Cosan S.A. — FY2021 Form 20-F
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter filing. Cosan is a Brazilian energy and logistics holding company with businesses in rail logistics, natural gas distribution, lubricants and agricultural land management. Raízen, its 44.02%-owned joint venture with Shell, is accounted for under the equity method, so its sales and operating results are not consolidated line by line. The audited financial statements are prepared under IFRS as issued by the IASB and reported in Brazilian reais (R$).
Comparability is affected by the March 2021 merger of Cosan Limited and Cosan Logística into Cosan S.A. Cosan applied predecessor accounting, and consolidated Cosan Logística from March 1, 2021. Raízen’s June 2021 reorganization also changed its reporting segments; prior segment information was recast.
Key financial results
Unless stated otherwise, amounts are R$ millions. Figures compare FY2021 with FY2020.
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Net sales | 25,865 | 20,438 | +26.5% |
| Gross profit | 6,001 | 5,438 | +10.4%; gross margin about 23.2%, down from 26.6% |
| Profit before equity earnings, finance results and taxes | 4,088 | 3,363 | +21.5% |
| Equity earnings of investees | 4,721 | 612 | Primarily reflects Raízen-related IPO and other investment effects |
| Net finance expense | (2,558) | (1,984) | Expense increased 28.9% |
| Profit for the year | 6,696 | 1,488 | Includes deferred tax benefits; effective tax rate was 7.1% |
| Profit attributable to Cosan owners | 6,312 | 859 | Up from a comparatively low prior-year base |
| Basic EPS | R$3.44 | R$0.47 | Merger and share split reflected retroactively |
Net sales increased faster than gross profit, compressing gross margin. The filing attributes 2021 cost pressures to higher input prices, gas costs, fuel and freight costs, and inflation. The large rise in reported net income also reflects equity-method gains, including a gain associated with Raízen’s IPO, and tax effects; it should not be read as a like-for-like increase in underlying operating earnings.
Cash flow, debt and liquidity
- Operating cash flow was R$5,147 million, down from R$5,657 million. Management cited weaker operating performance and a R$1,663 million cash outflow from changes in assets and liabilities.
- Investing cash outflow was R$5,447 million, versus R$4,523 million, mainly reflecting higher capital expenditure and acquisitions. Financing cash inflow was R$2,319 million, down from R$3,686 million.
- Cash and cash equivalents were R$16,174 million; marketable securities were R$4,388 million. The filing’s net-debt calculation uses both balances and debt derivatives.
- Gross loans, borrowings and debentures were R$45,659 million, including R$4,241 million classified as current on the balance sheet. Net debt, a non-GAAP measure, was R$21,440 million, up from R$17,630 million.
- Working capital was positive at R$14,336 million, compared with R$10,888 million. Unused credit lines for Cosan and specified subsidiaries totaled R$3,648 million at year-end, subject to contractual conditions.
- The Company reported compliance with its debt covenants at year-end and as of the report date. Debt increased 8.1%, with new debentures and Rumo financing among the stated drivers; foreign-currency exposure and floating interest rates remain material risks.
Business and joint-venture indicators
- Consolidated segment sales included Logistics of R$7,440 million (+6.8%), Gas and Power of R$12,330 million (+35.6%), and Moove of R$6,112 million (+38.4%). These segment amounts are part of Cosan’s reported consolidated results.
- Raízen’s separately presented, 100% joint-venture results showed operating revenue of R$175,047 million (+48.3%) and net income of R$3,366 million (+197.7%). Cosan recognizes its share through equity earnings rather than consolidating those revenues.
- Raízen’s reported sugarcane crushing declined to 54.2 million tons from 61.4 million; the filing cites a crop setback in the central-south region. Its fuel sales volume increased to 33,178 million liters from 29,229 million liters.
- Rumo transported volume reached 64,028 million TKU, up 2.5%, while port elevation volume declined to 12.5 million tons from 14.4 million.
Material changes, outlook and risks
- Portfolio and corporate actions: Cosan completed its corporate reorganization in 2021. Raízen completed an IPO and acquired Biosev; Cosan acquired control of Radar; and Compass raised capital. Sulgás was acquired in January 2022, after the reporting date. The Porto São Luís acquisition also closed in February 2022; the Gaspetro acquisition remained subject to conditions and approvals at the report date.
- Outlook: The filing provides no consolidated numerical earnings or revenue guidance. Management describes continued uncertainty from COVID-19, inflation, interest rates, exchange rates, Brazilian political conditions and the Russia-Ukraine war. Comgás expected approximately R$1.3 billion of investment in 2022. The filing reports Raízen’s exports of certain Moove products to Russia and Ukraine were suspended in the first quarter of 2022 and says fertilizer availability, commodity costs and supply chains could be affected.
- Internal controls: Management identified a material weakness in IT general controls over system access and job monitoring, affecting automated and IT-dependent business-process controls. The weakness did not result in identified financial-statement misstatements after mitigating actions, but management concluded disclosure controls were ineffective. The auditor issued an adverse opinion on internal control over financial reporting, while expressing an unqualified opinion on the financial statements. Remediation was planned; effectiveness was not assured.
- Legal and other contingencies: Cosan recorded provisions of approximately R$1.644 billion for probable losses at year-end. It also disclosed approximately R$22.4 billion of claims classified as possible, for which no provision was recorded; the amounts claimed are not estimates of likely cash losses. Raízen separately disclosed material possible and probable proceedings.
- Other risks: Key exposures include high debt and refinancing needs; Brazilian real volatility and interest-rate increases; commodity and input-price movements; weather and agricultural production; regulation and concession renewals; environmental and labor claims; customer and supplier concentration; and cyber risk. A 2020 ransomware attack temporarily disrupted operations; the Company reported spending approximately R$61.2 million in relation to it.
- Unusual accounting and presentation items: In the first quarter of 2022, the Company reclassified amortization of natural-gas concession intangibles from selling, general and administrative expenses to cost of sales for all periods presented. It said this did not affect regulatory margins or key indicators. The filing also reports a R$416 million bargain-purchase gain from the Radar acquisition.
Important facts for investors to verify
- Reconcile the R$6.312 billion attributable profit with cash generation, recurring operating performance and the effects of Raízen’s IPO, the Radar bargain-purchase gain and deferred taxes.
- Review debt maturities, foreign-currency and interest-rate exposure, covenant definitions, and the composition of the R$21.440 billion non-GAAP net-debt figure.
- Track remediation of the IT-controls material weakness and any subsequent auditor assessment or reported control deficiencies.
- Monitor the outcome and cash exposure of material tax, labor, environmental and regulatory cases, distinguishing amounts claimed from recorded provisions.
- Confirm post-year-end transaction status, financing and investment commitments, including Sulgás, Porto São Luís and Gaspetro, and assess how they affect leverage and liquidity.
- Check the dividend figures and timing against the relevant corporate resolutions: the selected-data table reports R$2.029 billion of dividends declared for 2021, while the filing separately states that R$799.9 million was approved on April 29, 2022 for the 2021 fiscal year.