Cosan Limited		5		3,530,163		(3,530,163	)		—
Stock grant - Modification
August 18, 2011 - (B) (iii)	Cosan S.A.		1 to 12		1,501,626		(1,276,283	)		225,343
December 12, 2012 - (C)	Cosan S.A.		1 to 7		24,647		(24,647	)		—
April 24, 2013 (i)	Cosan S.A.		5 to 7		122,123		(116,802	)		5,321
April 25, 2014 (ii)	Cosan S.A.		5 to 7		283,808		(273,056	)		10,752
August 31, 2015	Cosan S.A.		5 to 7		463,906		(157,242	)		306,664
					2,396,110		(1,848,030	)		548,080
August 18, 2011 - (B)	Cosan Logística		1 to 12		162,464		(162,464	)		—
December 12, 2012 - (C)	Cosan Logística		1 to 7		277		(277	)		—
April 24, 2013	Cosan Logística		5 to 7		1,926		(1,806	)		120
April 25, 2014	Cosan Logística		5 to 7		23,682		(22,396	)		1,286
					188,349		(186,943	)		1,406
Cash-settled transactions
September 21, 2017	Cosan Limited		5		255,000		(255,000	)		—
July  31, 2019	Moove		5		132,670		—			132,670
Total					15,340,037		(6,778,786	)		8,561,251

95 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

(i) On January 23, 2020, 9,579 shares were delivered, equivalent to the amount of R$ 333.

(ii) On March 5, 2020, 21,504 shares were delivered, equivalent to the amount of R$ 748.

(iii) On April 30, 2020, 225,531 shares were settled in cash in the amount of R $ 20,281.

b) Reconciliation of outstanding share options

The movement in the number of awards outstanding and their related weighted-average exercise prices are as follows:

	Stock option programs			Stock grant programs			Total
At December 31, 2019		150,662			7,501,866			7,652,528
Granted		—			1,858,959			1,858,959
Vested		—			(435,160	)		(435,160	)
Cancelled		(51,311	)		(364,414	)		(415,725	)
At June 30, 2020		99,351			8,561,251			8,660,602

c) Expense recognized in profit or loss

Share-based compensation expense included in the statement of profit and loss for the period ended June 30, 2020 and 2019 was as follows:

	Stock option programs		Stock grant programs		Total
June 30, 2019		1,627		29,279		30,906
At June 30, 2020		7,271		37,304		44,575

(i)Incremental cost was recognized in income for the period.

96 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

25 Operation discontinued

On December 2, 2019, the subsidiary Cosan S.A. sold its interest in Cosan Biomassa S.A. to the joint venture Raízen Energia S.A. for R$ 1 (One Real). Considering the unsecured liability of R$47,531, plus the 11-month result of this entity of R$ 15,386 and other transaction expenses of R$21,124, generating a gain in the amount of R$11,021.

Accordingly, as presented below and also required by IFRS 5 - Non-current assets held for sale and discontinued operations -, the Company is changing the presentation of its income statements and cash flow statements for the period ended on June 2019.

	April 1, 2019 to June 30, 2019 (Published)			Discontinued operation			April 1, 2019 to June 30, 2019 (Restated)			January 1, 2019 to June 30, 2019 (Published)			Discontinued operation			January 1, 2019 to June 30, 2019 (Restated)
Gross profit		1,595,513			23			1,595,536			2,846,398			(282	)		2,846,116
Selling, general and administrative expenses		(550,601	)		929			(549,672	)		(1,073,108	)		1,342			(1,071,766	)
Other income (expenses), net		3,384			3,691			7,075			(1,684	)		7,472			5,788
Profit before equity in earnings of investees, finance results and taxes		1,048,296			4,643			1,052,939			1,771,606			8,532			1,780,138
Interest in earnings of associates		7,086			(1,082	)		6,004			(19,712	)		(2,400	)		(22,112	)
Interest in earnings of joint ventures		58,410			—			58,410			362,243			—			362,243
Equity in earnings of investees		65,496			(1,082	)		64,414			342,531			(2,400	)		340,131
Finance results, net		(315,753	)		1,208			(314,545	)		(838,380	)		4,444			(833,936	)
Profit before taxes		798,039			4,769			802,808			1,275,757			10,576			1,286,333
Income taxes		(257,376	)		—			(257,376	)		(338,665	)		—			(338,665	)
Profit from continuing operations		540,663			4,769			545,432			937,092			10,576			947,668
Loss from discontinued operations, net of taxes		—			(4,769	)		(4,769	)		—			(10,576	)		(10,576	)
Profit for the period		540,663			—			540,663			937,092			—			937,092
Profit attributable to:
Owners of the Company		208,401			—			208,401			398,617			—			398,617
Non-controlling interests		332,262			—			332,262			538,475			—			538,475
		540,663			—			540,663			937,092			—			937,092

97 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

	January 1, 2019 to June 30, 2019 (Published)			Discontinued operation			January 1, 2019 to June 30, 2019 (Restated)
Cash flows from operating activities
Profit before taxes		1,275,757			10,576			1,286,333
Adjustments for:
Depreciation and amortization		1,118,653			(527	)		1,118,126
Interest in earnings of associates		19,712			2,400			22,112
Interest in earnings of joint ventures		(362,243	)		—			(362,243	)
Indexation charges, interest and exchange, net		918,090			(5,246	)		912,844
Provisions for employee benefits		104,333			18			104,351
Other		(94,946	)		(651	)		(95,597	)
		2,979,356			6,570			2,985,926
Changes in:
Trade receivables		(442,819	)		(8,058	)		(450,877	)
Inventories		(98,383	)		(1,345	)		(99,728	)
Current tax, net		10,414			1,022			11,436
Related parties, net		8,333			(3,755	)		4,578
Trade payables		170,589			2,418			173,007
Employee benefits		(151,489	)		771			(150,718	)
Other assets and liabilities, net		(259,087	)		8,730			(250,357	)
Discontinued operation		—			1,377			1,377
Other		(18,019	)		(7,730	)		(25,749	)
Net cash generated by operating activities		2,198,895			—			2,198,895
Marketable securities		2,073,212			(1,361	)		2,071,851
Additions to property, plant and equipment, intangible assets, contract assets and right to use		(1,315,701	)		253			(1,315,448	)
Discontinued operation		—			1,108			1,108
Other		616,746			—			616,746
Net cash used in investing activities		1,374,257			—			1,374,257
Loans, borrowings and debentures raised		3,020,332			(460	)		3,019,872
Amortization of principal on loans, financing and debentures		(1,809,575	)		(100,517	)		(1,910,092	)
Payment of interest on loans, borrowings and debentures		(618,364	)		(81,145	)		(699,509	)
Derivative financial instruments, net		44,816			(44,816	)		—
Discontinued operation		—			(10,702	)		(10,702	)
Other		(2,788,325	)		237,640			(2,550,685	)
Cash flow from financing activities		(2,151,116	)		—			(2,151,116	)
Increase (decrease) in cash and cash equivalents		1,422,036			—			1,422,036
Cash and cash equivalents at beginning of period		3,621,798			—			3,621,798
Effect of exchange rate fluctuations on cash held		(41,071	)		—			(41,071	)
Cash and cash equivalents at end of period		5,002,763			—			5,002,763

98 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

26 Subsequent events

26.1 Cosan S.A.

Corporate reorganization

The Boards of Directors of Cosan S.A., Cosan Logística S.A. and Cosan Limited approved the start of the study of a corporate restructuring proposal that will result in Cosan S.A. as the only holding company in the entire group. Such corporate restructuring aims to simplify the Cosan Group's structure, unifying and consolidating the various free floats of the Companies, increasing the liquidity of their securities, as well as unlocking the value that exists within the Cosan Group.

The corporate reorganization will consist of the merger of companies under common control, whereby Cosan Limited and Cosan Logística S.A. will be merged into Cosan S.A.

Deliberations OGM

According to the Ordinary and Extraordinary General Meeting held on July 29, 2020, we present below the main resolutions:

i. Cancellation of 4,694,353 treasury shares issued by the subsidiary Cosan S.A .;

ii. Approval of the capital increase of the subsidiary Cosan S.A in the amount of R $ 682,264 without the issue of new shares;

iii. Approval of the increase in the authorized capital of the subsidiary Cosan S.A to up to R $ 7,000,000.

IPO Compass Gás e Energia

Approved at the Ordinary and Extraordinary General Meeting of the subsidiary Compass held on July 30, 2020, request for registration of the public offering of primary distribution of common shares, together with the submission of:

99 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

i. application for membership of Compass to the special listing segment of the Novo Mercado of B3 S.A. - Brasil, Bolsa, Balcão; and

ii. application for registration as an issuer of “Category A” securities with the CVM.

26.2 Cosan Logística

Issue Green Notes

On July 1, 2020, the Company completed the raising of USD 500,000 thousand, by the subsidiary Rumo Luxemburgo Sarl, through the issuance of Green Notes, with an interest rate of 5.25% p.a. and maturity on January 10, 2028.

The funds raised through the issuance of Notes will be used to finance new investments in eligible “Green Projects”, according to the Green Bond Framework issued with Second Party Opinion by Sustainalytics and certification by the CBI - Climate Bond Initiative.

Re-bidding process of Malha Oeste

On July 21, 2020, the Company filed with the National Land Transportation Agency (ANTT), a request for adherence to a re-bidding process related to the object of the Concession Contract signed between Malha Oeste and the Union, through the Ministry of Transport ( “Relicitation Process”), pursuant to Law No. 13,448 of June 5, 2017 and regulated by Decree No. 9,957 of August 7, 2019.

Public offering of shares of subsidiary Rumo

On August 13, 2020, the subsidiary Rumo S.A. has announced a primary public offering of shares, through which it intends to sell 235,000,000 shares, a volume that can be increased by 35%, for a capital increase, whose authorized limit is R$ 7,000.000.

100 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

Debenture issuance

On August 13, 2020, the Board of Directors approved the 1st issuance of simple unsecured debentures, not convertible into shares, with an additional personal guarantee, in a single series, of the Company, in the total amount of up to R$ 1,740,000. The proceeds will be used in the public offering of shares of the subsidiary Rumo S.A.

101 

 

Notes to the interim consolidated financial statements

(In thousands of Brazilian Reais - R$, unless otherwise stated)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 19, 2020

COSAN LIMITED
By:	/s/ Marcelo Eduardo Martins
	Name: Marcelo Eduardo Martins Title: Chief Financial Officer