Business context and reporting period
Cosan S.A.’s Form 20-F is an audited annual report for the fiscal year ended December 31, 2022—not a standalone fourth-quarter report. Financial statements are prepared under IFRS as issued by the IASB, in Brazilian reais (R$), using predecessor accounting for the 2021 corporate reorganization. Cosan is a diversified Brazilian energy, logistics and natural-resources holding company. Its businesses include gas distribution and power, lubricants, rail logistics, agricultural land investments, and a jointly controlled venture with Shell, Raízen. Raízen is accounted for under the equity method and is not consolidated line by line.
Financial results and key metrics
Unless otherwise stated, amounts are R$ millions. Comparisons are with fiscal 2021.
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net sales | 39,737.4 | 25,865.0 | +53.6% |
| Gross profit | 8,984.2 | 6,000.8 | +49.7%; gross margin approximately 22.6%, versus 23.2% |
| Profit before equity earnings, finance results and taxes | 7,483.8 | 4,087.6 | +83.1% |
| Finance results, net | (5,157.9) | (2,557.6) | Net expense more than doubled |
| Profit for the year | 2,820.9 | 6,696.5 | −57.9% |
| Profit attributable to Cosan owners | 1,176.0 | 6,312.1 | −81.4% |
| Operating cash flow | 9,972.2 | 5,147.2 | Increased by R$4,825.0 |
| Investing cash flow | (20,590.2) | (5,446.8) | Outflows reflected the Vale investment, acquisitions and capital expenditures |
| Financing cash flow | 8,149.9 | 2,319.4 | Included new borrowing and preferred-share capital contributions |
| Cash and cash equivalents | 13,301.7 | 16,174.1 | Decreased by R$2,872.4 |
| Marketable securities | 22,099.8 | 4,388.0 | Included R$19,586.2 of Vale shares classified as non-current |
| Gross loans, borrowings and debentures | 52,987.2 | 45,659.0 | Current portion R$4,542.2; foreign-currency debt R$28,537.0 |
| Net debt | 18,814.7 | 21,463.5 | Non-GAAP measure; reflects cash, marketable securities and debt derivatives |
| Working capital | 9,779.7 | 14,336.1 | Declined, primarily due to lower cash and cash equivalents |
| Total assets | 134,485.0 | 97,842.0 | Increased substantially, including from acquisitions and Vale investment |
| Capital expenditures | 4,531.4 | 4,774.8 | Lower year over year |
| Declared dividends | 1,237.8 | 2,031.3 | Lower year over year |
Material changes and management commentary
- Revenue growth reflected higher activity and acquired businesses. Gas and Power revenue rose 63.3%, including the consolidation of Sulgás and Commit and tariff increases; Logistics revenue rose 32.3%, supported by higher tariffs and transported volume; and Moove revenue rose 46.9%, including PetroChoice and Tirreno and increased sales volumes.
- Cosan’s higher gross profit did not translate into higher net income. The prior year included substantial Raízen IPO- and dilution-related equity-method gains; Cosan’s share of earnings from the joint venture shifted to a R$92.2 million loss from R$4,590.6 million of income. Higher interest costs and derivative losses also weighed on results.
- Other income, net rose to R$1,752.2 million, primarily reflecting a R$1,311.7 million fair-value increase in agricultural properties and Rumo’s R$955.6 million gain on selling 80% of EPSA. These were partly offset by a R$396.8 million payment to settle an arbitration and other items.
- Cosan’s R$16.4 billion Vale investment was completed in the fourth quarter through direct share purchases and derivative structures, with financing from new debt. The filing reports approximately 4.9% ownership and additional synthetic exposure to as much as 1.6%. The acquired shares and derivatives create material share-price, financing, collateral and counterparty risks.
- Cosan raised R$4.0 billion through preferred shares issued by Cosan Dez and R$4.1 billion through preferred shares issued by Cosan Nove. The proceeds were used to redeem commercial notes; the vehicles now hold investments in Compass and Raízen, respectively, and the preferred investors have preferential distribution rights.
- Raízen’s separate combined results, presented as supplemental information and including 100% of the joint venture, showed 2022 net sales up 39.6% to R$244.3 billion, but gross profit down 8.9% to R$10.6 billion and a net loss of R$13.8 million, versus R$3,365.7 million profit in 2021. Raízen cited higher input costs, freight and logistics costs, increased debt and higher Brazilian interest rates. These figures are not Cosan consolidated revenue.
Liquidity, outlook, risks and unusual items
- Management stated that current working capital was sufficient for present requirements and that it expected to meet potential funding needs through borrowings, shareholder contributions or debt or equity offerings. It also stated an expectation that existing debt could be refinanced on favorable market conditions. These are forward-looking statements, not guarantees.
- Comgás expected to invest approximately R$1.58 billion in 2023, with a similar allocation to network expansion, support and administrative or software investment. No consolidated earnings or revenue guidance is provided in the filing text.
- The company reported compliance with its debt covenants at December 31, 2022. It had R$3,052.3 million of unused credit lines, subject to contractual conditions. Debt maturities, refinancing access, interest rates and foreign-exchange movements remain important liquidity sensitivities.
- Cosan reported R$1,801.2 million of provisions for probable legal proceedings and R$23,458.8 million of possible-loss proceedings for which no provision was recorded. The amounts and outcomes are uncertain; certain claims relate to tax, civil, environmental, regulatory and labor matters.
- Material risks include Brazilian political, inflation and interest-rate uncertainty; real and foreign-currency volatility; commodity prices and weather; regulation and tariffs; acquisitions and integration; Raízen joint-control arrangements; and Vale-related market, derivative, collateral and covenant exposure. The company also identifies environmental, supply-chain, cybersecurity, operational-continuity and concession-renewal risks.
- Management and the auditor identified material weaknesses in controls over significant unusual transactions and business combinations. The auditor issued an adverse opinion on internal control over financial reporting as of December 31, 2022. Management said mitigating actions prevented actual misstatements in the 2022 financial statements and that remediation was planned; effectiveness is not assured. A separate prior-year IT general-controls weakness was reported as remediated.
- The independent auditor issued an unqualified opinion on the IFRS financial statements. The filing describes the Russia-Ukraine conflict, inflation, supply-chain disruption and COVID-19 as continuing uncertainties; it reported no material financial-statement effects from the war or impairment indicators identified at year-end.
Most important facts for investors to verify
- Reconcile the R$52,987.2 million gross debt, R$18,814.7 million net debt and R$35,401.5 million of cash plus marketable securities; review the net-debt definition and the liquidity and maturity profile.
- Review the Vale investment’s fair value, derivative terms, collateral, currency conversion, debt covenants and downside exposure, including the additional synthetic share exposure.
- Assess remediation progress and independent testing of the material weaknesses over unusual transactions and business combinations, including controls at acquired entities excluded from management’s effectiveness assessment.
- Track Raízen’s underlying margins, debt, cash generation and distributions, separating its supplemental 100%-basis results from Cosan’s equity-method accounting.
- Review the status, provisions, judicial deposits and potential cash consequences of major legal proceedings, and monitor tariff, environmental and rail-concession matters.
- Distinguish recurring operating performance from fair-value changes, asset-sale gains, acquisition effects, derivative results and other unusual items.