UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 20-F/A

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Commission file number: 1-33659

 

COSAN LIMITED
(Exact name of Registrant as specified in its charter)

 

N/A
(Translation of Registrant’s name into English)

 

Bermuda
(Jurisdiction of incorporation or organization)

 

Av. Juscelino Kubitschek, 1327 – 4th floor
São Paulo, SP 04543-000, Brazil
(55)(11) 3897-9797
(Address of principal executive offices)

 

Marcelo Eduardo Martins
(55)(11) 3897-9797
ri@cosan.com
Av. Juscelino Kubitschek, 1327 – 4th floor
São Paulo, SP 04543-000, Brazil
(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class Name of each exchange on which registered
Class A Common Shares New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

The number of outstanding shares as of December 31, 2014 was:

 

Title of Class Number of Shares Outstanding
Class A Common Shares, par value $.01 per share 174,355,341
Class B – series 1 – Common Shares, par value $.01 per share 96,332,044

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yes No
 
 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Yes No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer   Accelerated Filer   Non-accelerated Filer  

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

      U.S. GAAP

 

      International Financial Reporting Standards as issued by the International Accounting Standards Board

 

      Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 

Item 17 Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes No

 

 
 
 

EXPLANATORY NOTE

 

We are amending our Annual Report on Form 20-F for the fiscal year ended December 31, 2014 (the “Annual Report” as originally filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 30, 2015) solely for the purpose of filing with the SEC the financial statements for the fiscal years ended March 31, 2015, 2014 and 2013 of Raízen Energia and Raízen Combustíveis as Exhibit 13.3.

 

Other than set forth above, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in any other item of the Annual Report as originally filed with the SEC. As a result, this Form 20-F/A does not reflect any events that may have occurred after the Annual Report was filed on April 30, 2015.

 

 
 

PART III

 

Item 19. Exhibits

 

We are filing the following documents as part of this annual report on Form 20-F:

 

1.1Memorandum of Association (incorporated by reference to our amended registration statement filed on Form F-1/A with the Securities and Exchange Commission on August 9, 2007)

 

1.2By-Laws (incorporated by reference to our amended registration statement filed on Form F-1/A with the Securities and Exchange Commission on August 9, 2007)

 

2.1Indenture dated as of January 26, 2007 among Cosan Finance Limited, as issuer, Cosan S.A. Indústria e Comércio and Usina Da Barra S.A.—Açúcar e Álcool, as guarantors, The Bank of New York, as trustee, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as principal paying agent and The Bank of New York Luxembourg S.A., as Luxembourg paying agent (incorporated by reference to our registration statement filed on Form F-1 with the Securities and Exchange Commission on June 25, 2007)

 

2.2Indenture dated August 11, 2009 among CCL Finance Limited, Cosan Combustíveis e Lubrificantes S.A., (now CLE) The Bank Of New York Mellon, as Trustee, The Bank of New York Mellon Trust (Japan), Ltd., as Principal Paying Agent, and the Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Listing, Paying and Transfer Agent (incorporated by reference to Exhibit 2.4 of our annual report on Form 20-F for the year ended March 31, 2009)

 

2.3Indenture dated November 5, 2010 among Cosan Overseas Limited, Cosan S.A. Indústria e Comércio, The Bank of New York Mellon, as Trustee, New York Paying Agent, Transfer Agent and Registrar, The Bank of New York Mellon (London Branch), as London Paying Agent and The Bank of New York Mellon (Luxembourg) S.A., as Paying Agent and Transfer Agent (incorporated by reference to Exhibit 2.5 of our annual report on Form 20-F for the year ended March 31, 2011)

 

2.4Indenture dated March 14, 2013 among Cosan Luxembourg S.A., Cosan S.A. Indústria e Comércio, Deutsche Bank Trust Company, as Trustee, New York Paying Agent, Transfer Agent and Registrar and Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent (incorporated by reference to Exhibit 2.4 of our annual report on Form 20-F for the year ended March 31, 2013)

 

2.5Indenture dated March 14, 2013 among Cosan Luxembourg S.A., Cosan S.A. Indústria e Comércio, Deutsche Bank Trust Company, as Trustee, New York Paying Agent, Transfer Agent, Registrar and Calculation Agent and Deutsche Bank Luxembourg S.A., as Luxembourg Paying Agent (incorporated by reference to Exhibit 2.5 of our annual report on Form 20-F for the year ended March 31, 2013)

 

4.1Loan Agreement dated as of June 28, 2005 among Cosan S.A. Indústria e Comércio, as borrower, and International Finance Corporation (incorporated by reference to our registration statement filed on Form F-1 with the Securities and Exchange Commission on June 25, 2007)

 

4.2Agreement for the Sale and Purchase of all of the Member Interests in Parent Co-Operative 1 and Parent Co-Operative 2 dated April 23, 2008, between ExxonMobil International Holdings B.V., as vendor, and the registrant’s subsidiaries Cosan S.A. Indústria e Comércio and Usina da Barra S.A. Açúcar e Álcool, as purchasers* (incorporated by reference to our Amendment to our Current Report filed on Form 6-K/A on June 10, 2009)

 

4.3Framework Agreement dated August 25, 2010 among Cosan S.A. Indústria e Comércio, Cosan Distribuidora de Combustíveis S.A., Cosan Limited, Houches Holdings S.A., Shell Brasil Limitada, Shell Brazil Holding B.V., Shell Overseas Holdings Limited and Milimétrica Participações S.A., or Framework Agreement (incorporated by reference to Exhibit 4.3 of our annual report on Form 20-F for the year ended March 31, 2010)

 

4.4First Amendment to the Framework Agreement, dated as of April 7, 2011 (incorporated by reference to Exhibit 4.4 of our annual report on Form 20-F for the year ended March 31, 2011).

 

4.5Second Amendment to the Framework Agreement, dated as of June 1, 2011 (incorporated by reference to Exhibit 4.5 of our annual report on Form 20-F for the year ended March 31, 2011).

 

 
 
4.6Joint Venture Agreement among Cosan S.A. Indústria e Comércio, Cosan Limited, Raízen Combustíveis S.A., Raízen S.A., Shell Brazil Holding B.V., Shell Overseas Holdings Limited and Raízen Energia Participações S.A. dated June 1, 2011(incorporated by reference to Exhibit 4.6 of our annual report on Form 20-F for the year ended March 31, 2011).

 

4.7Operating and Coordination Agreement dated June 1, 2011 relating to Raízen Energia Participações S.A., Raízen Combustíveis S.A. and Raízen S.A. (incorporated by reference to Exhibit 4.7 of our annual report on Form 20-F for the year ended March 31, 2011).

 

4.8Shareholders Agreement of Raízen Combustíveis S.A., dated as of June 1, 2011(incorporated by reference to Exhibit 4.8 of our annual report on Form 20-F for the year ended March 31, 2011).

 

4.9Shareholders Agreement of Raízen Energia Participações S.A., dated as of June 1, 2011 (incorporated by reference to Exhibit 4.9 of our annual report on Form 20-F for the year ended March 31, 2011).

 

4.10Term Loan among Cosan Cayman Limited, certain Lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent for the Lenders dated April 1, 2011 (incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F for the year ended March 31, 2012).

 

4.11Share Purchase Agreement for the acquisition of Comma Oil & Chemicals Limited dated February 29, 2012, between Esso Petroleum Company, Limited and Cosan S.A. Indústria e Comércio (incorporated by reference to Exhibit 4.11 of our annual report on Form 20-F for the year ended March 31, 2013)

 

4.12Share Purchase Agreement for the acquisition of Comgás dated May 28, 2012, between Integra Investments B.V., BG Energy Holdings Limited, Provence Participações S.A. and Cosan S.A. Indústria e Comércio (incorporated by reference to Exhibit 4.12 of our annual report on Form 20-F for the year ended March 31, 2013)

 

8.1Subsidiaries of the Registrant (incorporated by reference as exhibit to our Annual Report on Form 20-F for the fiscal year ended December 31, 2014 filed on April 30, 2015).

 

11.1Code of Ethics (incorporated by reference from our exhibit to our annual report filed on Form 20-F for the Fiscal Year ended April 30, 2008).

 

12.1Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer**

 

12.2Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer**

 

13.1Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer**

 

13.2Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer**

 

13.3Financial Statements as of March 31, 2015 and March 31, 2014 and for the three years ended March 31, 2015, 2014 and 2013 of Raízen Energia and Raízen Combustíveis **

 

16.1Letter from PricewaterhouseCoopers Auditores Independentes to the SEC dated April 30, 2015 confirming that PricewaterhouseCoopers Auditores Independentes agrees with the disclosures made by the Company in Item 16F of this annual report on Form 20-F (incorporated by reference as exhibit to our Annual Report on Form 20-F for the fiscal year ended December 31, 2014 filed on April 30, 2015).

 

 

* Portions of this item have been omitted pursuant to a request for confidential treatment.

** Filed herewith.

 

 
 

SIGNATURES

 


The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

COSAN LIMITED

 

 

 

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

Date: June 23, 2015

 



EXHIBIT 12.1

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Marcos Marinho Lutz, certify that:

 

1. I have reviewed this annual report on Form 20-F of Cosan Limited;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4. [Omitted]

 

5. [Omitted]

 

 

Date: June 23, 2015

 

By: /s/ Marcos Marinho Lutz
  Name: Marcos Marinho Lutz
  Title: Chief Executive Officer



EXHIBIT 12.2

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Marcelo Eduardo Martins, certify that:

 

1. I have reviewed this annual report on Form 20-F of Cosan Limited;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 

4. [Omitted]

 

5. [Omitted]

 

 

Date: June 23, 2015

 

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



EXHIBIT 13.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

 

The certification set forth below is being submitted in connection with the annual report on Form 20-F for the fiscal year ended December 31, 2014 ( the “Report”) for the purposes of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

I, Marcos Marinho Lutz, the Chief Executive Officer of Cosan Limited, certify that, to the best of my knowledge:

 

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: June 23, 2015

 

By: /s/ Marcos Marinho Lutz
  Name: Marcos Marinho Lutz
  Title: Chief Executive Officer



EXHIBIT 13.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

 

The certification set forth below is being submitted in connection with the annual report on Form 20-F for the fiscal year ended December 31, 2014 ( the “Report”) for the purposes of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

I, Marcelo Eduardo Martins, the Chief Financial Officer of Cosan Limited, certify that, to the best of my knowledge:

 

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: June 23, 2015

 

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



Exhibit 13.3 

 

Item  
   
1. Raízen Combustíveis S.A. consolidated financial statements comprising the consolidated balance sheets as of March 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2015 and Independent Auditors’ Report.
   
2. Raízen Energia S.A. consolidated financial statements comprising the consolidated balance sheets as of March 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2015 and Independent Auditors’ Report.

 

These financial statements of Raizen Combustíveis S.A. and Raizen Energia S.A. are being filed to comply with Rule 3-09 of Regulation S-X.

 

 
 

 

 

 

Raízen Combustíveis S.A.

 

 

 

 

 
 

RAÍZEN COMBUSTÍVEIS S.A.

 

Financial Statements as of March 31, 2015

 

Table of Contents

 

Independent auditor’s report 2
Consolidated balance sheet 4
Consolidated statement of income 6
Consolidated statement of comprehensive income 7
Consolidated statement of changes in shareholders’ equity 8
Consolidated statement of cash flows 11
Notes to consolidated financial statements 12

1 of 72

 

 

 

Independent Auditor's Report

 

To the Board of Directors and Shareholders

 

Raízen Combustíveis S.A.

 

We have audited the accompanying consolidated financial statements of Raízen Combustíveis S.A. and its subsidiaries, which comprise the consolidated balance sheets as of March 31, 2015 and March 31, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2015.

 

Management's Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor's Responsibility

 

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

2 of 72

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Raízen Combustíveis S.A. and its subsidiaries at March 31, 2015 and March 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2015, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Campinas, Brazil

 

June 22, 2015

 

/s/ PricewaterhouseCoopers

 

PricewaterhouseCoopers

Auditores Independentes

 

3 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Consolidated balance sheet

March 31, 2015 and 2014

In thousands of Brazilian Reais

 

       
  Note   2015   2014
Assets          
Current assets          
  Cash and cash equivalents 3   232,943   566,606
  Restricted cash 4   57,313   52,779
  Trade accounts receivable, net 5   1,273,536   1,190,832
  Derivative financial instruments 25   115,899   23,888
  Inventories 6   1,079,085   941,982
  Related parties 9   334,847   257,813
  Recoverable taxes 7   167,834   145,407
  Recoverable income tax and social contribution     14,372   9,596
  Prepaid expenses 8   4,632   24,963
  Dividends receivable 10   -   3,450
  Other receivables     27,522   39,656
          3,307,983   3,256,972
                 
Non-current assets          
  Trade accounts receivable 5   298,254   229,069
  Related parties 9   1,963,546   435,188
  Prepaid expenses 8   7,236   9,927
  Recoverable taxes 7   316,468   236,356
  Deferred income tax and social contribution 16   26,864   34,084
  Judicial deposits 18   70,998   83,391
  Other receivables     413   2,228
  Investments in associates 10   258,977   255,711
  Property, plant and equipment 11   1,881,818   1,815,442
  Intangibles 12   2,360,112   2,073,909
               
          7,184,686   5,175,305
               
               
Total assets     10,492,669   8,432,277

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RAÍZEN COMBUSTÍVEIS S.A.

 

Consolidated balance sheet

March 31, 2015 and 2014

In thousands of Brazilian Reais

 

         
  Note   2015   2014  
Liabilities and shareholders’ equity            
Current liabilities            
Trade accounts payable 13   761,295   776,224  
Short-term debt and current portion of long-term debt 14   8,685   803,106  
Derivative financial instruments 25   19,919   724  
Wages and salaries payable     103,558   86,164  
Taxes payable 15   85,182   75,300  
Income tax and social contribution     12,871   3,866  
Deferred revenue 17   46,740   49,660  
Dividends and interest on own capital payable 20.b   83,957   221,479  
Related parties 9   803,459   174,596  
Bonus payable     42,274   24,383  
Other obligations     197,436   170,160  
             
      2,165,376   2,385,662  

Non-current liabilities

           
Long-term debt 14   1,484,265   12,102  
 Derivative financial instruments 25   -   773  
Taxes payable 15   5,981   4,862  
Provision for tax, civil and labor risks 18   530,551   457,155  
Deferred revenue 17   262,943   306,093  
Deferred income tax and social contribution 16   198,486   17,012  
Related parties 9   1,214,304   847,921  
Other obligations     26,048   63,339  
      3,722,578   1,709,257  

Total liabilities

 

    5,887,954   4,094,919  
             
             
Shareholders’ equity 20          
Capital 20.a   3,194,918   3,069,328  
Capital reserves     719,664   721,693  
Other comprehensive income 20.c   (585 ) (175 )
Retained earnings 20.b and 20.e   538,557   435,635  

Equity attributable to controlling shareholders

 

    4,452,554   4,226,481  
Equity attributable to non-controlling interest     152,161   110,877  

Total shareholders’ equity

 

    4,604,715   4,337,358  
             
Total liabilities and shareholders’ equity     10,492,669   8,432,277  


 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Consolidated statement of income

Years ended March 31, 2015, 2014 and 2013

In thousands of Brazilian Reais, except for earnings per share which is presented in R$

 

 

  Note   2015   2014   2013  
                 
Continuing operations                
        Net sales 21   56,784,481   50,591,526   43,532,232  
        Cost of sales 22   (53,853,650 ) (48,005,216 ) (41,199,019 )

Gross profit

 

    2,930,831   2,586,310   2,333,213  
                 
Operating income (expenses)                
Selling expenses 22   (1,110,930 ) (1,015,036 ) (953,696 )
General and administrative expenses 22   (382,395 ) (391,039 ) (361,616 )
Other operating income, net 24   398,813   460,577   314,223  
      (1,094,512 ) (945,498 ) (1,001,089 )
                 
Operating income     1,836,319   1,640,812   1,332,124  
                 
Financial income                
Finance expenses 23   (161,750 ) (83,462 ) (79,227 )
Finance revenues 23   124,328   86,737   116,530  
Foreign exchange, net 23   (277,513 ) (148,537 ) (93,839 )
Derivatives, net 23   202,017   46,723   (2,096 )
                 
      (112,918 ) (98,539 ) (58,632 )
                 
Income before the result of equity method     1,723,401   1,542,273   1,273,492  
                 
Income from equity method 10   13,696   10,080   -  
                 
                 
Income before taxes     1,737,097   1,552,353   1,273,492  
                 
Current tax 16   (323,240 ) (375,827 ) (284,774 )
Deferred tax 16   (173,284 ) (88,941 ) (87,160 )
      (496,524 ) (464,768 ) (371,934 )

Net income

 

    1,240,573   1,087,585   901,558  
                 
Attributable to:                
Controlling shareholders     1,202,294   1,063,546   877,716  
Non-controlling shareholders     38,279   24,039   23,842  
      1,240,573   1,087,585   901,558  
                 
Earnings per share (Basic and diluted) 20.f  

0.34 

  0.27   0.22

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RAÍZEN COMBUSTÍVEIS S.A.

 

Consolidated statement of comprehensive income

Years ended March 31, 2015, 2014 and 2013

In thousands of Brazilian Reais

 

  2015  

2014 

  2013  
               
Net income   1,240,573   1,087,585   901,558  
               

Other comprehensive income

Items that will not be reclassified to profit or loss

             
Actuarial losses on post-employment benefit plans   (636 ) (265 )

-

 

Deferred taxes on adjustments   216   90   -  
   

(420 

) (175 ) -  
               
Total comprehensive income   1,240,153   1,087,410   901,558  
               
               
Attributable to:              
Controlling shareholders   1,201,884   1,063,371   877,716  
Non-controlling shareholders   38,269   24,039   23,842  
               
    1,240,153   1,087,410   901,558  

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RAÍZEN COMBUSTÍVEIS S.A.

 

Consolidated statement of changes in shareholders’ equity

Years ended March 31, 2015, 2014 and 2013

In thousands of Brazilian ReaisCapital reserves

   Attributable to controlling shareholders      
         Capital reserves    Retained earnings           
    Capital stock    Capital reserve    Special Law  8200/91    Profit retention    Legal reserve    Accumulated profits (loss)    Total    Attributable to  non-controlling shareholders    Total shareholders’ equity 
                                              
Balances on March 31, 2012   2,625,795    740,768    16,677    360,053    39,920    —      3,783,213    51,371    3,834,584 
Comprehensive income for the fiscal year
                                             
Net income   —      —      —      —      —      877,716    877,716    23,842    901,558 
Total comprehensive income for the fiscal year
   —      —      —      —      —      877,716    877,716    23,842    901,558 
Contributions of (distributions to) shareholders
                                             
Capital increase   107,260    —      —      —      —      —      107,260    4,907    112,167 
Reversal of provision of share-based compensation   —      —      —      —      —      —      —      (1,221)   (1,221)
Partial realization of the reserve   —      —      (3,575)   —      —      3,575    —      —      —   
Transfer to the legal reserve   —      —      —      —      43,886    (43,886)   —      —      —   
Dividends paid and interest on own capital paid in advance   —      —      —      (181,741)   —      (400,000)   (581,741)   (16,453)   (598,194)
Dividends to shareholders of preferred shares   148,412    15,783    —      —      —      (143,560)   (10,931)   —      (10,931)
Transfer to reserves   —      —      —      293,845    —      (293,845)   —      —      —   
Total of contributions (distributions to) shareholders
   255,672    (15,783)   (3,575)   112,104    43,886    (877,716)   (485,412)   (12,767)   (498,179)
Transactions with shareholders
                                             
Acquisition of interest in Mime   —      —      —      —      —      —      —      36,109    36,109 
Premium paid on acquisition of non-controlling interest  in Mime   —      (12,607)   —      —      —      —      (12,607)   (3,308)   (15,915)
Total of transactions with shareholders
   —      (12,607)   —      —      —      —      (12,607)   32,801    20,194 
Balances on March 31, 2013
   2,881,467    712,378    13,102    472,157    83,806    —      4,162,910    95,247    4,258,157 

8 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Consolidated statement of changes in shareholders’ equity

Years ended March 31, 2015, 2014 and 2013

In thousands of Brazilian Reais 

 

      Attributable to controlling shareholders      
              Capital reserves        Retained earnings           
    Note    Capital stock    Capital reserve    Special Law  8200/91    Other comprehensive income    Profit retention    Legal reserve    Accumulated profits (loss)    Total    Attributable to  non-controlling shareholders    Total shareholders’ equity 
                                                        
Balances on March 31, 2013        2,881,467    712,378    13,102    —      472,157    83,806    —      4,162,910    95,247    4,258,157 
Comprehensive income for the fiscal year
                                                       
Net income        —      —      —      —      —      —      1,063,546    1,063,546    24,039    1,087,585 
Actuarial losses        —      —      —      (175)   —      —      —      (175)   —      (175)
Total comprehensive income
        —      —      —      (175)   —      —      1,063,546    1,063,371    24,039    1,087, 410 
Contributions of (distributions to) shareholders
                                                       
Partial realization of reserve
        —      —      (5,289)   —      —      —      5,289    —      —      —   
Reversal of mandatory minimum dividends        —      —      —      —      596         —      596    3,624    4,220 
Dividends paid and interest on own capital paid in advance   20.b and 20.e    —      —      —      —      (458,898)   —      (543,000)   (1,001,898)   (7,992)   (1,009,890)
Dividends to shareholders of preferred shares   20.a and 20.b    187,861    —      —      —      —      —      (187,861)   —      (2,539)   (2,539)
Transfers to reserves        —      1,502    —      —      284,796    53,178    (337,974)   1,502    (1,502)   —   
Total of contributions (distributions to) shareholders        187,861    1,502    (5,289)   —      (173.506)   53,178    (1,063,546)   (999,800)   (8,409)   (1,008,209)
Balances on March 31, 2014
        3,069,328    713,880    7,813    (175)   298,651    136,984    —      4,226,481    110,877    4,337,358 

9 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 


 

Consolidated statement of changes in shareholders’ equity

Years ended March 31, 2015, 2014 and 2013

In thousands of Brazilian Reais 

 

      Attributable to controlling shareholders      
              Capital reserves     Retained earnings           
    Note    Capital stock    Capital reserve    Special Law  8200/91    Other comprehensive income    Profit retention    Legal reserve    Accumulated profits (loss)    Total    Attributable to  non-controlling shareholders    Total shareholders’ equity 
                                                        
Balances on March 31, 2014        3,069,328    713,880    7,813    (175)   298,651    136,984    —      4,226,481    110,877    4,337,358 
Comprehensive income for the fiscal year
                                                       
Net income        —      —      —      —      —      —      1,202,294    1,202,294    38,279    1,240,573 
Actuarial losses             —      —      (410)   —      —      —      (410)   (10)   (420)
Total comprehensive income
        —      —      —      (410)   —      —      1,202,294    1,201,884    38,269    1,240,153 
Contributions of (distributions to) shareholders                                                       
Capital increase        —      —      —      —      —      —      —      —      9,956    9,956 
Partial realization of reserve        —      —      (3,553)   —      —      —      3,553    —      —      —   
Dividends and interest on own capital paid in advance   20.b and 20.e    —      —      —      —      (246,682)        (729,860)   (976,542)   (9,544)   (986,086)
Dividends to shareholders of preferred shares   20.a and 20.b    125,590    —      —      —      (51,969)   —      (74,412)   (791)   —      (791)
Transfer to reserves        —      1,524    —      —      341,460    60,113    (401,575)   1,522    2,603    4,125 
Total of contributions (distributions to) to shareholders
        125,590    1,524    (3,553)   —      42,809    60,113    (1,202,294)   (975,811)   3,015    (972,796)
Balances on March 31, 2015
        3,194,918    715,404    4,260    (585)   341,460    197,097    —      4,452,554    152,161    4,604,715 

10 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Consolidated statement of cash flows

Years ended March 31, 2015, 2014 and 2013

 

In thousands of Brazilian Reais 

 

 

    2015    2014    2013 
                
Operating activities:               
Income before taxes   1,737,097    1,552,353    1,273,492 
Adjustments:               
Depreciation and amortization (Notes 11 and 12)   473,040    441,667    421,073 
Equity in income of associates (Note 10)   (13,696)   (10,080)   —   
Gain on disposal of property, plant and equipment (Note 24)   (121,956)   (196,471)   (63,187)
Bargain purchase in business combination   —      —      (17,267)
Net of provision for doubtful accounts   6,635    3,258    (844)
Constitution of provision for tax, labor and civil risks   2,636    8,134    5,128 
Interest, monetary and exchange variation, net   330,607    165,836    93,261 
Derivative financial instruments – change in fair value   (95,979)   (22,392)   —   
Amortization of deferred revenue   (49,115)   (48,028)   (53,872)
Amortization of prepaid expenses   57,864    43,590    42,742 
Others   4,814    6,294    9,911 
Changes in operating assets and liabilities:               
Restricted cash   (4,535)   (21,924)   (30,855)
Trade accounts receivable (include related parties)   2,920    267,859    112,848 
Financial instruments   22,391    (19,722)   —   
Inventories   (111,052)   (36,587)   (174,614)
Taxes and contributions – Recoverable   (94,346)   (53,691)   62,332 
Advances to suppliers   5,323    1,470    (1,061)
Judicial deposits   20,315    (33,363)   (2,867)
Wages and salaries payable   15,659    8,361    13,777 
Taxes and social contributions payable   (117,060)   (157,199)   (107,205)
Deferred revenue   3,046    1,028    13,500 
Trade accounts payable (include related parties)   (60,696)   36,090    131,645 
Provision for tax, labor and civil risks   (4,024)   (883)   (3,979)
Other obligations   (25,752)   12,782    (37,027)
Other assets and liabilities, net   (19,172)   (64,958)   4,175 
 Income tax and social contribution paid   (213,584)   (281,927)   (234,333)
                
Net cash provided by operating activities   1,751,380    1,601,497    1,456,773 
                
Investing activities:               
Addition to property, plant and equipment and intangible assets (Notes 11 and 12)   (732,687)   (722,565)   (697,459)
Acquisitions of new business, net of acquired cash (Notes 10.d and 27.i)   (177,744)   (250,000)   (16,214)
Proceeds received from the sale of property, plant and equipment   206,899    340,150    219,746 
Dividends received   13,880    919    —   
                
Net cash used in investing activities   (689,652)   (631,496)   (493,927)
                
Financing activities:               
New loans and financing   1,494,133    103,713    —   
Payment of principal of loans and financing   (1,208,676)   (104,281)   (110,674)
Interest paid of loans and financing   (59,224)   (78,602)   (67.112)
Dividends and interest on own capital paid   (1,214,073)   (1,098,439)   (905,073)
Capital payment   —      —      180,367 
Capital payment by non-controlling shareholders   1,200    —      4,907 
Related parties   (408,751)   657,985    15,591 
                
Net cash used in financing activities   (1,395,391)   (519,624)   (881,994)
                
Net (decrease)/increase in cash and cash equivalents   (333,663)   450,377    80,852 
At the beginning of year   566,606    116,229    35,377 
                
At the end of year (Note 3)   232,943    566,606    116,229 
                

Supplementary information of cash flows:               
Investments transactions which do not involve cash               
Provision (reversal) for removal of fuel storage tanks   3,951    25,651    4,031 
Interest capitalization on property, plant and equipment (Notes 11 and 23)   (9,685)   (21,441)   (21,132)
Tax credits on property, plant and equipment   13,886    10,822    (3,339)
Exclusive rights on Fuel supply   (31,903)   7,462    14,355 
    (23,751)   22.494    (6,085)
Financial transactions which do not involve cash               
     Capital contribution by minority shareholders with dividend   1,556    —      —   
     Capital contribution by minority shareholders to pay   7,200    —      —   
     Dividends and interest on own capital payable (Note 20.d)   (83,957)   (221,479)   (147,182)
    (75,201)   (221,479)   (147,182)

11 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

1.Operations

 

Raízen Combustíveis S.A. (the “Company” or “Raízen Combustíveis”) is a privately owned company headquartered in the city of Rio de Janeiro, state of Rio de Janeiro, Brazil. The Company is jointly controlled indirectly by Royal Dutch Shell (“Shell”) and Cosan S.A. Indústria e Comércio (“Cosan”).

 

The Company’s main activities are: (i) the distribution and sale of oil and ethanol byproducts and other hydrocarbon fluids and their byproducts, mainly Shell branded, (ii) the sale of natural gas and acting as sales representative for the sale of lubricants in gas stations, (iii) the purchase and sale of products and goods for sale in convenience stores, (iv) the import and export of the aforementioned products and (v) investing in other companies.

 

The consolidated financial statements were approved by the Company’s Board of Directors on June 22, 2015.

 

2.Significant accounting policies

 

2.1Basis of preparation

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

(a)Measurement basis

 

The consolidated financial statements has been prepared using historical costs as a basis, except, when applicable, for the valuation of certain assets and liabilities, such as financial instruments derivatives and non-derivatives, which are measured at fair value.

 

(b)Functional currency and presentation currency

 

The consolidated financial statements are presented in Brazilian Reais, which is the Company's functional currency. The financial statements of each subsidiary included in consolidation and those used as the bases for valuing investments using the equity accounting method are prepared using the functional currency of each company. For the subsidiaries located abroad, assets and liabilities have been translated into Brazilian Reais using the exchange rate as at the balance sheet date, while the income has been translated using the monthly rate. The effects of this currency translation are recorded in the shareholders' equity as other comprehensive income.

 

(c)Judgments, estimates and significant accounting assumptions

 

In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.

 

12 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

If there is a significant change in the facts or circumstances on which the estimates and assumptions used are based, this may have a material impact on the Company’s results and financial condition.

 

The significant accounting estimates and assumptions are as follows:

 

Income tax, social contribution and other taxes payable

 

The Company is subject to income tax in all countries in which it operates. Significant judgment is required in determining the provision for income taxes in these various countries.

 

In many operations, the final tax determination is uncertain. The Company also recognizes provisions to cover certain situations where it is likely that additional taxes are owed. When the final outcome of these matters is different from the initially estimated and recorded values, these differences affect assets and current tax liabilities and deferred in the period in which the determination is made.

 

Deferred income tax and social contribution

 

The deferred income tax and social contribution are recognized for all unused tax losses, to the extent that it is probable that taxable income available to allow the use of these tax losses. Significant Management judgment is required to determine the value of the income tax and deferred social contribution, which can be recognized based upon the likely timing and level of future taxable profits together with future tax planning strategies.

 

The taxes on income deferred assets and liabilities are presented net in the balance sheet only when there is a legal right and the intention to offset them upon the calculation of current taxes, usually related to the same legal entity and the same taxation authority. For details of deferred taxes, see Note 16.

 

Property, plant and equipment and intangible assets, including goodwill

 

The accounting treatment of the fixed assets and intangible assets includes the use of estimates to determine the useful life period for the purposes of their depreciation and amortization, in addition to their fair value at the acquisition date, in particular for assets acquired in business combinations. The Company makes the analysis of recoverable amount, in order to identify potential goodwill impairments.

 

The determination of the recoverable amount of the cash-generating unit to which goodwill has been allocated also includes the use of assumptions and estimates, and requires a significant degree of judgment.

 

Provision for tax, civil, labor and environmental claims

 

The Company and its subsidiaries recognized a provision for probable losses for tax, civil, labor and environmental claims. The assessment of probability of loss includes assessing the available evidence, the hierarchy of laws, available case law, recent court decisions and their relevance in the legal system, as well as the evaluation of outside counsel. These provisions are reviewed and adjusted to take into account changes in circumstances, such as applicable statutes of limitation, conclusions of tax audits or additional exposures identified based on new matters or court decisions.

 

13 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Provision for the removal of storage tanks

 

Future spending for the removal of fuel storage tanks is estimated and recorded as part of the cost of these assets and a corresponding provision is made for these expenses, the expenses are presented as property, plant and equipment and the provision is presented as non-current or current liabilities. Estimates of these expenses are recorded considering the present value of these obligations, discounted at a risk-free interest rate.

 

Fair value of financial instruments

 

When the fair value of financial assets and financial liabilities in the balance sheet cannot be obtained from active markets, it is determined using valuation techniques, including the discounted cash flow method. Data for these methods are based on those used in the market, if possible; however, when not possible, a certain level of judgment is required to determine the fair value. Judgment includes considerations on the data used, such as, for example, liquidity risk, credit risk, and volatility. Changes in the assumptions related to these factors could affect the fair value of financial instruments. For more details on financial instruments, see Note 25.

 

2.2.Basis of Consolidation

 

The consolidated financial statements include the financial statements of Raízen Combustíveis and its subsidiaries for the years ended March 31, 2015 and 2014. The subsidiaries are listed below:

 

  2015   2014  
  Direct   Indirect   Direct   Indirect  
                 
Blueway Trading Importação e Exportação S.A. 100%   -   100%   -  
Raízen Fuels Finance Limited 100%   -   100%   -  
Raízen Mime Combustíveis S.A. 76%   -   76%   -  
Petróleo Sabbá S.A. 80%   -   80%   -  
Sampras Participações Ltda. (“Sampras”) 100%   -   100%   -  
Saturno Investimentos Imobiliários Ltda. (1) 100%   -   -   -  
Sabor Raíz Alimentação S.A. (2) -   60%   -   -  
(1)Company incorporated on December 18, 2014 (Note 28.ii).

(2)Company subsidiary of Sampras, incorporated on July 18, 2014.

 

The subsidiaries are fully consolidated as from the date that control commences and continue to be consolidated until the date that control ceases. The financial statements of the subsidiaries are prepared for the same period of the Company, using consistent accounting policies. The balances kept among consolidated companies, revenues, expenses and unrealized gains and losses from transactions among consolidated companies are fully eliminated.

 

A change in the participation in a subsidiary that does not result in loss of control is booked as a transaction between shareholders in shareholders’ equity.

 

14 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

The Company uses the acquisition method to account for the business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the transferred assets, liabilities incurred and equity instruments issued by the Company. The consideration transferred includes the fair value of assets and liabilities resulting from a contingent consideration arrangement, when applicable. Costs related to the acquisition are recorded in the income statement as incurred. The acquired identifiable assets and liabilities (including contingent) assumed in a business combination are measured initially at their fair values ​​at the acquisition date.

 

The Company recognizes non-controlling interest in the acquire either at fair value as the proportionate share of non-controlling interest in the fair value of net assets acquired. The measurement of non-controlling interest is determined for each acquisition.

 

The excess of the consideration transferred and the fair value at the acquisition date of any previous equity interest in the acquiree over the fair value of the Company's share of the identifiable net assets acquired is recorded as goodwill. Where applicable, the acquisitions that the Company attributes fair value to non-controlling interests, the determination of goodwill also includes the value of any non-controlling interest in the acquisition and the goodwill is determined considering the participation of the Company and non-controlling interests. When the consideration transferred is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statement of income.

 

The adjustments are made when necessary to align the accounting policies with those of the Company.

 

2.3.Summary of the significant accounting practices

 

The accounting practices described below have been applied consistently to the years presented in the consolidated financial statements.

 

(a)Revenue recognition

 

Revenue is recognized when the significant risks and rewards of ownership have been transferred to the customer, collection is probable, the associated costs and possible return of goods can be reliably estimated, there is no continuing managerial involvement with the goods, and the amount of revenue can be measured reliably. Revenue is measured net of returns, trade discounts, volume rebates, and taxes.

 

Goods or services for which revenue is deferred are recorded as liability under prepaid expenses, and are recorded as revenues through delivery of goods or services rendered.

 

The revenue is presented net of taxes (Tax on the Circulation of Goods and Services [ICMS], Employees’ Profit Participation Program [PIS], Tax for Social Security Financing [COFINS]), of returns, abatements and discounts, amortizations related to exclusive rights of supply.

 

The revenue earned from rental and storage includes fuel station rentals and fuel storage to counterparts in the terminals of the Company, recognized on an accrual basis, under Other operating income, net (Note 24).

 

15 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

 

 

(b)Transactions in foreign currency

 

Transactions in foreign currency are initially recognized by Company entities at the functional currency rate ruling on the transaction date or on the valuation dates, when the items are revalued.

 

Monetary assets and liabilities denominated in foreign currency are converted into Brazilian currency using the exchange rate ruling on the date of the respective balance sheets, and exchange gains or losses resulting from the settlement of these transactions and conversion at the exchange rates ruling at the end of the year are recognized in the statement of income, under Financial Income.

 

Non-monetary items measured by historic cost in foreign currency are converted at the conversion rate on the initial date of the transaction. Non-monetary items measured by fair value in foreign currency are converted using the exchange rate effective on the date when the fair value was determined.

 

(c)Financial instruments - Initial recognition and subsequent measurement

 

(i)Financial assets

 

Initial recognition and measurement

 

Financial assets are classified in the following categories: measured at fair value through profit or loss, held to maturity, available for sale, loans and receivables. The Company determines the classification of its financial assets at initial recognition.

 

Financial assets are initially recognized at fair value plus, in the case of investments not designated as being at fair value through profit or loss, the transaction costs directly attributable to the acquisition of financial assets.

 

Financial assets include cash and cash equivalents, restricted cash, trade accounts receivable, related parties and derivative financial instruments

 

Subsequent measurement

 

The subsequent measurement of financial assets depends on their classification, which may be as follows:

 

Financial assets at fair value through profit or loss

 

Financial assets measured at fair value through profit or loss include financial assets maintained for negotiation and assets designated at initial recognition at fair value through profit or loss. They are classified as held for trading if they are originated for the purpose of sale or repurchase in the short term. Derivatives are measured at fair value through profit or loss, except for those designated as hedge instruments. Interest, inflation adjustments, exchange variations and variations resulting from valuation at fair value are recognized on the statement of income as finance income.

 

16 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, those financial assets are recorded at amortized cost using the effective interest method (effective interest rate), less impairment loss. The amortized cost is calculated taking into account any discount or premium in the acquisition and taxes or costs incurred. The amortization of the effective interest method is included in financial revenues or the expenses line in the statement of income.

 

Held-to-maturity financial assets

 

This includes those non-derivative financial assets with fixed payments or determinable payments with defined maturity for which the Company has a firm intent and ability to maintain until the maturity date. Interest, inflation adjustments, exchange variations, less impairment losses, where applicable, are recognized in the statement of income when incurred in the financial income.

 

Available-for-sale financial assets

 

Available for sale financial assets are non-derivative financial assets that are designated in this category on initial recognition or not classified in any of above categories. They are presented as non-current assets, unless the Company intends to settle the investment in the 12 months after the balance date.

 

Derecognition (write-off)

 

A financial asset is derecognized when: (i) the right for receiving cash flows from assets expires; and, (ii) The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay up the cash flows received in full, without significant delay, to a third party under a transfer agreement; and (a) the Company substantially transfers all the risks and benefits of the asset or (b) the Company does not substantially transfer all the risks and benefits relating to the asset, but transfers control over it.

 

Impairment of financial assets

 

The Company reviews on the balance sheet dates if there is any objective evidence that the financial assets or group of financial assets would not be recoverable. A financial asset or group of financial assets is considered to be impaired if, and only if, there is objective evidence that its value are unrecoverable as the result of one or more events that have taken place since the asset was first recognized (a “loss event”) and this loss event affects the estimated future cash flow of the financial assets, or group of financial assets, to an extent that can be reasonably estimated.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

The criteria that the Company follows to determine whether there is objective evidence of impairment loss include: (i) significant financial difficulty of the issuer or obligor; (ii) a breach of contract, such as a default or delinquency in interest or principal payments; (iii) the Company, for economic or legal reasons connected with the financial difficulties of the borrower, extends a concession to the borrower that a creditor would not normally consider; (iv) it becomes likely that the borrower will declare bankruptcy or file for some other type of financial reorganization; (v) the disappearance of an active market for a financial asset due to financial problems; or (vi) observable data indicating that there is a measurable reduction in estimated future cash flows from a portfolio of financial assets, dating from the initial recognition of such assets, even if the reduction cannot yet be identified in respect of individual financial assets in the portfolio, including: (a) adverse changes in the payment situation of borrowers of loans contained in the portfolio; and (b) country-wide or local economic conditions which are correlated with defaults on assets in the portfolio.

 

If in a subsequent period the amount of the loss due to impairment reduces, and the reduction can be objectively related to an event that occurred after the impairment was recognized (such as improvement in the credit rating of the debtor), the reversal of such loss recognized previously will be recognized in the statement of income.

 

(ii)Financial liabilities

 

Initial recognition and measurement

 

Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and financing, or derivatives representing an effective hedging instrument, as the case may be. The Company determines the classification of its financial assets at initial recognition.

 

Financial liabilities are recognized initially at fair value and, in the case of loans and financing, are adjusted by the directly related transaction costs.

 

The Company’s financial liabilities include loans and financing, derivative financial instruments, trade account payables and related parties.

 

Subsequent measurement

 

Subsequent measurement of financial liabilities depends on their classification, which may be as follows:

 

Financial assets at fair value through profit or loss

 

These include financial liabilities usually traded before maturity, liabilities designated at initial recognition at fair value through profit or loss and derivatives, except for those designated as hedge instruments. Interest, inflation adjustments, exchange variations and variations resulting from valuation at fair value, when applicable, are recognized in the statement of income when incurred.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Amortized cost

 

After initial recognition, interest-bearing borrowings and financing are subsequently measured at amortized cost, using the effective interest method. Gains and losses are recognized in the income statement when liabilities are derecognized, as well as during the amortization process under the effective interest method.

 

Derecognition (write-off)

 

A financial liability is derecognized when the obligation is revoked, cancelled or expired.

 

(iii)Offset of financial instruments – net presentation

 

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is a current and enforceable legal right to settle the amounts recognized, and if there is an intention to offset them, or to realize the asset and settle the liability simultaneously.

 

(iv)Fair value of financial instruments

 

The fair value of financial instruments actively traded in organized financial markets is determined on the basis of the purchase price quoted on the market at the close of business on the balance sheet date, without deducting transaction costs.

 

Fair value of financial instruments to which there is no active market is determined using valuation techniques. These techniques may include the use of recent market transactions (at arm’s length); reference to the current fair value of another similar instrument; a discounted cash flow analysis, or other valuation models.

 

For an analysis of the fair value of financial instruments and more details on how they are calculated, see Note 25.

 

(d)Cash and cash equivalents

 

Cash and cash equivalents include cash, bank deposits and other fully liquidity short-term investments, with original maturities of up to three months from issue, readily convertible into a known amount of cash and with an insignificant risk of changes in their fair value.

 

(e)Trade accounts receivable

 

Trade accounts receivables correspond to the amounts receivable due from sale of goods or rendering of services in the regular course of Company’s activities. If the due date for payment is one year or less, the accounts receivable are classified as current assets. Otherwise they are presented as non-current assets.

 

Trade accounts receivable are recognized initially at fair value and subsequently measured at amortized cost, using the effective interest rate method, less provision for doubtful accounts.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(f)Inventories

 

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average cost principle. The net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion plus any costs necessary to conclude the sale. Provisions for obsolescence, adjustments to net realizable value items are recorded when necessary.

 

(g)Prepaid expenses

 

Prepaid expenses are accounted for at the amount effectively paid and are recognized in income to the extent their benefits are obtained or when there is no expectation of recovery of the amount paid.

 

(h)Investment in associates

 

Investments in entities in which the Company does not detain control, but on which it exercises significant influence, are accounted for by the equity method. Based on the equity method, investments are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases.

 

After the application of the equity method, the Company determines if it is necessary to recognize loss of recoverable value added on investment. The Company determines, at each reporting date, if there is objective evidence that the investment in the associate suffered impairment loss. If that is the case, the Company calculates the amount of impairment as the difference among recoverable amount of the investment and the book value and recognizes the amount in the statement of income.

 

When there is a loss of significant influence over an associate, the Company immediately remeasures the investment at fair value.

 

Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company's interest. Unrealized losses are also eliminated unless the transaction provides evidence of a loss (impairment) of the transferred asset. The accounting policies of associates have been changed when necessary to ensure consistency with the policies adopted by the Company.

 

(i)Property, plant and equipment

 

Property, plant and equipment items are measured by their historical cost of acquisition or of construction, after deduction of accumulated depreciation and losses due to impairment, when applicable.

 

The cost includes expenditure that is directly attributable to the acquisition of an asset. The costs of assets constructed by the entity itself include the material and direct labor costs, any other costs incurred to put the asset in place and condition needed to operate as intended by the Company, and cost of borrowings over qualified assets. The cost of borrowings related to proceeds raised for constructions in progress are capitalized until these projects are concluded.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Land is not depreciated. As at March 31, 2015, depreciation of other assets was calculated according to the useful life of each asset. The weighted average rates of annual depreciation are presented below:

 

  Useful lives   Average annual rate
       
Buildings and improvements 25.00 years   4.00%
Machinery, equipment and installations 15.48 years   6.46%
Vehicles 16.72 years   5.98%
Furniture, fixtures and computer equipment 8.49 years   11.78%
Others 10.00 years   10.00%

 

Useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period.

 

As mentioned at Note 2.1.c the subsequent expenditure relating to the removal of fuel storage tanks and to the analysis of potential soil contamination are estimated and accounted for as part of the costs of these assets (property, plant and equipment) against the provision that will cover this expenditure (non-current or current liabilities).

 

Repairs and maintenance are charged to income during the period they are incurred. The cost of any renovation to increase the useful life of an asset is included in the carrying amount of the asset if it is probable that future economic benefits after the renewal exceed the performance standard initially evaluated for the existing asset and these benefits will flow to the Company. Major renovations are depreciated over the remaining useful life of the related asset.

 

The gains or losses from disposals are determined as the difference between the proceeds and the net carrying value and are recognized in Other operating income, net in the statement of income.

 

(j)Intangibles

 

(i)Goodwill

 

Goodwill is represented by the positive difference between the amount paid and/or payable on acquisition of a business and the fair value of the acquired assets and liabilities. Goodwill on acquisition of subsidiaries is accounted for as Intangible. In the case of determination of negative goodwill, the amount is accounted for as a gain in profit or loss for the year of the acquisition date.

 

The goodwill is maintained at its cost, after deduction of any related impairment. The goodwill is tested on an annual basis for impairment. For testing purposes the recoverable amount, goodwill acquired in a combination of businesses is, from the acquisition date, allocated to the cash-generating units of the Company that are expected to benefit from the synergies of the combination, irrespective of when other assets or liabilities of the target are assigned to those cash generating units.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(ii)Intangible assets with defined useful lives

 

Intangible assets with definite useful lives are measured by the cost after deduction of accumulated amortization and of losses due to impairment loss, when applicable.

 

As at March 31, 2015 and 2014, annual amortization rates of intangible assets were as follows:

 

  Useful lives   Average annual rate
       
Software licenses 5.00 years   20.00%
Trademarks 10.00 years   10.00%
Contractual relationship with customers (a) 25.00 years   4.00%
Exclusive rights of supply (b) 8.33 years   12.00%
Others 10.00 years   10.00%

 

(a)Contractual relationships with customers

 

Contractual relationships with customers, acquired in a business combination, are recognized at fair value on the acquisition date. Contractual relationships with customers have a finite useful life and are measured at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the expected life of the relationship with the customer.

 

(b)Rights of exclusivity of supplier

 

Refers to bonuses granted to certain customers (Note 12) and are contingent on the terms and performance to be achieved by the customers, in particular the demand for volumes set forth in supply agreements. To the extent that contractual conditions are met, the asset are amortized and recognized in income, in the line item Sales returns and rebates (Note 21).

 

(k)Impairment of non-financial assets

 

The Company annually assesses whether there are indicators of impairment of an asset or a cash generating unit. If these impairment indicators are identified, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset is the higher of: (a) its fair value less costs to sell; and (b) its value in use. The value in use is equivalent to discounted cash flows (before taxes) arising from the continuing use of the asset until the end of its useful life.

 

Regardless of the existence of indicators of impairment, the goodwill and intangible assets with indefinite useful life, when applicable, are tested for impairment at least once a year.

 

When the carrying amount of an asset exceeds its recoverable value, the impairment loss is recognized in the income statement.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

l)Borrowing costs

Borrowing costs related to the acquisition, construction or production of an asset which necessarily requires a significant period of time to be concluded for the purposes of use or sale, are capitalized as part of the cost of the corresponding asset. Borrowing costs include interest and other costs incurred by an entity related to the borrowings. Borrowings costs that are not capitalized as part of the cost of qualified assets is recognized in the statement of income.

 

m)Provisions

 

Provision is recorded when: (i) the Company has a current and present obligation as a result of the events that have already occurred; (ii) it is probable that an outflow of resources will be necessary to settle the obligation; and (iii) the value can be reliably estimated.

 

n)Employee benefits

 

The Company has a defined contribution plan and defined benefits plan to provide a supplementary private pension for all of its employees. The Company has no legal or constructive liability for the payment of additional contributions in the event that the fund does not hold sufficient assets to pay all the benefits due.

 

The Company recognizes a liability and a profit sharing expense on the basis of a system that takes considers pre-assigned targets for its employees into account a number of factors that are determined based on actuarial calculations that use certain assumptions to determine the cost (income) net for pension plans.

 

The actuarial gains and losses arising from adjustments and changes in actuarial assumptions are recorded directly in equity as other comprehensive income when they occur.

 

The past costs of services are immediately recognized in income.

 

The Company records a liability when it is contractually liable, or when there is a precedent that has created a constructive obligation.

 

o)Deferred taxes

 

Expenses of income tax and social contribution for the year include current and deferred taxes. Income tax and social contribution are recognized in the statement of income, except to the extent that it is related to items recognized directly in shareholders’ equity or in the comprehensive income. In this case, the tax is also recognized in shareholders’ equity or comprehensive income.

 

The expenses of income tax and social contribution are calculated based on tax laws issued or substantially issued on the date of balance sheet in the countries where Company and its subsidiaries act and generate taxable profits. The Company periodically evaluates positions taken in income tax returns with respect to situations in which applicable tax regulation is subject to interpretation; and it defines provision, when applicable, based on the payment of the estimated amounts to tax authorities.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

The taxation on net profit comprises income tax and social contribution. Income tax is levied at the rate of 15%, plus a 10% surcharge on any income that exceeds R$ 240 in a period of 12 months, while the social contribution is levied at the rate of 9%, on taxable income recognized on an accrual basis.

 

On an overall basis, the Company is thus subject to a theoretical income tax rate of 34%.

 

Deferred income tax and social contribution relating to tax losses, negative bases for social contributions and temporary differences, are presented net in the balance sheet when there is a legal right and the intention to offset them when current taxes are calculated, and when they are generally related to the same legal entity and the same tax authority. Therefore, deferred tax assets and liabilities relating to different entities, or in different countries, are generally shown separately and not as a net amount. Deferred tax is calculated on the basis of rates forecast for the time it is payable and it is reviewed annually.

 

Tax credits are recognized only to the extent it is likely that a taxable basis will exist against which temporary differences may be used.

 

Advances or amounts subject to offsetting are reported in current and non-current assets, in accordance with their estimated realization.

 

p)Business Combinations

 

Business combinations are accounted for using the acquisition method when control is transferred to the Company. The cost of an acquisition is the sum of the consideration paid, measured at fair value on the acquisition date, and the amount of any non-controlling interests in the acquiree. For each business combination, the Company recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. Costs directly attributable to the acquisition are expensed as incurred.

 

When acquiring a business, management evaluates the assets acquired and the liabilities assumed in order to classify and allocate them pursuant to the terms of the agreement, economic circumstances and the conditions at the acquisition date.

 

Goodwill is initially measured as the excess of the consideration paid over the fair value of the net assets acquired. If the consideration is lower than the fair value of the net assets acquired, the difference is recognized as a gain in profit or loss.

 

Subsequent to initial recognition, goodwill is measured at cost, net of any accumulated impairment losses. For purposes of impairment testing, goodwill acquired in a business combination, is allocated at the acquisition date to each of the Company’s cash generating units expected to benefit from the synergies of the business combination, regardless of whether other assets or liabilities of the acquiree are attributed to these units.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

q)Environmental matters

 

The Company mitigates the risks associated with environmental matters by way of operating procedures and controls and investments in pollution control equipment and systems. The Company recognized a provision for environmental losses to the extent that environmental recovery of the damage caused is necessary.

 

r)Capital and shareholders’ compensation

 

Capital corresponds to the value obtained in the issuance of common and preferred shares. Additional costs directly attributable to the issuance of shares are recognized as a deduction from equity, net of taxes effects.

 

Class A preferred shares, like common shares, entitle the holder to one vote on resolutions at the Company general meetings, and to a fixed annual dividend of R$ 0.01 (one cent).

 

Class B and C preferred comprise shares issued by the Company intended as reimbursement for assets, represented mainly by tax benefits, contributed by the shareholders Cosan and Shell, to the extent they are used by the Company.

 

The declaration of dividends and interest on shareholders’ equity made by the Company’s Management, to the extent of the mandatory minimum dividend, is recorded in current liabilities, as it represents a legal obligation provided for in the Company’s bylaws. Dividends that exceed the mandatory minimum dividend, declared by management before the reporting date, not yet approved by the shareholders, is recorded as an additional dividend proposed in shareholders’ equity.

 

For financial statement presentation purposes, interest on shareholders’ equity is recorded as an allocation of income directly in shareholders’ equity.

 

2.4.Adoption of new IFRS and IFRIC Interpretations (International Financial Reporting Interpretations Committee) applicable to the consolidated financial statements.

 

New accounting pronouncements of the IASB and interpretations of the IFRIC have been published and/or revised. The most relevant of these for the Company are the following:

 

IFRS 9 - Financial Instruments - Classification and Measurement

 

IFRS 9 deals with the classification, measurement and recognition of financial assets and liabilities.

 

IFRS 9 was issued in November 2009 and October 2010, and substitutes parts of IAS 39 relating to the classification and measurement of financial instruments, taking effect from January 1, 2018. The IFRS 9 requires that financial assets be classified in two categories: measured at fair value and measured at amortized cost. The category is determined at the time of initial recognition. The classification depends on the entity's business model and the contractual characteristics of the cash flow of the financial instruments. The standard maintains most of the requirements of IAS 39 in respect of financial liabilities. The main change is that in cases where the fair value option is adopted for financial liabilities, the portion of change in fair value that is due to the credit risk of the entity itself is registered in other comprehensive income instead of in the statement of income, except when this results in an accounting mismatch. The Company believes that this standard will not produce significant impacts on the quarterly financial information and the Company's annual financial statements because no financial liability was identified at fair value that could be affected by the Company's credit risk.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

IFRS 15 – Revenue from Contracts with Customers

 

On May 28, 2014, IFRS 15 – Revenue from Contracts with Customers was issued, which determines a comprehensive model of revenue accounting from contracts with customers and replace the current revenue recognition guidance, which is currently in various norms and interpretations within IFRS. The fundamental principle of this statement is for the entity to recognize revenue reflecting the transfer of goods or services, measurement of the values that the entity expects to be entitled in exchange for those goods or services.

 

Application of this new standard is mandatory for annual reporting periods starting from January 1, 2017. Earlier application is permitted. Management believes that this standard will not produce significant effects on the Company's consolidated financial statements.

 

IFRIC 21 – Levies

 

In May 2013, the IASB issued IFRIC 21, which provides guidance on when an entity should recognize a liability for a levy in accordance with laws and/or regulations in its financial statements, except for income taxes. The obligation should only be recognized when the event that triggers such obligation occurs. IFRIC 21 is effective for fiscal years ending on or after January 1, 2014. The adoption of the IFRIC 21 had no material effect on the amounts reported.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

3.Cash and cash equivalents

 

   
  2015   2014
       
       
Cash and banks accounts 90,828   290,804
Cash in foreign currency (1) 3   198,097
Investments funds (2) 142,112   77,705
 

142,112

  77,705
  232,943   566,606
       
In Brazil 227,314   364,186
Abroad 5,629   202,420

232,943 

  566,606
(1)The amounts pending closing exchange are resources available for immediate redemption without material change in value and refer basically to receipts of funds in foreign currency from customers located abroad and the related party RESA by the contract credit assignment. In this operation the money is free for use of the Company and without expectation of material change in its value. During the year ended March 31, 2015, the Company made the closing exchange with financial institutions of the outstanding balance of the previous year.

 

(2)Correspond to highly liquid investments in fixed-income instruments of top tier banks. The investments are managed by quotas with daily incomes, available for immediate redemption without expectation of significant value change. On March 31, 2015, the average return on the funds was 99.9% of the CDI (100.9% in 2014).

 

4.Restricted cash

 

Derivatives deposits refer to margin calls by counterparties in connection with derivatives instrument operations. On March 31, 2015 and 2014, the margin balance on derivative transactions totals R$ 57,313 and R$ 52,779, respectively.

 

5.Trade accounts receivable

 

  2015   2014  
Accounts receivable in Brazil 1,318,095   1,204,755  
Accounts receivable abroad 1,104   2,943  
Customer financing (i) 407,311   363,472  
(-) Allowance for doubtful accounts (154,720 ) (151,269 )
  1,571,790   1,419,901  
         
Current  1,273,536   1,190,832  
         
Non-current 298,254   229,069  
(i)Customer financing refers to installment payments of past-due debts, sales of properties, and financing with the primary purpose of implementing or modernizing gas stations, using collateral, pledges and guarantees. Financial charges and repayment terms are set forth in agreements and defined based on the financial and economic analysis of each transaction.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

The Company does not hold securities as guarantee of trade accounts receivable.

 

The maximum exposure to credit risk as of the reporting date is the carrying value of each class of trade account receivables mentioned above.

 

Set out below is a breakdown of the maturities of trade accounts receivable:

 

   
  2015   2014
       
       
Not yet due 1,423,894   1,306,201
Overdue:      
Up to 30 days 48,375   34,046
From 31 to 90 days 28,640   22,615
Over 90 days 225,601   208,308
  302,616   264,969
  1,726,510   1,571,170

The Company has guarantees, such as pledges and credit letters, on amounts overdue and not provided.

 

The roll-forward of allowance for doubtful accounts is presented below:

 

As of March 31, 2012   (156,892 )

Provision

  (28,132 )
Reversal (1)   28,976  

As of March 31, 2013

  (156,048 )

Provision

  (13,570 )
Reversal (1)   18,349  

As of March 31, 2014

  (151,269 )

Provision

  (23,695 )
Reversal (1)   20,244  
     
As of March 31, 2015   (154,720 )
   
(1)Reversals are accounted for when receivables are written off as losses or paid.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

6.Inventories

 

  2015   2014  
         
Diesel 448,194   335,168  
Gasoline 424,085   383,656  
Jet fuel (Jet A-1) 76,229   105,555  
Hydrated ethanol 102,441   103,810  
Others 31,760   14,202  
Provision for obsolescence (3,624)   (409 )
  1,079,085   941,982  

 

The cost of the inventories recognized in Cost of Sales is in the amount of R$ 53,853,650 in 2015 (R$ 48,005,216 in 2014 and R$ 41,199,019 in 2013).

 

The roll-forward of the provision for obsolescence is presented below:

 

As of March 31, 2012

  (1,285 )

Provision

  (2,529 )
Reversal   1,678  

As of March 31, 2013

  (2,136 )

Provision

  (1,938 )
Reversal   3,665  

As of March 31, 2014

  (409 )
Provision   (3,215 )
As of March 31, 2015   (3,624 )

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

7.Recoverable taxes

 

  2015   2014  
         
ICMS Reimbursement (a) 341,773   233,430  
Recoverable ICMS (b) 146,936   157,321  
ICMS credits derived from the acquisition of property, plant and equipment 24,430   21,241  
Others 17,031   14,475  
Provision for tax losses (c) (45,868 ) (44,704 )

484,302 

  381,763  
         
Current 167,834   145,407  
Non-current 316,468   236,356  

 

(a)ICMS reimbursements

 

ICMS reimbursements comes from interstate oil by product distribution activities, were the tax burden in the destination state is lower than that withheld by the supplier, as set forth Agreement 110/07.

 

The reimbursements are received in cash after the claims are processed by State governments.

 

(b)ICMS

 

In order to utilize ICMS credit balances, the Company is internally assessing certain activities, in particular the logistic review of transactions with changes in supply centers. Additionally, there are requests for special regimes before the given state tax authorities, requests for authorization for transfer of balances between branches in the same state and analysis of sale of credits to third parties. The balance of recoverable ICMS included in these financial statements reflects the amount the Group expects to realize, less the allowance for losses on credits Management does not expect to realize.

 

(c)Provision for tax losses

 

Provision comprises credit balances and ICMS refunds. The Company annually tests tax credits for impairment and verifies the need to recognize a provision.

 

The roll-forward of the provision for losses are presented below:

 

As of March 31, 2012 (33,000 )
Provision (11,704 )

As of March 31, 2013 and 2014

 (44,704 )
Provision (1,164 )

As of March 31, 2015

(45,868 )

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

8.Prepaid expenses

 

  2015   2014  
         
Rent 5,747   7,546  
Various advisory 1,979   2,055  
Insurance premiums 1,506   900  
Taxes and fees 1,204   884  
Advertising and publicity 704   19,214  
Other 728   4,291  
  11,868   34,890  
         
Current 4,632   24,963  
Non-current 7,236   9,927  

 

9.Related parties

 

(a)Summary of balances and transactions with related parties

 

  2015   2014  
         
Assets        
Raízen Energia S.A. and its subsidiaries (1) 1,600,380   56,777  
Shell Brazil Holding B.V. (2) 519,289   473,998  
Shell Aviation Limited (3) 97,682   111,676  
Shell Brasil Petróleo Ltda. (4) 39,755   20,630  
Cosan S.A. Indústria e Comércio (5) 15,976   13,059  
Other 25,311   16,861  
Total assets

2,298,393

 

693,001  

Current assets

334,847   257,813  
         
Non-current assets 1,963,546   435,188  
         
 

2015 

  2014  
         
Liabilities        
Raízen Cayman Limited (1) 1,644,502   536,668  
Shell Brazil Holding B.V. (2) 204,132   419,895  
Shell Western Supply and Trading (6) 109,318   -  
Shell Brasil Petróleo Ltda. (4) 53,384   30,675  
Cosan S.A. Indústria e Comércio (5) 154   30,312  
Other 6,273   4,967  
Total liabilities

2,017,763

 

  1,022,517  

Current liabilities

 

803,459   174,596  
         
Non-current liabilities 1,214,304   847,921  
         
           

31 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(1)Raízen Energia S.A. and its subsidiaries (“RESA”)

 

The term RESA refers to financial and commercial transactions with Raízen Energia S.A., mainly, with its subsidiaries, Raízen Tarumã Ltda., Raízen Caarapó Açúcar e Álcool Ltda., Raízen Paraguaçu Açúcar e Álcool Ltda., Raízen Araraquara Açúcar e Álcool Ltda., Raízen Centroeste Açúcar e Álcool and Raízen Cayman Ltd.

 

The amount recorded as current assets corresponds mainly to: (i) funds transferred by the subsidiaries of RCSA to RESA in the amount of R$ 131,739 (R$ 53,160 in 2014); (ii) interest on export prepayment contracts (“PPE”) , with final maturity in 2019, 2021 and 2022, in the amount of R$ 2,423, net of recovery funding costs; (iii) commercial operations of sale of diesel in the amount of R$ 2,459 (R$ 3,441 in 2014); and (iv) issuance of credit notes in the amount of R$ 1,004 (R$ 176 in 2014).

 

The amount recorded as non-current assets refers to PPE contracts.

 

·Between April 7 and June 16, 2014, RCSA, through its subsidiary Raízen Fuels Finance Ltd. ("Raízen Fuels"), granted PPEs to RESA in the amount of R$ 1,104,779, net of cost recovery capture, equivalent to US $ 350 million, to be paid on March 29, 2019, subject to interest of 1.55% per annum plus quarterly Libor rate, resulting in an average effective interest rate of 1.80% per annum;

 

·On October 15, 2014, a PPE contract was issued from Raízen Fuels to RESA, in the amount R$ 225,135, net of cost recovery capture, equivalent to € 66 million, to be paid on October 15, 2021. The contract is subject to interest of 3.09% per annum; and

 

·On January 20, 2015, a new PPE contract was issued from Raízen Fuels to RESA, in the amount of R$ 132,841, net of cost recovery capture, equivalent to € 40 million, to be paid on January 20, 2022 . The contract is subject to interest of 2.21% per annum plus quarterly Euro + Libor (“Euribor”) rate, resulting in an effective average interest rate of 2.27% per annum.

 

The amount recorded as current liabilities refers mainly to: (i) funds received by the management of financial resources of RESA by the RCSA, in the amount of R$ 619,406 (zero in 2014); (ii) commercial operations purchase and sale of products in the amount of R$ 9,478 (R$ 23,721 in 2014); (iii) interest on PPEs contracts in the amount of R$ 814 (R$ 430 in 2014); and (iv) various provisions and apportionment of shared costs in the amount of R$ 721 (R$ 16,918 in 2014).

 

The amount recorded as non-current liabilities refers to PPEs contracts.

 

·On March 28, 2011, RCSA borrowed a PPE with Raízen Cayman Ltd. ("Raízen Cayman"), a subsidiary of RESA, in the amount of US $ 219 million, maturing on December 7, 2015. On March 30, 2015, an amendment was signed that changed the maturity date to April 27, 2020 and renegotiated interest to quarterly Libor plus interest of 1.50% per annum, resulting in an effective average interest rate of 1.77 % per annum in addition to the exchange rate of the US dollar. On March 31, 2015, the principal amount is R$ 694,929 (R$ 495,597 in 2014), spent liquid uptake; and

 

32 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

·In addition, on April 8, 2014, RCSA raised a new PPE with Raízen Cayman in the amount of US$ 100 million, with final maturity on March, 2018 and 2019. The PPE is subject to the US dollar currency exchange and quarterly Libor plus annual interest of 1.55%, resulting in an effective interest rate of 1.80% per annum. On March 31, 2015, the principal amount is R$ 319,154, net of funding expenditure.

 

(2)Shell Brazil Holding B.V. (“SBHBV”)

 

The balance recorded as current assets corresponds to reimbursements receivable from shareholders, as set forth in the framework agreement, comprises the following: (i) reimbursement of provision for judicial claims in the amount of R$ 12,533 (R$ 13,103 in 2014) (Note 18); (ii) reimbursement of expenditure on bank guarantees in connection with lawsuits originated before the RCSA formation, in the amount of R$ 14,663 (R$ 15,473 in 20134); (iii) reimbursement of expenditure relating to Security, Health and Environment (“SSMA”) of R$ 2,859 (R$ 3,207 in 2014); (iv) reimbursement of court deposits of R$ 14,772 (R$ 11,822 in 2014); (v) reimbursement of expenditure on contingencies of R$ 6,174 (R$ 4,347 in 2014); (vi) reimbursement of expenditure on attorneys’ fees and court costs of R$ 5,501 (R$ 7,162 in 2014); and (vii) other reimbursable expenditure of R$ 4,138 (R$ 655 in 2014).

 

The amount recorded as non-current assets refers mainly to the provisions for judicial claims contributed by Shell Brazil Holding B.V. to the organization of RCSA, which should be fully reimbursed to the Company, when effectively paid, in the amount of R$ 458,648 (R$ 418,229 in 2014) (Note 18).

 

The balance recorded as current liabilities refers mainly to: (i) provision for losses relating to deposits made due to legal contingencies in the amount of R$ 864 (R$ 676 in 2014) (Nota 18); e, (ii) other reimbursable expenditure in the amount of R$ 6,030 (R$ 9,582 in 2014). In July, 2014, the Company repaid the amount of tax benefits to be reimbursed to SBHBV, in the amount of R$ 95,235.

 

The balance recorded as non-current liabilities refers mainly to: (i) provision for losses relating to court deposits made due to legal contingencies of R$ 17,946 (R$ 28,390 in 2014) (Note 18); and (ii) reimbursement of court deposits relating to the period before the formation of RCSA that were not part of the net assets contributed, and court deposits of shareholders responsibility, paid after the formation of RCSA and to be reimbursed to SBHBV, in the amount of R$ 30,490 (R$ 41,873 in 2014) (Note 18).

 

Preferred shares payable – SBHBV

 

In addition, the preferred shares payable which are recorded as non-current liabilities refer to the amount of tax benefits to be reimbursed to SBHBV, when effectively utilized by RCSA, in the amount of R$ 148,802 (R$ 244,139 on March 31, 2014), determined by the balances of tax losses and negative basis of social contribution (“NOL”) and tax benefit on goodwill amortization. The method of payment will be by distributing RCSA unique dividends to holders of Class C preferred shares (Note 21.a). Currently, only the SBHBV holds such class of share.

 

(3)Shell Aviation Limited

 

The amount of R$ 97,682 (R$ 111,676 in 2014) recorded as current assets refers mainly to the sale of fuel in Brazil by RCSA for use in the aircraft of foreign airlines comprising the customer portfolio of Shell Aviation.

 

33 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(4)Shell Brasil Petróleo Ltda. (“SBPL”)

 

The amount recorded as current assets corresponds mainly to: (i) liabilities contributed in the formation of RCSA by SBPL, which should be fully reimbursed to the Company, when effectively paid, arising from provisions for judicial claims in the amount of R$ 3,366 (R$ 2,299 in 2014) (Note 18); (ii) expenditure on commercial operations in the amount of R$ 2,297 (R$ 4,348 in 2014); and (iii) others expenditure in the amount of R$ 905 (R$ 536 in 2014).

 

The amount recorded as non-current assets refers to liabilities contributed by SBPL to RCSA which should be fully reimbursed to the Company, when effectively paid, arising from provisions for judicial claims in the amount of R$ 33,187 (R$ 13,447 in 2014) (Note 18).

 

The amount recorded as current liabilities corresponds mainly to: (i) tax credits in the amount of R$ 6,270 (R$ 6,270 in 2014), which will be reimbursed to SBPL when effectively used by the Company; (ii) return of commission on sales of lubricants of R$ 42,858 (R$ 16,187 in 2014) which was received in advance; (iii) services provided by employees of SBPL of R$ 1,106 (R$ 727 in 2014); and (iv) other commercial operations of R$ 166 (R$ 257 in 2014).

 

The amount of R$ 2,984 (R$ 7,234 in 2014), recorded as non-current liabilities refers to court deposits existing before RCSA, which were not an integral part of the net assets transferred of the fuel distribution business and court deposits incumbent upon the shareholders paid after the RCSA organization, which should be reimbursed to SBPL when effectively realized (Note 18).

 

(5)Cosan S.A. Indústria e Comércio S.A.

 

The amount recorded as current assets refers mainly to: (i) reimbursement of expenditure relating to Security, Health and Environment (“SSMA”) in the amount of R$ 12,042 (R$ 9,479 in 2014); (ii) reimbursement of expenditure on payroll in the amount of R$ 2,096 in 2014; (iii) reimbursement of expenditure on judicial claims in the amount of R$ 947 in 2014); and (iv) issuance of debit notes in the amount of R$ 531 (R$ 537 in 2014).

 

The amount of R$ 154 (R$ 59 in 2014), recorded as current liabilities corresponds to a reimbursement of various expenditure made through debt notes.

 

Preferred shares payable – Cosan

 

The amount recorded in non-current liabilities referred to the amount of tax benefits to be paid to Cosan, when effectively utilized by RCSA, whose nature and form of payment was identical to the preferred shares due to SBHBV. During the year ended March 31, 2015, the RCSA made the payment through the distribution of unique dividends to holders of Class B preferred shares, in the amount of R$ 30,253, only Cosan is the holder of this class of share.

 

(6)Shell Western Supply and Trading

 

On March 31, 2015, the amount payable of R$ 109,318 recorded as current liabilities corresponds to purchase of diesel by the subsidiary Blueway Trading Importadora e Exportadora S.A..

 

34 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(b)Transactions with related parties

 

  2015   2014   2013  
Product sales            
Shell Aviation Limited 1,227,690   1,226,670   1,425,289  
Raízen Energia S.A. and its subsidiaries 417,109   413,646   358,531  
Grupo Agricopel 395,371   382,670   -  
Other 51,154   -   -  
  2,091,324   2,022,986   1,783,820  
             
Purchase of goods            

Raízen Energia S.A. and its subsidiaries

(1,138,591 ) (1,534,355 ) (562,765 )
Shell Western (109,318 ) -   -  
Grupo Agricopel (32,911 ) (19,657 ) (216,227 )
  (1,280,820 ) (1,554,012 ) (778,992 )
             
Finance income and costs (1)            
Raízen Energia S.A. and its subsidiaries (3,008 ) (33,362)   7,834  
  (3,008 ) (33,362)   7,834  
             
Revenue of services (2)            
Shell Brasil Petróleo Ltda. (i) 2,285   27,092   28,934  
Shell Aviation Limited -   195   -  
  2,285   27,287   28,934  
             
Expenses of services (3)            
Raízen Energia S.A and its subsidiaries (i) (125,767 ) (116,568 ) (104,195 )
Shell Brasil Petróleo (ii) (3,859 ) (8,923 ) (11,973 )
Shell International Petroleum (ii) (3,743 ) (3,229 ) -  
Shell Aviation Limited (ii) (222 ) -   (15,162 )
Others (1,011 ) -   -  
  (134,602 ) (128,720 ) (131,330 )
             
  675,179   334,179   910,266  

 

(1)Net financial expenses correspond to interest and exchange variation of PPEs raised and granted to RESA, as well as income earned in the funds management agreement between the companies.

 

(2)Refer to (i) the commission on sales of lubricants to Shell and (ii) expenditure on the sharing of corporate, management and operating costs retrieved from related parties.

 

(3)Refers to (i) expenditure on the sharing of corporate, management and operating costs with RESA and (ii) expenditure on technical support, billing and collection process of maintaining, commissions on the sale of JET and secondees with Shell.

 

35 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(c)Officers and members of the board of directors

 

The total remuneration and benefits paid to management key personnel, including the directors, officers, and members of the executive committee, is as follows:

 

   2015  2014  2013
Salaries   42,226    37,743    34,858 
                
Bonuses and other variable compensation   31,488    31,803    27,635 
                
Total compensation   73,714    69,546    62,493 

 

The Company shares its corporate, managerial and operating structure and costs with its related party Raízen Energia S.A. (“RESA”). Key management personnel are mostly comprised of RESA’s employees and such costs are charged to the Company by debit note. During the year ended March 31, 2015, the Company reimbursed (“RESA”) for such services for R$ 55,555 (R$ 54,868 and R$ 41,706 in 2014 and 2013, respectively).

 

36 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

10.Investments

 

(a)Investment analysis

 

                      Investments   Equity accounting
 

Country 

 

Business 

  Quantity of shares/quotas of investee   Quantity of shares/quotas of investing company   Percentage of interest  

2015 

 

2014 

 

2015 

 

2014 

 

2013 and 2012 

                                       
Carrying value                                      
Sistema de Tecnologia de Pagamento (“STP”) (1) Brazil   Payment system   22,297,600   2,229,760   10%   74,541   71,275   13,696   10,080   -

Subtotal

 

                    74,541   71,275   13,696   10,080   -
                                       
Goodwill on investment                                      
Sistema de Tecnologia de Pagamento                     184,436   184,436   -   -   -
                                     

Total investment

 

                    258,977   255,711   13,696   10,080   -

 

(1)On March 31, 2015, includes fair value of intangible assets, net of deferred tax, in the amount of R$ 47,284 in 2015 (R$ 53,605 in 2014). In the year ended March 31, 2015, the amortization of the fair value of intangible assets, net of deferred tax effect, classified as equity income in the amount of R$ 6,320 (zero in 2014).

 

(b)Roll-forward of investments in associate

 

The roll-forward of investments in associates is as follows:

 

Balance as of March 31, 2013 and 2012 
      
    Additions to investment    11,959 
    Fair value on intangible assets    81,219 
    Deferred taxes on fair value of intangible assets    (27,614)
    Goodwill on investment   184,436 
    Equity accounting   10,080 
    Dividends receivable    (4,369)
Balance as of March 31, 2014   255,711 
      
Equity accounting   13,696 
Dividends receivable   (10,430)

Balance on March 31, 2015

   258,977 

 

37 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

(c)Summarized financial information in subsidiaries and associates

 

(i)The summary financial information of the Company’s subsidiaries are as follows:

 

·As of March 31, 2015

 

   Petróleo Sabbá S.A. (1)  Raízen Fuels  Finance Limited  Raízen Mime Combustíveis S.A. (1)  Blueway Trading Imp. e Exportação Ltda. 

Sampras Participações Ltda. 

 

Sabor Raiz Alimentação Ltda. 

 

Saturno Investimentos Imobiliários Ltda. 

                                    
Assets   796,808    1,469,411    345,574    135,911    285,049    21,708    188,559 
Liabilities   (348,691)   (1,480,810)   (119,947)   (132,972)   (10,979)   (736)   (25,260)
Shareholder’s equity
   448,117    (11,399)   225,627    2,939    274,070    20,972    163,299 
                                    
Net Sales   4,811,198    —      2,647,242    278,572    —      —      7,750 
Net income (loss)   99,878    (14,808)   76,310    1,031    14,124    (28)   2,253 
Cash Flow                                   
Net cash from operating activities   74,425    —      67,411    —      —      —      —   
Net cash used in investing activities   (62,241)   —      (11,537)   —      —      —      —   
Net cash provided by financing activities   (4,051)   —      (31,227)   —      —      —      —   
Net increase in cash and cash equivalents   8,133    —      24,647    —      —      —      —   
Cash and equivalents at beginning of year   57,797    —      62,000    —      —      —      —   
Cash and equivalents at end of year   65,930    —      86,647    —      —      —      —   
   
·As of March 31, 2014

 

   Petróleo Sabbá S.A. (1)  Raízen Fuels  Finance Limited  Raízen Mime Combustíveis S.A. (1)  Blueway Trading Imp. e Exportação Ltda. 

Sampras Participações Ltda. 

                          
Assets   657,183    808,495    280,793    2,116    260,080 
Liabilities   (285,191)   (800,771)   (128,801)   (208)   —   
Shareholders’ equity
   371,992    7,724    151,992    1,908    260,080 
                          
Net Sales   4,116,801    —      2,076,727    —      —   
Net profit (loss)   53,412    (3,670)   55,652    (153)   10,080 
Cash Flow                         
Net cash from operating activities   86,696    —      58,734    —      —   
Net cash used in investing activities   (66,596)   —      (6,354)   —      —   
Net cash provided by financing activities   24,945    —      (2,705)   —      —   
Net increase in cash and cash equivalents   45,045    —      49,675    —      —   
Cash and equivalents at beginning of year   12,752    —      12,325    —      —   
Cash and equivalents at end of year   57,797    —      62,000    —      —   

 

(ii)The summary of financial information of the Company’s associate (STP) are as follows:

 

   2015   2014
           
Assets   1,197,732    960,034 
Liabilities   (925,164)   (783,330)
Shareholder’s Equity
   272,568    176,704 
           
Net sales   671,749    299,855 
Net income   200,164    100,801 

 

The definition of significant influence in STP was given by the Company's right to elect key people in the Management, as well as the right to decide on strategic and operational issues relevant in STP.

 

38 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

 

 

(d)Acquisition of shares in associates

 

(i)Acquisition of Serviços e Tecnologia de Pagamentos S.A. (“STP”)

 

On October 3, 2013, the Company concluded the acquisition of a 10% of common shares of STP for the amount of R$ 250,000, paid in cash. The STP and Raízen Combustíveis are developing a new fuel charge system to be implemented in RCSA fuel stations.

 

The allocation of purchase price was concluded by Management according to the appraisal report made by an independent specialized company at the base date of March 31, 2014, based on the fair value of the purchased assets and assumed liabilities, as below:

 

Line items  Total
Intangible assets (a)   81,219 
Other net assets   11,959 
Deferred taxes   (27,614)
    65,564 
Consideration transferred, net of cash received   250,000 
Goodwill   184,436 

 

The fair value of the assets acquired and liabilities assumed is categorized within level 3.

 

The intangible assets will be amortized according to the useful lives as described below:

 

Intangible  Useful lives  Total
Exclusive agreements  60 months   1,457 
Customer relationships  147 months   53,715 
Trademarks  183 months   26,047 
       81,219 

39 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

11.Property, plant and equipment

 

   Lands  Buildings and improvements  Machinery, equipment and installations  Vehicles  Furniture, fixtures and computer equipment  Works in progress  Others  Total
Cost                        
As of March 31, 2012   846,966    241,996    1,205,692    85,112    71,054    278,564    —      2,729,384 
                                         
Additions   —      —      21,281    —      —      297,085    —      318,366 
Disposals   (50,212)   (15,151)   (226,438)   (7,819)   (10,045)   —      —      (309,665)
Business combination   (3,193)   792    (84,923)   —      423    3,495    —      (83,406)
Transfers   11,460    16,068    248,583    14,459    9,988    (320,414)   13,313    (6,543)
    Reversal of amounts contributed   (10,295)   —      —      —      —      —      —      (10,295)
As of March 31, 2013    794,726    243,705    1,164,195    91,752    71,420    258,730    13,313    2,637,841 
                                         
Additions   —      —      681    —      —      304,216    —      304,897 
Disposals   (103,475)   (18,045)   (105,420)   (2,910)   (7,942)   —      —      (237,792)
Transfers between cost and depreciation   —      25    665    —      —      —      —      690 
Transfers (1)   3,756    16,040    180,762    21,227    306    (255,148)   —      (33,057)

As of March 31, 2014

 

   695,007    241,725    1,240,883    110,069    63,784    307,798    13,313    2,672,579 
Additions
             8,347         65    236,209    —      244,621 
Disposals   (49,389)   (15,273)   (127,445)   (7,150)   (13,321)   —      —      (212,578)
Business combination (2)   62    478    27,120    —      —      —      —      27,660 
Reversal of amounts contributed (3)   (4,574)   —      —      —      —      —      —      (4,574)
Transfers between cost and depreciation   —      —      (18,306)   —      —      —      —      (18,306)
Transfers (1)   7,313    17,625    195,647    4,943    7,306    (232,272)   —      (438)

As of March 31, 2015

 

   648,419    244,555    1,325,246    107,862    57,834    311,735    13,313    2,708,964 
                                         
Depreciation                                        
As of March 31, 2012   —      (108,349)   (653,865)   (48,455)   (46,326)   —      —      (856,995)
                                         
Depreciation expense   —      (5,780)   (89,450)   (6,124)   (7,371)   —      (607)   (109,332)
Disposals   —      8,484    133,628    7,776    8,137    —      —      158,025 
Transfers   —      —      (2,745)   —      —      —      2,202    (543)
As of March 31, 2013   —      (105,645)   (612,432)   (46,803)   (45,560)   —      1,595    (808,845)
                                         
Depreciation expense   —      (10,746)   (115,093)   (7,426)   (6,740)   —      (1,820)   (141,825)
Disposals   —      11,489    73,160    2,832    6,632    —      —      94,113 
    Transfers between cost and depreciation   —      (25)   (665)   —      —      —      —      (690)
Transfers (1)   —      —      —           110    —      —      110 

As of March 31, 2014

 

   —      (104,927)   (655,030)   (51,397)   (45,558)   —      (225)   (857,137)
Depreciation expenses
   —      (6,874)   (94,995)   (7,788)   (5,071)   —      (1,820)   (116,548)
Disposals   —      10,388    99,073    7,084    11,110    —      —      127,655 
Transfers between cost and depreciation   —      —      18,306    —      —      —      —      18,306 
Transfers (1)   —      (287)   1,431    (3)   (563)   —      —      578 

As of March 31, 2015

 

   —      (101,700)   (631,215)   (52,104)   (40,082)   —      (2,045)   (827,146)
                                          
Net carrying value                                        
As of March 31, 2015   648,419    142,855    694,031    55,758    17,752    311,735    11,268    1,881,818 
As of March 31, 2014
   695,007    136,798    585,853    58,672    18,226    307,798    13,088    1,815,442 
As of March 31, 2013
   794,726    138,060    551,763    44,949    25,860    258,730    14,908    1,828,996 

(1) On March 31, 2015, included transfer for software costs as intangible assets in the amount of R$ 3,302 (R$ 32,947 in 2014), and reclassification of prepaid expenses to property, plant and equipment costs in the amount of R$ 3,442; (2) Acquisition of Latina (Note 28.i); and (3) Reversal of the amounts contributed relating to business combination with CCL.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

Constructions in progress

 

As of March 31, 2015, the balance of construction in progress in the amount of R$ 311,735 (R$ 307,798 in 2014) comprised: (i) construction of new fuel distribution terminals and upgrades of existing ones; (ii) capital expenditure in Shell branded gas stations such as replacing fuel pumps, steps for compliance with environmental standards, brand and signage upgrades, refurbishment of convenience stores and new fixtures and fittings; (iii) capital expenditure at large customers (B2B) such as the construction of fuel pumps and equipment; and (iv) capital expenditure at airports where the Company has fuel distribution terminals such as, fuel distribution vehicles, fire hoses and other infrastructure at new airport terminals and the upgrade of infrastructure at existing airport terminals.

 

Capitalization of borrowing costs

 

During the year ended March 2015, the Company capitalized borrowing costs in the amount of R$ 9,685 (R$ 21,441 and R$ 21,132 in 2014 and 2013, respectively). The weighted average interest rate utilized to determine the capitalized interest was 4.14% in 2015 (9.19% and 8.58% in 2014 and 2013, respectively).

 

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

12. Intangibles

 

   Software licenses  Trademarks  Contractual relationship with customers  Rights of exclusivity of supplier  Goodwill in business combinations  Others  Total
Cost                     
As of March 31, 2012   115,448    589,572    311,463    973,713    283,145    130,761    2,404,102 
Additions
   —      —      —      385,178    —      —      385,178 
Business combination   —      4,823    55,325    3,197    61,922    —      125,267 
Disposals   (3,664)   —      —      —      —      —      (3,664)
Transfers between cost and amortization   —      —      —      —      —      (97,510)   (97,510)
Measurement period adjustment   —      —      —      —      21,702         21,702 
Transfers   7,086    —      —      (26,355)   (890)        (20,159)
As of March 31, 2013   118,870    594,395    366,788    1,335,733    365,879    33,251    2,814,916 
Additions
   5,593    —      —      389,581    —      —      395,174 
Disposals   (25,689)   (64,533)   (47,386)   —      —      (4,332)   (141,940)
Transfers between cost and amortization   37,742    —      —      —      —      (21,917)   15,825 
Transfers (1)   32,947    —      —      (15,521)        —      17,426 

As of March 31, 2014

   169,463    529,862    319,402    1,709,793    365,879    7,002    3,101,401 
Additions
   4,682    —      —      507,135    —      —      511,817 
Business combination (2)   —      7,301    43,432    3,073    70,432    —      124,238 
Reversal of contributed amounts (3)   —      —      —      —      3,274    —      3,274 
Disposals   (1,907)   (4,822)   —      (13,074)   —      —      (19,803)
Transfers (1)   3,880    —      —      —      —      —      3,880 

 As of March 31, 2015

   176,118    532,341    362,834    2,206,927    439,585    7,002    3,724,807 
                                    
Amortization                                   
As of March 31, 2012   (91,072)   (68,946)   (53,087)   (302,979)   —      (122,195)   (638,279)
Amortization during the year
   (6,966)   (96,220)   (17,785)   (188,380)   —      (2,390)   (311,741)
Disposals   3,568    (4,823)   —      —      —      —      (1,255)
Transfers between cost and amortization   —      —      —      —      —      97,510    97,510 
As of March 31, 2013   (94,470)   (169,989)   (70,872)   (491,359)   —      (27,075)   (853,765)
                                    
Amortization during the year   (11,615)   (52,504)   (15,152)   (218,980)        (1,591)   (299,842)
Disposals   25,689    64,533    47,386              4,332    141,940 
Transfers between cost and amortization   (37,742)   —      —      —      —      21,917    (15,825)

As of March 31, 2014

   (118,138)   (157,960)   (38,638)   (710,339)        (2,417)   (1,027,492)
Amortization during the year
   (14,242)   (56,676)   (18,752)   (266,043)   —      (779)   (356,492)
Disposals   1,889    4,824    —      13,074    —      —      19,787 
Transfers (1)   (578)   —      —      85    —      —      (498)

As of March 31, 2015

   (131,072)   (209,812)   (57,390)   (963,223)   —      (3,196)   (1,364,695)
                                    
Net carrying value                                   
As of March 31, 2015   45,046    322,529    305,444    1,243,704    439,585    3,806    2,360,112 
As of March 31, 2014
   51,325    371,902    280,764    999,454    365,879    4,585    2,073,909 
As of March 31, 2013
   24,400    424,406    295,916    844,374    365,879    6,176    1,961,151 
   
(1)On March 31, 2015, included Transfer from property, plant and equipment in the amount of R$ 3,302 (R$ 32,947 in 2014) and transfer of providing exclusive rights cost in the amount of R$ 80 ((R$ 15,521) in 2014) for accounts receivable; (2) Acquisition of Latina (Note 28.i); and (3)Reversal of contributed amounts that refers to business combination with CCL.

 

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Goodwill

 

As of March 31, 2015 and 2014, the balance of goodwill is as follows:

 

Description  2015  2014
           
In the business combination with “CCL” (i)   348,103    344,829 
In the acquisition of Latina (Note 28.i)   70,432    —   
Others   21,050    21,050 
    439,585    365,879 
(i)Refers to Cosan's contribution to the Company of net assets of its fuel distribution business on June 1, 2011, in exchange for 589,448,062 shares of the Company. This contribution was treated as a business combination, as the Company issued shares in exchange for those assets.

 

Analysis of impairment of cash generating units containing goodwill

 

As described in Note 2.3 k, the Company reviews property, plant and equipment for impairment at least once a year.

 

The Company tests goodwill for impairment at least annually (Note 2.3 k).

 

Long-lived non-financial assets that are not subject to amortization are reviewed whenever there are indicators that their carrying amount might be impaired.

 

The Company uses the value-in-use method to determine the recoverable amount, which is based on projected discounted cash flows expected from cash-generating units determined by the Company based on the budgets that take into consideration the assumptions related to the cash-generating units, whose business management of the Company takes into consideration an integrated distribution network, comprising one single cash-generating unit using available market information and past performance.

 

Discounted cash flows have been prepared over a period of five years and taken to perpetuity without considering the actual growth rate. Cash flows arising from the continuing use of the underlying assets are adjusted by specific risks and use a pre-tax discount rate.

 

The discount rate corresponds to a pre-tax rate estimated at 8.5%.

 

The key assumptions used were: prices based on market expectation, estimated growth rates for the business line and extrapolations of growth rates based on the growth of the Gross Domestic Product (PIB). All future cash flow was discounted using a rate that reflects specific risks related to the material assets in each cash-generating unit.

 

On the basis of the annual tests, no impairment loss was recognized in the years ended March 31, 2015 or 2014. Determination of the recoverability of assets depends on certain key assumptions, as described above. These assumptions are influenced by market and technological and economic conditions existing at the time of the test, and so it is impossible to ascertain whether impairment losses will occur in the future or, if they do, whether they will be material.

 

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

13.Trade accounts payable

 

   2015  2014
           
Oil suppliers   208,246    170,619 
Ethanol suppliers   450,439    401,226 
Other and services suppliers   102,610    204,379 
           
    761,295    776,224 
14.Loans and financing

 

  

Maturity 

  Currency 

Weighted average 

interest rate 

(% p.a.) (1) 

 

2015 

  2014
                        
Classification of debts by     currency                       
Denominated in Brazilian   Reais                12,139    14,904 
Denominated in Dollars                1,495,816    801,456 
                 1,507,955    816,360 
                        
Debt arrangements (2):                       
BNDES   Jan/2021   URTJLP (*)   7.6% (7.2% in 2014)    12,093    14,550 
Senior notes due 2014   —     Dollar (US$)   —      —      801,456 
Term Loan Agreement   Mar/2019   US$ + Libor   1.7%   1,127,023    —   
Schuldschein   Oct/2021   EUR   2.9%   230,413    —   
Schuldschein   Jan/2022   EUR + Libor   2.1%   138,380    —   
Others   —     Reais (R$)   —      46    354 
                 1,507,955    816,360 
                        
Transaction costs:                       
Term Loan Agreement                (7,517)   —   
Schuldschein                (7,488)   —   
Senior Notes Due 2014                —      (1.152)
                 (15,005)   (1,152)
                        
                 1,492,950    815,208 
                        
Current                8,685    803,106 
Non-current                1,484,265    12,102 

(*)Reference Unit to adjusted Long-Term Interest Rate (“URTJLP”)

 

(1) The effective annual interest rate corresponds to the contractual rate plus any directly attributable transaction costs.

 

(2) Loans and financing are generally guaranteed by the Company. In some cases, those loans and financing have additional guarantees from the Company’s subsidiaries or shareholders.

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

The maturities of amounts payable in the long-term debt are as follows:

 

  

2015 

  2014
             
 13 to 24 months    2,710    2,756 
 25 to 36 months    558,130    2,710 
 37 to 48 months    560,891    2,710 
 49 to 60 months    1,167    2,481 
 61 to 72 months    278    1,167 
 73 to 84 months    361,089    278 
      1,484,265    12,102 

BNDES

 

In December 2013, the Company entered into a loan related to the BNDES program to support the sugar and alcohol sector in the amount of R$ 15,000, with fixed interest rate of 2.05% per annum and indexed to the URTJLP, weighted average interest rate of 7.55% per annum, maturing in January 2021.

 

Term Loan Agreement

 

On April 8, 2014, the Company entered into a syndicated loan, with several banking institutions, in the amount of US$ 350 million. The contract is subject to foreign variation of the US dollar plus annual fixed interest rate of 1.4% and quarterly Libor, resulting in an average effective interest rate of 1.65% per annum, final maturity in March 2018 and 2019.

 

Senior Notes Due 2014

 

On May 9, 2014, the Company fully repaid this debt through its subsidiary Raízen Fuels Finance Limited, in the amount of US$ 350 million of principal plus US$ 16,084 million of interest, equivalent to the total amount of R$ 819,514 in that date.

 

Schuldschein

 

In October 2014, the Company entered a financing through its subsidiary Raízen Fuels Finance Limited in the amount of € 66 million, with a fixed interest rate of 2.88% per annum, maturity on October 15, 2021.

 

Additionally, in January 2015, the Company entered a new financing through its subsidiary Raízen Fuels Finance Limited in the amount of € 40 million, with a fixed interest rate of 2% per annum and quarterly Euribor interest, resulting in an average effective interest rate of 2.06% per annum, maturity on January 20, 2022.

 

Covenants

 

The Company and its subsidiaries are not subject to financial covenants. The Company and its subsidiaries are subject only to certain restrictive covenants in some of its loans and financing, such as cross-default and negative pledge. The Company is in compliance with all its covenants as of March 31, 2015.

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

Fair value

 

As of March 31, 2015 and 2014, the consolidated carrying values and fair values of loans and financing are as follows:

 

   Carrying value  Fair Value
   2015  2014  2015  2014
             
Senior notes Due 2014   —      801,456    —      825,476 
Other loans and financing   1,492,950    13,752    1,492,950    13,752 
    1,492,950    815,208    1,492,950    839,228 

 

The fair value of the Senior Notes Due 2014 is based on prices quoted on the reporting date (Note 25.g).

 

The fair value of other loans and financing is close to their amortized cost.

 

15.Taxes payable

 

   2015  2014
           
ICMS   75,699    59,481 
Municipal Tax on Services (“ISS”)   3,614    3,888 
Installment payments – Refis IV   6,560    5,302 
Others   5,290    11,491 
    91,163    80,162 
           
Current   85,182    75,300 
Non-current   5,981    4,862 

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Reais, unless otherwise indicated) 

16.Income and social contribution taxes

 

(a)Effective income tax and social contribution rate reconciliation

 

   2015  2014  2013
                
Income before taxes   1,737,097    1,552,353    1,273,492 
Nominal tax rate (34%)   (590,613)   (527,800)   (432,987)
Reconciling items:
               
Interest on own capital   64,615    62,220    61,025 
Deferred tax liability reversal in corporate restructuring (Note 28.ii)   24,502    —      —   
Equity interest in income of associates   4,657    3,427    —   
Tax incentive   2,333    1,996    2,129 
Non-deductible donations and contributions expenses   (3,612)   (2,948)   (3,444)
Others   1,594    (1,663)   1,343 
Income tax and social contribution benefit (expenses) ( current and deferred tax)
   (496,524)   (464,768)   (371,934)
Effective rate   28.6%   29.9%   29.2%

 

(b)Deferred income tax and social contribution - assets and liabilities

 

         2015  2014
    Base    IRPJ 25%    CSLL 9%    Total    Total 
Assets (liabilities)                         
Tax losses:                         
Tax loss carryforwards (corporate income tax)   324,644    81,161    —      81,161    147,543 
Social contribution tax losses   396,156    —      35,654    35,654    59,754 

Temporary differences:

                         
Foreign exchange variance   33    8    3    11    131,585 
Provision for rights of exclusivity of supply   428,724    107,181    38,585    145,766    112,868 
Other effects   362,406    90,601    33,723    124,324    96,360 
Others – Business combination   3,915    979    352    1,331    1,342 
Total deferred tax – assets (Note 16.d)        279,930    108,317    388,247    549,452 
                          
Tax goodwill amortized   (846,006)   (211,502)   (76,140)   (287,642)   (257,391)
Fair value of property, plant and equipment – Business combination   (420,138)   (105,035)   (37,812)   (142,847)   (175,606)
Fair value of intangible assets – Business combination   (308,574)   (77,144)   (27,771)   (104,915)   (95,458)
Derivatives   (71,958)   (17,990)   (6,475)   (24,465)   (3,925)
Total deferred tax – liabilities        (411,671)   (148,198)   (559,869)   (532,380)

Total deferred taxes

 

        (131,741)   (39,881)   (171,622)   17,072 
                          
Deferred assets                  26,864    34,084 
Deferred liabilities                  (198,486)   (17,012)
Total deferred taxes                  (171,622)   17,072 
                          
(c)Roll-forward of deferred tax is as follows:

 

   2015  2014  2013
                
Balance at beginning of year   17,072    105,923    190,649 
Expenses in statement of income from continuing operations   (173,284)   (88,941)   (87,160)
Deferred taxes on comprehensive income   216    90    —   
Taxes credited directly to equity (1)   —      —      31,900 
Taxes debited directly to equity (2)   —      —      (15,783)
Deferred taxes on business combination (Latina and Mime)   (16,926)   —      (23,581)
Others   1,300    —      9,898 
Balance at the end of the fiscal year
   (171,622)   17,072    105,923 
(1)Refers to the fair value adjustment of the business combination (CCL).

 

(2)Refers to the adjustment of balance of final loss contributed by Shell to the Company’s organization.

 

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(d)Estimated time of realization

 

Deferred tax arising from temporary differences will be realized as they are settled or realized. Tax loss carryforwards do not expire; however, the use of prior-year accumulated losses is limited to 30% of annual taxable income. The period of the settlement or realization of such differences would not be reliably estimated and is tied to several factors that are not under the control of the Management.

 

On March 31, 2015, the Company has the following expected realization of the deferred tax assets:

 

 2016    209,524 
 2017    14,003 
 2018    14,003 
 2019    14,003 
 2020    51,683 
 After 2020    85,031 
 

Total

    388,247 

 

On March 31, 2015, the Blueway Trading Import & Export Ltd. had balances of tax losses and negative basis of social contribution in the amount of R$ 11,441 (R$ 654 and R$ 499 on March 31, 2014 and 2013, respectively), for which there was no recognition of deferred tax assets, given its expected recovery is not considered probable.

 

17.Deferred revenue

 

   2015  2014
           
Sales Commission (a)   253,760    294,910 
Loyalty - cards (b)   52,333    54,333 
Others   3,590    6,510 
    309,683    355,753 
           
Current   46,740    49,660 
Non-current   262,943    306,093 

 

(a)Refers to the receipt in advance in the amount of R$ 411,502 from Shell, relating to the sales commissions of lubricants at Shell’s gas stations, over a period of ten years, as set forth in the lubricant sales representation agreement.

(b)Advances received in the amount of R$ 60,000 in connection with the establishment of business partnerships for the exploration of the customer base over a period of 30 years.

 

The amortization of the advanced revenue is recorded in the income of the year under Other operating income, net (Note 24).

 

48 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

18.Provision for tax, civil and labor claims

 

During the formation of the RCSA, it was agreed that Shell should reimburse the Company for the settlement of lawsuits in progress prior to the formation, when effectively settled by the courts. On March 31, 2015 and 2014, the balances of claims to be reimbursed and those which are non-reimbursable are as follows:

 

   2015  2014
 Description    Non-reimbursable claims    Reimbursable claims (a)    Total    Non-reimbursable claims    Reimbursable claims (a)    Total 

Tax

    12,978    248,523    261,501    1,965    216,017    217,982 
 Civil    2,879    189,195    192,074    2,628    143,175    145,803 
 Labor    5,098    23,918    29,016    4,532    37,281    41,813 
 Environmental    1,861    46,099    47,960    952    50,605    51,557 
      22,816    507,735    530,551    10,077    447,078    457,155 

(a) See Note 9.

 

Also, during the formation of RCSA, it was agreed that the Company should reimburse Shell the amount of judicial deposits made before its organization, when effectively received. On March 31, 2015 and 2014, the balance of refundable and non-refundable deposits is as follows:

 

   2015  2014
      Non-refundable court deposits    Refundable court deposits (a)    Total    Non-refundable court deposits    Refundable court deposits (a)    Total 
 

Tax

    14,815    28,050    42,865    2,830    41,677    44,507 
 Civil    3,521    13,974    17,495    2,329    17,527    19,856 
 Labor    378    10,260    10,638    59    18,969    19,028 
      18,714    52,284    70,998    5,218    78,173    83,391 
(a)See Note 9.

 

(i)Non-reimbursable claims

 

   Tax  Civil  Labor  Environmental  Total

As of March 31, 2014

   1,965    2,628    4,532    952    10,077 
Provisioned during the year (1)
   1,000    819    2,750    1,454    6,023 
Write-offs/reversals (1)   (140)   (966)   (2,075)   (206)   (3,387)
Payments   (2,765)   (38)   (867)   (354)   (4,024)
Business combinations (Note 28.i)   10,649    —      —      —      10,649 
Interest (2)   2,269    436    758    15    3,478 

As of March 31, 2015

   12,978    2,879    5,098    1,861    22,816 
(1)Recorded in the consolidated statement of income under Taxes on sales and general and administrative expenses.

 

(2)Recorded in the consolidated statement of income under Financial income.

 

49 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

 

 

(ii)Reimbursable claims (1)

 

   Tax    Civil    Labor    Environmental    Total 

As of March 31, 2014

   216,017    143,175    37,281    50,605    447,078 
Provisioned during the year
   168,659    40,299    7,582    15,413    231,953 
Write-offs/reversals(2)    (85,137)   (3,467)   (21,763)   (12,419)   (122,786)
Payments   (75,550)   (17,476)   (3,086)   (8,916)   (105,028)
Interest   24,534    26,664    3,904    1,416    56,518 

As of March 31, 2015

   248,523    189,195    23,918    46,099    507,735 
(1)The changes do not affect the consolidated statement of income.

 

(2)Substantially includes write-off relating to government incentive to ethanol producers.

 

(iii)Total claims

 

   Tax  Civil  Labor  Environmental  Total
                

As of March 31, 2014

   217,982    145,803    41,813    51,557    457,155 
                          
Provisioned during the year
   169,659    41,118    10,332    16,867    237,976 
Write-offs/reversals   (85,277)   (4,433)   (23,838)   (12,625)   (126,173)
Payments   (78,315)   (17,514)   (3,953)   (9,270)   (109,052)
Business combination (Note 28.i)   10,649    —      —      —      10,649 
Interest   26,803    27,100    4,662    1,431    59,996 

As of March 31, 2015 

   261,501    192,074    29,016    47,960    530,551 

 

Contingencies for probable losses

 

(a) Tax

 

The main tax claims as of March 31, 2015 and 2014, are as follows:

 

 

 

   Non- Reimbursable claims   Reimbursable claims   Total 
Description   2015    2014    2015    2014    2015    2014 
                               
IPI (i)   —      —      80,781    900    80,781    900 
IRPJ and CSLL (ii)   —      —      62,746    —      62,746    —   
PIS and COFINS (iii)   —      —      33,394    1,939    33,394    1,939 
Attorney fees (iv)   1,751    1,167    35,437    53,466    37,188    54,633 
ICMS (v)   11,227    798    33,325    158,142    44,552    158,940 
CIDE and Others (vi)   —      —      2,840    1,570    2,840    1,570 
    12,978    1,965    248,523    216,017    261,501    217,982 

50 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(i)IPI

 

The amount accrued as IPI tax credits is represented by: (a) tax assessment received relating to the imported goods; and (b) claims of compensation resulting from the inputs used in immune outputs.

 

(ii)IRPJ and CSLL

 

These are assessment notices relating to various compensation (Perdcomp), referring to the IPI tax credits used to offset income tax and social contribution. These compensations are no longer approved under the issuance of the tax assessment, which failed to recognize the credits under the grounds that, from January 2008 to September 2010, (i) the RCSA would have ceased to highlight and collect IPI due to the 8% rate in certain transactions classified in the Tabela de Incidência do Imposto sobre Produtos Industrializados - TIPI, and (ii) the RCSA would have ceased to reverse IPI tax credits for inputs used in the manufacturing of certain products classified under TIPI , considering that the output operations of such products are not taxed. The controversy items firstly from a disagreement as to the classification of products such as oil products, and secondly from a negative of the authorities to recognize the right to maintenance of the IPI credits in operations with immune or untaxed outputs.

 

(iii)PIS and COFINS

 

The amount accrued as PIS and COFINS credits is represented by: (a) contribution the years 1997-1999 regarding the company incorporation; and (b) compensation related to the IPI tax credits used to offset the PIS and COFINS arising from inputs used in immune outputs.

 

(iv)Attorney fees

 

The Company hires law firms to defend its civil, tax and labor claims. Some agreements set forth the attorneys’ compensation based on a percentage of the amounts related to favorable outcomes. The Company accrues the amounts payable to law firms with respect to claims whose likelihood of loss is assessed as possible or remote. The amount currently accrued fully refers to claims whose financial liability is Shell responsibility since they are originated in a period prior to the Company’s organization and, therefore, are reimbursable.

 

(v)ICMS

 

The amount accrued as ICMS credits consists of: (a) tax assessments received which, despite the defense submitted at the administrative and judicial level, the Company’s legal counsel believes that the loss is probable, and the Company will be required to make the payment; and (b) credits recoverable and financial charges on matters for which Management has an interpretation different from the tax authorities.

 

(vi)Contribution for Intervention in the Economic Domain - CIDE

 

The Company accrued the CIDE on services in exploration and production of oil and natural gas made before the formation of Raízen, on March 31, 2015 in the amount of R$ 171,129. The amounts due were deposited in court in the same amount. The Company will be fully reimbursed by Shell in the case of effectively collect the CIDE tax authorities. Therefore, both balances are presented net in these financial statements.

 

51 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(b)Civil and labor

 

The main claims are related to contractual, real estate and credit recovery matters, involving contractual breaches, ownership of Company’s properties and recovery of amounts not paid by customers.

 

The Company is also party to various labor claims filed by former employees and employees of outsourced service providers who require the payment of overtime, night shift premium and hazardous duty premium, job readmittance, deductions from payroll such as confederation dues, union dues, etc.

 

(c)Environmental

 

The main environmental claims are related to environmental remediation activities to be performed in gas stations, distribution units, airports and customer distribution centers, including removal of the contaminated material, treatment of the area, laboratory analyses and post-remediation monitoring.

 

Contingencies classified as a risk of possible loss

 

(a)Tax

 

The main tax judicial claims whose likelihood of unfavorable outcome is rated as possible, and as a consequence, no provision for lawsuits was recorded in the financial statements, as follows:

 

  Non-Reimbursable claims   Reimbursable claims   Total
Description 2015   2014   2015   2014   2015   2014

       ICMS (i)

102,134   31,847 1,875,303   1,825,228  

1,977,437

 

1,857,075

PIS and COFINS (ii) 36   35   1,086,105   1,060,438    1,086,141    1,060,473
IPI (ii) -   -   50,741   130,816    50,741    130,816
IRPJ and CSLL (ii) -   -   397,481   306,444    397,481    306,444
Others 582   543   8,397   13,034   8,979   13,577
  102,752   32,425   3,418,027   3,335,960  

3,520,779

 

3,368,385

If the Company recognizes a reimbursable claim due to a change in the likelihood of loss, or for any other reason, they will also account for the same amount as a receivable from shareholders; therefore, there will not any impact on the consolidated statement of income. If a non-reimbursable claim is recognized, the Company will account for an expense in the consolidated statement of income.

 

The main contingences are described below:

 

(i)ICMS

 

Refers to various tax assessments notices in connection with the following matters: (i) non-reversal of ICMS credits, (ii) non-reversal in full of ICMS-ST credits, (iii) payment of ICMS-ST on interstate sales to industrial customers and (iv) non-performance of accessory obligations.

 

(ii)PIS, COFINS, IPI, IRPJ and CSLL

 

The main contingences refers to tax assessment notices in connection with the offset of credits arising from the semi-annual PIS system as well as offsets of federal taxes (IRPJ, CSLL, PIS, COFINS and IRRF) not approved by the Receita Federal.

 

52 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(b)Civil and labor

 

On March 31, 2015 and 2014, the main civil and labor claims whose likelihood of loss is possible and therefore no provision for Judicial Demands was recognized in the financial statements , are highlighted below:

 

  Non-reimbursable claims   Reimbursable claims
Description 2015   2014   2015   2014

Civil

60,739   11,459   696,563   595,134
Labor 655   1,565   31,133   54,767
  61,394   13,024   727,696   649,901

 

19.Commitments

 

Purchases

 

The Company enters into agreements with third parties, which are related to the purchase of fuel to secure a portion of its future sales.

 

The amounts of the purchase commitments of ethanol, diesel, gasoline, jet fuel and biodiesel, in cubic meters, on the date of the financial statements are set forth below:

 

2016

  9,983,568
2017   911,623

Fiscal year ended in March 31, 2015

  10,895,191

Fiscal year ended in March 31, 2014

 

  10,617,401

 

The Company also entered into agreements for services of railway, highway and waterway transportation in order to transport fuel between supply centers and distributors. The amount to be paid by the Company is set based on the price defined in the agreement.

 

Crop purchase commitments, in metric meters, on March 31, 2015 are set forth below:

 

2016

  470,191

Fiscal year ended in March 31, 2015

  470,191

Fiscal year ended in March 31, 2014

  1,792,365

53 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Storage services

 

The Company enters into agreements with third parties for fuel storage service in certain regions due to logistics strategies.

 

Crop storage services commitments, in cubic meters, on the reporting date are set out below:

 

2016

  1,396,928
2017   957,650
2018   284,526
2019   248,400
After 2020   366,300

Fiscal year ended in March 31, 2015

  3,253,804

Fiscal year ended in March 31, 2014

 

2,205,679 

 

This non-financial information has not been audited by independent auditors.

 

20.Shareholders’ equity

 

(a) Capital stock

 

On December 26, 2013, the shareholder Cosan transferred to Cosan Investimentos e Participações S.A. (“CIP”) all 1,651,584,242 ordinary shares that held, with usufruct reserve to Cosan until October 1, 2021, on all political rights, right to receive interest on own capital and the right to receive dividends linked to such shares, decided by the Company as at April 30, 2014, based on profits until March 31, 2014.

 

On March 31, 2015 and 2014, the Company’s capital is R$ 3,343,720. The line item appears deducted from the balance of redeemable preferred shares in the amount of R$ 148,802 (R$ 274,392 in 2014), totaling R$ 3,194,918 (R$ 3,069,328 in 2014).

 

The capital stock on March 31, 2015, totally subscribed and paid is represented as follows:

 

         Shareholders (shares in units)
   Shell  CIP  Cosan  Total in 2015  Total in 2014
                
Common shares   1,651,584,242    1,651,584,242    —      3,303,168,484    3,303,168,484 
Preferred shares Class A   1    —      —      1    1 
Preferred shares Class B   —      —      93,648,276    93,648,276    93,648,276 
Preferred shares Class C   262,784,501    —      —      262,784,501    262,884,501 
Preferred shares Class D (1)   100,000    —      —      100,000    —   
Total
   1,914,468,744    1,651,584,242    93,648,276    3,659,701,262    3,659,701,262 
                          
(1)On January 21, 2015, the Extraordinary General Meeting approved the conversion of 100,000 preferred shares Class C into preferred shares Class D, all owned by Shell.

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Redeemable preferred shares

 

The tax benefits arising from the use of NOL generated by Shell before the RCSA’s organization, as well as the tax benefits arising from the tax amortization of goodwill relating to Cosan’s contribution, and tax benefits arising from the utilization of PIS and COFINS contributed by Fix Investimentos Ltda. (investor company of the controlled Raízen Mime Combustíveis S.A.) are to be reimbursed to shareholders to the extent that the Company uses them to reduce the amount of taxes payable.

 

In order to compensate shareholders through the payment of dividends of the tax benefits used by the Company during each calendar year, the Company issued Class A preferred shares to Fix, Class B to Cosan, and Class C and D preferred shares to Shell in order to pay them through the payment of dividends in the amount of the tax benefit used by the Company in the fiscal year following to January to December of each year. On March 31, 2015 the dividends declared for remuneration of the shareholders.

 

On March 31, 2015, 2014 and 2013, the balance and the changes of preferred shares payable to the shareholders (Note 9) are as follow:

 

   Class A  Class B  Class C  Total
                     

Balance on March 31, 2012

   —      140,328    470,337    610,665 
Revision of initial balance of tax benefits to be reimbursed   —      10,931    (15,783)   (4,852)
Transfer to dividends payable relating to tax benefits used
during the period from January, 2012 to December, 2012
   —      (60,503)   (83,057)   (143,560)

Balance on March 31, 2013

   —      90,756    371,497    462,253 
Obligation to Fix Investimentos Ltda regarding to tax benefits to repay recognized on April 29, 2013   4,551    —      —      4,551 
Payment to Fix Investments relating to tax benefits realized to the period of January, 2012 to December, 2012, paid on May 2, 2013   (578)   —      —      (578)
Payment to Fix Investments relating to tax benefits realized on March 27, 2014   (3,538)   —      —      (3,538)
Transfer to dividends payable relating to tax benefits used
during the period from April, 2013 to March, 2014
   —      (60,503)   (127,358)   (187,861)

Balance on March 31, 2014

   435    30,253    244,139    274,827 
                     
Payment to Cosan and Shell relating to tax benefits used
 during the period from April 2013 to March 2015, paid on July 28, 2014
   —      (15,126)   (36,842    (51,968)
Payment to Fix Investments relating to tax benefits realized on October 22, 2014   (97)   —      —      (97)
Compensation of tax benefits through Refis, on October 22, 2014   (338)   —      —      (338)
Transfer to dividends payable relating to tax benefits used
during the period from April, 2014 to March, 2015
   —      (15,127)   (58,495)   (73,622)

Balance on March 31, 2015

   —      —      148,802    148,802 

 

Class B and C of preferred shares deduct the balance of Capital.

 

55 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

 

(b)Dividends and interest on own capital

 

Pursuant to the Company’s bylaws, the amounts of the legal reserve and dividends to the year ended March 31, 2015 and 2014 were determined as follows:

 

   2015  2014  2013
Net income   1,202,294    1,063,546    877,716 
(-) Transfer to legal reserve – 5%   (60,113)   (53,178)   (43,886)

 

Calculation basis for dividend distribution

   1,142,181    1,010,368    833,830 
                
Common stock               
Mandatory minimum dividend of 1% on net income   11,422    10,104    8,338 
(-) Interest on own capital   (190,500)   (183,000)   (173,000)
(-) Dividends paid in advance   (539,360)   (360,000)   (227,000)
                
Remaining interest on own capital   —      19,550    —   
                
Preferred shares   74,412    187,861    143,560 
                
Total dividends payable:               
Total parent company   74,412    207,411    143,560 
Dividends payable to non-controlling shareholders
   9,545    14,068    3,622 
Total   83,957    221,479    147,182 

 

At the Extraordinary General Meeting held on July 28, 2014, the shareholders of RCSA deliberated and approved the declaration of dividends to the holders of ordinary shares in proportion to the shares held by them, in the amount of R$ 246,104, fully paid on October 31, 2014.

 

Additionally, at the same Extraordinary General Meeting, the shareholders of RCSA deliberated and approved the declaration of additional dividends to those provisioned on March 31, 2014, to holders of preferred shares B and C, in the amount of R$ 52,548, totaling R$ 240,409. Dividends were paid to the shareholders, Cosan and Shell, in the amount of R$ 75,630 and R$ 164,779, respectively, fully paid on July 28, 2014. On March 31, 2015, the accrued dividends, substantially of the same nature, was of R$ 74,412.

 

At the Extraordinary General Meeting held on October 16, 2014, the shareholders of RCSA deliberated and approved the declaration of interest on own capital calculated for the period between February 1 and September 30, 2014 and interim dividends for the period between April 1 and September 30, 2014, in the amount of R$ 109,500 and R$ 220,360, respectively, individually credited at the rate of 50% for each shareholder. Therefore, the net amount of interest on own capital and interim dividends payable is R$ 313,435, full paid on October 31, 2014.

 

Additionally, on October 31, 2014, the RCSA paid the remaining balance of interest on own capital of the year ended March 31, 2014, in the net amount of R$ 19,550.

 

At the Extraordinary General Meeting held on December 19, 2014, the shareholders of RCSA deliberated and approved the declaration of interim dividends for the period between April 1 to November 30, 2014 to the holders of ordinary shares in proportion to the shares held by them, in the amount of R$ 200,000, which R$ 100,000 was paid to Cosan on December 31, 2014 and R$ 100,000 paid to Shell on January 7, 2015.

 

56 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

At the Extraordinary General Meeting held on December 31, 2014, the shareholders of RCSA deliberated and approved the declaration of interest on own capital calculated for the period between October 1 and December 31, 2014, in the amount of R$ 45,000, individually credited at the rate of 50% for each shareholder. Therefore, the net amount payable is R$ 38,250, full paid on March 18, 2015.

 

At the Extraordinary General Meeting held on March 16, 2015, the shareholders of RCSA deliberated and approved the declaration of interim dividends for the period between April 1, 2014 to January 31, 2015 to the holders of ordinary shares in proportion to the shares held by them, amounting to R$ 119,000, full paid on March 18, 2015.

 

At the Extraordinary General Meeting held on March 16, 2015, the RCSA shareholders deliberated and approved the declaration of interest on own capital calculated for the period between January 1 and February 28, 2015, in the amount of R$ 36,000, individually credited at the rate of 50% for each shareholder. Therefore, the net amount payable is R$ 30,600, fully paid on March 18, 2015.

 

(c)Valuation adjustment – Actuarial liability

 

Refers to gains and losses arising from the provision for payment of post-employment benefits. This component is recognized in other comprehensive income, but will never be reclassified to profit or loss in subsequent periods.

 

(d)Legal reserve

 

On March 31, 2015 and 2014, the Company allocated of 5% of the net profit to legal reserve, as described in Note 20 (b), pursuant to Company bylaws and in compliance with Brazilian Corporate Law.

 

(e)Profit retention reserve

 

The remaining balance of net income for the year, after allocations for the establishment of the legal reserve, was allocated to Reserve for retention of earnings until its final allocation is approved by the Annual General Meeting. Based on the Company's shareholder agreement, up to 80% of net income may be allocated to this statutory reserve for operations and new investments and projects, and shall not exceed the percentage of 80 % of the share capital.

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(f)Earnings per share

 

The basic and diluted earnings per share are calculated by dividing the profit attributable to shareholders by the weighted average number of common shares outstanding during the year.

 

The table below shows the income and share data used in the calculation of the earnings per basic and diluted share for the year ended March 31, 2015, 2014 and 2013 (in thousands, except per share amount):

 

Basic and diluted

 

   2015  2014  2013
Numerator               
Net profit   1,202,294    1,063,546    1,063,546 
Income available to preferred shareholders   (74,412)   (187,861)   (143,560)
Income available to common shareholders   1,127,882    875,685    734,156 
Denominator:               
Weighted average number of common shares (in thousands)   3,303,168    3,303,168    3,303,168 
Basic and diluted earnings per common share (dollars per share)
   0.34    0.27    0.22 

 

The Company has no outstanding common shares that may cause dilution or debt convertible into common shares. Therefore, the basic and diluted earnings per share are equivalents.

 

21.Net sales

 

   2015  2014  2013
                
Gross sales   58,792,859    52,569,840    45,452,355 
Sales taxes   (1,186,161)   (1,091,192)   (1,256,495)
Sales returns and rebates (1)   (822,217)   (887,122)   (663,628)
Net sales
   56,784,481    50,591,526    43,532,232 
(1)On March 31, 2015, includes the amortization of contractual relationships with customers and supply exclusivity rights of R$ 266,043 (R$ 218,980 in 2014 and R$ 188,380 in 2013).

 

58 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

22.Expense by nature

 

The consolidated statement of income is presented by function. The reconciliation of statement of income as presented and the expenses by nature for the years ended March 31, 2015, 2014 and 2013 is as follows:

 

(a)Expenses by nature

 

   2015  2014  2013
                
Fuel - resale   53,853,650    48,005,216    41,199,019 
Personnel expenses   428,681    404,963    309,029 
Depreciation and amortization (1)   206,998    222,688    232,693 
Freight   277,667    254,693    220,119 
Commercial expenses   212,916    151,727    135,631 
Contract labor   96,563    103,097    91,162 
Logistics expenses   92,278    92,377    79,906 
Rentals   60,397    58,350    56,612 
Telecommunications   13,939    12,753    23,139 
Maintenance material   11,914    8,336    7,788 
Other expenses   91,972    97,091    159,233 
    55,346,975    49,411,291    42,514,331 
(1)The amortization relating to rights of exclusivity of supply are accounted for as Sales returns and rebates (Note 21).

 

(b)Classified as:

 

   2015  2014  2013
                
                
Cost of sales   53,853,650    48,005,216    41,199,019 
Selling expenses   1,110,930    1,015,036    953,696 
General and administrative expenses   382,395    391,039    361,616 
    55,346,975    49,411,291    42,514,331 

59 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

23.Financial income (expenses), net

 

   2015  2014  2013
Finance expenses               
Interest   (162,612)   (98,704)   (90,130)
Monetary variation   (24)   (316)   (161)
Adjustment to present value – customers   —      —      (4,300)
Others   (8,799)   (5,883)   (5,768)
    (171,435)   (104,903)   (100,359)
Amounts capitalized on qualifying assets (Note 11)   9,685    21,441    21,132 
    (161,750)   (83,462)   (79,227)
Finance revenues
               
Interest   105,309    78,130    108,833 
Monetary variation   —      343    1,005 
Income from financial investments   18,181    8,263    6,691 
Others   838    1    1 
    124,328    86,737    116,530 
                
Foreign exchange, net   (277,513)   (148,537)   (93,839)
                
Derivatives, net   202,017    46,723    (2,096)
    (112,918)   (98,539)   (58,632)

 

24.Other operating income, net

 

   2015  2014  2013
                
Rentals and storage   129,349    117,606    109,748 
Gain on sale of property, plant and equipment (1)   121,956    196,471    63,188 
Royalties revenue   52,533    49,099    42,297 
Merchandising   43,834    41,076    35.360 
Commission on sales of lubricants and cards, net (Note 17)   42,988    48,607    49,199 
Revenue from store licenses   16,913    16,193    13,352 
Revenue from commission on sales of aviation fuel   1,247    2,352    3,882 
Bargain purchase gain in the business combination   —      —      17,267 
Other expenses, net   (10,007)   (10,827)   (20,070)
    398,813    460,577    314,223 

 

(1)Mostly relates to the gain on the sale of land to owners of the gas stations which occupy them. This is not part of the ordinary business activities of the Company.

 

60 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

25.Financial instruments

 

(a)Overview

 

In the normal course of its business, the Company is exposed to the following risks arising from financial instruments:

 

·interest rate risk

 

·currency risk

 

·credit risk

 

·liquidity risk

 

This note provides information about the exposure of each of the aforementioned risks, as well as to the objectives, practices and processes used to measure and manage them. Additionally, this note provides information regarding the Company’s management of capital.

 

(b)Risk management framework

 

The Company has specific policies treasury and trading that define a direction for risk management.

 

To monitor the activities and assurance of compliance with the policies, the Company has the Risk Committee that meets weekly to analyze the foreign exchange market behavior and decide on the hedging positions in order to reduce the adverse effects of changes in exchange rate.

 

The Company and its subsidiaries are exposed to market risks, the main ones are (i) the volatility of the exchange rate; and (ii) the volatility of interest rates. The use of financial instruments for the purpose of protection is made through a risk exposure analysis for which the Management seeks coverage.

 

On March 31, 2015 and 2014, the fair values related to transactions involving derivative financial instruments for hedging purposes or other purposes were measured at fair value through observable factors such as quoted prices in the active markets or discounted cash flows based on the curves market, which are presented below:

 

  Notional   Fair Value  
  2015   2014   2015   2014  
Exchange rate risk                
Foreign exchange forward (929,792 ) -   97,111   -  
Interest swap -   (813,891 ) -   23,595  
Futures contracts (203,520)   369,025   (723 ) (431 )
  (1,133,312 )

(444,866

) 96,388   23,164  
Interest rate risk                
Future interest 710,000   -   (408 )   -
Swap contracts -   (495,597 ) -   (773 )
  710,000  

(495,597

) (408 ) (773 )
                 
Total (423,312 ) (940,463 ) 95,980   22,391  
Total assets (current)         115,899  

23,888

 
                 
Total liabilities         (19,919 ) (1,497 )
                 
Current         (19,919 ) (724 )
Non-current         -   (773 )

61 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(c)Currency risk

 

The Company is exposed to currency risk to the extent that there is a mismatch between the currencies in which sales, purchases and borrowings are denominated and the respective functional currencies of Company. The functional currency of Company is the Real (BRL). The currency in which these transactions are primarily denominated is the US dollar. The Company uses derivatives to manage cash flow risk arising from US dollar-denominated export revenues, net of other foreign currency-denominated cash flows. The table below shows the outstanding derivatives positions as at March 31, 2015 and 2014 used to hedge against currency risk:

 

Price risk: Outstanding Exchange Derivatives in 2015  
Derivatives   Purchased/
Sold
  Market   Contract   Maturity  

Notional

(in thousands of US$)

 

Notional 

(in thousands of R$)

Fair Value 

(in thousands of R$)

 
                                 
Futures   Purchased   BMF&Bovespa   Commercial Dollar   April, 15   (135,750 ) (435.486 ) (1.933 )  
Futures   Sold   BMF&Bovespa   Commercial Dollar   April, 15   165,750   531.726   2.362    
Futures   Purchased   BMF&Bovespa   Commercial Dollar   May,15   126,559   406.000   2.303    
Futures   Sold   BMF&Bovespa   DDI   January, 16   (220,000 ) (705.760 ) (3.455 )  

Sub-total of Futures

          (63.441 ) (203.520 ) (723 )  
                                 
Forward   Purchased   OTC/Cetip   NDF   April, 15   (320,000 ) (929.792 ) 97.111    
                                 

Sub-total of interest of Forward

          (320.000 ) (929.792 ) 97,111    

Total of exchange rate

          (383.441 ) (1.133.312 ) 96,388    
                                     

Price risk: Outstanding Exchange Derivatives in 2014

 

 
Derivatives   Purchased/
Sold
  Market   Contract   Maturity

Notional 

(in thousands of US$)

Notional 

(in thousands of R$)

Fair Value 

(in thousands of R$)

 
                               
Futures   Sold   BM&FBovespa   Commercial Dollar   May, 2014   161,500   369,025   (431 )

Subtotal of Futures Sold

          161,500   369,025   (431 )
                               
Interest swap   Fixed Dollar/ CDI   BM&FBovespa   Commercial Dollar   April, 2014   (92,949 ) (210,344 ) 5,131  
Interest swap   Fixed Dollar/ CDI   BM&FBovespa   Commercial Dollar   May, 2014   (89,578 ) (202,715 ) 5,798  
Interest swap   Fixed Dollar/ CDI   BM&FBovespa   Commercial Dollar   June, 2014   (88,932 ) (201,252 ) 6,174  
Interest swap   Fixed Dollar/ CDI   BM&FBovespa   Commercial Dollar   July, 2014   (88,193 ) (199,580 ) 6,492  
                               

Subtotal of interest swap

          (359,652 ) (813,891 ) 23,595  

Total of exchange rate

 

          (198,152 ) (444,866 ) 23,164  

62 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

On March 31, 2015 and 2014, the Company and its subsidiaries presented the following net balance sheet exposure to US Dollar variance in assets and liabilities denominated in US Dollars:

 

   2015  2014
  

R$

 

US$

(in thousands) 

  R$ 

US$ 

(in thousands) 

             
Cash and equivalents (Note 3)   5,629    1,755    202,420    89,448 
Trade notes receivable - foreign (Note 5)   1,104    344    2,943    1,300 
Related parties (Note 9)   438,645    136,735    (384,351)   (169,841)
Loans and financing (Note 14)   (1,495,816)   (466,277)   (801,456)   (354,156)
Derivatives (Note 25)   95,980    29,919    22,391    9,894 
Others   (23,624)   (7,364)   (10,660)   (4,711)
                     
Foreign exchange exposure, net   (978,082)   (304,888)   (968,713)   (428,066)

 

(d)Interest rate risk

 

The Company monitors fluctuations in floating interest rates pegged to some debts and it makes use of derivatives to minimize these risks. The table below shows the outstanding derivative positions as at March 31, 2015 and 2014 used to hedge against the interest rate risk:

 

  Price risk: Outstanding interest rate derivatives in 2015    
  Derivatives   Assets / Liabilities   Market   Maturity   Notional (in thousands of US$)   Notional (in thousands of R$)   Fair Value (in thousands of R$)    
                               
  DI   Sold   BMF&Bovespa   Jan, 2016   (221,322 ) (710,000 ) (408 )  

 

Total interest – March 31, 2015 

          (221,322 ) (710,000 ) (408 )    
                                 
 

Price risk: Outstanding interest rate derivatives in 2014

 

 
  Derivatives   Assets / Liabilities   Market   Maturity   Notional (in thousands of US$)   Notional (in thousands of R$)   Fair Value (in thousands of R$)  
                             
  Interest swap   Swap Libor / Fixed   OTC   Dec, 2015   (219,000 ) (495,597 ) (773 )

 

Total interest – March 31, 2014 

          (219,000 ) (495,597 ) (773 )
                             

63 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(e)Credit risk

 

A significant portion of sales by the Company and its subsidiaries is to a selected group of best-in-class counterparts, i.e. trading companies, fuel distribution companies and large supermarket chains.

 

Credit risk is managed through specific rules of client acceptance, credit rating and setting of limits for customer exposure, including the requirement of a letter of credit from major banks and obtaining actual warranties on given credit, when applicable. Management believes that the risk of credit is substantially covered by the allowance for doubtful accounts.

 

The limits for individual risks are determined based on internal or external classifications according to the limits determined by the Company Management. The use of the credit limits is regularly monitored. No credit limits were exceeded during the period, and Management does not expect any losses from default by these counterparties in excess of the amount already provided.

 

The Company contracts currency swap derivatives with selected counterparties. Intercompany derivatives between Raízen Energia and Raízen Combustíveis were registered with Cetip through the intermediation of a brokerage company.

 

Guarantee margins – Derivative operations require an initial guarantee margin. Brokers with whom the Company operates on exchanges offer credit limits for these margins. On March 31, 2015, the total initial margin required is R$ 41,813 (R$ 14,823 in 2014) through Investment Fund Quotas in guarantee and R$ 15,500 (R$ 37,956 in 2014) in Bank Certificates of Deposit of prime banks (Note 4). The Company’s derivative transactions on the over-the-counter market do not require a guarantee margin.

 

The credit risk on cash and cash equivalents, bank deposits and investment funds (Note 3), is distributed among the main national and international banks rated by international risk rating agencies as investment grade.

 

(f)Liquidity risk

 

Liquidity risk is the risk of the Company facing difficulties to perform obligations associated with its financial liabilities that are settled with spot cash payments or with another financial asset. The approach of the Company in the management of liquidity is to assure, to the maximum extent, that it always has sufficient liquidity to perform its obligations as they mature, under normal and stressful conditions, without causing losses that are unacceptable or have the risk of being detrimental to the Group’s reputation.

 

The table below shows the financial liabilities by maturity:

 

    2015   2014  
   

Up to 1 year 

 

Up to 2 years 

  3 to 5 years   Over 5 years  

Total 

 

Total 

 
                           
Loans and financing (1)   (8,856 ) (2,818 ) (1,199,282 ) (414,109 ) (1,625,065 ) (896,212 )
Related parties (1)   (879,824 ) -   (339,497 ) (972,751 ) (2,192,072 ) (1,039,828 )
  (888,680 ) (2,818 ) (1,538,779 ) (1,386,860 ) (3,817,137 ) (1,936,040 )

(1) Undiscounted contractual cash flows.

 

64 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(g)Fair value

 

Fair value of financial assets and liabilities is represented by the amount for which an instrument could be exchanged in a current transaction between willing parties, and not by way of forced sale or settlement. The following methods and assumptions were used to estimate fair value.

 

The fair value of cash and cash equivalents, trade receivables, other financial assets, trade payables to suppliers, due to/from related parties, and other short-term payables approximates their book values mainly due to the short-term maturity of these instruments. The fair value of other long-term assets and liabilities do not significantly differ from their book value.

 

The fair value of loans and financing mainly approximates their book values since these financial instruments are subject to floating interest rates (Note 14). The fair value of tradable Senior Notes is based on price quotations at the financial statements date. As at March 31, 2015, the fair value of Senior Notes maturing in 2014 (Note 14) corresponded to 103.0% of its face value.

 

The Company contracts derivative financial instruments with different counterparties, including financial institutions with credit ranking from investment grade. The assessed derivatives using assessment techniques upon data taken from the market mainly refer to swaps of interest rates, forward exchange and commodities contracts. The assessment techniques often applied include pricing models for forward contracts and swaps, for which calculations are made upon the current amount. The models incorporate different data, including those referring to the credit quality of the counterparties, the exchange rates at sight and long-term, the interest rates and the long-term rates.

 

The financial instruments categories are presented as follows:

 

        Book value   Fair value  
    Classification   2015   2014   2015   2014  
Financial assets                      
Cash and cash equivalents, except Financial investments (Note 3)   Loans and receivables   90,831   488,901   90,831   488,901  
Financial investments (Note 3)   Fair value through profit or loss   142,112   77,705   142,112   77,705  
Restricted cash (Note 4)   Loans and receivables   57,313   52,779   57,313   52,779  
Trade accounts receivable (Note 5)   Loans and receivables   1,571,790   1,419,901   1,571,790   1,419,901  
Related parties (Note 9)   Loans and receivables   2,298,393   864,130   2,298,393   864,130  
Derivative financial instruments (Note 25.b)   Fair value through profit or loss   115,899   23,888   115,899   23,888  
        4,276,338   2,927,304   4,276,338   2,927,304  
Financial liabilities                      
Trade accounts payable (Note 13)   Amortized cost   (761,295 ) (776,224 ) (761,295 ) (776,224 )
Loans and financing (Note 14)   Amortized cost   (1,492,950 ) (815,208 ) (1,492,950 ) (839,228 )
Related parties (Note 9)   Amortized cost   (2,017,763 ) (1,171,090 ) (2,017,763 ) (1,171,090 )
Derivative financial instruments (Note 25.b)   Fair value through profit or loss   (19,919 ) (1,497 ) (19,919 ) (1,497 )
        (4,291,927 ) (2,764,019 ) (4,291,927 ) (2,788,039 )

65 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Fair Value Hierarchy

 

The Group uses the following hierarchy to determine and disclose the fair value of financial instruments using the valuation technique:

 

·Level 1 – quoted prices (not adjusted) in active markets for identical assets and liabilities;

 

·Level 2 – other techniques for which all inputs with significant effects on the fair value are observable, either directly or indirectly; and

 

·Level 3 – techniques that use inputs with significant effects on fair value not based on observable market input.

 

       
Assets and (liabilities) at fair value   Level 1   Level 2   Total  
March 31, 2015              
Cash and cash equivalents, except Financial investments (Note 3)   -   90,831   90,831  
Financial investments (Note 3)   -   142,112   142,112  
Restricted cash (Note 4)   -   57,313   57,313  
Trade accounts receivable (Note 5)   -   1,571,790   1,571,790  
Related parties (Note 9)   -   2,298,393   2,298,393  
Derivative financial assets (Note 25.b)   4,666   111,233   115,899  
Trade accounts payable (Note 13)   -   (761,295 ) (761,295 )
Loans and financing (Note 14)   -   (1,492,950 ) (1,492,950 )
Related parties (Note 9)   -   (2,017,763 ) (2,017,763 )
Derivative financial liabilities (Note 25.b)   (5,797 ) (14,122 ) (19,919 )

Total

  (1,131 ) (14,458 ) (15,589 )
       
Assets and (liabilities) at fair value   Level 1   Level 2   Total  
March 31, 2014              
Cash and cash equivalents, except Financial investments (Note 3)   -   488,901   488,901  
Financial investments (Note 3)   -   77,705   77,705  
Restricted cash (Note 4)   -   52,779   52,779  
Trade accounts receivable (Note 5)   -   1,419,901   1,419,901  
Related parties (Note 9)   -   864,130   864,130  
Derivative financial assets (Note 25.b)   294   23,594   23,888  
Trade accounts payable (Note 13)   -   (776,224 ) (776,224 )
Loans and financing (Note 14)   -   (839,228 ) (839,228 )
Related parties (Note 9)   -   (1,171,090 ) (1,171,090 )
Derivative financial liabilities (Note 25.b)   (724 ) (773 ) (1,497 )

Total 

  (430 ) 139,695   139,265  

 

On March 31, 2015 and 2014, there were no transfers beween the aforementioned levels to determine the fair value of financial instruments.

 

66 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

(h)Sensitivity analysis

 

Set out below is a sensitivity analysis of the fair value of financial instruments in accordance with the risk types considered relevant by the Company.

 

Assumptions for sensitivity analysis

 

For the sensitivity analysis, the Company adopted three scenarios, being one probable, and another two stressed scenarios that may affect the fair value of financial instruments of the Company. The probable scenario takes into account the future market of Dollar on March 31, 2015 and 2014 that determines the derivatives fair value on the specified date. The stressed scenarios were defined taking into consideration the adverse impacts of 25% and 50% on Dollar curves, which were considered as the basis for the probable scenario.

 

Sensitivity table

 

The sensitivity table of derivative variation of the Company in probable, possible and remote scenarios is presented below:

 

        Impacts on profit or loss 2015(*)  

Interest rate risk

 

  Risk Factor   Probable Scenario   Scenario +(25%)   Fair Value Balance   Scenario +(50%)   Fair Value Balance  
Exchange rate derivatives                          
Futures Contracts:                          
Sales commitments   Decrease in the exchange rate R$/US$   (723 ) 71,415   70,691   142,830   142,106  
Forward Contracts:                          
Sales commitments   Decrease in the exchange rate R$/US$   97,111   (111,904 ) (14,793 ) (223,808 ) (126,697 )
                           
        96,388   (40,489 ) 55,898   (80,978 ) 15,409  
                         
Interest rate derivatives                          
Futures Contracts:                          
Sales commitments   Decrease in the interest rate   (408 ) (11,670 ) (12,078 ) (23,340 ) (23,748 )
                           
        Impacts on profit or loss 2014(*)  

Interest rate risk

 

  Risk Factor   Probable Scenario   Scenario +(25%)   Fair Value Balance   Scenario +(50%)   Fair Value Balance  
Exchange rate derivatives                          
Futures Contracts:                          
Sales commitments   Decrease in the exchange rate R$/US$   (431 ) 92,256   91,826   184,512   184,082  
Exchange swap:                          
Sales commitments   Decrease in the exchange rate R$/US$   23,595   (212,371 ) (188,776 ) (424,742 ) (401,147 )
                           
        23,164   (120,115 ) (96,950 ) (240,230 ) (217,065  
                         
Interest rate derivatives                          
Interest swap:                          
Sales commitments   Decrease in the interest rate   (773 ) (1,675 ) (2,448 ) (3,350 ) (4,123 )
(*)Projected result in up to 12 months from March 31, 2015 and 2014.

 

67 of 72

RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

 

 

Set out below are the effects that would be generated by changes in risk variables to which the Company is exposed at the end of the year.

 

i)Net exposure to US dollar fluctuations

 

Based on the US dollar-denominated assets and liabilities as at March 31, 2015 and 2014, the Company simulation involves the appreciation and depreciation of exchange rates (R$/US$) by 25% and 50%. The probable scenario takes into consideration the Company’s projections for exchange rates on the maturity of transactions as follows:

 

    Exchange rate simulations (R$/US$)
    Scenarios
    Balance sheet date   +25%   +50%   -25%   -50%
                     
March 31, 2015   3,2080   4,0100   4,8120   2,4060   1,6040
March 31, 2014   2,2630   2,8288   3,3945   1,6973   1,1315

 

The probable scenario takes into consideration the position as at March 31, 2015. The effects of the stressed scenarios would be recorded in profit or loss as exchange variation gain (loss) as follows:

 

    Exchange variation effect    
                        Scenarios  
March 31, 2015       Balance sheet date   +25%   +50%   -25%   -50%  
                           
Cash and equivalents (Note 3)       5,629   1,407   2,815   (1,407 ) (2,815 )
Trade notes receivable - foreign (Note 5)       1,104   276   552   (276 ) (552 )
Related parties (Note 9)       438,645   109,661   219,323   (109,661)   (219,323 )
Loans and financing (Note 14)       (1,495,816 ) (373,954 ) (747,908 ) 373,954   747,908  
Others       (23,624 ) (5,906 ) (11,812 ) 5,906   11,812  

Impact on the results for the year

          (268,516 ) (537,030 ) 268,516   537,030  
                               
    Exchange variation effect    
                        Scenarios    
March 31, 2014       Balance sheet Date   +25%   +50%   -25%   -50%    
                             
Cash and equivalents (Note 3)       202,420   50,605   101,210   (50,605 ) (101,210 )  
Trade notes receivable - foreign (Note 5)       2,943   736   1,472   (736 ) (1,472 )  
Related parties (Note 9)       (384,351 ) (96,088 ) (192,176 ) 96,088   192,176    
Loans and financing (Note 14)       (801,456 ) (200,364 ) (400,728 ) 200,364   400,728    
Others       (10,660 ) (2,665 ) (5,330 ) 2,665   5,330    

Impact on the results for the year

          (247,776 ) (495,552 ) 247,776   495,552    
                                 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

ii)Changes in interest rates

 

The Company simulated the income from investments linked to the CDI rate involving an appreciation and depreciation by 25% and 50% as follows:

 

   2015
    Balance sheet date    Probable scenario    +25%    +50%    -25%   -50%
                               
Financial investments (Note 3)   142,112    15,567    19,459    23,351    11,675    7,784 
Loans and financing (Note 14)
   (1,277,496)   (22,360)   (27,950)   (33,540)   (16,770)   (11,180)
    
   2014
    Balance sheet date    Probable scenario    +25%    +50%    -25%   -50%
                               
Financial investments (Note 3)   77,705    6,779    8,474    10,169    5,084    3,390 
Loans and financing (Note 14)
   (14,904)   (1,120)   (1,400)   (1,681)   (840)   (560)

 

The other risk factors were considered irrelevant to the outcome of financial instrument.

 

(i)Capital management

 

The Company's goal, when managing its capital structure, is to ensure that it will continue as a going concern and be able to finance investment opportunities, by keeping a healthy credit profile and offering an appropriate return to its shareholders.

 

The Company has relationships with large local and international banks and financial institutions. Between May and August, 2014 Fitch Ratings, Moody’s and Standard and Poor’s rated the Company’s creditworthiness as AAA (bra), Aaa.br and brAAA respectively.

 

The Company’s leverage ratios as of March 31, 2015 and 2014 were as follows:

 

     
  2015   2014  
Third party capital        
Loans and borrowings (Note 14) 1,492,950   815,208  
Less: Cash and cash equivalents (Note 3) (232,943 ) (566,606 )
1,260,007   248,602  
Own capital        
Shareholders’ equity        
Attributable to owners of the Company 4,452,554   4,226,481  
Attributable to non-controlling interests 152,161   110,877  
 

4,604,715

 

  4,337,358  
         
Total capital 5,864,722   4,585,960  
         
Leverage ratio 21%   5%  

 

The increase in the leverage ratio was basically due to the decrease in cash and by financing funding in Schuldschein mode made during the year ended March 31, 2015. This increase is aligned with the Company’s strategy of maintaining the normal course of business, as well as maintaining adequate cash balances.

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

  

26.Supplementary retirement plan and other employee benefits

 

(a)Pension fund

 

Defined contribution

 

On June 1, 2011, the Company began sponsoring the Raiz Benefits Plan, administered by Raízprev – Entidade de Previdência Privada, which is a closed entity pension nonprofit.

 

The Company is endowed with administrative, financial and equity, having as object the administration and implementation of benefit plans from retirement payments, as defined in the Regulations of the benefit plans, with the sponsoring the following companies: Raízen Combustíveis S.A., Petróleo Sabbá S.A. and Raízen Mime Combustíveis S.A.

 

During the year ended March 31, 2015, the contribution amount recognized as an expense was R$ 5,250 (R$ 5,108 in 2014 and R$ 4,346 in 2013).

 

(b)Profit sharing

 

The Company recognizes a liability and an expense for profit sharing based on a methodology that takes into account previously set goals to employees. The Company recognizes a provision when it is contractually obliged or when there is a past practice that has created a constructive obligation.

 

27.Insurance

 

The Company has an insurance and risk management program that provides coverage and protection compatible with its assets and operations.

 

The insurance coverage is based on a strict risk and loss study conducted by local insurance advisors, and the insurance taken out is considered by management as sufficient to cover losses that may arise, based on the nature of the Company’s activities.

 

        March 31,2015  
Asset covered   Coverage   Insured Amount   Amount of coverage  
               
Inventories and property, plant and equipment   Fire, lightning, explosion, windstorm, breakdown of machinery, loss of profit and other  

2,925,771

 

 

464,840

 

 
National transport   Road risk and civil liability of cargo carrier  

9,000

 

 

9,000

 

 
General civil liability for directors and officers  

Third party complaints

 

 

-

 

 

1,940,000

 

 

Total

     

2,934,771

 

2,413,840 

 

 

The risk provisions adopted are not part of the scope of a financial statement audit. Consequently, they were not examined by Company’s independent auditors.

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

 

28.Internal reorganization and business combination

 

(i)Acquisition of Latina Distribuidora de Petróleo Ltda. (“Latina”)

 

On April 1, 2014, the Company acquired all of the common shares of Latina, a fuel distribution business in the southern region of Brazil, for R$ 178,336. The purpose of this acquisition is to expand the presence of the Shell brand and products and services in the three southern states, and improve the logistics efficiency of the Company’s distribution in the fuel stations, mainly in the interior of Rio Grande do Sul.

 

The fair value of assets acquired and liabilities assumed at the acquisition date of Latina was as follows:

 

Line items  Total
Accounts receivables   49,648 
Inventories   26,061 
Advances to suppliers   10,443 
Taxes and contributions receivable   1,729 
Judicial deposits   7,925 
Deferred tax liabilities (Note 16.c)   (16,926)
Other assets   41 
Property, plant and equipment (Note 11)   27,660 
Intangible assets (Note 12)   53,806 
Suppliers   (13,515)
Loans and financing   (22,994)
Provision for legal proceedings (Note 18)   (10,649)
Wages and salaries payable   (1,103)
Income tax payable   (1,481)
Other liabilities   (3,333)
      
Net assets contributed   107,312 
      
Consideration transferred, net of cash received   177,744 
      
Goodwill (Note 12)   70,432 

 

The fair value of the assets acquired and liabilities assumed is categorized primarily within level 3.

 

At a meeting of members held on the same date of the acquisition, the merger of Latina with the Company was approved.

 

(ii)Internal corporate - real estate investment activity

 

On November 18, 2014, Saturno Investimentos Imobiliários Ltda (“Saturno”) was created through a cash contributions made by the Company and Sampras, a Company’s subsidiary, in the amounts of R$ 999 and R$ 1.00, respectively, paid up on December 23, 2014.

 

On December 30, 2014, the Saturno received an additional capital contribution in the amount of R$ 161,067. The capital contribution made by the Company comprised certain properties and are measured at the book value.

 

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RAÍZEN COMBUSTÍVEIS S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013

 

(In thousands of Brazilian Reais, unless otherwise indicated) 

Such corporate restructuring impacted the consolidated financial statements based on the partial reversal of deferred taxes liability over the fair value on assets contributed in the amount of R$ 24,502, as a result of the change in tax regime (i.e. Saturno is taxed based on presumed profit and therefore the related deferred tax liability should be reversed).

 

29.Subsequent events

 

Fire in the Terminal de Líquidos de Santos

 

The fire occurred on April 2, 2015 in the Terminal Intermodal de Santos (TIS), a company operated by Ultracargo – Operações Logísticas a Participações Ltda. (“Ultracargo”), affected products of Raízen Combustíveis S.A. (and its subsidiaries) that were stored there. Initial estimates assume that the impact of such products does not represent material financial value in the context of the consolidated financial statements of Raízen Combustíveis S.A.. The contractual relationship between Raízen Combustíves S.A. (and its subsidiaries) and Ultracargo covers risks they may be exposed. The causes and accident damage are under investigation.

 

72 of 72

 

 

 

 

 

 

Raízen Energia S.A.

 

 
 

RAÍZEN ENERGIA S.A.

 

Financial Statements as at March 31, 2015

 

Table of contents

 

Independent auditor’s report 2
Consolidated balance sheet 4
Consolidated statement of income 6
Consolidated statement of comprehensive income 7
Consolidated statement of changes in shareholders’ equity 8
Consolidated statement of cash flows 11
Notes to consolidated financial statements 12

 

 

 

 

 

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Independent Auditor's Report

 

To the Board of Directors and Shareholders

Raízen Energia S.A.

 

We have audited the accompanying consolidated financial statements of Raízen Energia S.A. and its subsidiaries, which comprise the consolidated balance sheets as of March 31, 2015 and March 31, 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2015.

 

Management's Responsibility for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor's Responsibility

 

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

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Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Raízen Energia S.A. and its subsidiaries at March 31, 2015 and March 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2015, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Campinas, Brazil

 

June 22, 2015

 

/s/ PricewaterhouseCoopers

 

PricewaterhouseCoopers

Auditores Independentes

 

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RAÍZEN ENERGIA S.A.

 

Consolidated balance sheet at March 31

(In thousands of Brazilian Reais)

 

 

 

  Note   2015   2014
Assets          
Current assets          
Cash and cash equivalents 3   3,795,287   1,771,015
Restricted cash 4   131,311   251,803
Derivative financial instruments 27   759,306   200,588
Trade accounts receivable, net 5   331,638   356,004
Other financial assets 9   12,931   13,267
Inventories 7   354,862   448,694
Recoverable income tax and social contributions 18.a.1   36,859   359,893
Recoverable taxes 6   157,304   145,903
Advances to suppliers 8   206,004   209,251
Related parties 10   767,894   192,574
Other receivables     52,328   57,529
    6,605,724   4,006,521
           
Non-current assets          
Derivative financial instruments 27   315,279   1,109
Other financial assets 9   968,420   890,680
Recoverable income tax and social contributions 18 a.1   508,360   -
Recoverable taxes 6   32,184   26,199
Advances to suppliers 8   55,172   21,841
Related parties 10   1,429,358   1,371,257
Deferred income tax and social contributions 18.b   299,314   256,611
Judicial deposits 19   205,797   282,416
Other receivables     46,892   30,884
Investments in associates and joint ventures 11   210,586   162,266
Biological assets 12   1,959,859   2,036,693
Property, plant and equipment 13   7,615,059   7,250,609
Intangibles 14   1,494,333   1,535,137
    15,140,613   13,865,702

Total assets 

    21,746,337   17,872,223

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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RAÍZEN ENERGIA S.A.

 

Consolidated balance sheet at March 31

(In thousands of Brazilian Reais)

(continued)

 

  Note   2015   2014
Liabilities and shareholders’ equity          
Current liabilities          
Short-term debt and current portion of long-term debt 16   1,377,898   1,122,633
Derivative financial instruments 27   224,078   166,175
Trade accounts payable 15   568,296   637,863
Payroll and related charges     321,116   292,468
Income tax and social contributions payable 18 a.2   8,862   760
Taxes payable 17   99,537   156,572
Dividends payable 21.b   51,066   78,672
Related parties 10   226,854   127,370
Other liabilities     194,867   111,070
    3,072,574   2,693,583
Non-current liabilities          
Long-term debt 16   9,047,745   6,510,886
Derivative financial instruments 27   56,231   12,105
Taxes payable 17   169,116   667,374
Related parties 10   2,194,965   897,025
Provision for tax, civil and labor risks 19   244,480   343,274
Provision for unsecured liabilities of investments in associates 11   2,653   2,642
Deferred income tax and social contributions 18.b   76,914   21,394
Other liabilities     106,450   79,431
    11,898,554   8,534,131

Total liabilities 

    14,971,128   11,227,714
           
Shareholders’ equity          
           
Capital 21.a   4,923,054   4,752,078
Capital reserves 21.a   1,092,538   1,253,919
Other comprehensive income 21.c   15,248   (10,669)
Retained earnings 21.d e 21.e   744,369   649,181

Equity attributable to controlling shareholders

    6,775,209   6,644,509
Total shareholders’ equity     6,775,209   6,644,509

Total liabilities and shareholders’ equity

    21,746,337   17,872,223

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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RAÍZEN ENERGIA S.A.

 

Consolidated statement of income

Year ended March 31

(In thousands of Brazilian Reais, except for earnings per share which is presented in R$)

 

 

 

   Note  2015  

2014 

  

2013 

 
                
Continuing operations               
Net sales  22   9,739,137    9,455,221    8,468,238 
Cost of sales  24   (8,064,341)   (7,542,579)   (6,698,108)

Gross profit 

      1,674,796    1,912,642    1,770,130 
                   
Operating income (expenses)                  
Selling expenses  24   (564,863)   (637,316)   (605,164)
General and administrative expenses  24   (487,493)   (539,857)   (490,246)
Other operating income, net  25   71,340    60,412    47,843 
Share of losses of equity-accounted investees  11   (33,938)   (34,435)   (23,107)
       (1,014,954)   (1,151,196)   (1,070,674)

Operating income 

      659,842    761,446    699,456 
                   
Financial expense  26   (655,939)   (465,547)   (423,998)
Financial income  26   467,777    252,195    185,572 
Foreign exchange losses, net  26   (1,042,138)   (292,073)   (27,519)
Derivatives, net  26   518,065    (67,506)   (55,662)
       (712,235)   (572,931)   (321,607)
                   
Income before taxes      (52,393)   188,515    377,849 
                   
Current taxes  18.a   (61,184)   (29,070)   (104,404)
Deferred taxes  18.a   224,576    (18,562)   82,299 
       163,392    (47,632)   (22,105)

Net income 

      110,999    140,883    355,744 
                   
Attributable to:                  
Controlling shareholders      110,999    140,883    354,710 
Non-controlling shareholders      —      —      1,034 
       110,999    140,883    355,744 
                   

Earnings per share – basic and diluted

  21.f   0.02    0.02    0.05 
                   
                 

The accompanying notes are an integral part of these consolidated financial statements.

 

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RAÍZEN ENERGIA S.A.

 

Consolidated statement of comprehensive income

Years ended March 31

(In thousands of Brazilian Reais)

 

 

   2015   2014   2013 
             
Net income   110,999    140,883    355,744 
                
Other comprehensive income               
Gain (loss) on cash flow hedges (Note 27.e)   51,965    (168,292)   108,169 
Currency translation differences   535    1,082    16,086 
Deferred taxes (Note 18.c)   (17,681)   57,221    (36,778))

Other comprehensive income, net, which may be reclassified to income in subsequent periods 

   34,819    (109,989)   87,477 
                
Actuarial losses on pension and post-employment plans   (13,405)   (89)   —   

Taxes on unrealized gains losses on pension post-employment plans (Note 18.c)

   4,503    30    —   
                
Other comprehensive income, net, which will not impact income in subsequent periods   (8,902)   (59)   —   
                
Total comprehensive income   136,916    30,835    443,221 
                
Attributable to:               
Controlling shareholders   136,916    30,835    442,187 
Non-controlling shareholders   —      —      1,034 
    136,916    30,835    443,221 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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RAÍZEN ENERGIA S.A.

 

Consolidated statement of changes in shareholders’ equity

Years ended March 31

(In thousands of Brazilian Reais)

 

 

   Attributable to controlling shareholders      
      Capital reserves     Retained earnings            
   Capital stock 

Capital reserve

 

Special reserve for goodwill

 

Other comprehensive income

 

Legal 

Reserve

  Profit retention  Accumulated profits (loss) 

Total

  Attributable to
non-controlling shareholders
 

Total

shareholders' equity

Balance on March 31, 2012   5,331,456    350,389    -    41,136    20,802    197,618    -    5,941,401    16,893    5,958,294 
Contributions from (distributions to) the shareholders of the company                                                  
Capital increase on November 29, 2012 (Note 21.a)  REPSA   22,119    -    -    -    -    -    -    22,119    -    22,119 
Capital increase on November 29, 2012 (Note 21.a)  REPSA   181,417   817,418    -    -    -    -    -    998,835    -    998,835 
Effect of reverse merger of REPSA by RESA (Notes 1 and 21.a)   (928,509)   (135,824)   -    (29,234)   10,917    322,563    (238,748)   (998,835)   -    (998,835)
Capital Increase on February 28, 2013 (Note 21.a) – RESA   7,927    -    -    -    -    -    -    7,927    -    7,927 
Redemption of class B preferred shares (Note 21.a)   66,877    -    -    -    -    -    (66,877)   -    -    - 
Constitution of deferred taxes on goodwill (Note 18 and 21.a)   -    -    241,107    -    -    -    -    241,107    -    241,107 
Reflected effect from operations of subsidiaries   -    1,929    -    -    -    -    -    1,929    -    1,929 
Constitution of the legal reserve (Note 21.a)   -    -    -    -    5,798    -    (5,798)   -    -    - 
Mandatory minimum dividends (Note 21.b)   -    -    -    -    -    -    (1,102)   (1,102)   -    (1,102)
Constitution of reserves   -    -    -    -    -    42,185    (42,185)   -    -    - 
    (650,169)   683,523    241,107    (29,234)   16,715    364,748    (354,710)   271,980    -    271,980 
Comprehensive income:                                                  
Net income   -    -    -    -    -    -    354,710    354,710    1,034    355,744 
Gain (loss) on cash flow hedge   -    -    -    71,391    -    -    -    71,391    -    71,391 
Accumulated foreign currency translation adjustments   -    -    -    16,086    -    -    -    16,086    -    16,086 
    -    -    -    87,477    -    -    354,710    442,187    1,034    443,221 
Balance on March 31, 2013   4,681,287    1,033,912    241,107    99,379    37,517    562,366    -    6,655,568    17,927    6,673,495 
                                                   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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RAÍZEN ENERGIA S.A.

 

Consolidated statement of changes in shareholders’ equity

Years ended March 31

(in thousands of Reais)

 

 

   Attributable to controlling shareholders      
  

Capital Reserves

     Retained earnings            
   Capital
stock
 

Capital reserve

 

Special reserve for goodwill

 

Other comprehensive income

  Tax incentive reserve  Legal  Profit retention  Accumulated profits (loss) 

Total

  Attributable to non-controlling shareholders 

Total

shareholders' equity

Balance on March 31, 2013

   4,681,287    1,033,912    241,107    99,379    -    37,517    562,366    -    6,655,568    17,927    6,673,495 
Contributions from (distributions to) shareholders of the Company                                                       
Capital increase (Note 21.a)   8,427    -    -    -    -    -    -    -    8,427    -    8,427 

Supplemental amount paid in the acquisition of subsidiary (Notes 11.e and 21.a)

   -    (5,973)   -    -    -    -    -    -    (5,973)   -    (5,973
Reduction due to acquisition of subsidiary (Notes 11.a and  21.a )   -    -    -    -    -    -    -    -    -    (17,927)   (17,927

Supplemental dividends payable to holders of preferred shares (Notes 10 and 21.a) 

   6,916    -    -    -    -    -    (6,916)   -    -    -    - 
Accumulated foreign currency translation adjustments   -    (20,168)   -    -    -    -    -    -    (20,168)   -    (20,168
Redemption of class B preferred shares (Note 21.a and b)   55,448    3,743    -    -    -    -    -    (43,636)   15,555    -    15,555 
Allocation to tax incentive reserve (Note 21.e)   -    -    -    -    30,256    -    (16,221)   (14,035)   -    -    - 
Cumulative translation adjustment related to subsidiaries   -    1,301    -    -    -    -    -    -    1,301    -    1,301 
Interest on capital (Note 21.b)   -    -    -    -    -    -    -    (40,000)   (40,000)   -    (40,000
Constitution of the legal reserve (Note 21.d)   -    -    -    -    -    7,044    -    (7,044)   -    -    - 
Mandatory minimum dividends (Note 21.b)   -    -    -    -    -    -    -    (1,036)   (1,036)   -    (1,036
Constitution of reserves (Note 21.e)   -    -    -    -    -    -    35,132    (35,132)   -    -    - 
    70,791    (21,097)   -    -    30,256    7,044    11,995    (140,883)   (41,894)   (17,927)   (59,821
Comprehensive income:                                                       
Net profit   -    -    -    -    -    -    -    140,883    140,883    -    140,883 
Gain (loss) on cash flow hedge (Note 27)   -    -    -    (111,071)   -    -    -    -    (111,071)   -    (111,071
Accumulated foreign currency translation adjustments   -    -    -    1,082    -    -    -    -    1,082    -    1,082 
Actuarial gains (losses) on post-employment benefit plans   -    -    -    (59)   -    -    -    -    (59)   -    (59
    -    -    -    (110,048)   -    -    -    140,883    30,835    -    30,835 
Reserve transfers   -    (3)   -    -    -    -    3    -    -    -    - 
Balance on March 31, 2014   4,752,078    1,012,812    241,107    (10,669)   30,256    44,561    574,364    -    6,644,509    -    6,644,509 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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RAÍZEN ENERGIA S.A.

 

Consolidated statement of changes in shareholders’ equity

Years ended March 31

(in thousands of Reais)

 

 

            Attributable to controlling shareholders   
   Capital Reserves     Retained earnings         
   Capital stock  Capital reserve  Special reserve for goodwill  Other comprehensive income  Tax incentive reserve  Legal  Profit retention  Accumulated profits (loss)  Total  Total shareholders' equity
                               
Balance on March 31, 2014   4,752,078    1,012,812    241,107    (10,669)   30,256    44,561    574,364    -    6,644,509    6,644,509 
                                                   
Contributions from (distributions to) shareholders of the Company                                                  
Redeem of preference shares                                                  
Redemption of class B preferred shares   155,755    (164,377)   -    -    -    -    1,255    -    (7,367)   (7,367)
Effect of the reverse merger of Curupay   -    -    2,004    -    -    -    -    -    2,004    2,004 
Effect from affiliates   -    992    -    -    -    -    -    -    992    992 
Constitution of the legal reserve (Note 21.a)   -    -    -    -    -    5,550    -    (5,550)   -    - 
Dividends to shareholders of class B and D preferred shares   15,221    -    -    -    -    -    -    (16,012)   (791)   (791)
Mandatory minimum dividends (Note 21.b)   -    -    -    -    -    -    -    (1,054)   (1,054)   (1,054)
Constitution of reserves (Note 21.e)   -    -    -    -    -    -    88,383    (88,383)   -    - 
    170,976    (163,385)   2,004    -    -    5,550    89,638    (110,999)   (6,216)   (6,216)
                                                   
Comprehensive income:                                                  
Net profit   -    -    -    -    -    -    -    110,999    110,999    110,999 
Gain (loss) on cash flow hedge (Note 27)   -    -    -    34,284    -    -    -    -    34,284    34,284 
Accumulated foreign currency translation adjustments   -    -    -    535    -    -    -    -    535    535 
Actuarial gains (losses) on post-employment benefit plans   -    -    -    (8,902)   -    -    -    -    (8,902)   (8,902)
    -    -    -    25,917    -    -    -    110,999    136,916    136,916 
Balance on March 31, 2015   4,923,054    849,427    243,111    15,248    30,256    50,111    664,002    -    6,775,209    6,775,209 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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RAÍZEN ENERGIA S.A.

 

Consolidated statement of cash flows

Years ended March 31

(in thousands of Reais)

 

 

  2015   2014   2013  
Cash flows from operating activities            
Income before taxes (52,393)   188,515   377,849  
Adjustments to reconcile net income to net cash from operating activities:            
Depreciation and amortization 1,908,125   1,709,935   1,706,819  
Change in fair value of biological assets 32,697   64,918   225,021  
Change in fair value of sugarcane harvested (agricultural products) (1,314 ) 8,443   2,725  
Share of loss in equity-accounted investees 33,938   34,435   23,107  
Gain on capital dilution of equity interest (30,333 ) -   -  
Interest, indexation and exchange variation, net 1,654,689   655,018   341,643  
Losses from sale of property, plant and equipment (10,868 ) (33,813 ) (3,459 )
Impairment of  technology contracts 55,060   6,959   -  
Grant revenue for investments – ICMS (59,557 ) (32,090 ) -  
Provision for tax, civil and labor risks, net 16,013   25,197   3,502  
Gain on sale of shares (40,366 ) -   -  
(Gains) losses from derivatives financial instruments (317,470 ) (40,770 ) 1,399  
Impairment on property, plant and equipment and intangible assets 9,027   (5,792 ) -  
Others 5,524   340   4,069  
             
Changes in operating assets and liabilities:            
Trade accounts receivable and advances from customers (including related parties) 152,557   (16,691 ) 95,231  
Inventories 128,505   (147,487 ) 71,201  
Restricted cash 121,249   (125,085 ) 40,316  
Derivative financial instruments (40,768 ) (1,399 ) (12,247 )
Others financial assets 48,910   (1 ) -  
Judicial deposits (48,366 ) (41,257 ) (19,406 )
Trade accounts payable and advances to suppliers (including related parties) (126,723 ) 174,016   35,196  
Taxes and contributions, net (83,506 ) (85,141 ) (119,294 )
Payroll and related charges 28,647   9,671   73,097  
Others, net (18,930 ) (26,195 ) 37,015  
Income tax and social contributions paid (43,165 ) (10,758 ) (13,658 )
             
Net cash provided by operating activities 3,321,182   2,310,578   2,870,126  
             
Investing activities:            
Capital contributions to associates (58,964 ) (57,131 ) (80,340 )
Acquisitions, net of acquired cash -   (48,903 ) (108,434 )
Addition to property, plant and equipment, software and other intangible assets (1,389,802 ) (1,505,115 ) (1,403,383 )
Cash from sale of property, plant and equipment 14,223   53,648   16,251  
Sugarcane planting and cultivation costs (851,411 ) (838,647 ) (922,029 )
Net cash used in investing activities (2,285,954 ) (2,396,148 ) (2,497,935 )
             
Financing activities            
Paid in capital  contribution from shareholders 8,427   -   -  
Proceeds from debt issuance 4,593,149   2,398,715   1,342,906  
Proceeds from issue of debentures, net of transaction costs -   747,710   -  
Payment of principal of loans and financing (3,518,466 ) (1,959,671 ) (1,542,035 )
Interest paid of loans and financing (481,446 ) (314,643 ) (294,344 )
Financial investments related to financing (restricted cash) 22,046   3,155   (1,451 )
Prepaid dividends (43,417 ) (66,022 ) (8,873 )
Related parties 408,751   (712,160 ) 689,692  
Others -   -   932  
Net cash provided by financing activities 989,044   97,084   186,827  
Net increase in cash and cash equivalents 2,024,272   11,514  

559,018

 
At beginning of year 1,771,015   1,759,501   1,200,483  
At end of year 3,795,287   1,771,015   1,759,501  
             
Supplementary information:            
Investments and financing transactions which do not involve cash            
Depreciation of costs capitalized to biological assets 75,222   67,339   72,803  
Financed purchase of property, plant equipment and other additions -   -   (11,905 )
Amounts capitalized on qualified assets (Notes 13 and 26) 30,951   44,296   41,940  
Present value adjustment in property, plant and equipment 3,286   2,010   9,476  
Capital increase made by Cosan and Shell through contribution of assets -   -   998,835  
Capital payable (Notes 10 and 21.a) -   8,427   7,927  
Financed acquisition of TEAS shares (Note 11.a) -   -   (23,900 )
Renewal of Term Loan Agreement (Note 16) -   -   907,017  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

11  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

1.Operations

 

Raízen Energia S.A. (the “Company”, “Raízen Energia” or “RESA”) is a private limited liability company with its headquarters in the city and state of São Paulo, Brazil. The Company is controlled indirectly by Royal Dutch Shell (“Shell”) and Cosan S.A. Indústria e Comércio (“Cosan”) and was incorporated on June 1, 2011. Until November 30, 2012, the Company was a direct subsidiary of Raízen Energia Participações S.A. (“REPSA”). On November 30, 2012, REPSA was subject to a reverse takeover by RESA.

 

Raízen is a joint venture between Shell and Cosan and operates in the ethanol, sugar and energy segment.

 

On October 21, 2013, the Company was registered with the Brazilian Securities Commission (“CVM”), as a private limited liability company, Category B, and was authorized to offer its own securities in regulated securities markets, with the exception of shares, share deposit certificates or securities conferring the right to acquire such securities upon conversion or the exercise of their inherent rights (Note 16).

 

The principal business activity of RESA is the production and domestic and international trading of sugar and ethanol, through its controlled companies Raízen Trading LLP and Raízen International Universal Corporation, and the cogeneration of energy produced from sugarcane bagasse in its 24 plants, which are located in the south central region of Brazil.

 

On January 15, 2015, the Company announced that the industrial activities of the Bom Retiro plant, located in Capivari (SP) would be suspended for two years due to the low availability of sugar cane in the region – there was an acute shortage of sugar cane due to drought. The hibernation of these industrial activities is intended to optimize the production of the other Raízen Energia plants in that area: the raw materials previously allocated to the Bom Retiro unit have been redirected to them. The agricultural operation of Raízen’s sugar cane providers in the region will not be impacted, and nor will RESA’s planned production. Also, no adjustment for impairment was required due to this temporary hibernation of the plant.

 

It takes from 12 to 18 months for the sugarcane crop to be ready for harvest. The harvest generally begins in April or May each year and ends in November or December, at which time sugar and ethanol is produced. The product is sold throughout the year, with no seasonal variations, subject to normal market variations in supply and demand. Due to its production cycle, the Company's fiscal year begins on April 1 and ends on March 31 of each year.

 

During the year ended March 31, 2015, the Company and its subsidiaries have undergone a corporate restructuring, which resulted in the formation of 11 new thermoelectric companies ("UTE's"). The Company and its subsidiaries subsidiaries increased the capital of 10 of these new companies by transferring to them net assets relating to cogeneration activities. The updated consolidation base of the Company and details of corporate restructuring are discussed in Notes 2.2 and 11, respectively.

 

The consolidated financial statements were approved by the Company's Board of Directors on June 22, 2015.

 

12  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

2.Significant accounting policies

 

2.1Basis of preparation

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”)

 

a)Measurement basis

 

The consolidated financial statements were prepared using the historical cost basis, except for the determination of assets and liabilities such as financial instruments (including derivatives) and biological assets, which are measured at fair value.

 

b)Functional currency and presentation currency

 

The consolidated financial statements are presented in Brazilian Reais. The Brazilian Real is the functional currency of RESA. and its subsidiaries located in Brazil, as it is the currency of the primary economic environment in which they operate, generate and expend cash. The functional currency for the subsidiaries located outside Brazil is the U.S. dollar.

 

c)Judgments, estimates and significant accounting assumptions

 

In preparing these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recognized prospectively.

 

If there is a significant change in the facts or circumstances on which the estimates and assumptions used are based, this may have a material impact on the Company’s results and financial condition.

 

The significant accounting estimates and assumptions are as follow:

 

Income tax, social contributions and other taxes payable

 

The Company is subject to income tax in all countries in which it operates. Significant judgment is required in determining the provision for income taxes in these various countries.

 

For many operations, the final tax determination is uncertain. The Company also recognizes provisions to cover certain situations where it is likely that additional taxes are owed. When the final outcome of these matters differs from the initially estimated and recorded values, these differences affect current and deferred tax assets or liabilities in the period in which the determination is made.

 

Tax incentive – ICMS

 

The Company has tax incentive program in specific States, which relates to the financing of part of the ICMS payments. The utilization of this tax incentive by the Company is subject to compliance with all obligations estabilished by the government and the conditions are under control by the Company.
 
The tax incentive benefits are recorded as other operating income, see Note 25.

 

13  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

Deferred income tax and social contributions

 

Income tax and deferred social contributions are recognized for all unused tax losses, to the extent that it is probable that taxable income will be available to allow the use of these tax losses. Significant management judgment is required to determine the value of the income tax and deferred social contributions that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

 

The taxes on income deferred assets and liabilities are presented net in the balance sheet only when there is a legal right and an intention to offset them upon the calculation of current taxes, usually related to the same legal entity and the same taxation authority. For details about deferred taxes see Note 18.

 

Biological assets

 

Biological assets are measured at fair value as at the date of each balance sheet, and the effects of changes in fair value from year to year are allocated directly to the cost of products sold. For more details on the premises applied, see Note 12.

 

The fair value of the agricultural products are measured through the review of the average production cost of the harvested sugarcane in relation to its market value.

 

Property, plant and equipment and intangible assets, including goodwill

 

The accounting treatment of the fixed assets and intangible assets includes the use of estimates to determine the useful life period for the purposes of their depreciation and amortization, in addition to their fair value at the acquisition date, in particular for assets acquired in business combinations.

 

The Company annually reviews the existence of indicators of impairment on property, plant and equipment and intangible assets.

 

The determination of the recoverable amount of the cash-generating unit to which goodwill has been allocated also includes the use of assumptions and estimates, and requires a significant degree of judgment.

 

Provision for tax, civil, labor and environmental claims

 

The Company and its subsidiaries recognized a provision for probable losses for tax, civil, labor and environmental risks. The assessment of probability of loss includes assessing the available evidence, the hierarchy of laws, available case law, recent court decisions and their relevance in the legal system, as well as the evaluation made by outside counsel. These provisions are reviewed and adjusted to take into account changes in circumstances, such as applicable statutes of limitation, conclusions of tax audits or additional exposures identified based on new matters or court decisions.

 

Fair value of financial instruments

 

When the fair value of the financial assets and liabilities presented in the balance sheet cannot be obtained in active markets, it is determined using valuation techniques, including the discounted cash flow method. The data for these methods are based on market conditions, when this is possible. However, where this is not feasible, a certain level of judgment is required to determine the fair value. The judgment includes consideration of the data used—for example, liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. For more details about the financial instruments see Note 27.

 

14  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

2.2Basis of consolidation

 

The consolidated financial statements include the financial statements of Raízen Energia and its subsidiaries for the years ended March 31, 2015 and 2014. The subsidiaries are listed below:

 

    Direct and indirect interests
    03.31.2015   03. 31.2014
Agrícola Ponte Alta Ltda.   100.00%   100.00%
Agropecuária Santa Hermínia Ltda.   100.00%   100.00%
América Trading Investments   100.00%   100.00%
Benálcool Açúcar e Álcool Ltda.   100.00%   100.00%
Bioenergia Araraquara Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Barra Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Caarapó Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Costa Pinto Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Gasa Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Jataí Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Maracaí Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Rafard Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Serra Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Tarumã Ltda. (Notes 1 e 11)   100.00%   -
Bioenergia Univalem Ltda. (Notes 1 e 11)   100.00%   -
Raízen Centroeste Açúcar e Álcool Ltda. (2)   100.00%   100.00%
Curupay Agroenergia Ltda.(1)   -   100.00%
Houghton Venture Capital Ltd.   100.00%   100.00%
Raízen Araraquara Açúcar e Álcool Ltda.   100.00%   100.00%
Raízen Ásia PT Ltd.   100.00%   100.00%
Raízen Biotecnologia S.A.   100.00%   100.00%
Raízen Caarapó Açúcar e Álcool Ltda.   100.00%   100.00%
Raízen Cayman Limited   100.00%   100.00%
Raízen Energy Finance Ltd.   100.00%   100.00%
Raízen International Universal Corp.   100.00%   100.00%
Raízen North América, Inc.   100.00%   100.00%
Raízen Paraguaçú Ltda.   100.00%   100.00%
Raízen Tarumã Ltda.   100.00%   100.00%
Raízen Trading LLP   100.00%   100.00%
TEAS Terminal Exportador de Álcool de Santos Ltda.   100.00%   100.00%
               
(1)Company incorporated by TEAS, on October 30, 2014.

 

(2)Previously denominated “Cosan Centroeste Açúcar e Álcool Ltda.”

 

The subsidiaries are fully consolidated as from the date that control commences, and they continue to be consolidated until the date that control ceases. The financial statements of the subsidiaries are prepared for the same disclosure period as that applied by the Company, using consistent accounting policies. The balances kept among consolidated companies, revenues, expenses and unrealized gains and losses from transactions among consolidated companies are fully eliminated.

 

A change in the participation in a subsidiary that does not result in a loss of control is booked as a transaction between shareholders in shareholders’ equity.

 

The Company uses the acquisition method to record business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the transferred assets, incurred liabilities and equity instruments issued by the Group. The transferred consideration includes the fair value of assets and liabilities derived from the contingent consideration agreement, when applicable. Costs related to acquisition are recorded in the income statements as incurred. The identifiable assets acquired and the liabilities and contingent liabilities assumed in a combination of businesses are measured initially at their fair values on the date of the acquisition. The Company recognizes a non-controlling interest in the acquired entity by its fair value and the proportionate portion of the participation of the non-controlling interest in the fair value of the net assets of the acquired entity. The measurement of non-controlling interest is assessed for each acquisition.

 

15  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The excess of the transferred consideration and of the fair value on the date of acquisition of any previous equity participation in the acquired entity, in relation to the fair value of the participation of the Company of identifiable net assets acquired, is recorded as goodwill. When applicable, in an acquisition to which the Group attributes fair value to non-controlled shareholders, the assessment of goodwill also includes the value of non-controlled interest in the acquired entity, and the goodwill is assessed considering the Group’s interest and non-controlling interests. When the transferred consideration is less than the fair value of the net assets of the controlled subsidiary acquired, the difference is recognized directly in the statement of income for the fiscal year.

 

Adjustments are made, when necessary, to bring accounting policies into line with those adopted by the Company.

 

2.3Summary of the significant accounting practices

 

The accounting practices described below have been applied consistently in the years presented in the consolidated financial statements.

 

a)Revenue recognition

 

Revenues derived from the sale of products and goods, including resale of products in the external market made by subsidiaries of Raízen Trading LLP and Raízen International Universal Corporation, are recognized when the entity transfers to the buyer significant risks and benefits inherent to the ownership of products and goods, and when it is probable that economic benefits will be generated by the transaction in favor of the Company. The sale prices are fixed based on sales orders or agreements. Goods or services for which revenue is deferred are recorded under other obligations, and are recorded as revenue from delivery of goods or services rendered.

 

Revenue from the sale of power generation is recorded based on the guaranteed energy and tariffs specified in the terms of supply agreements or the prevailing market price, as applicable. Electric power energy produced and sold through auction is initially recorded as deferred revenue, and is recognized in the statement of income when it is available for the use of customers.

 

The revenue is presented net of taxes (Federal Excise Tax on Manufactured Goods (“IPI”), Tax on the Circulation of Goods and Services (“ICMS”), Employees’ Profit Participation Program (“PIS”), Tax for Social Security Financing (“COFINS”), National Social Security Institute (“INSS”) and others), and net of returns, abatements and discounts, as well as elimination of sales among companies in the Group.

 

b)Transactions in foreign currency

 

Transactions in foreign currency are initially recognized by Company entities at the functional currency rate on the transaction date, or on the valuation dates, when the items are revalued.

 

Monetary assets and liabilities denominated in foreign currency are converted into Brazilian currency using the exchange rate on the date of the respective balance sheets, and exchange gains or losses resulting from the settlement of these transactions and conversion at the exchange rates at the end of the year are recognized in the statement of income, under financial income, except when classified as hedge accounting, when they are deferred in shareholders’ equity.

 

16  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Non-monetary items measured by historic cost in foreign currency are converted at the conversion rate on the initial date of the transaction. Non-monetary items measured at their fair value in foreign currency are translated using the exchange rates in effect on the date on which the fair value is determined.

 

c)Financial instruments - initial recognition and subsequent measurement

 

(i) Financial assets

 

Initial recognition and measurement

 

Financial assets are classified in the following categories: measured at fair value through statement of income, held to maturity, available for sale, loans and receivables. The Company determines the classification of its financial assets at initial recognition.

 

Financial assets are initially recognized at fair value plus, in the case of investments not designated as being at fair value through income, the transaction costs directly attributable to the acquisition of the financial assets.

 

Financial assets include cash and cash equivalents, restricted cash, trade accounts receivable, derivative financial instruments, related parties and other financial assets.

 

Subsequent measurement

 

The subsequent measurement of financial assets depends on their classification, which may be as follows:

 

Financial assets at fair value through profit or loss

 

Financial assets measured at fair value through the statement of income include financial assets maintained for negotiation and assets designated at initial recognition at fair value through income. They are classified as held for trading if they originated for the purpose of sale or repurchase in the short-term. Derivatives are measured at fair value through statement of income, except for those designated as hedge instruments. Interest, inflation adjustments, exchange variations and variations resulting from valuation at fair value are recognized in the statement of income as finance income.

 

Held-to-maturity financial assets

 

This includes those non-derivative financial assets with fixed payments or determinable payments with defined maturity which the Company has the firm intention, and the ability, to maintain until the maturity date. Interest, inflation adjustments, exchange variations, less impairment losses, where applicable, are recognized in the statement of income when incurred and presented as finance income.

 

Available-for-sale financial assets

 

Available for sale financial assets are non-derivative financial assets that are designated in this category on initial recognition or not classified in any of the above categories. They are presented as non-current assets, unless management intends to settle the investment up to 12 months after the balance date.

 

Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, these financial assets are recorded at amortized cost using the effective interest method (effective interest rate), less impairment loss. The amortized cost is calculated taking into account any discount or premium in the acquisition and taxes or costs incurred. The amortization of the effective interest is included in financial revenues or the expenses line in the statement of income.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Derecognition (write-off)

 

A financial asset is written off when:

 

·the right to receive cash flows from assets expires; and

 

·the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to settlethe cash flows received in full, without significant delay, to a third party under a transfer agreement; and (a) the Group substantially transfers all the risks and benefits of the asset or (b) the Group does not substantially transfer all the risks and benefits relating to the asset, but transfers control over it.

 

Impairment of financial assets

 

The Company reviews on the balance sheet dates if there is any objective evidence that determines whether the financial assets or group of financial assets are recoverable. A financial asset or group of financial assets is considered to be impaired if, and only if, there is objective evidence that its value is unrecoverable as the result of one or more events that have taken place since the asset was first recognized (a “loss event”) and this loss event affects the estimated future cash flow of the financial assets, or group of financial assets, to an extent that can be reasonably estimated.

 

The criteria that the Group uses to determine whether there is objective evidence of impairment loss include:

 

(i)significant financial difficulty of the issuer or obligor;

(ii)a breach of contract, such as a default or delinquency in interest or principal payments;

(iii)the Company, for economic or legal reasons connected with the financial difficulties of the borrower, extends a concession to the borrower that a creditor would not normally consider;

(iv)it becomes likely that the borrower will declare bankruptcy or file for some other type of financial reorganization;

(v)the disappearance of an active market for a financial asset due to financial problems; or

(vi)observable data indicating that there is a measurable reduction in estimated future cash flows from a portfolio of financial assets, dating from the initial recognition of such assets, even if the reduction cannot yet be identified in respect of individual financial assets in the portfolio, including:

(a)adverse changes in the payment situation of borrowers of loans contained in the portfolio; and

(b)country-wide or local economic conditions which are correlated with defaults on assets in the portfolio.

 

If in a subsequent period the amount of the loss due to impairment reduces, and the reduction can be objectively related to an event that occurred after the impairment was recognized (such as improvement in the credit rating of the debtor), the reversal of such loss recognized previously will be recognized in the statement of income.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

(ii) Financial liabilities

 

Initial recognition and measurement

 

Financial liabilities are classified as financial liabilities at fair value through income; amortized cost; or derivatives representing an effective hedging instrument, as the case may be. The Company determines the classification of its financial liabilities at initial recognition.

 

Financial liabilities are recognized initially at fair value and, in the case of loans and financing, are adjusted upwards by the directly related transaction costs.

 

The Company’s financial liabilities include loans and financing, derivative financial instruments, trade account payables and related parties.

 

Subsequent measurement

 

Subsequent measurement of financial liabilities depends on their classification, which may be as follows:

 

Financial liabilities at fair value through statement of income

 

These include financial liabilities usually traded before maturity, liabilities designated at initial recognition at fair value through statement of income and derivatives, except for those designated as hedge instruments. Interest, inflation adjustments, exchange variations and variations resulting from valuation at fair value, when applicable, are recognized in the statement of income when incurred.

 

Amortized costs

 

After initial recognition, interest-bearing borrowings and financing are subsequently measured at amortized cost, using the effective interest method. Gains and losses are recognized in the income statement when liabilities are written-off, as well as during the amortization process by applying the effective interest method.

 

Derecognition (write-off)

 

A financial liability is written off when the obligation is revoked, cancelled or expired.

 

(iii) Offsetting of financial instruments – net presentation

 

Financial assets and liabilities are shown net in the balance sheet if, and only if, there is a current and enforceable legal right to set off the amounts recognized, and if there is an intention to offset them, or to realize the asset and settle the liability simultaneously.

 

(iv) Fair value of financial instruments

 

The fair value of financial instruments actively traded in organized financial markets is determined on the basis of the purchase price quoted on the market at the close of business on the balance sheet date, without deducting transaction costs.

 

The fair value of financial instruments for which there is no active market is determined using valuation techniques. These techniques may include the use of recent market transactions (at arm’s length); reference to the current fair value of another similar instrument; a discounted cash flow analysis; or other valuation models.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

For an analysis of the fair value of financial instruments and more details about how they are calculated see Note 27.

 

(v) Derivatives and hedge accounting

 

Initial recognition and subsequent measurement

 

The Company uses derivatives, such as currency and commodity forward contracts and interest rate swaps, to hedge against the risk of fluctuations in exchange rates, the risk of fluctuations in commodities prices and the risk of fluctuations in interest rates, respectively. Derivatives designated as hedge transactions are initially recognized at fair value on transaction date, and subsequently remeasured also at fair value. Derivatives are stated as financial assets when the fair value of the instrument is positive, and as financial liabilities when the fair value is negative.

 

Any gains or losses on changes in the fair value of derivatives during the year are passed directly to the statement of income, except for the effective portion of cash flow hedges, which is recognized directly in shareholders’ equity under other comprehensive income.

 

For the purposes of hedge accounting, the following classifications are used:

 

·a fair value hedge to protect against exposure to changes in the fair value of assets and liabilities recognized, or unrecognized but committed, or in an identifiable part of such asset, liability or firm commitment, which can be attributed to a specific risk and could affect the results;

 

·a cash flow hedge to protect against changes in cash flows attributable to a specific risk associated with a recognized asset or liability, or with a proposed transaction that is highly likely to take place, and which could affect the results; or

 

·a net investment hedge in an overseas operating unit.

 

Upon the initial recognition of a hedge relationship, the Company makes a formal classification and documents the hedge relationship to which it intends to apply the hedge accounting, and the purpose and risk management strategy used by management for hedging purposes.

 

The documentation includes the identification of the hedge instrument, the item or transaction to which it applies, the nature of the risk hedged, details of the anticipated efficacy of the hedge relationship and the way in which the Company will assess the efficacy of the hedging instrument in order to offset the exposure to changes in the fair value of the hedged item or the cash flows related to it. In the case of cash flow hedges, a demonstration that the proposed transaction to be hedged is highly likely to take place, and the anticipated timing of transfer of gains or losses on the hedging instruments from shareholders' equity to income, are also included in the document describing the hedge.

 

It is expected that such hedges will be extremely efficient in offsetting changes in fair value or in cash flows, and the hedges are continually assessed to confirm that this is the case throughout all the base periods to which they apply.

 

Hedges that meet the criteria for hedge accounting are recorded as follows:

 

Cash flow hedge

 

The effective portion of the gain or loss on the hedge instrument is recognized directly in shareholders’ equity, under other comprehensive income, while the ineffective portion is recognized immediately in financial income.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Amounts booked under other comprehensive income are transferred immediately to the statement of income when the hedged transaction affects the results, e.g. when the financial revenues or expenses to which the hedge applies are recognized, or when an anticipated sale takes place. When the hedged item is the cost of a non-financial asset or liability, the amounts booked in shareholders’ equity are transferred to the initial book value of the non-financial asset or liability.

 

If the transaction forecast, or the firm commitment, is not yet expected, the amounts previously recognized in shareholders’ equity are transferred to the statement of income. If the hedging instrument expires or is sold, closed out or exercised without being replaced or rolled over, or if its classification as a hedge is revoked, gains or losses previously recognized in comprehensive income are maintained as deferred items in shareholders’ equity, in the reserve for other comprehensive income, until the anticipated transaction or firm commitment affects the results.

 

The Group uses forward exchange contracts to protect against its exposure to exchange risk related to anticipated and highly probable future transactions and to firm commitments, and forward commodities contracts to protect against its exposure to volatility in commodity prices. See Note 27 for more details.

 

d)Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, bank deposits and highly liquid investments, with maturities of 90 days or less from the acquisition date and which are readily convertible into a known amount of cash and subject to insignificant risk of change in fair value.

 

e)Trade accounts receivable

 

Trade notes receivable correspond to the amounts receivable due to sale of goods or rendering of services in the regular course of the Company’s activities. If the due date for payment is one year or less, the accounts receivable are classified as current assets. Otherwise they are shown as non-current assets.

 

Trade accounts receivable are recognized initially at fair value and subsequently measured at amortized cost, using the effective interest rate method, less provision for doubtful accounts (“PDD”) or impairment.

 

f)Inventories

 

Inventories are evaluated at the average cost of acquisition of production, not exceeding the net realizable value, except for RESA’s inventories of agricultural products, which are measured at fair value. The cost of finished products and products in progress comprises the costs of projects, raw materials, direct labor, other direct costs and related direct expenses of production (based on the regular operational capacity), excluding loans costs. Net realizable value corresponds to the selling price in the ordinary course of business, less estimated completion costs and estimated costs necessary to make the sale.

 

Sugarcane at the time of cutting is considered to be an agricultural product and is measured at fair value, less selling expenses, depending on the amounts cut and valued at the accumulated Council of Sugarcane, Sugar and Alcohol Producers of the State of São Paulo (“CONSECANA”) value for the corresponding month. The fair value of sugarcane cut becomes the cost of raw materials used in the sugar and ethanol production process.

 

Provision for storeroom inventories with low turnover or which are obsolete is established when there has been no movement within a determined period of time, and when the storeroom inventories are not considered by management to be strategic.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

g)Investments in associates and joint ventures

 

Investments in a company over which the Company does not exercise control, but over which it exercises significant influence, are booked by the equity accounting method. Based on the equity accounting method, investments are recorded in the balance sheet at the cost, plus the changes after acquisition of the corporate interest.

 

The statement of income reflects the share of income in the transactions of affiliated companies based on the equity accounting method. When the changes are directly recognized in the shareholders’ equity of affiliated or subsidiary, the Company will recognize its share in the variations, and will disclose this fact, in such a case, in the statement of changes in shareholders’ equity.

 

After the application of the equity accounting method, the Company determines if it is necessary to recognize loss of recoverable value added on investment. The Group determines, at each closing date of the balance sheet, if there is objective evidence that the investment in the affiliate suffered impairment loss. If this is the case, the Company calculates the amount of impairment as the difference between the recoverable amount of the affiliate and the book value, and recognizes the amount in the statement of income.

 

When there is a significant loss of influence over an affiliate, the Company immediately values and recognizes the investment at fair value.

 

Unrealized gains resulting from transactions between the Company and affiliates and joint ventures are eliminated in proportion to the Company’s interest in the investee. Unrealized losses are eliminated, but only up to the point where there is no evidence of loss due to impairment. The accounting policies of associates are changed when necessary, to ensure consistency with the policies adopted by the Company.

 

h)Biological assets

 

Sugarcane plantations are recorded as biological assets.

 

The cane crop is measured at fair value, excluding the land on which it is planted, using the discounted cash flow method.

 

Harvesting generally begins in April of each year, and ends in November or December

 

For sugarcane, the Company uses projected future cash flows according to the productivity cycle forecast for each harvest, taking into account the estimated useful life of each plantation, the prices for total recoverable sugar, estimated productivity and the estimated costs of production, harvesting, loading and transport for each hectare planted.

 

Changes in fair value from year to year are allocated to the cost of products sold.

 

Any land owned by the Company where the biological assets are produced appears as property, plant and equipment.

 

i)Property, plant and equipment

 

Property, plant and equipment items are measured at cost of acquisition or construction, less accumulated depreciation and impairment losses, when applicable.

 

Cost includes expenditures that are directly attributable to the acquisition of an asset. The costs of assets constructed by the Company includes material and direct labor costs and any other costs incurred to put the asset in the required place and condition in order to operate that asset. Borrowing costs are capitalized as a component of construction in progress, pursuant to IAS 23, using the weighted average interest rate of the Company’s debt at the date of capitalization.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The Company performs scheduled maintenance activities at their facilities on a yearly basis, usually, from January through March, for the purpose of inspecting and replacing components. Primary maintenance costs include labor, materials, contractor costs and overhead expenses allocated during the inter-harvest season. Costs are capitalized as parts and components, in property, plant and equipment, being fully amortized in the next harvest season.

 

The cost of equipment that needs to be replaced every year is recorded as part of the equipment cost and depreciated over the next harvest season. Regular maintenance costs are accounted as expenses when incurred since replaced components do not enhance crushing capacity nor introduce any improvements to equipment.

 

Depreciation is calculated in order to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss.

 

In accordance with IAS 16 / CPC 27, for the year ended March 31, 2015, in conjuction with a company that specializes in such evaluations, the Company carried out an evaluation of the useful lives of its fixed assets, using the direct comparative method and drawing on market data. This process indicated the need for a change in the useful lives and annual depreciation rates of the Company’s assets.

 

Because this represented a change in accounting estimates, the effects of these changes were recorded prospectively from April 2014. These changes, individually, represent both an increase or a decrease, depending on the case, of the useful lives applied to the assets, as compared to the previous useful lives. The changes generated a total reduction of R$ 9,554 in the depreciation expense for the year ended March 31, 2015.

 

Property, plant and equipment   Useful lives   Annual rate

Buildings and improvements

  25 years   2.38%
Machinery and equipment   22.83 years   4.67%
Furniture and fixtures   10 years   10.22%
IT equipment   5 years   20.27%
Vehicles, vessels and aircraft   13.04 years   7.67%

 

j)Leasing

 

At the inception of an arrangement, the Company determines whether the arrangement is, or contains, a lease.

 

Assets held by the Company under leases that transfer to the Company substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.

 

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

 

Assets held under other leases are classified as operating leases and are not recognized in the Company’s statement of financial position.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

 

k)Intangible

 

i) Goodwill

 

Goodwill is represented as the positive difference between the amount paid and/or payable on the acquisition of a business and the net fair value of the assets and liabilities of the acquiree. Goodwill on the acquisition of subsidiaries is accounted for as "intangible assets" in the consolidated financial statements. In the case of the determination of negative goodwill, the amount is accounted for as gain in profit or loss for the year on the acquisition date.

 

The goodwill is maintained at its value cost, after deduction of related impairment, if there is any. The goodwill is tested on an annual basis to verify impairment. For testing purposes the recoverable amount, the goodwill acquired in a combination of businesses, is, from the acquisition date, allocated to each one of the cash-generating units of the Company that are expected to benefit from the synergies of the combination, irrespective of when other assets or liabilities of the target are assigned to those units.

 

ii) Intangible assets with defined useful lives

 

Intangible assets with definite useful lives are measured by the cost after deduction of accumulated amortization and of losses due to impairment loss, when applicable.

 

As at March 31, 2015 and 2014, the annual amortization rates of intangible assets were as follows:

 

Intangible asset   Annual rate

Software licenses

  20%
Land lease agreements   9%
Sugarcane supply agreements   10%
Right to use public concessions   20%
Others   38%

 

Useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

 

l)Impairment of non-financial assets

 

The Company annually assesses whether there are indicators of impairment of an asset. If these impairment indicators are identified, the Company estimates the recoverable amount of the asset. The recoverable amount of an asset is the higher of: (a) its fair value less costs to sell; and (b) its value in use. The value in use is equivalent to the discounted cash flows (before taxes) arising from the continuing use of the asset until the end of its useful life.

 

Regardless of the existence of indicators of impairment, the goodwill and intangible assets with indefinite useful lives are tested for impairment at least once a year.

 

When the carrying amount of an asset exceeds its recoverable value, the impairment loss is recognized as operational expenses in the income statement.

 

m)Borrowing costs

 

 

The borrowing cost related to the acquisition, construction or production of an asset which necessarily requires a significant period of time to be concluded for the purposes of use or sale, are capitalized as part of the cost of the corresponding asset. The borrowing cost includes interest and other costs incurred by an entity in relation to the loans.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

n)Provisions

 

A provision is established when: (i) the Company has a current and not present obligation as a result of the events that have already occurred; (ii) it is probable that an output of resources will be necessary to settle the obligation; and (iii) the value can be precisely estimated.

 

o)Employee benefits

 

The Company has a defined contribution plan and defined benefits plan, which provide a supplementary private pension for all of its employees.

 

The Company recognizes an employee benefit liability on the basis of a actuarial model that considers a number of factors. These factors are determined based on actuarial calculations that use certain assumptions to determine the cost (income) net for the pension plans.

 

The actuarial gains and losses arising from adjustments and changes in the actuarial assumptions are recorded directly in equity as other comprehensive income when they occur.

 

The past costs of services are immediately recognized in income.

 

The Company records a provision when it is contractually required to do so, or when there is a precedent that has created a constructive obligation.

 

p)Deferred taxes

 

Revenues (expenses) of income tax and social contributions for the year include current and deferred taxes. Income tax is recognized in the statement of income, except to the extent that it is related to items recognized directly in shareholders’ equity or in the comprehensive income. In this case, the tax is also recognized in shareholders’ equity or comprehensive income.

 

The charges of income taxes, which includes income tax and social contributions are calculated based on tax laws issued or substantially issued on the date of the balance sheet in the countries in which the Company’s entities act and generate taxable profits. Management periodically evaluates the positions taken by the Company in income tax returns with respect to situations in which applicable tax regulations are subject to interpretation; and it defines a provision, when applicable, based on the estimated payment amounts payable to the tax authorities.

 

The taxation on net income comprises income tax and social contributions. Income tax is levied at the rate of 15%, plus a 10% surcharge on any income that exceeds R$240 in a period of 12 months, while the social contributions are levied at the rate of 9% on taxable income, recognized on an accrual basis.

 

Overall, the Company is subject to a theoretical income tax rate of 34%.

 

Deferred income tax and social contributions relating to tax losses, negative bases for social contributions and temporary differences, are shown net in the balance sheet when there is a legal right to, and the intention to, offset them when current taxes are calculated, and when they are generally related to the same legal entity and the same tax authority. Therefore, deferred tax assets and liabilities relating to different entities, or in different countries, are generally shown separately and not as a net amount. Deferred tax is calculated on the basis of rates forecast for the time when the tax is payable, and this is reviewed annually.

 

Tax credits are recognized only to the extent it is likely that a taxable basis will exist against which interim differences may be used.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Advances or amounts subject to offsetting are reported in current and non-current assets, in accordance with their estimated realization.

 

q)Capital and shareholders’ compensation

 

The capital corresponds to the value obtained in the issuing of common and preferred shares. Additional costs directly attributable to the issuing of shares are recognized as a deduction from equity, net of taxes effects.

 

Class A preferred shares, like common shares, entitle the holder to one vote on resolutions at the Company general meetings, and to a fixed annual dividend of R$0.01 (one cent).

 

Class B and C preferred comprise shares issued by the Company intended as reimbursement for assets, represented mainly by tax benefits to be used by the Company, contributed by the shareholders Cosan and Shell. The Company redeems the preferred shares as the tax benefits are used.

 

Class D are not entitled to vote but are entitled to receive an annual fixed dividend, to the shareholder Shell.

 

Remuneration to shareholders is made in the form of dividends and / or interest on equity based on the limits set out in the Company's bylaws and the applicable laws.

 

r)Business combinations

 

Business combinations are accounted for using the acquisition method. The identifiable assets, liabilities and contingent liabilities of the acquired entity or business are measured at fair value for the purposes of calculating and recognizing the goodwill originating in a transaction. Goodwill represents the excess of the cost of the acquisition over the Company's interest in the net fair value of identifiable assets, liabilities and contingent liabilities of the acquired company. If the consideration is less than the fair value of the assets, liabilities and contingent liabilities acquired the difference is recognized in the income statement.

 

s)Segment information

 

An operating segment is a component of a company that carries out business activities from which it generates revenues and for which it incurs expenses, including revenues and expenses arising from intercompany transactions. When making decisions a company’s management reviews financial information relating to its operating segments.

 

The Company has a single business segment: Ethanol, Sugar and Bioenergy, as indicated in Note 23.

 

2.4Adoption of new IFRS and International Financial Reporting Interpretations Committee (IFRIC) Interpretations applicable to the consolidated financial statements.

 

New accounting pronouncements of the IASB and interpretations of the IFRIC have been published and/or revised. The most relevant of these for the Company are the following:

 

IFRS 9 – Financial Instruments – Classification and Measurement

 

IFRS 9 deals with the classification, measurement and recognition of financial assets and liabilities.

 

IFRS 9 was issued in November 2009 and October 2010, and substitutes parts of IAS 39 relating to the classification and measurement of financial instruments. IFRS 9 takes effect from January 1, 2018. IFRS 9 requires that financial assets be classified in two categories: measured at fair value and measured at amortized cost. The category is determined at the time of initial recognition. The classification depends on the entity's business model and the contractual characteristics of the cash flow of the financial instruments. The standard maintains most of the requirements of IAS 39 in respect of financial liabilities. The main change is that in cases where the fair value option is adopted for financial liabilities, the portion of change in fair value that is due to the credit risk of the entity itself is registered in other comprehensive income, instead of in the statement of income—except when this results in an accounting mismatch. The Company believes that this standard will not produce significant impacts on the quarterly financial information and the Company's annual financial statements, because no financial liability was not identified at fair value that could be impacted by the Company's credit risk.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

·IFRS 15 – Revenue from Contracts with Customers

 

On May 28, 2014, IFRS 15 – Revenue from Contracts with Customers was issued. IFRS 15 determines a comprehensive model of revenue accounting for contracts with customers and replaces the current revenue recognition guidance, which currently takes various norms and is subject to varying interpretations within IFRS. The fundamental principle of IFRS 15 is that an entity must recognize revenue from the transfer of goods or services by measuring the value ​​that the entity expects to be entitled to in exchange for those goods or services.

 

Application of this new standard is mandatory for annual reporting periods starting from January 1, 2017. Earlier application is permitted. Management believes that this standard will not produce significant impacts on consolidated financial statements of the Company.

 

·IAS 16 – Property, Plant and Equipment and IAS 41 – Agriculture

 

The IASB has issued amendments to IAS 16 and IAS 41. The main amendment is that biological assets for production (bearer biological assets) are outside the scope of IAS 41 and should be accounted for in accordance with IAS 16.

 

Biological assets that are exclusively utilized to produce and grow agricultural products are still within the scope of IAS 41 and will be measured at fair value.

 

Entities must apply the changes as a result of these amendments on a full retrospective basis, and the new requirements are effective for annual periods beginning on or after January 1, 2016. Earlier adoption is permitted. The Company is still evaluating the impact of these amendments on its quarterly financial information and annual financial statements. The Company is not planning an earlier adoption.

 

·IFRIC 21 – Levies

 

In May 2013 the IASB issued IFRIC 21, which provides guidance on when an entity should recognize in its financial statements a liability for a levy, in accordance with applicable laws and/or regulations. IFRIC 21 does not apply to income taxes. The obligation should only be recognized when the event that triggers such an obligation occurs. IFRIC 21 is an interpretation of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. IAS 37 establishes criteria for the recognition of a liability, one of which is the requirement that a company has a present obligation as a result of a past event, known as the obligating event. IFRIC 21 is effective for fiscal years ending on or after January 1, 2014. The adoption of IFRIC 21 has had no material impact on the Company’s consolidated financial statements.

 

There are no other IFRS standards or IFRIC interpretations that have been issued and not yet adopted that might, in the opinion of management, have a significant impact on the results or the equity disclosed by the Company.

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

3.Cash and cash equivalents

 

   
  2015   2014

Cash and banks

264,539   183,671
Amounts pending of currency exchange closing (1) 2,059   10,350
Financial investments:      
Investment fund (2) 1,132,442   545,988
Certificates of Deposit (3) 2,234,988   1,029,195
Other investments 161,259   1,811
3,795,287   1,771,015
In Brazil   3,391,488   1,628,719
Abroad   403,799   142,296
    3,795,287   1,771,015

 

(1)Amounts pending of currency exchange closing are cash available for immediate redemption without material change in value.

 

(2)Investment fund comprises an investment in a fixed income fund managed by a high rated financial institution, operating on the basis of units with daily earnings. As of March 31, 2015, the average return on this fund was 99.9% (100.9%% in 2014) of the Interbank Deposit Certificate (“CDI”).

 

(3)The Company has financial investments in Bank Deposit Certificate (“CDB-type”) fixed income securities and repurchase agreements, with high rated financial institutions. These are remunerated at an average rate of 102% of the CDI (102.1% in 2014), and are available for immediate redemption.

 

4.Restricted cash

 

   
  2015   2014

Financial investments related to financing (1) 

45,829   71,088
Financial investments related to transactions with derivatives (2) 54,831   61,826
Margin with transactions with derivatives (3) 30,651   118,889
131,311   251,803

 

(1)These are financial investments such as Financial Treasury Bills (“LFTs”) issued by Brazilian Government, which are held pursuant to collateral requirements of financing from Banco Nacional do Desenvolvimento (“BNDES”), with redemption being conditional on the repayment of specific installments of this financing.

 

(2)These are financial investments such as CDBs, with high rated financial institutions, used in derivate instruments transactions.

 

(3)Margin deposits for derivatives transactions refer to margin calls by counterparties in derivative instruments transactions and dollar exchange rate exposure (Note 27.d).

 

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Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

5.Trade accounts receivable

 

     
  2015   2014  
         
Domestic customers 227,363   216,827  
Foreign customers 129,471   162,557  
(-) Allowance for doubtful accounts (25,196 ) (23,380 )
331,638   356,004  

 

The maximum exposure to credit risk as at the balance sheet date is the carrying value of each class of trade account receivables. The Company does not hold securities as guarantees of trade accounts receivable.

 

The aging of trade accounts receivables is as follows:

 

   
  2015   2014

Current 

317,914   329,604
Overdue:      
01 to 30 days 12,943   18,788
31 to 90 days 453   7,201
91 to 180 days 543   -
More than 180 days 24,981   23,791
38,920   49,780
356,834   379,384

 

The roll-forward of the allowance for doubtful accounts is presented below:

 

       

As of March 31, 2012 

(23,249 )  
       
Additions (1,104 )  
       

As of March 31, 2013 

(24,353 )  
       
Additions (323 )  
Reversals 1,296    
       

As of March 31, 2014 

(23,380 )  
Additions (13,069 )  
Reversals 11,253    
       

As of March 31, 2015 

(25,196 )  

 

29  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

6.                  Recoverable taxes

 

     
  2015   2014  
         
Value-added Tax on Sales and Services (“ICMS”) (1) 84,353   103,371  
Social Contribution Tax (“COFINS”) (2) 38,520   42,139  
Employees' Profit Participation Program (“PIS”) (2) 9,273   22,156  
Special Regime for Reintegration of Tax Values (“Reintegra”) (3) 51,300   -  
Others 6,042   4,436  
189,488   172,102  
Current 157,304   145,903  

Non-current

32,184   26,199  

 

(1)The ICMS credits can be offset against future debts of the same nature or againts certain purchases of property, plant and equipement.

 

(2)The PIS and COFINS credits refer to credits generated in the Company’s normal operations.

 

(3)The Reintegra credit established by Law No. 12546 of December 14, 2011, regulated by Decree No. 8304 of September 12, 2014, aims to return part or all of the remaining tax in the production chain of exported goods, which may vary between 0.1% (one tenth percent) and 3% (three percent).

 

The credit is calculated by applying the percentage of 3% of the gross revenue from October 2014, due to certain industrial products, in accordance with MF Ordinance No. 428 of September 30, 2014; the credit is calculated by applying the percentage of 1% of the gross revenue from March 2015, due to certain industrial products, in accordance with MF Ordinance No. 8.415/2015.

 

30  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

7.Inventories

 

     
  2015   2014  
Finished goods:        
Sugar 37,257   49,743  
Ethanol 162,615   238,443  
Work in process 7,332   6,078  
Sugarcane harvested (7,129)   (8,443 )
Spare parts and maintenance materials 167,130   172,642  
Provision for obsolescence (12,343 ) (9,769 )
  354,862   448,694  

 

The cost of inventories recognized in the consolidated statement of income as cost of sales was R$ 8,064,341 in 2015 (R$7,542,579 in 2014).

 

The roll-forward of the provision for obsolescence of inventory is presented below:

 

     
March 31, 2012 (7,471 )
     
Provision (1,880 )
     
March 31, 2013 (9,351 )
     
Provision (673 )
Reversal 255  
     

March 31, 2014 

(9,769 )
     

Provision 

(7,007 )
Reversal 4,433  
     

March 31, 2015 

(12,343 )

 

8.Advances to suppliers

 

     
  2015   2014  

Sugarcane

278,118   248,463  
Materials and services 2,538   972  
Allowance for losses (19,480 ) (18,343 )
261,176   231,092  

Current

206,004   209,251  

Non-current

55,172   21,841  

 

Advances to sugarcane suppliers represent amounts paid upon signing agreements or amendments. They are amortized when the sugarcane supplies are received. Depending on the amount of sugarcane to be delivered, as estimated by the suppliers, the balances will be settled over a period of nine harvests.

 

An allowance for losses is recorded for advances to suppliers for which they have not delivered within the year of the crop. Once the accrual is booked, the case will be sent to the court and after the judicial conclusion is reached, the Company will write off the credits.

 

31  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

9.Other financial assets

 

   
  2015   2014
       
Credits from actions for damages (1) 479,556   469,580
National Treasury Certificate (“CTN”) (2) 501,794   434,366
Others 1   1
       
  981,351   903,947

Current

 

12,931   13,267
Non-current 968,420   890,680

 

(1)On February 28, 2007, the Company recognized a gain of R$318,358, related to a lawsuit filed by a subsidiary against the federal government claiming indemnification for damages, since prices of its products at the time in the sector were subject to government control. These prices were stipulated without regard for the prevailing reality in the sector (which, in turn, was a result of government control). A final decision in favor of the Company was handed down. The gain was recorded in profit or loss for the year, against non-current assets in "Other financial assets".

 

The judgment became final in favor of the Company and the aforementioned gain was recognized in income for that year, in contrast to non-current assets under other financial assets. The Company is awaiting the final decision on the form of payment. It is believed that this payment will take the form of a court-ordered bond, to be received within 10 years. On March 31, 2015, the said compensation was restated in the amount of R$ 389,039 (R$ 376,713 on March 31, 2014).

 

In December 2013, the Company recognized a new award related to a favorable decision obtained in a lawsuit filed against the federal government, of R$ 122,127. On January 15, 2014, and on August 15, 2014, the Company received R$ 32,391 and R$ 13,230 from the federal government, which was reimbursed to Cosan. As at March 31, 2015 the balance receivable from the federal government in relation to this lawsuit was R$ 12,931 and R$ 77,586 (R$ 13,267 e R$ 79,600 on March 31, 2014) classified as current and non-current assets, respectively.

The claim was not recognized within the net assets contributed by Cosan to Raízen at the time of the joint venture formation (Note 11). Therefore, upon recognition of the assets, the Company recognized a related party liability in the amount that must be repaid to Cosan (Note 10).

 

(2)This corresponds to government securities issued by the Brazilian Treasury under the Special Agricultural Securitization Program (“PESA”), for an original term of 20 years, given in guarantee of the PESA financing program (Note 16). The yield on these securities is 12% per annum, adjusted annually by the price index (“IGPM”), which may be capitalized. The value of these securities at maturity will be equal to the principal amount of the PESA debt owed. If the debt is repaid early, the Company may hold it in treasury until maturity, or apply for redemption.

 

32  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

10.Related parties

 

a)Summary of balances and transactions with related parties

 

  2015   2014
Assets      
Cosan Lubrificantes e Especialidades S.A. 1,823   3,900
Cosan S.A. Indústria e Comércio (1) 433,610   964,408
Raízen Combustiveis S.A. (2) 1,644,502   536,667
Grupo Rumo (i) 9,139   6,368
Nova America Agrícola Caarapó Ltda.(4) 69,787   34,480
Agroterenas S.A. (4) 26,450   11,894
Others 11,941   6,114
2,197,252   1,563,831
       
Current assets 767,894   192,574
Non-current assets 1,429,358   1,371,257

 

  2015   2014
Liabilities      
Cosan S.A. Indústria e Comércio (1) 772,945   931,050
Grupo Rumo (i) 11,225   8,775
Raízen Combustíveis S.A.(2) 1,600,380   56,777
Nova América Agrícola Ltda (4) 7,069   6,174
Nova América Agrícola Caarapó Ltda. (4) 8,317   3,466
Agroterenas S.A. (4) 10,368   7,693
Shell Brazil Holding B.V. (3) 3,538   3,538
Others 7,977   6,922
2,421,819   1,024,395
       
Current liabilities 226,854   127,370

Non-current liabilities 

2,194,965   897,025

 

33  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

  2015   2014   2013  
Sale of products            
Docelar Alimentos e Bebidas S.A. -   -   318,696  
Raízen Combustíveis S.A. and its subsidiaries 1,138,591   1,534,355   562,765  
Shell Western Supply and Trading 139,470   248,294   347,254  
Pilipinas Shell Petroleum 82,396   80,294   -  
Shell Trading US Company 154,425   15,443   -  
Others 1,591   1,458   2,078  
  1,516,473   1,879,844   1,230,793  
Purchase of products            
Grupo Rumo (i) (298,553 ) (362,023 ) (292,051 )
Raízen Combustíveis S.A. and its subsidiaries (417,109 ) (413,646 ) (358,531 )
Agroterenas S.A. (170,634 ) (166,669 ) (163,253 )
Nova América Agrícola Caarapó Ltda. (94,897 ) (80,637 ) (98,102 )
Nova América Agrícola Ltda. (143,867 ) (139,346 ) (140,943 )
Others (16,970 ) (22,025 ) (6,713 )
  (1,142,030 ) (1,184,346 ) (1,059,593 )
Recharge of shared expenses            
Cosan Lubrificantes e Especialidades S.A. 4,518   4,929   4,928  
Cosan Indústria e Comércio 4,330   4,247   -  
Companhia de Gás de São Paulo 23,221   -   -  
Docelar Alimentos e Bebidas S.A. -   -   2,646  
Grupo Rumo (i) 5,330   5,723   5,765  
Raízen Combustíveis S.A. and its subsidiaries 125,767   116,568   104,195  
Others 1,824   1,705   1,364  
  164,990   133,172   118,898  
Lease of land            
Grupo Aguassanta (ii) (32,386 ) (28,627 ) (36,523 )
Grupo Radar (iii) (57,596 ) (54,945 ) (52,558 )
  (89,982 ) (83,572 ) (89,081 )
Finance income (costs)            
Raízen Combustíveis S.A. and its subsidiaries (2) 3,008   33,362   (7,711 )
Agroterenas S.A. (4) 2,557   894   -  
Nova América Agrícola Caarapó Ltda. (4) 5,299   1,481   -  
Shell Brazil Holding B.V. (3) (3 ) 12,516   -  
Shell Finance B.V. (5,640 ) (4,361 ) -  
Others (2,804 ) 1,945   (89 )
  2,417   45,837   (7,800 )
             
  526,868   695,198   193,217  

 

 

(i)Grupo Rumo refers to rail road and shipment operations made through the following companies: Rumo Logística Operadora Multimodal S.A. and Logispot Armazéns Gerais S.A..

 

(ii)Grupo Aguassanta represents lands leased for sugarcane harvesting from the following entities: Aguassanta Agrícola Ltda., Aguassanta Participações S.A., Aguapar Agrícola Ltda, Palermo Agrícola S.A. e Vila Santa Empreendimentos Imobiliários Ltda.

 

(iii)Grupo Radar represents lands leased for sugarcane harvesting from the following entities: Radar Propriedades Agrícolas S.A., Nova Agrícola Ponte Alta S.A., Nova Amaralina S.A., Terras da Ponte Alta, Nova Santa Barbara Agrícola S.A., Radar II Propriedades Agrícolas S.A., Proud Participações S.A. e Bioinvestments Negócios S.A..

 

 

34  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

(1)Cosan S.A. Indústria e Comércio

 

On March 31, 2015, the amount recorded in consolidated current assets referred to payments or payables for the formation of the joint venture, which are reimbursable in full, as follows: i) reimbursement of payment in installments of tax refinancings (Refis IV), of R$18,510 (R$65,326 in 2014) (Note 17); ii) reimbursement of legal and administrative expenses of R$17,631 (R$8,804 in 2014); iii) reimbursement of costs of court deposits amounting to R$44,478 (R$31,012 in 2014); iv) reimbursement of expenses of legal claims of R$20,061 (R$13,408 in 2014); and v) reimbursement of expenses of Health, Safety and the Environment ("SSMA") and other costs of R$1,021 (R$ 1,021 in 2014).

 

In addition, the remaining balance receivable from Cosan represents debit notes for shared expenses of R$5,524 (R$7,124 in 2014).

 

The amount registered in consolidated non-current assets refers to liabilities of the Company before the joint venture was formed, which are to be fully reimbursed by Cosan, when paid, and which represent: i) provisions for legal claims of R$175,485 (R$196,958 in 2014) (Note 19); ii) installments of tax debts payable, especially Refis IV, of R$ 150,900 (R$632,218 in 2014) (Note 17); and iii) other reimbursable liabilities in the amount of R$ 110, received in the year ended March 31, 2015.

 

The reduction of R$ 528,134 of the receivables consolidated (current and non-current) related to the division of tax debts payable (Refis IV), which pre-existed the formation of Raízen, was substantially completed within the period, following the accession by Cosan to the debt settlement program of the Receita Federal do Brasil ("RFB"), Law No. 13,043. The details in this regard are described in Note 17.

 

The amount of R$ 43,340 in consolidated current liabilities refers to a payment received from Destivale of R$ 12,931 (R$ 13,267 in 2014) relating to an action for indemnity which must be reimbursed to Cosan. The residual amount of R$ 30,409 (R$ 23,364 in 2014) (Note 9) corresponds to debit notes and financial transfers arising from the formation of the joint venture.

 

The amount registered in consolidated non-current liabilities refers to credits from shares for damages and judicial deposits of R$466,625 (R$456,313 in 2014) (Note 9) and R$172,450 (R$177,368 in 2014) (Note 19), respectively, existing before the joint venture was formed, which are to be reimbursed to Cosan when realized, since Cosan did not contribute these credits to the formation of the joint venture.

 

The remaining balance in the amount of R$ 767 refers to credits from actions recorded in Cosan, but where the responsibility for the claims lies with Raízen.

 

Preferred shares – Cosan

 

The balance of preferred shares payable, which are recorded as non-current liabilities, relates to the value of tax benefits to reimburse Cosan, when effectively utilized by the Company, determined by the balance of tax losses and negative basis of social contribution ("NOL ") and tax benefit on goodwill amortization (" GW "). The payment will be made through the distribution of unique dividends to holders of the Class B preferred shares (Note 21.a). Currently, only Cosan holds this class of shares.

 

On March 31, 2014, the Company proposed to make a dividend distribution to the holders of Class B preferred shares of R$43,636, corresponding to the partial used of tax benefit during the fiscal year.

 

As at March 31, 2014, the Company reviewed the balance of preferred shares outstanding, and determined to reverse R$ 11,812 of the obligation to Cosan.

 

35  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

At the Annual General Meeting held on July 28, 2014, the Company's shareholders resolved and approved payments in the amount of R$ 42,381, less than the amount of R$ 1,255 declared on March 31, 2014. RESA made a payment in relation to these preferred shares on 29 July 2014.

During the quarter ended December 31, 2014, RESA joined the program for the settlement of the debts in the RFB through the use of NOL (Note 17). Thus, RESA partially used the NOL balances owned by Cosan, arising prior to the formation of the Group, resulting in a decrease in the preferred shares in the amount of R$ 157,010.

 

The amount of Cosan credits was R$ 171,750, of which R$ 14,740 had not recognized preferred shares. These credits had not been registered before the formation of the joint venture, due to the absence of probability of use at that time.

 

On March 31, 2015, the Company proposed the destination of the dividends to the holders of Class B preferred shares, in the amount of R$ 15,221, which corresponds to the partial utilization of the amount recorded as fiscal benefits in the year ended.

 

On March 31, 2015, the remaining balance of Class B preferred shares payable to Cosan on March 31, 2015 was R$ 89,762 (R$ 260,738 in 2014) (Nota 21.a).

 

Summary of balances to be reimbursed to and collected from shareholder Cosan

 

When the joint venture was formed it was agreed that Cosan should reimburse some assets and repay some liabilities which were previously in existence, at the time that they were actually realized or settled. As at March 31, 2015 and 2014, the counterpart of the reimbursable and collectable amounts with Cosan were presented in the Company’s balance sheet under the following classifications:

 

  2015   2014
       
Current assets      
Other financial assets (Note 9) 12,391   13,267
  12,391  

13,267

       
Non-current assets      
Judicial deposits (Note 19) 172,450   177,368
Other financial assets (Note 9) 466,625   456,313
       
  639,075   633,681

Total assets

651,466   646,948
       
Current liabilities      
Taxes payable (Note 17) 18,510   65,326
Others payable 83,191   54,245
101,701   119,571
       
Non-current liabilities      
Taxes payable (Note 17) 150,901   632,218
Provision for judicial demands (Note 19) 175,485   196,958
326,386   829,176

Total liabilities

428,087   948,747

 

36  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

(2)Raízen Combustíveis S.A. and its subsidiaries ("RCSA")

 

RCSA refers to the financial operations of Raízen Combustíveis S.A. and its subsidiaries, Petróleo Sabba S.A., Raízen Mime Combustíveis S.A., Saturno Investimentos Imboliários Ltda., Blueway Trading Importações e Exportações, and Raízen Fuels Finance Ltda.

 

On March 31, 2015, the amount recorded in the consolidated current assets of R$ 619,406 referred mainly to funds sent as a form of financial resource management.

 

The remaining balance receivable of this Company, recorded in consolidated current assets, mainly refers to: i) the issue of debt notes on the costs shared between the companies, in the amount of R$ 21,579 (R$ 16,920 in 2014), ii ) sale of ethanol and ESALQ adjustment provision totaling the negative amount of R$ 11,379 (R$ 23,720 in 2014); and; iii) interest on the export prepayment financing contracts with maturities in 2015 and 2019 in the amount of R$ 814 (R$ 430 in 2014).

 

On March 31, 2015, the amount in consolidated non-current assets was related to a export prepayment financing agreement in the amount of US$ 702,552 (495,597 in 2014), equivalent to US$ 219,000 to be settled on April 27, 2020. The agreement has quarterly payments of the London Interbank Offered Rate (“LIBOR”) plus annual interest of 1.50%, which results in a weighted average rate of 1.77% a year (1.73% in 2014).

 

In addition, during the year ended March 31, 2015, the Company entered into a new export prepayment financing agreement in the amount of R$ 320,800, equivalent to US $ 100,000, to be paid on March 29, 2019. This agreement is subject to quarterly LIBOR plus annual interest of 1.55%, resulting in an average effective interest rate of 1.80% per annum.

 

The remaining balance recorded in current liabilities refers to interest on the export prepayment financing contracts in the amount of R$ 9,269.

 

At March 31, 2015, R$ 135,202 (R$ 56,777 in 2014) registered in consolidated current liabilities corresponded mainly to funds received by the Company due to the cash management agreement of R$ 131,739 (R$ 53,160 in 2014),; ethanol commerce of R$ 2,459 (R$ 3,441 in 2014); and debit notes for overhead expenses shared between the companies of R$ 1,004 (R$ 176 in 2014).

 

The amount recorded in consolidated non-current liabilities refers to an export prepayment financing agreement entered into with Raízen Fuels Finance Ltd. at March 25, 2015 in the amount of R$ 1,122,800, equivalent to US$ 350,000 , to be paid on March 29, 2019. This agreement is subject to quarterly LIBOR rate plus annual interest of 1.55%, resulting in an average effective interest rate of 1.80% per annum.

 

In addition, during the year ended on March 31, 2015 the Company entered into the following export prepayment financing agreement with export Raízen Fuels Finance Ltd., with the following terms:

 

i) R$ 227,416, equivalent to EUR$ 66,000, to be paid on October 15, 2021. The contract is subject to annual interest of 3.09%.

 

ii) R$ 137,828, equivalent to EUR$ 40,000, to be paid on January 20, 2022. The contract is subject to annual interest of 2.21% plus quarterly Euribor rate, resulting in an average effective interest rate of 2.27% per annum.

 

The remaining balance in current liabilities and non-current in the amount of R$ 2,423 and R$ 25,289, respectively, refers to expenses and income with capture of export prepayment financing contracts ("PPEs"), to be amortized over the contract.

 

37  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

In the year ended March 31, 2015, the Company recognized net loss in its financial results in the amount of R$ 319,723, arising from transactions with RCSA. This amount is composed of R$ 401,275, which relates to the interest of the PPE contract and loss of foreign exchange variation of the contract by the devaluation of the real against the dollar, and R$ 81,552, which relates to the income charged due to the cash management funds position held by RESA.

 

On March 31, 2015, the Company had a foreign currency exposure liability with RCSA in the amount of R$ 450,282 (liability exposure of R$ 1,399,516 and asset exposure of R$ 496,027 in 2014), (Note 27.d).

 

(3)Shell Brazil Holding B.V.

 

Preferred shares payable – Shell

 

As a result of the merger of Ispagnac Participação Ltda.’s (“IPL’s”) net assets into REPSA and, subsequently, the merger into Raízen on November 30, 2012, the Company issued preferred Class C shares, which will guarantee exclusive dividends to Shell of R$ 3,538 from tax benefits and cash equivalents that were a part of IPL net assets. The amounts of R$ 932 and R$ 2,606 are recorded as current and non-current liabilities, respectively.

 

(4)Nova América Agrícola Caarapó Ltda, Nova América Agrícola Ltda. e Agroterenas S.A.

 

Amounts receivable from these entities mostly comprise advances paid to finance biological asset planting costs. The amounts payable are for purchases of sugarcane. Advances accrue interest income at 100% of the CDI benchmark interest rate. In the year ended March 31, 2015, interest income of R$ 7,856 (R$ 2,375 in 2014) was recognized in respect of these advances. Prices for the purchase of sugarcane are linked to price of Total Recoverable Sugar (“ATR”) issued by CONSECANA.

 

b)Officers and members of the Board of Directors

 

The total remuneration and benefits paid to key management personnel, including the officers and members of the Board of Directors, are as follows:

 

  2015   2014   2013

Salary

42,226   37,743   34,858
Bonuses and other variable compensation 31,488   31,803   27,635
           
Total compensation 73,714   69,546   62,493

 

The Company shares its corporate, managerial and operating structure and costs with its related party, RCSA. Most management positions are held by employees of the Company. As a result, on March 31, 2015, RCSA reimbursed the Company for all the shared corporate costs, including key personnel and other management employee costs, in the amount of R$ 55,555 (R$ 54,868 and R$ 41,706 in 2014 and 2013, respectively).

 

38  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

11Investments in associates and joint-ventures

 

a)Investment analysis

 

  Investments (1)   Equity accounting  
 

Country

 

 

Business

 

  Number of shares/quotas of investee (2)   Number of shares/quotas of investing company (2)   Percentage interest  

2015

 

2014

 

2015

 

2014

 

2013

 
                                         
Carrying value                                        
Centro de Tecnologia Canavieira S.A. Brazil   R&D   718,132   150,305   20.93%   68,574   35,977   1,962   (3,645 ) -  
Codexis Inc. (4) Brazil   R&D   -   -   -   -   13,734   (6,684 ) (14,225 ) (4,933 )
Logum Logística S.A. Brazil   Logistics   1,407,803,888   281,560,778   20.00%   64,370   49,496   (29,054 ) (16,385 ) (12,182 )
Uniduto Logística S.A. Brazil   Logistics   234,847,909   109,172,285   46.48%   30,587   20,285   (161 ) (179 ) (1,240 )

Subtotal

                    163,531   119,492   (33,937)   (34,434 ) (18,355 )
                                         
Goodwill on investment                                        
Uniduto Logística S.A.                     5,676   5,676   -   -   --  
Centro de Tecnologia Canavieira S.A.                     41,379   37,098   -   -   -  
                    47,055   42,774   -   -   -  

Total investment

                    210,586   162,266   (33,937 ) (34,434 ) (18,355)  
                                         
Provision for unsecured liabilities of subsidiaries and affiliated companies (3)                                        
Unimodal Ltda. Brazil   Logistics   2,697   1,980   73.41%   (2,653 ) (2,642 ) (1)   (1 ) (90 )
Others Brazil                   -   -   -   -   (79)  

Total provision for unsecured liabilities

                    (2,653 ) (2,642 ) (1)   (1 ) (169 )
                            (33,938 ) (34,435 ) (18,524 )

 

(1) Investments under the equity method; (2) Shares / quotas in units; (3) Ranked in non-current liabilities; and (4) On March 10, 2015 the Company sold the shares of Codexis (Note 25 ii).

 

39  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The roll-forward of investments in associates and joint-venture is as follows:

 

     

Balance on March 31, 2013

267,489  
     
Equity accounting (34,434 )
Additions to investment (Nota 11. 2.2) 33,228  
Write-offs (23,900 )
Transfers to intangible assets (Nota 14) (61,629 )
Others (18,488 )
     

Balance on March 31, 2014

162,266  
     

Equity accounting

(33,938 )
Additions to investment (Note 11.1) 58,964  
Transfer to "Other financial assets" (Note 9.3) (8,147 )
Capital gain on dilution of equity interest (Note 11.1) 30,333  
Others 1,108  
     

Balance on March 31, 2015 

210,586  

 

The roll-forward for the provision for unsecured liabilities in subsidiaries and affiliates is as follows:

 

     

Balance on March 31, 2013

(2,720 )
     
Equity accounting (1 )
Write-offs 79  
     

Balance on March 31, 2014

(2,642 )
     

Equity accounting

(1 )
Others (10)  
     

Balance on March 31, 2015

(2,653 )

 

b)Summarized financial information of associates and joint-ventures

 

·As of March 31, 2015

 

  

Logum Logística S.A. (1)/(2)

  

Uniduto Logística Ltda. (1)/(2)

   Centro de Tecnologia Canavieira
S.A. (2)
  

Unimodal
Ltda. (4)

   Iogen Energy  
Corporation (3)
 
                     
Assets   2,049,903    65,810    454,036    —      48,652 
Liabilities   (1,728,055)   (4)   (126,403)   (3,617)   (283,746)

Shareholders’ equity

   321,848    65,806    327,633    (3,617)   (235,094)
                          
Net operating revenue   41,479    —      75,093    —      —   
Income (Loss) for the year   (145,266)   (346)   499    (15)   (15,377)

 

40  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

(1)Associates with a December 31 fiscal year-end.

 

(2)The determination of significant influence in these companies was made on the basis that the Company has the right to appoint key personnel to manage them, as well as the right to decide on significant strategic and operational matters.

 

(3)Raizan has an interest of 50% in Iogen, wich is a joint venture with August 31 fiscal year-end. The Company does not recorded a provision for capital deficiency and loss of equity, since it does not have responsibility for legal or constructive obligations (not formalized) to make payments for that company.

 

(4)March 31 fiscal year-end.

 

·As of March 31, 2014

 

  

Logum Logística S.A. (1)/(2)

  

Uniduto Logística Ltda. (1)/(2)

  

Codexis, Inc. (1)/(2)

   Centro de Tecnologia Canavieira S.A. (2)  

Unimodal Ltda.

  

Iogen Energy Corporation (3)

 
                         
Assets   1,752,011    43,650    137,839    271,262    1    45,765 
Liabilities   (1,504,533)   (9)   (40,661)   (117,387)   (3,603)   (231,162)

Shareholders’ equity

   247,478    43,641    97,178    153,875    (3,602)   (185,397)
                               
Net operating revenue   3,500    —      68,913    56,875    —      —   
Income (loss) for the year   (117,148)   (395)   (89,165)   (910)   —      (1.904)

 

(1)These associates have a December 31 fiscal year-end.

 

(2)The determination of significant influence in these companies was made on the basis that the Company has the right to appoint key personnel to manage them, as well as the right to decide on significant strategic and operational matters.

 

(3)Joint venture with August 31 fiscal year-end. The Company does not recorded a provision for capital deficiency and loss of equity, since it does not have responsibility for legal or constructive obligations (not formalized) to make payments for that company.

 

c)Transactions occurring in 2015 and 2014

 

1) Transactions occurring during the year ended on March 31, 2015

 

Additions to investments

 

Capital increase in Logum Logística S.A. (“Logum”)

 

On May 23, 2014, a Board Meeting of the subsidiary Logum resolved to approve a capital increase in the company of R$ 81,230, through the issue of 231,830,850 new common shares. RESA subscribed for and paid in a total of R$ 16,246, corresponding to 46,366,170 common shares.

 

On July 30, 2014, a Board Meeting resolved to approved a capital increase of the Company in the amount of R$52,857 , through the issue of 155,644,876 new common shares. The amount subscribed by RESA and fully paid totaled R$10,572, corresponding to 31,128,975 common shares.

 

On November 3, 2014, a Board Meeting resolved to approved a capital increase of the Company in the amount of R$ 65,527, through the issue of 234,025,000 new common shares. The amount subscribed by RESA and fully paid totaled R$13,105, corresponding to 46,805,000 common shares.

 

41  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

On March 13, 2015, a Board Meeting resolved toapproved a capital increase in the company in the amount of R$ 20,000, through the issue of 80,000,000 new common shares. The amount subscribed by RESA and fully paid totaled R$ 4,000, corresponding to 16,000,000 common shares.

 

In these transactions, there were no variations in the percentage of participation in the share capital of the investees, since all shareholders effected contributions in proportion to their shares previously held.

 

Capital increase in Uniduto Logística S.A. (“Uniduto”)

 

On May 20, 2014, in a Board Meeting of the subsidiary Uniduto, it was resolved to approve a capital increase in the company for R$8,573, through the issue of 30,303,995 new common shares. RESA subscribed for and paid in a total of R$3,891, corresponding to 14,085,297 common shares.

 

On July 31, 2014, in an Board Meeting, a capital increase of the company in the amount of R$ 5,286 was discussed and approved, through the issue of 18,790,260 new ordinary shares. The amount subscribed by RESA and paid in this operation totaled R$ 2,457, corresponding to 8,732,904 common shares.

 

On November 3, 2014, in a Board Meeting, a capital increase of the company in the amount of R$ 6,553 was discussed and approved, through the issue of 23,327,519 new ordinary shares. The amount subscribed by RESA and paid in this transaction totaled R$ 3,045, corresponding to 10,842,631 common shares.

 

On March 11, 2015, in an RCA, a capital increase of the company in the amount of R$ 2,300 was discussed and approved, through the issue of 8,193,800 new ordinary shares. The amount subscribed by RESA and paid in this transaction totaled R$ 1,069, corresponding to 3,808,478 common shares

 

In these transactions, there were no variations in the percentage of participation in the share capital of the investees, since all shareholders effected contributions in proportion to their shares previously held.

 

Capital increase in Centro de Tecnologia Canavieira S.A. (“CTC”)

 

At the Extraordinary General Meeting held on July 10, 2014, a capital increase amounting to R$ 165,002 was discussed and approved by the shareholders of CTC, through the issue of 83,741 new ordinary shares. The amount subscribed by RESA in this operation totaled R$ 4,579, corresponding to 2,324 shares. 50% of the subscribed amount of R$ 2,291 was paid on September 19, 2014, and the remaining of 50% was paid on March 24, 2015.

 

As stipulated in CTC’s shareholders’ agreement, in this operation RESA gave 90.9% of its rights to the preferential allocation of shares of CTC. Therefore, its percentage interest in the capital went from 23.33% to 20.93%, generating a capital gain on the dilution of equity interest amounting to R$ 30,333. This was recorded in "Other operating income, net" (Note 25).

 

42  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

2) Transactions occurring during the year ended on March 31, 2014

 

2.2) Additions to investments

 

 

Capital increase in Logum

 

On September 12, 2013, pursuant to the approval of Logum’s Board of Directors, Logum issued 158,056,914 common shares, for R$ 80,000. The amount subscribed and paid by the Company totaled R$ 16,000, corresponding to 31,611,383 common shares. There was no interest dilution.

 

Additionally, on November 19, 2013, pursuant to the approval of Logum’s Board of Directors, the Company issued 117,689,804 more common shares, for R$ 53,000. The amount subscribed and paid by the Company totaled R$ 10,600, corresponding to 23,537,961 common shares. There was no interest dilution.

 

Uniduto

 

On September 9, 2013, under a private agreement relating to the purchase and sale of shares, Raízen Energia purchased 528,406 common shares of Uniduto, for R$354, representing 0.49% of the shareholders’ capital of Uniduto, thereby increasing the Company’s interest in Uniduto to 46.47%.

 

On the same date, the Board of Directors approved an increase of the shareholders’ capital in the amount of R$ 8,000. The amount subscribed and paid by the Company totaled R$ 3,718, and there was no interest dilution.

 

Additionally, the Board of Directors approved an increase of the shareholders’ capital of R$ 5,300 on November 19, 2013. The amount subscribed and paid by the Company totaled R$ 2,463,and there was no interest dilution.

 

In February 2014, the Company transferred the amount of R$ 93 to Uniduto as a future capital increase.

 

Iogen Energy Corporation (“Iogen”)

 

On 15 October 2013, RESA received from the shareholder Shell the shares that it held in Iogen. This was registered by RESA using the equity method, because it is a joint venture.

 

Regarding the negative equity of Iogen, which on March 31, 2014, totaled R$ 185,397, the Company does not recognized losses of equity as it does not have responsibility for legal or constructive obligations (constructive) to make payments for that company.

 

43  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

12.Biological assets

 

The roll-forward of biological assets (sugarcane) is presented below:

 

     

Balance on March 31, 2013

1,978,477  
Expenditures on plantations (1) 399,889  
Sugarcane cultivation costs (1) 506,097  
Absorption of costs of sugarcane harvest (794,238 )
Provisional allocation of Cerrado (Note 11.c) 15,240  
Change in fair value, net of amortization (68,772 )
     

Balance on March 31, 2014

2,036,693  
     
Expenditures on plantations (1) 385,102  
Sugarcane cultivation costs (1) 541,531  
Absorption of costs of sugarcane harvest (972,128 )
Change in fair value, net of amortization (31,339 )
     

Balance on March 31, 2015

1,959,859  

 

(1) Includes agricultural assets depreciation of R$75.222 (R$67,339 in 2014).

 

Sugarcane stumps

 

The cultivated areas represent only the sugarcane plantations, without taking into account the land on which the crops are planted. The fair value of the biological assets is categorized within level 3 and the following assumptions were used to determine fair value using the discounted cash flow method:

 

  2015   2014

Estimated area of the harvest (hectare)

412,738   425,708
Productivity expected (metric tons of sugarcane, per hectare) 75.30   79.67
Amount of Total Recoverable Sugar (TRS)(Kg) 132.60   134.14
Price of Kg of projected average TRS (R$/Kg) 0.52   0.49

 

Sugar production depends on the volume and sucrose content of the sugarcane grown or supplied by growers located near the Company's plants. The yield of the crop and the sucrose content in the sugarcane depend mainly on climatic conditions, such as the amount of rain and the temperature, which can vary.

 

In the past, climatic conditions have led to volatility in the ethanol and sugar sectors of the Company's operating results, as a result of damage to the crops and reductions in yield. Climatic conditions can reduce the amount of sugar and sugarcane that the Company obtains in a specific season, or the sucrose content in the sugarcane. The business is also affected by the growth cycle of sugarcane in the south centralregion of Brazil. The annual sugarcane harvest in the south centralregion of Brazil starts in April or May and ends in November or December. The seasonality increases the inventory levels, which are generally high in November and December to cover the period between harvests (i.e. from December to April). There is also a degree of seasonality in gross profit, which is lower in the last quarter of the fiscal year (i.e., October to December).

 

The Company adopted various estimates to evaluate the sugar cane fields. The discount rate applied on this calculation was 7,73% per year. These estimates were based on the market information, which are subject to the scenario changes that may impact the financial statements. A decrease of 5% in market prices of sugar cane, would result in a reduction of the fair value of biological assets in the approximately amount of R$ 175,672, net of taxes. If the discount rate present an increase of 0.5 p.p. would cause a reduction in the fair value of biological assets in the amount approximately of R$ 18,726, net of taxes.

 

44  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

13.Property, plant and equipment

 

a)Property, plant and equipment roll-forward

 

  Land and rural properties   Buildings and improvements   Machinery, equipment and installations   Aircraft and vehicles   Furniture, fixtures and computer equipment   Works in progress   Parts and components to be periodically replaced   Others   Total  
                                     
Cost                                    

As at March 31, 2013

36,525   924,988   6,279,087   389,802   107,057   718,324   1,102,438   29,372   9,587,593  
                                     

Additions 

-   576   51,060   -   1,504   936,245   561,761   -   1,551,146  
Disposals (10,148 ) (2,404 ) (54,789 ) (7,653 ) (2,373 ) -   -   (1,410 ) (78,777 )
Transfers from cost to depreciation -   (679 ) (5,622 ) (420 ) (41 ) (482 ) -   -   (7,244 )
Transfers (1) -   65,124   580,960   87,644   13,738   (762,751 ) (616,762 ) 2,384   (629,663 )
Reversal of loss provision (2) -   -   -   -   -   -   -   5,792   5,792  
Others -   -   -   -   167   -   -   -   167  

As at March 31, 2014

26,377   987,605   6,850,696   469,373   120,052   891,336   1,047,437   36,138   10,429,014  

Additions

-   -   34,728   22   490   749,924   624,883   -   1,410,047  
Disposals (2 ) (170 ) (143,332 ) (14,792 ) (3,214 ) (71 ) -   -   (161,581 )
Transfers (1) 8,836   74,867   534,816   79,163   16,973   (736,966 ) (553,340 ) 4,268   (571,383 )
Reversal of loss provision (3) -   -   (3,189 ) -   -   (5,489 ) -   -   (8,678 )
Others -   -   -   -   682   -   -   -   682  

As at March 31, 2015

35,211   1,062,302   7,273,719   533,766   134,983   898,734   1,118,980   40,406   11,098,101  
                                     
Depreciation                                    

As at March 31, 2013

-   (239,418 ) (1,847,829 ) (184,938 ) (62,794 ) -   (616,762 ) (22,274 ) (2,974,015 )
                                     
Expense with depreciation for the year -   (36,110 ) (255,069 ) (29,072 ) (13,490 ) -   (553,340 ) (2,069 ) (889,150 )
Disposals -   2,406   48,287   6,263   2,254   -   -   1,378   60,588  
Transfers from cost to depreciation -   679   6,105   107   353   -   -   -   7,244  
Transfers (1) -   (42 ) 163   37   8   -   616,762   -   616,928  

As at March 31, 2014

-   (272,485 ) (2,048,343 ) (207,603 ) (73,669 ) -   (553,340 ) (22,965 ) (3,178,405 )

Expense with depreciation for the year

-   (13,096 ) (356,379 ) (33,364 ) (15,911 ) -   (596,376 ) (4,837 ) (1,019,963  
Disposals -   170   141,200   13,627   3,229   -   -   -   158,226  
Transfers (1) -   (767 ) 407   256   4,368   -   553,340   (504 ) 557,100  

As at March 31, 2015

-   (286,178 ) (2,263,115 ) (227,084 ) (81,983 ) -   (596,376 ) (28,306 ) (3,483,042 )
                                     
Net carrying value:                                    
As of March 31, 2015 35,211   776,124   5,010,604   306,682   53,000   898,734   522,604   12,100   7,615,059  

As of March 31, 2014

 

26,377   715,120   4,802,353   261,770   46,383   891,336   494,097   13,173   7,250,609  

 

(1)Includes R$10,290 transferred to current assets in respect of recoverable ICMS credits, and R$24,573 transferred to intangible assets for software.

 

(2)Includes R$1,373 of provision for inventories losses and reversal of R$ 7,165 of provision for loss on advances, recorded under “Other operating revenues (expenses), net" (Note 25).

 

(3)Refers to inventories losses, recorded under “Other operating revenues (expenses), net" (Note 25).

 

45  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Construction in progress

 

On March 31, 2015, the balance of works in progress, in the amount of R$898,734 (R$891,336 in 2014), refers to: (i) vinasse project concentration; (ii) investments to expand the sugar cane mill; (iii) energy cogeneration project – shredded cane and straw separation; (iv) tank installation for ethanol stock capacity improvement; (v) investments to improve industrial conditions, agricultural automations, and health, safety and environment and administrative investments.

 

Capitalization of loan costs

 

During the year ended March 31, 2015, loan costs capitalized in the Company amounted to R$30,951 (R$44,296 and R$41,490 in 2014 and 2013 respectively). The weighted average interest rate utilized to determine the capitalized amount was 6.40% p.a. (4.17% and 4.07% in 2014 and 2013, respectively).

 

Finance leases

 

On March 31, 2015, the net amount of aircraft, furniture and fittings subject to financial leasing was R$ 5,694 (R$ 6,662 in 2014).

 

Property, plant and equipment pledged

 

On March 31, 2015, the loans and financing were secured by land, buildings and machinery of R$1,957, 387 (R$2,291,344 in 2014).

 

46  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

14.Intangible

 

a)Intangible assets roll-forward

 

   Software licenses (3)  

Goodwill

   Agricultural partnership agreements   Sugarcane supply agreements   Right to use public concessions  

Technology

(4)

  

Others (1)

  

Total

 
Cost                                

As at March 31, 2013

   87,396    1,517,602    9,375    157,439    10,811    —      18,692    1,801,315 
                                         

Additions

   275    —      —      —      —      —      —      275 
Capital contributions – Iogen (Note 11.d)   —      —      —      —      —      179,876    —      179,876 
Costa Rica Allocation (Note 11.c)   —      (1,333)   (3,268)   20,847    —      —      —      16,246 
Provisional allocation of Cerrado (Note 11.c)   —      33,663    —      —      —      —      —      33,663 
Transfer   20,180    —      —      —      1,732    61,629    —      83,541 
Provision for losses (5)   —      —      —      —      —      (6,569)   —      (6,569)
Accumulated translation adjustments   —      —      —      —      —      —      1,553    1,553 

As at March 31, 2014

   107,851    1,549,932    6,107    178,286    12,543    234,936    20,245    2,109,900 

Additions

   13,992    —      —      —      —      —      —      13,992 
Final allocation of the acquisition of Cerrad0 (11.c)   —      (9,003)   12,303    3,230    —      —      —      6,530 
Retirements   (1)   —      1    —      (2)   —      —      (2)
Transfer   28,333    (2,483)   —      —      —      —      —      25,850 
Provision for losses (5)   —      —      —      —      —      (55,060)   —      (55,060)
Accumulated translation adjustments   —      —      —      —      —      —      3,775    3,775 

As at March 31, 2015

   150,175    1,538,446    18,411    181,516    12,541    179,876    24,020    2,104,985 
                                         
Amortization                                        

As at March 31, 2013

   (71,544)   (431,380)   (879)   (32,536)   (1,040)   —      (9,664)   (547,043)
                                         
Amortization expense in the year   (7,877)   —      (880)   (11,700)   (2,162)   —      (4,983)   (27,602)
Transfers   (11)   —      —      —      (107)   —      —      (118)

As at March 31, 2014

   (79,432)   (431,380)   (1,759)   (44,236)   (3,309)   —      (14,647)   (574,763)

Amortization expense in the year

   (12,621)   —      (4,044)   (11,718)   (2,466)   —      (1,283)   (32,132)
Retirements   —      —      —      —      3    —      —      3 
Transfers (2)   (3,760)   —      —      —      —      —      —      (3,760)

As at March 31, 2015

   (95,813)   (431,380)   (5,803)   (55,954)   (5,772)   —      (15,930)   (610,652)
                                         
Net carrying value:                                        

As at March 31, 2015

   54,362    1,107,066    12,608    125,562    6,769    179,876    8,090    1,494,333 

As at March 31, 2014

   28,419    1,118,552    4,348    134,050    9,234    234,936    5,598    1,535,137 

 

(1)Intangible assets registered in Raízen Trading, corresponding to the portfolio of customers, and licenses to operate in Europe and the United States.

 

(2)Includes the transfer from property, plant and equipment in the amount of R$24,573, and transfer of the reverse merger of Curupay in the amount of (R$ 2,483 ) (Note 11.d.iv ).

 

(3)As at March 31, 2015, software licenses, net, amounted to R$ 1,421 (R$ 2,842 in 2014). The Company is a lessee in certain financial leasing operation agreements.

 

(4)As at March 31, 2015, the ethanol second generation(“E2G”) thecnology is concluded and ready for the use. The Company is building the first ethanol second generation facility in Brazil. The facility will have a production capacity of 40 million liters of ethanol, and will use technology developed by Iogen. This technology was granted to RESA with the exclusive contractual right to use and sell it in the territories in which Raízen operates. Amortization will start when the plant is ready for use, which is expected to be in the first semester of 2015, and will continue over the estimated period of financial returns from the technology.

 

(5)On March 31, 2015, the Company impaired technology intangible assets related to ethanol second generation of R$ 55,060 (R$ 6,569 in 2014) in the consolidated statement of income as other expenses (Note 25).

 

47  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Goodwill

 

Goodwill refers to the expectation of future profitability of the entities acquired by the Company. Goodwill was amortized on a straight-line basis through March 31, 2009, prior to the adoption of IFRS. As at March 31, 2015 and 2014, the balance of goodwill was as follows:

 

     
    2015   2014

In the acquisition of Costa Rica Canavieira Ltda. (Note 30.2.i)

  57,169   57,169
In the acquisition of Cerrado Açúcar e Álcool S.A. (Note 30.1.ii)   24,660   33,663
In the acquisition of Cosan S.A. Açúcar e Álcool (atual RESA)   558   558
In the acquisition of Univalem S.A. Açúcar e Álcool   5,018   5,018
In the acquisition of Usina Açucareira Bom Retiro S.A.   81,575   81,575
In the acquisition of Usina Benálcool   149,247   149,247
In the acquisition of Usina Santa Luíza   42,348   42,348
In the acquisition of Usina Zanin Açúcar e Álcool   98,380   98,380
In the acquisition of Vertical   4,313   4,313
In the acquisition of shares of TEAS   4,818   7,301
In the acquisition of Grupo Corona   380,003   380,003
In the acquisition of Grupo Destivale   42,494   42,494
In the acquisition of Grupo Mundial   87,435   87,435
In the organization of FBA - Franco Brasileira S.A. Açúcar e Álcool   4,407   4,407
In the merger of Curupay S.A. Participações   109,841   109,841
In capital payment of Mundial   14,800   14,800
  1,107,066   1,118,552

 

Analysis of impairment of cash-generating units containing goodwill

 

As described in Note 2.3 l, the Company reviews property, plant and equipment for impairment at least once a year.

 

The Company tests goodwill for impairment at least annually (Note 2.3 l).

 

Goodwill is allocated to cash-generating units, identified according to the operating region, as follows:

 

   
Operating – Regional 2015   2014

Piracicaba

129,742   138,744
Jaú 558   558
Araraquara 554,394   554,394
Araçatuba 303,400   303,400
Assis 109,840   109,840
Others 9,132   11,616

Total

1,107,066   1,118,552

 

Long-term non-financial assets which are not subject to amortization are revised whenever there are indications of impairment.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The Company determines recoverable value using the value in use method (Note 13), which is based on a projection of the expected discounted cash flows from the cash-generating units, as determined by management on the basis of budgets, taking into account the assumptions for each cash-generating unit and using information available in the market and referring to past performance.

 

The value in use is estimated on the basis of the present value of future cash flows, according to the Company's best estimates. Cash flows from the continued use of the related assets are adjusted for specific risks of the assets.

 

The discounted cash flows were prepared for a period of 20 years, without taking into account a growth rate. The discount rates corresponds to a pre-tax rate estimated at 6.5% per year.

 

The main assumptions used were: commodity sales price expectations over the long term, productivity of the agricultural areas, performance of TRS, and operating and administrative costs. All future cash flows were discounted at a rate that reflects the specific risks applicable to the relevant assets in each cash-generating unit.

 

On the basis of the annual tests, no impairment charge against assets or goodwill was recognized in the years ended March 31, 2015 or 2014, except for the provision for losses, disclosed as item 5 above. Determination of the recoverability of assets depends on certain key assumptions, as described above. These assumptions are influenced by market, technological and economic conditions that exist at the time of the test, and so it is not possible to ascertain whether impairment losses will occur in the future or, if they do, whether they will be material.

 

15.Trade accounts payable

 

   
  2015   2014
       
Materials and services 438,656   511,313
Sugarcane 129,640   126,550

Current

568,296   637,863

 

Materials and services mainly refers to equipment and machinery acquired that will be settled in the next 12 months.

 

The sugarcane harvest period, which takes place between April and December each year, on average, has a direct impact on the balances with sugarcane suppliers and the corresponding harvesting, loading and transport services.

 

49  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

16.Loans and financing

 

 

    Financial charges             
Purpose   Floating/fixed rate   Effective annual average interest rate (1)   2015   2014   Maturity
                     
Classification of debts by currency                    
Denominated in Brazilian Reais           5,856,201   4,527,519    
Denominated in dollars           4,619,226   3,128,269    
            10,475,427   7,655,788    
Nature of debts (2):                    
BNDES   URTJLP   8.0% (7.7% in 2014)   1,306,322   1,415,767   October 2025
BNDES   Fixed rate   4.1% (4.3% in 2014)   1,218,098   657,742   November 2023
BNDES   UMBND   6.6% (6.7% in 2014)   81,657   44,477   January 2024
Debentures   CDI   13.7% (11.6% in 2014)   471,020   467,421   October 2018
Debentures   IPCA   15.1% (17.1% in 2014)   350,187   324,243   October 2020
Advance payments   Dollar (US) + LIBOR   1.7% (2.0% in 2014)   863,123   1,076,882   September 2017
Term Loan Agreement   Dollar (US) + LIBOR   1.5% (1.7% in 2014)   2,248,675   1,019,233   December 2015
Working capital   Fixed rate   (14% in 2014)   -   5,383   March 2015
Senior Notes Due 2017   Dollar (US)   7.0% (7.0% in 2014)   1,297,921   915,585   February 2017
Resolution 2471 (PESA)   IGP-M   10.7% (11.4% in 2014)   832,213   806,703   April 2023
Resolution 2471 (PESA)   Fixed rate   3.0% (3.0% in 2014)   84   91   October 2025
Resolution 2471 (PESA)   CDI   13.0% (10.9% in 2014)   717,478   643,623   October 2020
Resolution 2471 (PESA)   Fixed rate   4.9% (4.8% in 2014)   96,610   111,720   January 2024
Credit notes   URTJLP   (10.6% in 2014)   -   102   May 2014
Finame/Leasing   Fixed rate   6.5% (5.5% in 2014)   67,176   50,246   November 2014
Agribusiness Receivables Certificates (“CRA”)   CDI   12.6%   605,109   -   December 2019
CRA   IPCA   14.3%   110,247   -   December 2021
    Dollar (US)   Miscellaneous   209,507   116,570   Miscellaneous
            10,475,427   7,655,788    
Transaction costs:                    
BNDES           (4,379 ) (3,135 )  
CRA           (11,619 )      
Rural credit           (68 )      
Debentures           (4,532 ) (5,185 )  
Advance payments           (1,717 ) (5,854 )  
Term Loan Agreement           (20,716 ) -    
Senior Notes Due 2017           (6,443 ) (7,143 )  
Credit notes           (310 ) (952 )  
            (49,784 ) (22,269 )  
            10,425,643   7,633,519    
Current           (1,377,898 ) (1,122,633 )  
Non-current           9,047,745   6,510,886    
                                   

 

(1)The effective annual interest rate corresponds to the contractual interest rate of the agreement plus LIBOR, Reference Unit to adjusted Long-Term Interest Rate (“URTJLP”), General Market Price Index (“IGP-M”) or Monetary Unit of Banco Nacional do Desenvolvimento ( “UMBND”), as applicable.

 

(2)The loans and financing are generally secured by promissory notes issued by the Company. In some cases, sureties are also given by its subsidiaries, by Raízen Combustíveis S.A.  or by shareholders, in addition to collateral such as: i) credit rights arising from energy sales agreements (BNDES); ii) CTN and mortgage of land (PESA); iii) property, plant and equipment (Note 13); and iv) fiduciary lien on the assets financed (Finame).

 

50  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The maturities of the non-current amounts of loans and financing, net of amortization of transaction costs, are as follows:

 

     
    2015   2014

13 to 24 months

  2,194,832   1,735,825
25 to 36 months   1,183,603   1,576,290
37 to 48 months   1,625,948   593,017
49 to 60 months   1,396,340   1,107,656
61 to 72 months   2,170,176   697,353
73 to 84 months   232,881   574,401
85 to 96 months   134,536   100,042
Greater than 97 months   109,429   126,302
  9,047,745   6,510,886

 

PESA – Resolution 2471

 

From 1998 to 2000 the Company renegotiated debt related to agricultural funding with several financial institutions, thereby reducing financial costs to annual interest rates below 10.7% and guaranteeing the settlement of the debt with the assignment and transfer of CTNs, restricted Brazilian treasury bills redeemable on the debt maturity dates. In doing so it took advantage of the incentive introduced by Resolution No. 2471, issued by the Central Bank of Brazil on February 26, 1998. This debt is settled through redemption of CTNs and the compliance with the contractual dispositions, as mentioned in Note 9.

 

Senior Notes Due 2017

 

On January 26, 2007, the subsidiary Raízen Energy Finance Limited issued in the international capital markets, pursuant to Regulations S and 144A, US$ 400,000 thousands of Senior Notes that bear interest at a rate of 7% per annum, payable semi-annually in February and August of each year.

 

BNDES

 

These are funds raised by the Company and its direct and indirect subsidiaries for financing cogeneration and greenfield projects and for renewing cane fields, establishing new cane fields (Prorenova), and to finance the construction of the E2G facility.

 

As at March 31, 2015, the Company had unused lines of credit available from BNDES amounting to R$ 510,167 (R$ 1,227,872 in 2014). Use of these lines of credit is conditional upon meeting certain contractual conditions.

 

Advances on foreign exchange contracts and credit notes

 

Advances on foreign exchange contracts and credit notes were obtained from several banking institutions. The advances on foreign exchange were paid in February 2015, in the amount of US$ 100 million of principal, plus U$ 606,000 of interest, through the Company’s subsidiary Raízen Energia S.A.. The total amount was R$ 283,803 million. The credit notes will be settled against export proceeds in 2020. These transactions bear interest at rates of 13% per annum, payable semi-annually and at the maturity date.

 

FINAME

 

This refers to financing operations under FINAME – Financiamento de Máquinas e Equipamentos (Machinery and Equipment Financing), made available through several financial institutions, to be used for investment in property, plant and equipment. These loans are subject to effective interest of 4.9% per annum, payable monthly. The loans are secured by liens on the financed assets.

 

51  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Term Loan Agreement (syndicated loan)

 

On December 5, 2012, the indirect subsidiary Raízen Cayman Limited obtained a syndicated loan from several financial institutions in the amount of US$ 450 million. The principal and the interest, US$ 450million and US$ 2,267, respectively, was paid on March 30, 2015, totaling R$ 1,450,873.

 

On April 8, 2014, the Company obtained syndicated loans from various financial institutions, amounting to US$ 250million. The loan is subject to exchange rate variations in relation to the US dollar plus interest at the quarterly LIBOR and annual rate fixed of 1.4% p.a., giving an effective average rate of 1.63% p.a. The principal is to be repaid in March 2018 and 2019.

 

On March 30, 2015, the indirect subsidiary Raízen Cayman Limited, signed a loan from a syndicate composed of several global commercial banks, in the amount of R$ 1,443,600 (US$ 450 million). The loan is subject to the exchange variations of the US dollar plus interest at the quarterly Libor and rate of 1.2% p.a., giving an effective average rate of 1.47% p.a. payable quarterly. The principal repaid on April 27, 2020. Through this syndicate, the Company also obtained a Revolving Credit Facility in the amount of $ 285 million, maturing on April 27, 2020.

 

Export prepayment financing agreement

 

Between the years 2009 and 2013, the Group entered into several export prepayment financing agreements. These contracts are subject to the exchange rate variations relating to the US dollar and bear LIBOR interest (quarterly and annually), resulting in an effective average interest rate of 1.7% p.a., with final maturity in September 2017.

 

Issuing of Agribusiness Receivables Certificates (“CRAs”)

 

In October 2014, RESA and its subsidiaries issued CPR (Rural Product Note) related to the Agribusiness Receivables Certificatesamounting to R$ 675,000 and maturing in December 2021. The funds raised will be used exclusively in the ordinary course of Raízen's activities related to agribusiness, including the operations, investments and financing needs related to the production, marketing, processing or manufacturing of agricultural products, inputs, machinery and implements used in agricultural activities.

 

    Annual interest rate   Effective annual average interest rate       Date of
proceeds
   
Index       Principal     Maturity
CDI   -   12.6%   573,013   21/10/2014   Dec/19
IPCA   5,69%   14.3%   101,987   21/10/2014   Dec/21

 

Debentures

 

On October 21, 2013, the CVM approved the registration by RESA of its first public issue of simple debentures, and 750,000 non-convertible unsecured debentures were issued, in three series, with a unit face value of R$ 1 , giving a total of R$ 750,000.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The net proceeds of the issue, amounting to R$ 747,710, were used in full as follows: (i) to reinforce RESA’s cash in the case of the first and second series debentures; and, (ii) to fund part of RESA’s investments in the 2013/2014 harvest, both in the agricultural and the industrial area, pursuant to Law 12,431 in the case of the third series.

 

  Index   Annual interest rate   Effective annual average interest rate  

Principal

 

Date of proceeds

 

Maturity

                       
1ª Series CDI   0.89%   13.6%   105,975   25/10/2013   October 2018
2ª Series CDI   0.94%   13.7%   340,000   28/10/2013   October 2018
3ª Series IPCA (*)   6.38%   15.1%   304,025   29/10/2013   October 2020

 

(*) National Extended Consumer Price Index.

 

Covenants

 

On March 31, 2015 and 2014, the Company had loans and financing agreement contracts with covenants relating to cash generation, debt ratios and other. These covenants are being observed by the Company and do not restrict its capacity in its ordinary course of business.

 

Fair value

 

As at March 31, 2015 and 2014, the consolidated carrying values and fair value of loans and financing were as follows:

 

  Carrying value   Fair value  
  2015   2014   2015   2014  
                 
Senior Notes Due 2017 1,291,478   908,442   1,385,577   1,003,938  
Other loans and financing 9,134,165   6,725,077   9,134,165   6,725,077  
  10,425,643   7,633,519   10,519,742   7,729,015  

 

The fair value of the Senior Notes due in 2017 is based on prices quoted at the balance sheet dates (Note 27.j).

 

The fair value of other loans and financing is close to their amortized cost.

 

17.Taxes payable

 

     
  2015   2014  

Installment payments (Refis IV)

166,822   697,492  
ICMS 25,701   56,832  
Social Security (INSS) 23,018   24,181  
COFINS 24,369   20,235  
IRRF (withholding income tax) 10,041   7,506  
FGTS (government severance indemnity fund for employees) 5,543   5,587  
IOF (tax on financial transactions) 3,639   3,636  
PIS 5,297   4,439  
IPI (excise tax) 550   547  
Others 3,673   3,491  
268,653   823,946  
Current 99,537   156,572  
Non-current 169,116   667,374  

 

53  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The breakdown of current and non-current liabilities is as follows:

 

   
  2015   2014
Current      
Taxes payable 80,127   89,162
Installments taxes – reimbursable (Note 10) 18,510   65,326
Installments taxes – non-reimbursable 900   2,084
99,537   156,572
Non-current      
Installments taxes – reimbursable (Note 10) 150,901   632,218
Tax incentive – ICMS 18,215   31,393
Installments taxes – non-reimbursable -   3,763
169,116   667,374
268,653   823,946

 

The amounts payable over one year are scheduled to mature as follows:

 

   
  2015   2014

13 to 24 months

18,510   66,422
25 to 36 months 17,791   65,611
37 to 48 months 17,408   64,936
49 to 60 months 17,408   63,702
61 to 72 months 17,408   63,702
73 to 84 months 17,408   63,702
85 to 96 months 17,408   63,702
As from 97 months 45,775   215,597
169,116   667,374

 

Tax Amnesty and Refinancing – Law 11.941/09 and Provisional Measure (MP) 470/09 ("Refis IV")

 

On May 27 and October 13, 2009, Law 11.941 and MP 470 were passed by the Brazilian government, setting up an amnesty and tax refinancing program (Refis IV) that allows taxpayers to settle federal tax obligations though refinancing programs. The obligations covered by Refis IV include other federal taxes challenged in the courts. Discounts on existing penalties and interest are available under the program.

 

Laws No. 12.865 of October 10, 2013, No. 12.973 of May 14, 2014 and No. 12.996 of June 18, 2014, reopened the deadline for inclusion of debts in Refis IV. This benefit was obtained by the Company. The Company is now awaiting the announcement of the consolidation of the values included in the program.

 

With the publication of the Law No. 13.043 of November 14, 2014, conversion of MP 651, it became possible to liquidate federal debts in installments, through the use of tax losses and negative basis of social contributions, including subsidiaries and parent companies, direct or indirect, conditional on payment of 30% of the balance in installments (as per article 33 of the Law).

 

After the evaluation of the financial benefits resulting from the application of this legal provision, Cosan chose to pay off the debt installments pursuant to Law 11,941 / 2009, since the installments were its responsibility (they pre-existed the formation of Raízen).

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The amounts after application of this legal provision are as follows:

 

Payment in installments of tax debits – Refis IV

  Total 
     
On March 31, 2014   697,492 
Recognition of interest and previous payments to the publication of Law No. 13.043   (9,737)
Adhesion to the installment program   12,782 
Use of tax losses and negative basis of social contributions (1)   (372,627)
Cash payment of 30%   (132,647)
Financial discount   (28,441)
      
On March 31, 2015   166,822 

 

(1)Includes tax losses of Cosan in the amount of R$ 171,750, recorded as preferred shares payable by the Company (Notes 10.a, 18.a and 21.a). The remaining balance used to settle the REFIS IV comprises: (a) assignment of credits of Cosan and subsidiaries of R$ 142,761; (b) Raízen’s own credits assigned to payment of R$ 55,870; and (c) Raízen’s own credits for payment the Refis IV of Raízen Araraquara in the amount of R$ 2,246.

 

According to Raízen´s agreement (Note 1), any payment linked to the debt in installments existing before June 1, 2011, shall be fully refunded to the Company by Cosan. Thus, due to the settlement of the debts under Refis IV, under Law No. 13.043, the balance receivable from Cosan was substantially lowered. See Note 10.

 

Tax incentive – ICMS

 

On September 11, 2008, the subsidiary Raízen Caarapó Ltda. signed Agreement No. 331/2008 ("TC 331") with the state of Mato Grosso do Sul ("MS"). This agreement guaranteed until September 22, 2018, the tax benefit on the sugar manufacturing operations in this state, equivalent to 67% of the outstanding balance of ICMS. The amount recognized in the income statement on March 31, 2015, totaled R$ 9,340 (R $ 6,830 in 2014) (Note 24.a).

 

The Company, through its subsidiary Raízen Centroeste, benefits from a state incentive program in the State of Goiás, in the form of financing of part of the ICMS payments, called "Programa de Desenvolvimento Industrial de Goiás - Produzir", with the deferral of tax payments. The Company's right to the benefit is conditional on its complying with all the obligations determined by the program, the terms of which relate to factors under the Company's control.

 

For the years ended March 31, 2015, 2014 and 2013, the incentives in the consolidated statement of income were R$50,217, R$25,260 and R$22,930, respectively, recorded under "Other operating income, net" (Note 25).

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

18.Income and social contribution taxes

 

a)Reconciliation of income tax and social contribution benefit (expense):

 

   2015   2014   2013 
Income before taxes   (52,393)   188,515    377,849 
Nominal tax rate (34%)   17,814    (64,095)   (128,469)
Reconciling items:               
Equity interest in income of associates   (11,539)   (11,708)   (7,856)
Non-deductable expenses related to gifts, donations, class associations   (2,373)   (3,379)   (3,752)
Income tax rate difference of presumed profit taxation method (ii)   56,814    —      —   
Reversal of deferred tax liability related tocorporate restructuring (i)   43,341    —      —   
Tax incentive – ICMS – (Note 17)   20,249    10,911    15,264 
Tax benefit - Reintegra (Note 6)   17,442    —      —   
Exchange variation on overseas investee   11,254    3,046    2,149 
Capital gain on dilution of equity interest (Note 11.c.1)   10,313    —      —   
Non-taxable financial results   —      —      82,691 
Deferred taxes on provisions contributed upon formation of the JV   —      —      16,924 
Interest on own equity   —      13,600    —   
Others   77    3,993    944 
Income and social contribution taxes benefit (expense)   163,392    (47,632)   (22,105)

Effective rate

   (311.86%)   (25.27%)   (5.85%)
(i)Refers to the reversal of deferred tax liabilities on temporary differences that had been generated by changes in the useful lives and fair value step up of property, plant and equipment upon transition to IFRS. Upon the contribution of energy cogeneration’s assets (internal reorganization – Note 30.1.i) to a separate entity the deferred tax liabilities were reversed, as the new subsidiary follows the presumed profit regime and under such tax regime depreciation or amortization is not deductible.

 

(ii)Refers to the effect of the difference between the tax rate applicable to presumed profit regime, which is followed by the Company’s cogeneration business, and the tax rate applicable to real profit regime, which is followed by parent company and other company’s subsidiaries.

 

a.1) Recoverable income tax and social contributions

 

   
  2015   2014

Income tax

404,499   269,244
Social contributions 140,720   90,649
  545,219   359,893
       
Current 36,859   359,893
       

Noncurrent

508,360   -

 

a.2) Payable income tax and social contributions

 

   
  2015   2014

Income tax

6,432   570
Social contributions 2,430   190
       

Current

8,862  

760

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Beginning in August 2013, the Company started to antecipate income tax and social contributions based on estimated revuene, which had a positive effect on the recoverable taxes accounted for as current and non-current assets (Note 18.a.1). The prepaid tax was offset against other federal taxes (Pis, Cofins and IOF).

 

b) Deferred income tax (IRPJ) and social contribution (CSLL) assets and liabilities:

 

               2015   2014 
Assets (liabilities)  Base   IRPJ 25%   CSLL 9%   Total   Total 
Tax losses:                    
Tax loss carryforwards (corporate income tax)   747,943    186,986    —      186,986    280,409 
Negative calculation basis (social contributions)   747,994    —      67,319    67,319    102,023 
                          
Temporary differences:                         
Tax goodwill from downstream merger   402,349    100,587    36,211    136,798    180,830 
Provision for tax, civil and labor risks   319,697    79,924    28,773    108,697    90,549 
Provision for write-off against goodwill   288,549    72,137    25,969    98,106    98,106 
Miscellaneous provisions and other temporary differences   462,334    115,583    41,610    157,193    133,480 
Foreign exchange variance – Cash basis   1,645,455    411,364    148,091    559,455    118,464 
Total        966,581    347,973    1,314,554    1,003,861 
                          
Biological assets   (41,795)   (10,449)   (3,762)   (14,211)   (23,168)
Unrealized derivatives   (861,077)   (215,269)   (77,497)   (292,766)   (38,687)
Capitalized cost of loans   (223,508)   (55,877)   (20,116)   (75,993)   (75,134)
Fair value of property, plant and equipment   (336,074)   (84,018)   (30,247)   (114,265)   (126,541)
Revision of property, plant and equipment useful life   (943,854)   (235,964)   (84,947)   (320,911)   (270,649)
Amortized tax goodwill   (805,913)   (201,477)   (72,531)   (274,008)   (234,465)
Total        (803,054)   (289,100)   (1,092,154)   (768,644)
                          

Total deferred taxes

        163,527    58,873    222,400    235,217 
                          
Deferred taxes – assets, net                  299,314    256,611 
Deferred taxes – liabilities, net                  (76,914)   (21,394)
                          

Total deferred taxes

                  222,400    235,217 
                          

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

c)The roll-forward of the deferred taxes is set out below:

 

  2015   2014   2013  
             
Balance at beginning of the year 235,217   209,031   (72,668 )
Recognized in the statement of income 224,576   (18,562 ) 82,299  
Deferred taxes on other comprehensive income (13,178 ) 57,251   (36,778 )
Merger of subsidiaries 4,486   -   -  
Deferred taxes on allocation of the acquisition of Cerrado (Nota 30.1.ii) (6,530 ) -   -  
Deferred taxes on goodwill (Notes 1 and 21.a) -   -   241,107  
Deferred taxes on fair value allocation of Costa Rica (Note 30.2.1.i) -   (17,357 ) -  
Use of tax losses and negative base of social contribution to settle Refis IV (222,492 ) -   -  
Write off of contractual land leasing rights -   1,111   -  
Other adjustments in connection with the formation of the joint venture 321   3,743   (4,929 )
             

Balance at the end of the year

222,400   235,217   209,031  

 

d)Estimated time of realization

 

In assessing the deferred tax recovery capacity, management takes into consideration future taxable income projections and changes in temporary differences. When it is more likely that part of or all taxes will not be realized a provision is recognized. There is no validity period for using net operating loss (NOL); however, the use of prior-year accumulated losses is limited to 30% of annual taxable income.

 

As at March 31, 2015, the Company had the following expected realization of deferred tax assets:

 

     
Years: 2015 2014
2015 - 309,386
2016 363,308 278,672
2017 530,292 117,973
2018 99,024 67,153
2019 35,696 33,226
2020 147,700 171,310
After 2020 138,534 26,141
     

Total

1,314,554 1,003,861

 

As at March 31, 2015, the Company’s subsidiaries Curupay Agroenergia Ltda., Agrícola Ponte Alta Ltda., Raízen Biotecnologia S.A. and Unimodal Ltda had accumulated tax losses of R$ 5,608 (R$ 32,422 in 2014) for which no deferred tax assets are recognized, as the use of these losses is not considered probable.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

19.Provision for tax, civil and labor risks

 

During the process of the formation of the joint venture (Notes 1 and 21.a), it was agreed that Cosan should reimburse the Company for the cost of lawsuits in progress before its incorporation, when these are effectively settled by the courts. On March 31, 2015 and 2014, the balances of such claims to be reimbursed and non-reimbursable are as follows:

 

          2015   2014
  Non-reimbursable claims   Reimbursable claims   Total   Total

Tax

4,972   26,218   31,190   152,178
Civil 4,243   28,838   33,081   33,806
Labor 59,780   120,429   180,209   157,290
68,995   175,485   244,480   343,274

 

Also, at the time of the formation of the joint venture, it was agreed that the Company would reimburse Cosan for the amount of judicial deposits made before its incorporation, when these are effectively received. On March 31, 2015 and 2014, the balance of refundable and non-refundable deposits was as follows:

 

          2015   2014
  Court deposits of the Company   Refundable court deposits   Total   Total

Tax (1 and 2)

19,926   142,924   162,850   250,413
Civil 3,231   5,852   9,083   6,277
Labor 10,190   23,674   33,864   25,726
33,347   172,450   205,797   282,416

 

 

(1)As at March 31, 2015 and 2014, this included R$ 112,153 (R$ 86,169 in 2014) in refundable judicial deposits, which are being constituted under Law 11.941 (Note 17).

 

(2)On March 31, 2015, this was offset against the balance of lawsuits in the amount of R$ 132,543 and R $ 30,745 of its own and refundable escrow deposits, respectively.

 

i)Non-reimbursable claims

 

  Tax   Civil   Labor   Total  
As at March 31, 2014 92,249   6,140   47,927   146,316  
Provisioned in the year (i) 35,295   2,984   43,042   81,321  
Write-offs / reversals (ii) (132,760 ) (4,340 ) (36,888 ) (173,988 )
Interest 10,188   (541 ) 5,699   15,346  
As at March 31, 2015 4,972   4,243   59,780   68,995  

 

(i)Accounted for in the consolidated statement of income of the year as "Other operating income (expenses)" (Note 25), except for the INSS provision on revenues, of R$ 31,546 (R$ 31,301 in 2014), reclassified from "Taxes payable" in current liabilities.

 

(ii)Includes compensation relating to court deposits in the amount of R$ 132,543. The amount of R$ 132,543, described as write off / reversals refers to the offset of judicial deposits with the tax provision. This offset has no impact on the profit and loss for the year ended.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

 ii)

Refundable claims (i)

 

  Tax   Civil   Labor   Total  
As at March 31, 2014 59,929   27,666   109,363   196,958  
                 
Provisioned in the year 6,600   4,245   57,275   68,120  
Write-offs / reversals (ii) (39,212 ) (6,232 ) (52,945 ) (98,389 )
Interest (1,099 ) 3,159   6,736   8,796  
                 
As at March 31, 2015 26,218   28,838   120,429   175,485  

 

(i) The roll-forward of refundable claims does not affect the consolidated statement of income.

 

(ii) Includes compensation relating to judicial deposits of R$ 30,745.

 

iii)Total claims

 

  Tax   Civil   Labor   Total  
As at March 31, 2014 152,178   33,806   157,290   343,274  
                 
Provisioned in the year 41,895   7,229   100,317   149,441  
Write-offs / reversals (171,972 ) (10,572 ) (89,833 ) (272,377 )
Interest 9,089   2,618   12,435   24,142  
                 
As at March 31, 2015 31,190   33,081   180,209   244,480  

 

 

Contingencies for probable losses

 

a)Tax

 

The main tax claims as at March 31, 2015 and 2014 were as follows:

 

       
      2015   2014
  Non-reimbursable claims   Reimbursable claims  

Total

  Total

INSS (i)

1,000   1,166   2,166   123,096
ICMS credits (ii) -   21,086   21,086   17,151
IPI 1,358   1,031   2,389   967
PIS and COFINS -   892   892   2,970
Others 2,614   2,043   4,657   7,994
4,972   26,218   31,190   152,178

 

i)The accrued INSS amount corresponds to the amounts relating to social security contributions on billings, in conformity with art. 22-A of Law 8.212/91. The constitutionality of this article is being challenged in the courts. The Company made judicial deposits related to the lawsuit in the amount of R$ 163,288. Therefore, both balances are presented net in these financial statements.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

ii)The amount accrued as ICMS credits refers to: (a) tax assessment notices received which, despite being challenged at the administrative or court levels, the Company's legal counsel believes the likelihood of loss is probable; (b) use of credits and financial charges in matters where the interpretation of the Company's management and legal counsel differs from that of the tax authorities.

 

b)Civil and labor

 

The Company is a party to various civil lawsuits relating to (i) indemnity for tangible damages and pain and suffering, (ii) contractual disputes, (iii) civil class actions to abstain from burning sugarcane straw, and (iv) environmental claims.

 

The Company is also a party to various labor claims filed by former employees and employees of outsourced service providers who are claiming the payment of overtime, night shift premium and hazardous work premiums, job re-admittance, deductions from payroll (such as confederation dues, union dues, etc).

 

Contingencies classified as having a possible risk of loss

 

a)Tax

 

The main tax contingences classified as having a possible risk of loss are as follows:

 

      2015   2014
  Non-
reimbursable
claims
  Reimbursable
claims
  Total   Total
               
ICMS (i) 126,789   755,420   882,209   799,019
INSS (ii) 43,506   352,740   396,246   353,723
IPI (iii) 3,171   384,689   387,860   368,929
IRPJ and CSLL (iv) 22,473   301,857   324,330   305,325
PIS and COFINS (v) -   462,021   462,021   318,923
Offsets against IPI credits - IN 67/98 (vi) -   119,891   119,891   115,921
Others 18,418   232,293   250,711   222,238
214,357   2,608,911   2,823,268   2,484,078

  

(i)ICMS

 

Refers mainly to (i) fines on tax assessment received from May 2005 through March 2006, and May 2006 and March 2007, alleging the Company had not paid the ICMS originating from agricultural joint operations and scheduled manufacture; and (ii) ICMS on shipments of crystal sugar exportation. The tax inspector argues that such products are classified as semi-finished products which, according to the ICMS regulations, would be subject to taxation; (iii) tax assessments relating to ICMS rate difference arising from sales of ethanol to companies located in other Brazilian states whose state enrollment numbers were subsequently cancelled; (iv) tax assessments relating to credit disallowance in regard to purchase of products from companies that, subsequently, had their registrations revoked and declared ineligible; and (v) payment of ICMS arising from disallowances of credits of diesel fuel used in the agro-industrial production process.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

ii)Possible losses on INSS-related claims mainly involve:

 

(i) In regard to the validity and constitutionality of MPS/SRP Regulatory Instruction 03/2005, which restricted the constitutional exemption of social security contributions in relation to revenues derived from exports made exclusively through direct sales, it is understood that exports made through export or trading companies will start to be taxed; (ii) payment of SENAR contributions in direct and indirect export transactions, where the tax authorities understand that there is no right to constitutional exemption; and, (iii) payment of social security contributions on resale of products in the domestic market and to third parties, which is not included within the social security tax basis and which is levied only on the gross revenue deriving from the effective production of the entity rather than on the products purchased.

 

iii)IPI – Excise tax on manufactured products

 

Normative Instruction 67/98 of the Brazilian Federal Revenue Service (“SRF”) has validated the procedure adopted by manufacturing plants that made sales without calculating and paying IPI related to several types of sugarcane sugar, including demerara, higher refined, special refined, special extra refined and granulated refined sugars, from July 6, 1995 through November 16, 1997, as well as amorphous refined sugar sales from January 14, 1992 through November 16, 1997. This rule was put into effect in the related proceedings filed by the Brazilian Federal Revenue Service. The risk of loss was classified as possible based on the opinion of the Company’s legal advisers.

 

iv)IRPJ and CSLL

 

In December 2011, the Company received tax assessment notices issued by the Brazilian Federal Revenue Service, related to IRPJ and CSLL for calendar years 2006 to 2009, challenging: (i) the deductibility of amortization expenses relating to certain specific items of goodwill; (ii) the offset of tax loss carryforwards; and (iii) the tax on differences of revaluations of property, plant and equipment items. The taxes assessments amounted to R$ 496,522 (R$ 551,852 in 2014). The Company submitted its defense in January 2012 and, together with its legal counsel, assessed as having a likelihood of possible loss the amount of R$ (R$ 229,443 in 2014). The remaining balance is R$ 246,672 (R$ 75,882 in 2014).

Additionally, in February 2014, Raízen Tarumã received tax assessments, in the amount of 45,421, issued by the RFB, charging income tax and social contributions for the calendar years 2009 to 2012, and questioning: (i) the amortization of goodwill; and (ii) the offsetting of tax losses and negative basis of social contributions calculation. The Company presented its defense in January 2012 and, together with its legal counsel, classified this case as being a possible loss.

 

The remaining balance of the contingency IRPL and CSLL and social contributions, in the amount of R $ 9,764, relates to various factors. Management, together with its legal counsel, classified this balance being a possible loss.

 

In non-refundable lawsuits in November 2014, the Company received assessment notices from the RFB dealing with the disallowance of non-cumulative PIS / COFINS arising from goods and services purchased in the domestic merchant and offset against withholding tax and social contributions / income tax. Because disallowed credits are linked to goods and services used in the Company's supply chain, the disallowance is improper and illegal under existing legislation (Law 10,637 / 02 and Law 10,833 / 03), which is why the loss of classification is classified as possible.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

v)PIS and COFINS

 

Refers mainly to the disallowances of PIS and COFINS credits under the non-cumulative system, set forth in Laws 10,637/2002 and 10,833/2003, respectively. Such disallowances mainly came from the restrictive interpretation by the Brazilian Federal Revenue Service of the concept of "inputs", as well as differences with respect to the interpretation of these laws. The disputes are at the administrative phase.

 

vi)Offsets against IPI credits – IN 67/98

 

Normative Instruction SRF 67/98 made it possible to obtain a refund of IPI tax payments for sales of refined amorphous sugar from January 14, 1992, through November 16, 1997. In view of this rule, RESA offset the amounts paid during the relevant periods against other tax liabilities. However, the Brazilian Federal Revenue Service denied its application for both reimbursement and offsetting of such amounts. RESA challenged this ruling in an administrative proceeding.

 

Upon being notified to pay tax debts resulting from offsets in light of certain changes introduced by IN SRF 210/02, RESA filed a writ of mandamus and applied for a preliminary injunction seeking to stay enforcement in relation to the offset taxes, in an attempt to prevent the tax authorities from demanding the relevant tax debts in court. The preliminary injunction was granted by the court. The legal counsel of the Company in charge of this suit has deemed it a possible loss.

 

b)     Civil and labor

 

As at March 31, 2015 and 2014, the nature of civil and labor claims, whose likelihood of loss is assessed as possible, is similar to the previous litigation mentioned above. The civil and labor claims assessed as having a possibility of loss are as follows:

 

          2015   2014
  Non-reimbursable claims   Reimbursable claims   Total   Total
               
Civil 125,549   312,448   437,997   314,220
Labor 156,318   333,645   489,963   496,821
281,867   646,093   927,960   811,041

 

20.Commitments

 

Sales

 

The Company is the parent company of entities that operate in the sugar, ethanol and energy cogeneration market. Sales agreements are managed on a consolidated basis. Therefore, the Company, together with its group entities, are responsible for total sales commitments.

 

Sales of commodities are essentially made at spot prices. However, the Company enters into several sugar and ethanol agreements to sell future crops of those products.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

The amounts of sugar sales agreements, in metric tons, on the date of the financial statements are set out below:

 

Years 2015   2014
       
2014/2015 -   2,242,000
2015/2016 3,564,000   514,000
2016/2017 514,000   514,000
2017/2018 514,000   -
2018/2019 514,000   -
       

Total

5,106,000   3,270,000

 

Data presented in the table above were not examined by Company’s independent auditors.

 

The amounts of ethanol sales agreements, in cubic meters, on the date of the financial statements are out forth below:

 

Years 2015   2014
       
2014/2015 -   1,375,479
2015/2016 1,630,429   175,000
2016/2017 146,016   -

Total 

1,776,445   1,550,479

 

Data presented in the table above were not examined by Company’s independent auditors.

 

The amounts of power and steam sales agreements, in MWh and metric tons, on the date of the financial statements are set out below:

 

  Electric power (in MWh)   Steam (in  metric tons)
Years 2015   2014   2015   2014
               
2014/2015 -   1,894,665   -   -
2015/2016 1,876,707   1,824,147   140,000   -
2016/2017 1,825,395   1,825,395   -   -
2017/2018 1,824,147   1,824,147   -   -
2018/2019 1,958,175   1,958,175   -   -
After 2019/2020 13,683,222   13,817,250   -   -
               

Total

21,167,646   23,143,779   140,000   -

 

Data presented in the table above were not examined by Company’s independent auditors.

 

Purchases

 

In the normal course of its business, the Company enters into sugarcane purchase agreements with third parties, which are mainly related to securing a portion of its production for the following harvest season. The quantity of sugarcane to be purchased is calculated based on the estimate of the quantity to be crushed per location. Amounts payable by the Company are determined at the end of each harvest, in accordance with prices published by CONSECANA.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

The amounts of the crop purchase agreements, in metric tons, on the date of the financial statements are set out below:

 

Years 2015   2014
       
2014/2015 -   28,070,662
2015/2016 28,252,062   25,002,452
2016/2017 25,173,669   21,732,360
2017/2018 21,214,536   18,049,020
2018/2019 17,194,669   14,433,131
After 2019/2020 83,895,574   80,792,716
       

Total

175,730,510   188,080,341

 

The Company has entered into several agreements to purchase equipment utilized for plant maintenance and expansion, as well as to support energy cogeneration projects, in the total amount of R$129,787 (R$264,995 in 2014).

 

Lease Agreements

 

Operating leases

 

The Company has entered into several operating lease agreements to secure land for sugarcane plantations. These agreements will mature in 20 years.

 

The minimum payments and variables are calculated based on the ATR issued by CONSECANA and the volume of sugarcane per hectare, as defined in the agreements. The expense commitments of the agreements, on the date of the financial statements, are set out below:

 

  2015   2014

Within one year

506,971   544,665
Between one and five years 1,463,769   1,719,548
More than five years 889,938   1,141,130
       

Total

2,860,678   3,405,343

 

Non-financial information is not part of the scope of financial statement auditing. Consequently, ATR issued by CONSECANA and the volume of sugarcane per hectare were not examined by the Company’s independent auditors.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

21.Shareholders’ equity

 

a)Capital transactions and capital reserves

 

On November 30, 2012, the Extraordinary General Meeting discussed and approved a stock split of 2,066,237,649 common shares issued by the Company, based on a ratio of 1: 2.43036163648, with no change in the value of capital stock, resulting in a total of 5,021,704,714 common shares, all held by the Company's sole shareholder.

 

Additionally, the shareholders approved, without increasing the Company's capital stock, the conversion of 119,109,080 common shares into preferred shares, as follows:

 

  Conversion
Class A preferred shares 1
Class B preferred shares 118,345,603
Class C preferred shares 763,476

Total

119,109,080

 

As a result of the conversion of shares, the Company’s capital stock was as follows:

 

  Shares
  Common   Preferred   Total

Common

4,902,595,634   -   4,902,595,634
Class A -   1   1
Class B -   118,345,603   118,345,603
Class C -   763,476   763,476

Total

4,902,595,634   119,109,080   5,021,704,714

 

Subsequently, on the same date, the merger of REPSA was approved, consisting of the residual portion of its shareholders’ equity, in the amount of R$998,835, and subsequent cancellation of shares corresponding to its capital stock.

 

Immediately thereafter, new shares were issued to replace the cancelled shares, which were held as follows by the shareholders Shell and Cosan:

 

  Shareholders
  Shell   Cosan   Total

Common

2,451,297,817   2,451,297,817   4,902,595,634
Class A -   1   1
Class B -   118,345,603   118,345,603
Class C 763,476   -   763,476

Total

2,452,061,293   2,569,643,421   5,021,704,714

 

The amount of R$998,835 was allocated by the issuing of 1,000,000,000 new common shares, of which R$181,417 and R$817,417 were allocated to "Shareholders’ capital " and "Capital reserve", respectively. The shareholders’ capital increased from R$4,818,583 to R$5,000,000, and comprised of 6,021,704,714 shares, as follows:

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

  Shareholders
  Shell   Cosan   Total

Common

2,951,297,817   2,951,297,817   5,902,595,634
Class A -   1   1
Class B -   118,345,603   118,345,603
Class C 763,476   -   763,476

Total

2,952,061,293   3,069,643,421   6,021,704,714

 

At the Extraordinary General Meeting held on February 7, 2014, the Company's shareholders discussed and approved the capital increase of R$8,427, through the issuing of 7,818,300 new Class B preferred shares, fully subscribed by Cosan, paid on May 2, 2014.

 

On June 23, 2014, the shareholder Cosan transferred to Cosan Investimentos e Participações S.A. (“CIP”) all 2.951.297.817 ordinary shares held, with usufruct reserve, to Cosan until October 1, 2021, together with all political rights, right to receive interest on own capital and the right to receive dividends linked to such shares.

 

The Extraordinary General Meeting held on January 21, 2015, discussed and approved the conversion of 100,000 Class C preferred shares into an equal number of preferred Class D shares, all held by the shareholder Shell Brazil Holdings BV.

 

On March 31, 2015, the shareholders’ social capital was R$ 5,016,354 (R$ 5,016,354 in 2014). This balance is presented deducted from the balance of redeemable preferred shares in the amount of R$ 93,300 (R$ 264,276 in 2014), totaling R$ 4,923,054(R$ 4,752,078 in 2014).

 

As at the year ended March 31, 2015, the shareholders’ capital was as follows:

 

  Shareholders
  Shell   CIP   Cosan   Total
Common 2,951,297,817   2,951,297,817   -   5,902,595,634
Class A -   -   1   1
Class B -   -   133,242,457   133,242,457
Class C 663,476   -   -   663,476
Class D 100,000   -   -   100,000
As at March 31, 2015 2,952,061,293   2,951,297,817   133,242,458   6,036,601,568
As at March 31, 2014 2,952,061,293   -   3,084,540,275   6,036,601,568

 

 

Redeemable preferred shares

 

The tax benefits arising from the use of tax loss carryforwards and goodwill tax amortization, recognized before the formation of the joint venture, will be reimbursed to Cosan to the extent that the Company uses them to reduce taxes payable. Such reimbursements will be made by means of payment of exclusive dividends to Cosan, the holder of Class B preferred shares, in the amount of the tax benefit used by the Company in the period from January to December.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

On July 19, 2013, the Company's shareholders approved the payment of supplemental dividends of R$6,916, in addition to those accrued in the annual financial statements, without interest.

 

On March 31, 2014, the Company proposed the allocation of dividends to the holders of Class B preferred shares in the amount of R$ 43,636, corresponding to partial use of the tax benefit for the year balance (Note 10.a).

 

As at March 31, 2014, the Company reviewed the balance of preferred shares, and determined the reversal of R$ 11,812 of the obligation to Cosan, based on the fact that the tax benefit will not be used by the company.

 

Due to the merger of IPL into REPSA, and subsequently into the Company, Class C preferred shares were issued to guarantee exclusive dividends to Shell of R$3,538, through the use by the Company of tax credits and the funds in the current account, comprising the merged net assets (Note 10.a.).

 

As mentioned in Notes 10 and 17, during the year ended March 31, 2015, the Company joined the program for settlement of the debt installments on RFB by the use of NOL, resulting in decrease of Class B preferred shares, totaling R$ 157,010.

 

On March 31, 2015, the balance of preferred shares (Class B and C) was R$ 93,300 (R$ 264,276 in 2014). The counterparts to shareholders' equity are recorded under the related parties (Note 10.a), of which R$ 89,762 (R$ 260,738 in 2014) belonging to Cosan, is classified as non-current liabilities, and R$ 932 and R$ 2,606 (R$ 932 and R$ 2,606 in 2014) belonging to Shell, are classified in current liabilities and non-current, respectively.

 

Capital reserve

 

The capital reserve corresponds to the share premium arising from the difference between the subscription price paid in consideration for the shares and their par value. Such a reserve can only be used to increase capital, absorb losses, redeem, reimburse or purchase shares or pay accumulated dividends to preferred shares.

 

In addition, the balance includes surplus paid by the Company in the acquisition of additional interest in the subsidiary TEAS, amounting to R$ 5,973 (Note 11.d.2).

 

As mentioned in Notes 10, 17 and 18, Cosan settled the debts in the Brazilian Tax Authority (“RFB) through the use of NOL. Therefore, the capital reserve was reduced by R$ 164,377, comprising: i) R$ 157,010 arising from ownership of Cosan, with obligation to NOL of preferred shares payable (Note 10.a); and ii) R $ 7,367 corresponding to the NOL from the subsidiary Benálcool Açúcar e Álcool Ltda., and for which the related tax credits were not included in the balance of Class B preferred shares in the formation of Raízen.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

Special goodwill reserve

 

(i)Merged assets of IPL

 

Following the merger of IPL into REPSA (Note 1), whose main assets comprised investments held by it in the capital stock of REPSA and the goodwill recorded based on tax records, recognized upon the formation of the ethanol, sugar and bioenergy joint venture, such goodwill started to be deductible for income tax and social contributions purposes. Therefore, a special goodwill reserve was recognized in the equity of Raízen Energia against deferred tax assets, of R$241,107—equivalent to the tax benefit of 34% arising from the amortization of the goodwill.

 

(ii)Merger of Curupay

 

Due to the reverse merger of Curupay into TEAS, whose main assets correspond to the investment held by the capital of Curupay and whose goodwill is determined based on the tax books, that goodwill will be deductible for tax purposes in relation to income tax and social contributions on net income. Therefore, the Company recorded a special goodwill reserve in shareholders' equity, reflecting the effect of reverse merger of Curupay into TEAS in return for their investment, in the same amount of R$ 2,004.

 

b)Dividends and interest on own capital

 

i)Dividends

 

Pursuant to the Company's bylaws, the shareholders are entitled to a minimum mandatory dividend of 1% of the net income reported at year end, as adjusted in accordance with article 202 of the Brazilian Corporate Law. The amounts of the legal reserves and dividends of the years ended March 31, 2015 ,2014 and 2013, were as follows:

 

   2015   2014   2013 
             
Net income   110,999    140,883    355,744 
(-) Consolidated results of operations of REPSA (Note 1)   —      —      (239,782)

Net income

   110,999    140,883    115,962 
Legal reserve at 5%   (5,550)   (7,044)   (5,798)
Tax incentives   —      (30,256)   —   

Calculation basis for dividend distribution

   105,449    103,583    110,164 

Mandatory minimum dividends 

   (1,054)   (1,036)   (1,102)
Dividends to holders of Class B preferred shares   (15,221)   (43,636)   (66,877)
Dividends to holders of Class D preferred shares   (791)   —      —   
(-) Prepaid dividends   —      —      8,873 

Remaining dividends payable 

   (17,066)   (43,636)   (58,004)
                
Interest on own capital   —      (34,000)   —   

Dividends payable 

   (17,066)   (78,672)   (59,106)

 

On March 31, 2015, the dividends accrued in the previous fiscal year were paid in full.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

ii)Interest on own capital

 

On December 31, 2013, at the Extraordinary General Meeting, the shareholders of RESA discussed and approved the distribution of interest on own capital to each shareholder of R$ 40,000 for the period of January 1, 2013, through December 31, 2013, to be individually credited in the proportion of 50% to each shareholder. Therefore, the net amount to be paid in the year ended March 31, 2014 was R$ 34,000.Interest on own capital paid or provisioned is recorded as a financial expense for tax purposes. However, for purposes of these consolidated financial statements, the amount is disclosed as distribution of net income for the year, and the gross amount is reclassified to shareholders’ equity, as the tax benefits arising from the distribution are included in the net income for the year.

 

c)Other comprehensive income

 

i)Foreign currency translation adjustments – CTA

 

Represents the exchange differences from the translation of the financial statements of investees with functional currencies different than that of the parent company into Brazilian Real.

 

On March 31, 2015, due to the loss of significant influence in Codexis, the Company wrote off the balance of CTA in the amount of R $ 1,387.

 

ii)Net derivative gain – hedge accounting

 

This refers to changes in the fair value arising from cash flow hedging of revenue from the export of raw sugar (called “VHP”), and exchange variations on foreign exchange agreement advances (“ACCs”) and PPEs.

 

iii)Actuarial liabilities

 

These relate to gains and losses from adjustment for changes in actuarial assumptions relating to the defined benefit plan. This component is recognized in other comprehensive income. It will not be reclassified to income in subsequent periods.

 

The following movement of valuation adjustments, ended March 31:

 

   2012   Comprehensive Income   2013   Comprehensive Income   2014   Comprehensive Income   2015 
Currency translation differences - CTA   —      (240)   (240)   1.082    842    535    1,377 
Actuarial losses on pension and post-employment plans   —      —      —      (59)   (59)   (8,902)   (8,961)
Gain (loss) on cash flow hedges   28,228    71,391    99,619    (111,071)   (11,452)   34,284    22,832 
Total   28,228    71,151    99,379    (110,048)   (10,669)   25,917    15,248 

 

d)Legal reserve

 

This refers to the appropriation of 5% of the net income to a legal reserve, pursuant to the Company’s bylaws and in compliance with the Brazilian Corporate Law.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

e)Profit retention reserve

 

The remaining balance of net income on March 31, 2014, after the allocations to the legal reserve and provisioning of dividends, approved at the Annual General Meeting, on July 28, 2014,was allocated to the profit retention reserve.

 

The remaining balance of net income on March 31, 2015, after the allocations to the legal reserve and provisioning of minimum dividends payable calculation, was appropriated to the profit retention reserve until its final destination is approved at the Annual General Meeting. Based on the Article 28 (vi ) of the Company's shareholder agreement, up to 80% of net income may be allocated to this statutory reserve for operations and new investments and projects, and shall not exceed the percentage of 80 % of the share capital.

 

Incentive tax reserve

 

This corresponds to the effect of the tax incentive recognized by the subsidiary Raízen Caarapó Açúcar e Álcool Ltda. (“Caarapó”) on the consolidated shareholders’ equity. Caarapó entered into an agreement with the governemnt of the State of Mato Grosso do Sul, which grants a tax benefit of 67% on the ICMS payable generated from the manufacturing process of sugar in the state.

 

f)Earnings per share

 

Basic earnings per share are calculated by dividing the net income attributable to the shareholders by the weighted average of common shares outstanding during the year.

 

The table below sets out the data on net income and shares used to calculate basic and diluted earnings per share for the years ended March 31, 2015, 2014 and 2013 (in thousands, except in the case of amounts per share):

 

Basic and Diluted:

 

   2015   2014   2013 
Numerator            
Net income for the year   110,999    140,883    354,710 
Profit available to preferred shareholders   (16,012)   (43,636)   (66,877)
Profit available to common shareholders   94,987    97,247    287,833 
                
Denominator:               
Weighted average of number of outstanding common shares (in thousands)   5,902,596    5,902,596    5,305,629 

Basic and diluted earnings per common share (reais per share)

   0.02    0.02    0.05 

 

The Company does not have outstanding common shares that may give rise to a dilution or debt convertible into common shares. Therefore, basic and diluted earnings per share are equal.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

22.Net sales

 

   2015   2014   2013 

Gross sales of products and services

   10,330,454    10,055,383    9,063,189 
Sales taxes and deductions   (591,317)   (600,162)   (594,951)

Net sales

   9,739,137    9,455,221    8,468,238 

 

The sales are also segregated in the following items:

 

   2015   2014   2013 

Products and services revenue

   9,703,302    9,182,269    8,192,289 
Hedge accounting loss   (190,693)   —      7,368 
Hedge accounting gain   231,740    261,929    268,581 
Commodities derivatives gain   (5,212)   11,023    —   
    9,739,137    9,455,221    8,468,238 

 

23.Information by segment

 

The management of Raízen Energia have defined the ethanol, sugar and bioenergy ("EAB") segment as the only operating segment, based on reports used by the Chief Executive Officer (“CEO”) and the Board of Directors, in regard to making key decisions about strategic and operational matters. The performance goals for evaluation purposes are defined and monitored for the EAB segment as a whole.

 

The EAB segment comprises the production and sale of ethanol and sugar originating from sugarcane processing, as well as energy cogeneration from the burning of the sugarcane bagasse.

 

Since the assets are equally used to produce sugar, ethanol and bioenergy, there is no disclosure of these assets by business segment.

 

The Company monitors the net operating revenue deriving from the sale of its products in the domestic and foreign markets, as follows:

 

   2015   2014   2013 
Net sales            
Foreign market (1)   5,626,797    5,582,123    5,473,976 
Domestic market   4,112,340    3,873,098    2,994,262 
                
Total   9,739,137    9,455,221    8,468,238 

(1) Includes sales made to customers in Brazil under the export-related category.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The net sales are segregated by product as follows:

 

    2015   2014   2013  
Net sales              
Sugar   4,242,437   4,353,084   4,353,994  
Ethanol   4,682,031   4,464,527   3,299,938  
Power   604,003   403,845   569,709  
Other products and services   210,666   233,765   244,597  
Total   9,739,137   9,455,221   8,468,238  

 

The percentage of net sales by geographic area is as follows:

 

Geographic area 2015   2014   2013

Brazil

46.80%   45.81%   40.27%
Europe 23.35%   30.52%   29.59%
Asia 21.11%   13.26%   15.75%
Central America 2.07%   3.25%   7.57%
North America 5.57%   2.39%   5.81%
Africa and Oceania 1.10%   4.77%   1.01%

Total 

100.00%  

100.00%

  100.00%

 

The main EAB customers in the years ended March 31, 2015 and 2014, which individually account for 5% or more of the Company's total revenue, were as follows:

 

Customer   2015   2014   2013
Raízen Combustíveis S.A.   10.89%   15.30%   6.23%
Wilmar Sugar Pte Ltd   13.51%   7.75%   10.16%
Sucden   6.88%   7.86%   9.84%
Camil Alimentos S.A.   5.60%   5.12%   -
Cosan S.A. Indústria e Comércio   -   -   3.55%
Petrobrás   -   -   0.24%

 

24.Statement of income by nature

 

a)Reconciliation of expenses by nature

 

The Company has chosen to disclose its statement of income by function, and therefore below it presents the details by nature:

 

  2015   2014   2013  

Raw materials

4,058,475   4,064,982   3,327,136  
Depreciation and amortization 1,908,125   1,709,935   1,706,819  
Personnel expenses 1,011,098   936,800   866,522  
Cutting, loading and transport (“CCT”) 685,931   737,132   571,271  
Maintenance materials 359,254   300,624   383,237  
Contracted labor 167,579   191,171   233,042  
Biological assets and agricultural products 31,383   73,361   227,746  
Rents and leasing 201,741   217,991   209,892  
Other expenses 693,111   487,756   267,853  
9,116,697   8,719,752   7,793,518  

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

b)Classified as:

 

    2015   2014   2013
Costs of sales   8,064,341   7,542,579  

6,698,108

Selling expenses   564,863   637,316   605,164
General and administrative expenses   487,493   539,857   490,246
  9,116,697   8,719,752   7,793,518
25.Other operating income, net

 

  2015   2014   2013  
Other operating income            
Capital gain on dilution of equity interest (Nota 11.c 1.iii) 30,333   -   -  
Reversal of provision for onerous contracts -   1,079   14,951  
Gain in fair value of shares (i) 40,366   -   -  
Revenue – tax incentive – ICMS (Note 17) 50,217   25,260   22,930  
Income from sale of property, plant and equipment 10,868   33,813   3,689  
Revenue from sale of scrap and waste 8,670   10,211   8,562  
Gain on sale of ratoon 3,444   -   -  
Gain from port operations 3,294   8,779   1,396  
Other income 4,248   7,244   -  
151,440   86,386   51,528  
Other operating expenses            
Impairment of intangible assets (Note 14) (55,060 ) (6,569 ) -  
Provision for claims and paid indemnities (Note 19) (8,333 ) (25,197 ) (3,502 )
Provision for property, plant and equipment and intangible losses (Note 13 e 14) (9,027 ) 5,792   -  
Provision for hybrid contingencies (7,680 ) -   -  
Other expenses -   -   (185 )
(80,100 ) (25,974 ) (3,687 )
71,340   60,412   47,841  

 

(i) On March 10, 2015, the Company signed a Stock Purchase Agreement relating to the sale of 5,573,319 shares of Codexis, Vivo and Vivo Fund Affiliates, together "Vivo". The traded value was US$ 15,500, equivalent to approximately R$ 48,513. The sales of the share, at a fair value, resulted in a gain of R$ 40,366, recorded as “other operation income”.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

26.Finance income (expenses), net

 

   2015   2014   2013 
Finance expenses            
Interest   (600,514)   (443,560)   (399,615)
    —      —      (5,710)
Indexation credits   (71,644)   (58,754)   (60,067)
Bank expenses   (14,732)   (7,529)   (546)
    (686,890)   (509,843)   (465,938)
Less:  capitalized amounts on qualified assets (Note 13)   30,951    44,296    41,940 
    (655,939)   (465,547)   (423,998)
                
Finance income               
Income from financial investments   230,097    114,898    91,804 
Interest   222,002    96,207    68,800 
Indexation charges   14,983    28,316    24,903 

Financial instrument measured at fair value through profit or loss

   —      12,516    —   
Discounts earned   695    258    65 
    467,777    252,195    185,572 
                
Foreign exchange variance (1)   (1,042,138)   (292,073)   (27,519)
                

Effect of derivatives, net (2)

   518,065    (67,506)   (55,662)
               
    (712,235)   (572,931)   (321,607)

 

(1)Includes currency losses, net, on foreign currency-denominated assets and liabilities

 

(2)Includes realized and unrealized option, swap and non deliverable forward (“NDFs”) transactions.

 

27.Financial instruments

 

Management of financial risk

 

a)Overview

 

The Company has exposure to the following risks deriving from the use of financial instruments:

 

·Price risk

 

·Foreign exchange risk

 

·Interest rate risk

 

·Credit risk

 

·Liquidity risk

 

This note provides information about the exposure to each risk, as well as the objectives, practices and processes used to measure and manage the risks. Additionally, this note provides information regarding the Company’s management of capital.

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

b)Risk management framework

 

The Company has specific treasury and trading policies that define the way in which risk management shall be effected. To monitor the activities and ensure compliance with the Group’s policies it has two committees: (i) the Risk Committee, which meets on a weekly basis to analyze the performance of commodities (mainly sugar) and exchange markets and decide on the hedge positions and pricing strategies of sugar exports, in order to reduce the adverse effects of changes in price and exchange rates, and to monitor liquidity and counterparty (credit) risks; and (ii) the Ethanol Committee, which meets on a monthly basis in order to analyze the risks related to the sale of ethanol and the adequacy of the limits set in risk policies.

 

The Company is exposed to market risks. The main market risks to which it is exposed are: (i) volatility of sugar and ethanol prices, (ii) volatility of the exchange rate and, (iii) volatility of the interest rate. The contracting of financial instruments for hedging purposes is made based on a periodic analysis of the exposure to risk that management intends to cover.

 

As at March 31, 2015 and 2014, the fair values relating to derivative financial instruments transactions for hedging or other purposes were measured at fair value using observable inputs, such as prices quoted in active markets or discounted cash flows based on market curves, and were as follows:

 

   Notional   Fair value 
   2015   2014   2015   2014 
Price risk                
Derivatives                
Futures contracts   1,660,432    1,336,437    409,316    (12,053)
    1,660,432    1,336,437    409,316    (12,053)
Exchange rate risk                    
Exchange rate derivative                    
Futures contracts   (616,923)   (326,525)   (2,558)   705 
Forward contracts   (650,675)   1,810    134,478    42,310 
Exchange rate lock-in   (5,974)   227,698    1,191    21,106 
Exchange rate swap   (2,685,844)   813,891    256,170    (23,595)
    (3,959,416)   716,874    389,281    40,526 
Interest rate risk                    
Interest derivatives   (561,400)   1,088,503    (4,321)   (5,056)
    (561,400)   1,088,503    (4,321)   (5,056)
Total             794,276    23,417 
                     
Total current assets             759,306    200,588 
Total non-current assets             315,279    1,109 
                     
Total assets             1,074,585    201,697 

Total current liabilities

             (224,078)   (166,175)
Total non-current liabilities             (56,231)   (12,105)
                     
Total liabilities             (280,309)   (178,280)
                     

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

c)Price risk

 

This risk derives from the possibility of oscillations in the market prices of goods sold by the Company – mainly VHP sugar (sugar #11), refined sugar (#5 or white sugar) and ethanol – mainly through the subsidiary Raízen Trading LLP. These price fluctuations can cause substantial changes in the revenue from the Company’s sales. To minimize this risk, the Company always monitors the market, so as to be prepared for price fluctuations. In the table below the positions of derivative financial instruments to cover risks of commodities price are shown:

 

Price risk: Outstanding derivatives of products in 2015

Derivatives

  Purchased/ Sold  

Market

 

Contract

 

Maturity

 

Notional

(units)

 

Notional

(R$ thousands)

 

Fair value (R$ thousands)

                             
Future   Sold   NYSE LIFFE   Sugar#5   Apr/15   5,050 t   6,429   671
Future   Sold   NYSE LIFFE   Sugar#5   Jul/15   5,850 t   7,710   1,125
Future   Sold   NYSE LIFFE   Sugar#5   Sep/15   7,800 t   10,474   1,676
Future   Sold   NYSE LIFFE   Sugar#5   Nov/15   2,850 t   3,907   628
Future   Sold   ICE   Sugar#11   Apr/15   386,047 t   418,630   92,907
Future   Sold   ICE   Sugar#11   Jun/15   474,545 t   544,920   140,164
Future   Sold   ICE   Sugar#11   Sep/15   611,508 t   729,414   181,025
Future   Sold   ICE   Sugar#11   Feb/16   145,701 t   179,934   36,597
Future   Sold   ICE   Sugar#11   Jun/16   44,858 t   48,177   3,919
Future   Sold   ICE   Sugar#11   Sep/16   43,537 t   46,876   3,398
Future   Sold   OTC   Sugar#11   Sep/15   -   -   687
Sub-total of future sugar sold           1,727,746 t   1,996,471   462,797
                             
Future   Purchased   NYSE LIFFE   Sugar#5   Apr/15   (1,300) t   (1,591)   (109)
Future   Purchased   ICE   Sugar#11   Apr/15   (231,913) t   (253,183)   (57,508)
Future   Purchased   ICE   Sugar#11   Jun/15   (50,294) t   (56,392)   (13,494)
Future   Purchased   ICE   Sugar#11   Sep/15   (28,500) t   (31,756)   (6,197)
Future   Purchased   ICE   Sugar#11   Feb/16   (9,500) t   (11,511)   (2,165)
Future   Purchased   ICE   Sugar#11   Apr/16   (1,016) t   (1,064)   (60)
Future   Purchased   ICE   Sugar#11   Jun/16   (1,016) t   (1,062)   (60)
Sub-total of future sugar purchased           (323,539) t   (356,559)   (79,593)
Sub-total of future sugar           1,404,207 t   1,639,912   383,204

Future

 

Sold 

  BMFBovespa   Ethanol   Mar/15   17,700  m³   31,729   71
Future   Sold   BMFBovespa   Ethanol   May/15   7,860 m³   9,550   -
Future   Sold   BMFBovespa   Ethanol   Jul/15   600 m³   720   6
Future   Sold   BMFBovespa   Ethanol   Aug/15   3,150 m³   3,797   43
Future   Sold   BMFBovespa   Ethanol   Sep/15   2,400 m³   2,940   -
Future   Sold   BMFBovespa   Ethanol   Oct/15   2,400 m³   2,988   -
Future   Sold   BMFBovespa   Ethanol   Nov/15   900 m³   1,146   -
Future   Sold   BMFBovespa   Ethanol   Dec/15   900 m³   1,165   (7)
Future   Sold   NYMEX   Ethanol   Apr/15   17,488  m³   7,360   1,640
Future   Sold   NYMEX   Ethanol   May/15   12,719  m³   5,515   1,663
Future   Sold   NYMEX   Ethanol   Jun/15   12,719  m³   5,515   1,711
Future   Sold   NYMEX   Ethanol   Jul/15   1,590  m³   615   (17)
Future   Sold   NYMEX   Ethanol   Aug/15   1,590  m³   615   2
Future   Sold   NYMEX   Ethanol   Sep/15   1,590  m³   615   22
Future   Sold   CHGOETHNL   Ethanol   Apr/15   152,800 m³   198,677   10,160
Future   Sold   CHGOETHNL   Ethanol   May/15   56,800 m³   80,502   9,382
Future   Sold   CHGOETHNL   Ethanol   Jun/15   53,600 m³   76,490   9,575
Future   Sold   CHGOETHNL   Ethanol   Jul/15   40,800 m³   49,443   (1,320)

 

 

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RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Future   Sold   CHGOETHNL   Ethanol   Aug/15   14,400 m³   17,343   (405)
Future   Sold   CHGOETHNL   Ethanol   Sep/15   14,400 m³   17,343   (225)
Future   Sold   CHGOETHNL   Ethanol   Oct/15   4,000 m³   4,808   (23)
Future   Sold   CHGOETHNL   Ethanol   Nov/15   21,600 m³   26,021   192
Future   Sold   CHGOETHNL   Ethanol   Dec/15   44,000 m³   52,739   250
Future   Sold   NYMEX   Ethanol   Jul/15   1,500 m³   2,344   (142)
Sub-total of future ethanol sold           487,506 m³   599,980   32,578
                             
Future   Purchased   BMFBovespa   Ethanol   Mar/15   (26,310)  m³   (31,729)   (105)
Future   Purchased   BMFBovespa   Ethanol   Apr/15   (6,750) m³   (8,066)   -
Future   Purchased   BMFBovespa   Ethanol   May/15   (750) m³   (284)   -
Future   Purchased   BMFBovespa   Ethanol   Jun/15   (600) m³   (718)   (8)
Future   Purchased   BMFBovespa   Ethanol   Jul/15   (600) m³   (720)   (6)
Future   Purchased   BMFBovespa   Ethanol   Oct/15   (150) m³   (187)   -
Future   Purchased   NYMEX   Ethanol   Apr/15   (15,899) m³   (6,406)   (576)
Future   Purchased   NYMEX   Ethanol   May/15   (11,129) m³   (4,629)   (828)
Future   Purchased   NYMEX   Ethanol   Jun/15   (11,129) m³   (4,629)   (869)
Future   Purchased   NYMEX   Ethanol   Jul/15   (4,770) m³   (1,860)   7
Future   Purchased   NYMEX   Ethanol   Aug/15   (1,590) m³   (616)   (5)
Future   Purchased   NYMEX   Ethanol   Sep/15   (1,590) m³   (616)   (25)
Future   Purchased   CHGOETHNL   Ethanol   Apr/15   (74,400) m³   (97,452)   (4,666)
Future   Purchased   CHGOETHNL   Ethanol   May/15   (88,160) m³   (113,782)   (3,737)
Future   Purchased   CHGOETHNL   Ethanol   Jun/15   (57,280) m³   (75,715)   (4,206)
Future   Purchased   CHGOETHNL   Ethanol   Jul/15   (29,600) m³   (36,416)   413
Future   Purchased   CHGOETHNL   Ethanol   Aug/15   (56,000) m³   (68,421)   (372)
Future   Purchased   CHGOETHNL   Ethanol   Sep/15   (57,600) m³   (70,496)   (441)
Future   Purchased   CHGOETHNL   Ethanol   Oct/15   (51,200) m³   (61,182)   567
Future   Purchased   CHGOETHNL   Ethanol   Nov/15   (33,600) m³   (39,969)   209
Future   Purchased   CHGOETHNL   Ethanol   Dec/15   (11,200) m³   (13,251)   8
Future   Purchased   CHGOETHNL   Ethanol   Jul/15   (1,500) m³   (2,453)   33
                             
Subtotal of future ethanol purchased                   (541,807) m³   (639,597)   (14,607)
                             

Physical fixed

 

  Sold   CHGOETHNL   Etanol   Apr-Oct/15   176,304 m³   288,193   17,945
Physical fixed   Purchased   CHGOETHNL   Etanol   Apr-Oct/15   (146,184) m³   (228,056)   (9,804)
                     
Subtotal of physical fixed  ethanol           30,120 m³   60,137   8,141
Subtotal of future ethanol               20,520   26,112
Total of products               1,660,432   409,316

 

78  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Price risk: Outstanding derivatives of products in 2014

Derivatives   Purchased/ Sold   Market   Contract  

Maturity

 

Notional

(units)

 

Notional

(R$ thousands)

  Fair value (R$ thousands)
                             
Future   Sold   ICE   Sugar#11   Apr/14   248,017 t   221,316   1,435
Future   Sold   ICE   Sugar#11   Jun/14   631,219 t   565,834   (5,114)
Future   Sold   ICE   Sugar#11   Sep/14   673,081 t   608,587   (14,326)
Future   Sold   ICE   Sugar#11   Feb/15   148,241 t   141,318   (460)
Future   Sold   ICE   Sugar#11   Sep/15   24,994 t   23,071   (360)
Future   Sold   ICE   Sugar#11   Jun/16   7,264 t   6,698   (156)
Future   Sold   ICE   Sugar#11   Sep/16   5,943 t   5,541   (102)
Future   Sold   NYSE LIFFE   Sugar#5   Apr/14   1,650 t   1,803   32
Future   Sold   NYSE LIFFE   Sugar#5   Jul/14   3,500 t   3,849   (9)
Sub-total of future sugar sold           1,743,909 t   1,578,017   (19,060)
                             
Future   Purchased   ICE   Sugar#11   Apr/14   (58,016 t)   (47,362)   4,072
Future   Purchased   ICE   Sugar#11   Jun/14   (10,058 t)   (8,553)   546
Future   Purchased   ICE   Sugar#11   Sep/14   (3,200 t)   (2,659)   303
Future   Purchased   ICE   Sugar#11   Feb/15   (3,302 t)   (2,884)   274
Future   Purchased   NYSE LIFFE   Sugar#5   Apr/14   (100 t)   (99)   8
Sub-total of future sugar purchased           (74,676 t)   (61,557)   5,203
Sub-total of future sugar           1,669,233 t   1,516,460   (13,857)
Future  

Sold

  BMFBovespa   Ethanol   Jun/14   900 m³   1,039   (2)
Future   Sold   BMFBovespa   Ethanol   Jul/14   2,100 m³   2,352   16
Future   Sold   BMFBovespa   Ethanol   Aug/14   1,800 m³   2,007   50
Future   Sold   BMFBovespa   Ethanol   Sep/13   1,500 m³   1,695   30
Future   Sold   CHGOETHNL   Ethanol   Apr/14   131 m³   169,886   (60,734)
Future   Sold   CHGOETHNL   Ethanol   May/14   44 m³   52,036   (15,987)
Future   Sold   CHGOETHNL   Ethanol   Jun/14   43 m³   52,521   (9,165)
Future   Sold   CHGOETHNL   Ethanol   Jul/14   21 m³   24,076   (4,568)
Future   Sold   CHGOETHNL   Ethanol   Aug/14   12 m³   14,389   (18)
Future   Sold   CHGOETHNL   Ethanol   Sep/14   8 m³   11,233   (642)
Future   Sold   CHGOETHNL   Ethanol   Jan/15   25 m³   25,860   (1,223)
Sub-total of future ethanol sold           6,584 m³   357,094   (92,243)
                             
Future   Purchased   CHGOETHNL   Ethanol   Apr/14   (92 m³)   (114,552)   56,598
Future   Purchased   CHGOETHNL   Ethanol   May/14   (41 m³)   (48,389)   15,348
Future   Purchased   CHGOETHNL   Ethanol   Jun/14   (38 m³)   (45,366)   8,352
Future   Purchased   CHGOETHNL   Ethanol   Jul/14   (13 m³)   (13,456)   3,930
Future   Purchased   CHGOETHNL   Ethanol   Aug/14   (5 m³)   (4,833)   1,165
Future   Purchased   CHGOETHNL   Ethanol   Sep/14   (3 m³)   (3,155)   681
Future   Purchased   CHGOETHNL   Ethanol   Dec/14   (25 m³)   (25,676)   (3)
Future   Purchased   CHGOETHNL   Ethanol   Jan/15   (50 m³)   (51,809)   656
                   

(267 m³)

  (307,236)   86,727
Physical fixed   Sold   CHGOETHNL   Ethanol   Apr-Dec/14   272 m³   154,832   (53,835)
Physical fixed   Purchased   CHGOETHNL   Ethanol   Apr-Dec/14   (274 m³)   (384,713)   61,155
           

(2 m³)

 

  (229,881)   7,320
Subtotal of future ethanol           6,315 m³   (180,023)   1,804
Total of products               1,336,437   (12,053)

 

79  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

d)Foreign exchange risk

 

This risk arises from the possibility of fluctuations in the exchange rates used by the Raízen Group to calculate export and import revenue, debt flows and other foreign currency denominated assets and liabilities. The Group uses derivatives transactions to manage cash flow risks arising from US dollar denominated export revenue, net of other foreign currency denominated cash flow. The table below shows the outstanding derivative positions as at December 31, 2015 and 2014, used to hedge against exchange rate risk:

 

Foreign exchange risk: Outstanding exchange rate derivatives in 2015

Derivatives

  Purchased/Sold  

Market

 

Contract

 

Maturity

 

Notional

(US$ thousands)

 

Notional

(R$ thousands)

 

Fair value

(R$ thousands)

                             
  Future   Sold   BM&FBovespa   Commercial dollar   Apr/15   304,250   976,034   4,335
  Future   Sold   BM&FBovespa   Commercial dollar   May/15   79,257   254,255   1,520
  Future   Sold   BM&FBovespa   DDI   Jan/16   355,000   1,138,840   (5,575)

Subtotal future sold

          738,507   2,369,129   280
                             

Future

   Purchased   BM&FBovespa   Commercial dollar   Apr/15   (409,250)   (1,312,874)   (5,832)

Future

   Purchased   BM&FBovespa   Commercial dollar   May/15   (166,564)   (534,338)   (2,581)
Future    Purchased   BM&FBovespa   DDI   Jan/16   (355,000)   (1,138,840)   5,575

Subtotal future purchased

          (930,814)   (2,986,052)   (2,838)
                             
  Forward   Purchased   OTC/Cetip   NDF   Apr/15   (150,000)   (435,840)   45,521
  Forward   Purchased   OTC/Cetip   NDF   May/15   (150,000)   (485,032)   (550)
  Forward   Purchased   OTC/Cetip   NDF   Jan/16   (250,000)   (659,595)   186,618
  Forward   Sold   OTC/Cetip   NDF   Apr/15   320,000   929,792   (97,111)
  Subtotal forward purchased/sold           (230,000)   (650,675)   134,478
                             
 Exchange rate lock   Sold   OTC   Exchange rate lock   Apr/15   947   3,039   628
 Exchange rate lock   Purchased   OTC   Exchange rate lock   Apr/15   (3,100)   (9,013)   563

Subtotal exchange rate lock-in

          (2,153)   (5,974)   1,191
                             
  Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Feb/17   (100,000)   (320,800)   28,245
  Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Mar/19   (600,000)   (1,924,800)   263,235
  Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Oct/21   (70,890)   (227,416)   (51,791)
  Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Jan/22   (42,964)   (137,828)   15,362
  Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Feb/17   (23,379)   (75,000)   1,119

Subtotal exchange rate swap

          (837,233)   (2,685,844)   256,170
Total of exchange rate           (1,261,693)   (3,959,416)   389,281

 

 

(1) In June 2012, the Company entered into an intercompany interest and foreign currency swap, between Raízen Energia and Raízen Combustíveis, in which Raízen Energia receives a fixed exchange rate and pays an interest rate of 100% of CDI. The fair value of this swap on March 31, 2014 is R$ 23,595.

 

80  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

Foreign exchange risk: Outstanding exchange rate derivatives in 2014

Derivatives

  Purchased/Sold

Market

 

Contract

 

Maturity

 

Notional

(US$ thousands)

 

Notional

(R$ thousands)

 

Fair value

(R$ thousands)

                             
Future   Sold   BM&FBovespa   Commercial dollar   May/14   126,250   288,479   (355)
Future   Sold   BM&FBovespa   DDI   May/14   150,000   339,450   (398)

Subtotal future sold 

          276,250   627,929   (753)
                             

Future

  Purchased   BM&FBovespa   Commercial dollar   Jul/14   (265,000)   (615,004)   766
Future   Purchased   BM&FBovespa   DDI   Jan/16   (150,000)   (339,450)   692

Subtotal future purchased 

          (415,000)   (954,454)   1,458
                             
Forward   Sold   OTC/Cetip   NDF   Jan/14   210,000   497,063   21,824
Forward   Purchased   OTC/Cetip   NDF   Apr/14   (1,132)   (2,562)   (29)
Forward   Purchased   OTC/Cetip   NDF   Apr /14   (337)   (762)   16
Forward   Purchased   OTC/Cetip   NDF   May/14   (855)   (1,934)   (103)
Forward   Purchased   OTC/Cetip   NDF   Jun/14   (1,046)   (2,366)   (122)
Forward   Purchased   OTC/Cetip   NDF   Jul/14   (160,000)   (343,912)   26,727
Forward   Purchased   OTC/Cetip   NDF   Oct/14   (394)   (891)   (3)
Forward   Purchased   OTC/Cetip   NDF   Oct/14   (323)   (731)   9
Forward   Purchased   OTC/Cetip   NDF   Jan/16   (50,000)   (142,095)   (6,009)
Subtotal forward purchased/sold           (4,087)   1,810   42,310
                             
Exchange rate lock   Sold   OTC   Exchange rate lock   Aug/14   100,000   258,240   21,797
Exchange rate lock   Purchased   OTC   Exchange rate lock   Apr/14   (5,895)   (13,341)   (306)
Exchange rate lock   Purchased   OTC   Exchange rate lock   May/14   (5,250)   (11,880)   (111)
Exchange rate lock   Purchased   OTC   Exchange rate lock   Jun/14   (1,120)   (2,536)   (98)
Exchange rate lock   Purchased   OTC   Exchange rate lock   Oct/14   (4,191)   (9,485)   (94)
Exchange rate lock   Purchased   OTC   Exchange rate lock   Nov/14   (4,342)   (9,825)   (87)
Exchange rate lock   Purchased   OTC   Exchange rate lock   Dec/14   (5,454)   (12,341)   (114)
Exchange rate lock   Purchased   OTC   Exchange rate lock   Jan/15   (6,817)   (15,427)   (141)
Exchange rate lock   Sold   OTC   Exchange rate lock   Apr/14   4,396   9,947   101
Exchange rate lock   Sold   OTC   Exchange rate lock   May/14   4,612   10,437   100
Exchange rate lock   Sold   OTC   Exchange rate lock   Jun/14   921   2,084   83
Exchange rate lock   Sold   OTC   Exchange rate lock   Oct/14   4,132   9,352   (7)
Exchange rate lock   Sold   OTC   Exchange rate lock   Dec/14   5,512   12,473   (17)

Subtotal exchange rate lock-in 

          86,504   227,698   21,106
                             
Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Apr/14   92,949   210,344   (5,131)
Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   May/14   89,578   202,715   (5,798)
Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Jun/14   88,932   201,252   (6,174)
Exchange rate swap (1)   Fixed Dollar/CDI   BMF   Exchange rate swap   Jul/14   88,193   199,580   (6,492)

Subtotal exchange rate swap 

          359,652   813,891   (23,595)
Total of exchange rate           303,319   716,874   40,526

 

On March 31, 2015 and 2014, the Company presented the following net balance sheet exposure to the US dollar variance in assets and liabilities denominated in US dollars:

 

81  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

  2015   2014  
 

R$

  US$ (in thousands)   R$   US$ (in thousands)  

Cash and cash equivalents (Note 3)

403,799   125,873   142,296   62,879  
Restricted cash (Note 4) 30,651   9,555   118,889   52,536  
Trade notes receivable abroad (Note 5) 129,471   40,359   162,557   71,833  
Related parties (Note 10) (450,282)   (140,362)   496,027   219,190  
Loans and financing (Note 16) (4,619,226 ) (1,439,908 ) (3,128,269 ) (1,382,355 )
Derivatives (Note 27) 794,276   247,592   23,417   10,348  
                 
Foreign exchange exposure, net (3,711,311 ) (1,156,891 ) (2,185,083 ) (965,569 )

 

e)Effects of hedge accounting

 

On April 1, 2011, the Company formally designated its transactions subject to hedge accounting for derivatives used to hedge cash flows from VHP sugar export revenues, by documenting: (i) the hedge relationship, (ii) the Group’s risk management goal and strategy in contracting the hedge, (iii) the identification of the financial instrument, (iv) the hedged item or transaction, (v) the nature of the risk to be hedged, (vi) the description of the hedge relationship, (vii) the correlation between the hedge and the hedged item, and (viii) the retrospective and prospective statement of hedge effectiveness. The Group designated the Sugar#11 (NYBOT or OTC) derivatives to hedge the price risk and NDFs to hedge the currency risk, as shown in items (c) and (d) of this note.

 

The Company accounted for gains and losses considered as effective for hedge accounting purposes in a specific account in shareholders’ equity, until the hedged item affects income, when such gain or loss of each designated instrument should affect profit or loss in the same line item as the hedged item (in this case, sales revenue). On March 31, 2015 and 2014, the impacts accounted for in the Company’s shareholders’ equity and the estimated realization in the income statement were as follows:

 

As at March 31, 2015  
            Realization period  
Derivative   Market   Risk   2015/16   2016/15   Total  
Future   OTC / NYBOT   Sugar#11   388,130   7,318   395,448  
Future   BM&FBovespa   Ethanol   (178)   -   (178 )
Advance on export Contracts and PPE   Debt   Exchange  rate   (360,652)   -   (360,652)  
                       
            27,300   7,318   34,618  
(-) Deferred taxes           (9,295 ) (2,491 ) (11,786 )
Effect in equity in 2015   18,005   4,827   22,832  

 

 

As at March 31, 2014  
            Realization period  
Derivative   Market   Risk   2014/15   2015/16   Total  
Future   OTC / NYBOT   Sugar#11   (16,377)   (915)   (17,292)  
Future   BM&FBovespa   Ethanol   (61)   -   (61)  
                       
            (16,438 ) (915 ) (17,353 )
                       
(-) Deferred taxes           5,590   311   5,901  
Effect in equity in 2014   (10,848)   (604)   (11,452)  

 

 

82  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Below are the changes in the balances of other comprehensive income during the year:

 

Cash flow hedge    
     
Balance on March 31, 2013   99,619 
Gains/(losses) in the year:     
Futures contracts and commodities swap contracts   94,173 
Recycled to statement of income     
Sales / finance result   (262,465)
Financial income   91,929 
Total effect in adjustment for equity valuation from cash flow hedge (before deferred taxes)   (168,292)
Effect of deferred taxes in equity valuation adjustment   57,221 
    (111,071)
Balance on March 31, 2014
   (11,452)
      
Gains/(losses) in the year:     
Futures contracts for commodities   649,186 
Exchange rate lock   (1,780)
Advance on export contracts and PPE   (549,564)
Recycled to statement of income     
Sales revenue – commodities   (231,740)
Sales revenue  – foreign exchange   190,693 
Financial income   (4,830)
Total effect in adjustment for equity valuation from cash flow hedge (before deferred taxes)   51,965 
Effect of deferred taxes in equity valuation adjustment   (17,681)
    34,284 
Balance on March 31, 2015
   22,832 

 

There are no gains or losses recognized in the statement of income that is related to the infectiveness of the Company’s hedge’s relationships.

 

f)Interest rate risk

 

The Company monitors fluctuations in floating interest rates pegged to some debts (mainly those pegged to the LIBOT risk) and it makes use of derivatives to minimize these risks. The table below shows the outstanding derivative positions as at March 31, 2015 and 2014, used to hedge against the interest rate risk:

 

83  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Interest rate  risk: Outstanding interest rate derivatives in 2015  

Derivatives

 

Assets/ Liabilities

 

Market

 

Maturity

 

Notional

(US$ thousands)

  Notional (R$ thousands)   Fair value (R$ thousands)  

Interest swap rate

 

Interest swap

  OTC   Sep/17   (75,000)   (240,600)   (1,281)
Interest swap rate   Interest swap   OTC   Mar/19   (100,000)   (320,800)   (3,040)
Subtotal interest swap               (175,000)   (561,400)   (4,321)
                           
Future   BM&FBovespa   DI   Jan/16   366,272   1,175,000   675  
Future   BM&FBovespa   DI   Jan/16   (366,272)   (1,175,000)   (675)  
                           
Subtotal of futures sold               -   -   -  
Total interest on March 31, 2015       (175,000)   (561,400)   (4,321)

 

 

Interest rate  risk: Outstanding interest rate derivatives in 2014  

Derivatives

 

Assets/ Liabilities

 

Market

 

Maturity

 

Notional

(US$ thousands)

  Notional (R$ thousands)   Fair value (R$ thousands)  

Interest swap rate

 

Interest swap

  OTC   Dec/15   231,000   522,753   (821)
Interest swap rate   Interest swap   OTC   Jan/16   175,000   396,025   (4,657)
Interest swap rate   Interest swap   OTC   Sep/17   75,000   169,725   306  
                           
Subtotal interest swap               481,000   1,088,503   (5,172)
                           
Future   BM&FBovespa   DI   Jan/16   -   (521,000 ) 110  
Future   BM&FBovespa   DI   May/14   -   521,000   6  
                -   -   116  
                           
Total Interest       481,000   1,088,503   (5,056)

 

g)Credit risk

 

A significant portion of the sales made by the Company is to a selected group of best-in-class counterparties, i.e. trading companies, fuel distribution companies and large supermarket chains.

 

Credit risk is managed through specific parameters for client acceptance, analysis of credit and setting of limits for customer exposure, including the requirement of a letter of credit from prime banks and the obtaining of real guarantees, when applicable. Management believes that the credit risk is substantially covered by the allowance for doubtful accounts.

 

84  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The limits for individual risks are determined based on internal or external classifications according to the limits determined by the Company’s management. The use of the credit limits is regularly monitored. No credit limits were exceeded during the period, and nanagement does not expect any losses from default by these counterparties in excess of the amount already provided.

 

The Company operates goods derivatives in futures and options markets in the New York Board of Trade (“NYBOT”) and in the London International Financial Futures and Options Exchange (“LIFFE”), as well as in the over-the-counter market, with selected counterparties. The Group operates derivatives from exchange fees and commodities in BM&FBovespa and in over-the-counter contracts registered in CETIP, mainly with the major national and international banks that considered to have the international risk classification of investment grade.

 

Guarantee margins – Derivative operations on commodity exchanges (NYBOT, LIFFE and BM&FBovespa) require an initial guarantee margin. On March 31, 2015, the total margin deposited was R$85,482, of which R$ 54,831 was in restricted investments and R$ 30,651 was in the margin of derivative transactions. The total margin deposited on March 31, 2014, was R$ 180,715, of which R$ 61,826 was in restricted investments and R$ 118,889 was in the margin of derivative transactions. The derivatives transactions of the Group in the market do not require a margin in guarantee.

 

The credit risk on cash and cash equivalents, comprised mainly of investment funds and CDBs (Note 3), is distributed among the main national and international banks rated by international risk rating agencies as investment grade.

 

h)Liquidity risk

 

Liquidity risk is the risk of the Group facing difficulties to perform obligations associated with its financial liabilities that are settled with spot cash payments or with another financial asset. The approach of the Group to the management of liquidity is to ensure, to the maximum extent, that it always has sufficient liquidity to perform its obligations as they mature, under normal and stressful conditions, without causing losses that are unacceptable or have the risk of being detrimental to the Group’s reputation.

 

The table below shows the financial liabilities by maturity:

 

    2015   2014
   

Up to 1 year

 

Up to 2 years

  3 to 5 years   Over 5 years  

Total

 

Total

                         
Loans and financing   1,470,647   2,500,252   5,482,971   4,002,780   13,456,650   9,790,566
Related parties   243,454   -   1,185,565   1,154,650   2,583,669   1,031,093
  1,714,101   2,500,252   6,668,536   5,157,430   16,040,319   10,821,659

 

i)Debt acceleration risk

 

As at March 31, 2015 and 2014, the Company was subject to certain covenants under its loans and financing, related to cash generation, a debt to equity ratio and others. These covenants are being fully complied with by the Company and do not place any restrictions on its operations.

 

85  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

j)Fair value

 

The fair value of financial assets and liabilities is represented by the amount for which an instrument could be exchanged in a current transaction between willing parties, and not by way of forced sale or settlement. The following methods and assumptions were used to estimate fair value.

 

The fair value of cash and cash equivalents, trade receivables, other financial assets, trade payables to suppliers, dues to/from related parties, and other short-term payables approximates their book values, mainly due to the short-term maturity of these instruments. The fair value of other long-term assets and liabilities do not significantly differ from their book values.

 

The fair value of loans and financing mainly approximates their book values since these financial instruments are subject to floating interest rates (Note 16). The fair value of tradable Senior Notes is based on price quotations at the financial statements date. As at March 31, 2015, the fair value of Senior Notes maturing in 2017 (Note 16) corresponded to 107.25% of its face value (110.43% in 2014).

 

The Company contracts derivative financial instruments with different counterparties, including financial institutions with the credit ranking of investment grade or higher. The derivatives evaluated using evaluation techniques with observable market data, mainly refer to swaps of interest rates, forward exchange and commodities contracts. The assessment techniques often applied include pricing models for forward contracts and swaps, for which calculations are made upon the current amount. The models incorporate different data, including those referring to the credit quality of the counterparties, the exchange rates at sight and long-term, the interest rates and the long-term rates for the commodity.

 

The financial instruments categories are presented as follows:

        Carrying value   Fair value  
    Measurement basis   2015   2014   2015   2014  
Financial assets                      
Cash and cash equivalents, except financial investments (Note 3)   Loans and financing   266,598   194,021   266,598   194,021  
Financial investments (Note 3)   Fair value through statement of income   3,528,689    1,576,994   3,528,689    1,576,994  
Restricted cash (Note 4)   Loans and financing  

131,311

 

251,803

 

131,311

 

251,803

 
Trade accounts receivable (Note 5)   Loans and financing   331,638   356,004   331,638   356,004  
Derivative financial instruments (2) Fair value through statement of income  

1,074,585

 

201.697

 

1,074,585

 

201,697

 
Related parties  (Note 10)   Loans and financing   2,197,252   1,563,831   2,197,252   1,563,831  
Other financial assets (Note 9)   Loans and financing   981,351   903,947   981,351   903,947  
      8,511,424   5,048,297   8,511,424   5,048,297  

 

Financial liabilities                      
Loans and financing (1) (Note 16)   Amortized cost   (10,425,643 )

(7,633,519

) (10,519,742 ) (7,729,015 )
Derivative financial instruments   Fair value through statement of income   (280,309)

(178,280

) (280,309 ) (178,280 )
Trade accounts payable (Note 15)   Amortized cost   (568,296 ) (637,863 ) (568,296 ) (637,863 )
Related parties (Note 10)   Amortized cost   (2,421,819 ) (1,024,395 ) (2,421,819 ) (1,024,395 )
        (13,696,067 ) (9,474,057 ) (13,790,166 ) (9,569,553 )

 

 

(1)Stated net of securities placement expenses.

 

(2)On March 31, 2015, included derivatives designated as hedge instruments in the amount of R$ 34,618 (R$ 17,353 in 2014).

 

86  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Fair value hierarchy

 

The Company uses the following hierarchy to determine and disclose the fair value of financial instruments using the valuation technique:

 

·Level 1 – quoted prices (not adjusted) in active markets for identical assets and liabilities;

·Level 2 – other techniques for which all inputs with significant effects on the fair value are observable, either directly or indirectly; and

·Level 3 – techniques that use inputs with significant effects on fair value not based on observable market input.

 

Assets and (liabilities) at fair value  Level 1   Level 2   Total 
             
March 31, 2014            
Cash and cash equivalents, except financial investments (Note 3)   —      194,021    194,021 
Financial investments   —      1,576,994    1,576,994 
Restricted cash (Note 4)   —      251,803    251,803 
Trade accounts receivable (Note 5)   —      356,004    356,004 
Derivative financial assets   130,730    70,967    201,697 
Related parties  (Note 10)   —      1,563,831    1,563,831 
Other financial assets (Note 9)   —      903,947    903,947 
Loans and financing (1) (Note 16)   —      (7,729,015)   (7,729,015)
Derivative financial liabilities   (141,962)   (36,318)   (178,280)
Trade accounts payable (Note 15)   —      (637,863)   (637,863)
Related parties (Note 10)   —      (1,024,395)   (1,024,395)
Total   (11,232)   (4,510,024)   (4,521,256)

 

 

   Level 1   Level 2   Level 3   Total 
                 
March 31, 2015                
Cash and cash equivalents, except financial investments (Note 3)   —      266,598    —      266,598 
Financial investments   —      3,528,689    —      3,528,689 
Restricted cash (Note 4)   —      131,311    —      131,311 
Trade accounts receivable (Note 5)   —      331,638    —      331,638 
Derivative financial assets   533,293    540,605    687    1,074,585 
Related parties  (Note 10)   —      2,197,252    —      2,197,252 
Other financial assets (Note 9)   —      981,351    —      981,351 
Loans and financing (1) (Note 16)   —      (10,519,742)   —      (10,519,742)
Derivative financial liabilities   (127,221)   (153,088)   —      (280,309)
Trade accounts payable (Note 15)   —      (568,296)   —      (568,296)
Related parties (Note 10)   —      (2,421,819)   —      (2,421,819)
Total   406,072    (5,685,501)   687    (5,278,742)

 

On March 31, 2015 and 2014, there were no transfers between the aforementioned levels to determine the fair value of financial instruments.

 

87  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

k)Sensitivity analysis

 

The following analysis is a sensitivity analysis of the fair value of financial instruments in accordance with the risk types considered relevant by the Company.

 

Assumptions for sensitivity analysis

 

For the analysis, the Company adopted three scenarios, one being probable and two that include the effects of impairment in the fair value of the Group’s derivative financial instruments. The probable scenario was defined based on the future markets of sugar and the dollar as at March 31, 2015 and 2014, being the same markets that determine the fair value of the derivatives at that date. The possible adverse and remote scenarios were established in view of adverse impacts of 25% and 50% on the curves in the prices of the U.S. dollar and sugar, which were considered as the basis for the probable scenario.

 

Sensitivity table

 

The Company and its subsidiaries made two simulations involving appreciations and depreciations of exchange rates (R$/US$) by +/- 25% (possible) and +/- 50% (remote):

 

Sugar prices simulation (US$/Ton) March 31, 2015

      Scenario
Maturity Balance sheet date   25%   50%   -25%   -50%
April 30, 2015 11.93   14.91   17.9   8.95   5.97
June 30, 2015 12.06   15.08   18.09   9.05   6.03
September 30, 2015 12.68   15.85   19.02   9.51   6.34
February 29, 2016 13.91   17.39  

20.87

  10.43   6.96
April 29, 2016 13.98   17.48   20.97   10.49   6.99
June 30,2016 13.95   17.44   20.93   10.46   6.98
September 30, 2016 14.12   17.65   21.18   10.59   7.06
February 28, 2017 14.54   18.18   21.81   10.91   7.27
April 28, 2017 14.44   18.05   21.66   10.83   7.22
June 30, 2017 14.36   17.95   21.54   10.77   7.18
September 29, 2017 14.43   18.04   21.65   10.82   7.22

 

 

Sugar prices simulation (US$/Ton) March 31, 2014 

      Scenario
Maturity Balance sheet date   25%   50%   -25%   -50%
April 30, 2014 17.77   22.21   26.66   13.33   8.89
June 30, 2014 18.13   22.66   27.20   13.60   9.07
September 30, 2014 18.55   23.19   27.83   13.91   9.28
February 28, 2015 19.17   23.96   28.76   14.38   9.59
April 30, 2015 19.00   23.75   28.50   14.25   9.50
June 30, 2015 18.74   23.43   28.11   14.06   9.37
September 30, 2015 18.79   23.49   28.19   14.09   9.40
February 28, 2016 19.04   23.80   28.56   14.28   9.52
April 30, 2016 18.96   23.70   28.44   14.22   9.48
June 30, 2016 18.91   23.64   28.37   14.18   9.46
September 30, 2016 19.03   23.79   28.55   14.27   9.52

 

The following is the sensitivity exhibited on the change in the fair value of the Company’s financial derivatives and its subsidiaries in the probable, possible and remote scenarios:

 

88  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

      Impacts in results(*)  
      As at March 31, 2015  

Price risk

  Risk factor   Probable scenario   Scenario + (25%)   Fair value balance   Scenario + (50%)   Fair value balance  
Derivatives of products                          
Futures contracts:                          
Purchase and sales commitments   Increase of sugar price   383,204   (314,349)   68,855   (628,698)   (245,494)  

Purchase and sales commitments

  Increase of hydrated ethanol price   26,110   (54,391)   (28,279)   (108,782)   (82,670)  
        409,314   (368,740)   40,576   (737,480)   (328,164)  
Exchange rate risk                          
Derivatives of exchange  rate                          
Futures contracts:                          
Purchase and sales commitment   R$/USD exchange rate decrease   (2,558)   (166,360)   (168,918)   (332,720)   (335,278)  
Forward contracts:                          
Purchase and sales commitment   R$/USD exchange rate decrease   134,478   (311,555)   (177,077)   (623,110)   (488,632)  
Exchange rate lock-in:                          
Purchase and sales commitment   R$/USD exchange rate decrease   1,191   (4,341)   (3,150)   (8,682)   (7,491)  
Exchange rate swap                          
Purchase and sales commitments   R$/USD exchange rate decrease   256,170   (531,127)   (274,957)   (1,062,254)   (806,084)  
                           
                           
Interest rate risk       389,281   (1,013,383)   (624,102)   (2,026,766)   (1,637,485)  
Swap contracts, exchange rate lock-in and NDF   Decrease of interest curve   (4,321)   (46,454)   (50,775)   (92,908)   (97,229)  

 

(*) Projected results to occur up to 12 months from March 31, 2015.

 

      Impacts in results(*)  
      As at March 31, 2014  

Price risk

 

  Risk factor   Probable scenario   Scenario + (25%)   Fair value balance   Scenario + (50%)   Fair value balance  
Derivatives of products                          
Futures contracts:                          
Purchase and sales commitments   Increase of sugar price   (13,857 ) (382,580 ) (396,437 ) (765,160 ) (779,017 )

Purchase and sales commitments

 

  Decrease of hydrated ethanol price   1,804   (35,737 ) (37,541 ) (71,474 ) (73,278 )
        (12,053 )  (418,317 ) (433,978 ) (836,634 ) (852,295 )
Exchange rate risk                          
Derivatives of exchange rate                          
Futures contracts:                          
Purchase and sales commitment   R$/USD exchange rate increase   705   75,911   76,616   151,822   152,527  
Forward Contracts:                          
Purchase and sales commitment   R$/USD exchange rate increase   42,310   (11,770 ) 30,540   (23,540 ) 18,770  
Exchange rate lock-in:                          
Purchase and sales commitment   R$/USD exchange rate increase   21,106   (65,000 ) (43,893 ) (130,000 ) (108,893 )
Exchange rate swap                          
Purchase and sales commitments   R$/USD exchange rate increase   (23,595 )  (213,697 ) (237,292 ) (427,394 ) (450,988 )
        40,526   (214,556 ) (174,029 ) (429,112 ) (388,584 )
                           
Interest rate risk                          
Swap contracts, Exchange rate lock-in and NDF   Decrease of LIBOR curve   (5,056 ) (10,108 ) (15,164 ) (20,216 ) (25,272 )

 

(*) Projected results to occur in up to 12 months as from March 31, 2014.

 

89  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Additionally, the Company and its subsidiaries made two simulations involving appreciations and depreciations of exchange rates (R$/US$) by +/- 25% (possible) and +/- 50% (remote) and the impacts on its assets and liabilities pegged to the US dollar.

 

    Exchange rate simulation (R$/US$)
        Scenarios
    Balance  sheet date   +25%   +50%   -25%   -50%

March 31, 2015

  3.2080   4.0100   4.8120   2.4060   1.6040
March 31, 2014   2.2630   2.8288   3.3945   1.6973   1.1315

 

The probable scenario takes into consideration the position as at March 31, 2015. The effects of possible and remote scenarios would be recorded in consolidated income as exchange variation gain (loss) and foreign exchange are as follow:

 

   Exchange variation effect 
   Scenarios 

Foreign exchange exposure, net

March 31, 2015

  +25%   +50%   -25%   -50% 

Cash and cash equivalents (Note 3)

   403,799    100,950    201,900    (100,950)   (201,900)
Restricted cash   30,651    7,663    15,326    (7,663)   (15,326)
Trade notes receivable abroad (Note 5)   129,471    32,368    64,736    (32,368)   (64,736)
Related parties (Note 10)   (450,282)   (112,571)   (225,141)   112,571    225,141 
Loans and financing (Note 16)   (4,619,226)   (1,154,807)   (2,309,613)   1,154,807    2,309,613 
    (4,505,587)   (1,126,397)   (2,252,792)   1,126,397    2,252,792 

 

   Exchange variation effect 
   Scenarios 

Foreign exchange exposure, net

March 31, 2014

  +25%   +50%   -25%   -50% 

Cash and cash equivalents (Note 3)

   142,296    35,575    71,146    (35,575)   (71,146)
Restricted cash   118,889    29,725    59,445    (29,725)   (59,445)
Trade notes receivable abroad (Note 5)   162,557    40,643    81,279    (40,643)   (81,279)
Related parties (Note 10)   496,027    124,018    248,014    (124,018)   (248,014)
Loans and financing (Note 16)   (3,128,269)   (782,136)   (1,564,135)   782,136    1,564,135 
    (2,208,500)   (552,173)   (1,104,249)   552,173    1,104,249 

 

The Company simulated floating interest rates on borrowings and financing and income from investments linked to the CDI rate involving an appreciation and depreciation by 25% and 50%. as follows:

 

      March 31, 2015
      Interest rate sensitivity
      Probable scenario   Scenario (+/-25%)   Scenario (+/-50%)

Financial investments

Decrease   402,767   302,075   201,384
  Increase   402,767   503,459   604,151
Loans and financing Decrease   (506,722)   (380,042)   (253,361)
  Increase   (506,722)   (633,403)   (760,084)

 

90  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

       March 31, 2014 
       Interest rate sensitivity 
       Probable scenario   Scenario (+/-25%)   Scenario (+/-50%) 
Financial investments   Decrease    138,784    104,088    69,392 
    Increase    138,784    173,480    208,176 
Loans and financing   Decrease    (425,590)   (319,193)   (212,795)
    Increase    (425,590)   (531,988)   (638,385)
                     
l)Capital management

 

The Company's goal, when managing its capital structure, is to ensure that it will continue as a going concern and be able to finance investment opportunities, by keeping a healthy credit profile and offering an appropriate return to its shareholders.

 

The Company has relationships with the main national and international financial institutions. As off March 31, 2015, Fitch Ratings, Moody's and Standard and Poor's assigned the Company the credit ratings "AAA (bra)", "Aaa.br" and "brAAA", respectively, in their local rating tables.

 

The financial leverage ratios as at March 31, 2015 and 2014, were as follows:

 

   2015   2014 
Third-party capital        
Loans and financing (Note 16)   10,425,643    7,633,519 
(-) Cash and cash equivalents (Note 3)   (3,795,287)   (1,771,015)
(-) Financial investments related to financing (Note 4.1)   (45,829)   (71,088)
(-) CTNs (Note 9.2)   (501,794)   (434,366)
    6,082,733    5,357,050 
Equity          
Shareholder's equity:          
Attributable to parent company's shareholders   6,775,209    6,644,509 
    6,775,209    6,644,509 

Total capital

   12,857,942    12,001,559 

Financial leverage ratios

   47%   45%

 

The increase in the Company’s leverage ratios was influenced by new loans and borrowings raised during the year ended March 31, 2015, mainly the syndicated loan arrangements, CRA, ACCs and BNDES (Note 16). This increase is in line with the Company’s strategy of investing in industrial equipment and in biological assets, as well as maintaining adequate cash balances.

 

91  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

28.Retirement supplementation plan

 

a)Pension fund

 

Defined contribution

 

Beginning on June 1, 2011, the Company started to sponsor the Raiz Benefits Plan, managed by Raízprev - Entidade de Previdência Privada, which is a not-for-profit private supplementary pension entity.

 

The entity has administrative and financial autonomy and is engaged in managing and implementing social security benefit plans, as set out in the Benefit Plan Rules , whose sponsors are the following companies:

 

·Raízen Tarumã Ltda.

·Raízen Caarapó Açúcar e Álcool Ltda.

·Raízen Centroeste Açúcar e Álcool Ltda.

·Raízen Paraguaçú Ltda.

·Raízen Araraquara Açúcar e Álcool Ltda.

·Raízen Energia S.A.

·Bioenergia Jatai Ltda

·Bioenergia Costa Pinto Ltda

·Bioenergia Serra Ltda

·Bioenergia Maracai Ltda

·Bioenergia Univalem Ltda

·Bioenergia Tarumã Ltda

·Bioenergia Gasa Ltda

·Bioenergia Rafard Ltda

·Bioenergia Araraquara Ltda

·Bioenergia Caarapó Ltda

·Bioenergia Barra Ltda

·Fundação Raízen

·Raízen Combustíveis S.A. and its subsidiaries

 

In the year ended March 31, 2015, the amount of contributions recognized as expense was R$11,631 (R$ 8,584 in 2014).

 

b)Profit sharing

 

The Company recognizes a profit sharing liability and expense based on a methodology that takes into account goals already defined to the employees. The Company recognizes a provision when there is a contractual obligation or when there was a previous practice which created a constructive obligation.

 

29.Insurance

 

The Company and its subsidiaries have an insurance and risk management program that provides coverage and protection compatible with its assets and operations.

 

92  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

 

The insurance coverage taken is based on a strict risk and loss study conducted by local insurance advisors, and the insurance taken is considered by Management as sufficient to cover probable losses that may arise, based on the nature of the Company’s activities. The details are as follows:

 

        March 31,2015  
Asset covered   Coverage   Insured Amount   Amount of coverage  
               
Inventories and property, plant and equipment   Fire, lightning, explosion, windstorm, breakdown of machinery, loss of profit and other.   12,341,163   6,575,749  
National transport   Maritime risk shipper loads   24,000   24,000  
General civil liability for directors and officers   Third party complaints   Not aplicable   240,000  
Total       12,365,163   6,839,749  

 

The risk provisions adopted are not part of the scope of financial statement auditing. Consequently, they were not examined by the Company’s independent auditors.

 

30.Internal reorganization and business combinations

 

1) Transactions occurring during the year ended on March 31, 2015

 

i) Restructuring of cogeneration business activities

 

As mentioned in Note 1, during the year ended March 31, 2015, the Company and its subsidiaries underwent a corporate restructuring in which 11 new companies were created in June 2nd 2014. These companies are holders of permits for exploration of thermoelectric companies (“TPSs”). The Company and its subsidiaries also carried out a capital increase in its net assets at book value on the energy cogeneration activities in 10 of these new companies. This corporate restructuring has no impact on the consolidated financial statement.

 

ii) Purchase of Cerrado Açúcar e Álcool S.A. (“Cerrado”)

 

On December 17, 2013, Raízen Energia acquired all the shares of Cerrado for R$ 48,903, paid in cash resulting in a preliminary goodwill of R$ 33,663 recorded in the Company’s consolidated financial statements as of March 31, 2014. This acquisition was made to increase the supply of sugar cane and expected synergies arising from the Company's existing operations.

 

During the year ended March 31, 2015, the allocation of the purchase price was concluded by the Company’s management, based on the fair value of assets acquired and liabilities assumed, as follows:

 

93  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

Description   Total  
       
Biological assets   15,240  
(-) Consideration transferred, net of cash received   48,903  
       

Preliminary goodwill

  33,663  

 

Leases (Note 14)   4,184  
Partnership contracts (Note 14)   8,119  
Supply contracts (Note 14)   3,230  
Deferred taxes on appreciation of assets (Note 18.c)   (6,530)  
    9,003  

Goodwill 

  24,660  

 

The fair value of the assets acquired and liabilities assumed is categorized within level 3.

 

2) Transactions occurring during the year ended on March 31, 2014

 

2.1) Business combination

 

i)Costa Rica Canavieira Ltda. ("Costa Rica")

 

On June 28, 2012, Raízen Energia acquired all the shares of Costa Rica, for R$115,000, as follows: i) R$100,000 paid in cash, and ii) conditional payment of up to R$15,000, dependent on the fulfillment of specified terms of the agreement. This acquisition was made to increase the supply of sugarcane and to achieve synergies in existing Company operations.

 

On July 6, 2012, the Company paid R$8,435 to settle the conditional payment. Thus, upon completion of the transaction, the amount paid for the acquisition of Costa Rica totaled R$108,435.

 

During the year ended March 31, 2014, the purchase price allocation was concluded, based on the fair value of assets acquired and liabilities assumed, as follows:

 

    Total  
       
Biological assets   20,827  
Lease agreements for land   9,375  
Supply contracts for cane   20,847  
Deferred taxes on appreciation of assets   (17,357 )
  33,692  
Consideration transferred, net of cash received   108,434  

Preliminary goodwill

  74,742  
Net effect of the sale of contractual rights of leases of land (i)   (17,573

)

Final goodwill  

57,169

 

 

(i)                  On September 26, 2012, Raízen Energia sold to São Martinho S.A. the rights of certain agricultural contracts acquired through the business combination with Costa Rica, for R$ 19,730.

 

94  of 95

RAÍZEN ENERGIA S.A.

 

Notes to consolidated financial statements
Years ended March 31, 2015, 2014 and 2013 

(In thousands of Brazilian Reais, unless otherwise indicated)

 

 

The main differences between the preliminary and final goodwill are presented below:

 

Description   Total  
       
Biological assets   20,827  
Land leasing agreements   9,375  
Partnership agricultural agreements (i)   19,730  
  49,932  
Consideration transferred, net of cash acquired   108,434  

Preliminary goodwill

 

  58,502  
Sugarcane supply agreements   (1,117 )
Deferred taxes on appreciation of assets   17,357  
Net effect of the sale of contractual rights of leases of land   (17,573 )
Final goodwill  

57,169

 

 

The fair value of the assets acquired and liabilities assumed is categorized within level 3.

 

31.Subsequent events

 

Fire in the Santos Liquids Terminal

 

On April 2, 2015, a fire broke out at the Terminal Intermodal de Santos (“TIS”), facility operated by Ultracargo - Operações Logísticas e Participações Ltda. (“Ultracargo”), which reached partially assets belonging to Terminal de Exportação de Álcool de Santos Ltda. (“TEAS”). The TEAS is a company controlled by Raizen Energia SA. On March 31, 2015, TEAS had assets in the amount of R$ 59 million. The contractual relationship between the TEAS and Ultracargo covers risks to which the TEAS is exposed. The causes and accident damage are under investigation.

 

Issuance of Agricultural Receivable Certificates (CRAs)

 

According to the notice about the Closing of Public Offering of 1st Series of the 14th Issue of Gaia Agro Securitizadora, published on June 18, 2015, RESA concluded the issue of CRAs for funding the amount of R$ 675 million maturing in June 2021, considering the full exercise of Greenshoe (20%), pursuant to Article 14, paragraph 2 of CVM Instruction 400 and full exercise of Hot Issue (15%), in accordance with Article 24 of CVM Instruction No. 400. The financial settlement occurred on June 16, 2015.

 

* * *

 

 

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