EX-13.3 6 d738876dex133.htm EX-13.3 EX-13.3
Table of Contents

EXHIBIT 13.3

 

Raízen Group

Combined consolidated financial

statements March 31, 2018 and

auditors report

 

 


Table of Contents

Raízen Group

Combined consolidated financial statements

March 31, 2018 and auditors report

Contents

 

Independent auditors’ report on the combined consolidated financial statements

     F-3  

Combined consolidated statements of financial position

     F-5  

Combined consolidated statements of income

     F-7  

Combined consolidated statements of comprehensive income

     F-8  

Combined consolidated statements of changes in equity

     F-10  

Combined consolidated statements of cash flows – indirect method

     F-12  

Notes to the combined consolidated financial statements

     F-13  

 

 

F-2


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LOGO

KPMG Auditores Independentes

Rua Arquiteto Olavo Redig de Campos, 105, 6º andar—Torre A

04711-904—São Paulo/SP—Brasil

Caixa Postal 79518—CEP 04707-970—São Paulo/SP—Brasil

Telefone +55 (11) 3940-1500, Fax +55 (11) 3940-1501

www.kpmg.com.br

Independent auditors’ report on the combined

consolidated financial statements

The Shareholders and Board of Directors Raízen Energia S.A. and Raízen Combustíveis S.A.:

We have audited the accompanying combined consolidated statements of financial position of Raízen Energia S.A. and Raízen Combustíveis S.A. (“Raízen Group”) as of March 31, 2018 and 2017, and the related combined consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2018, and the related notes to the combined consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these combined 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 combined consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these combined 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 combined consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the combined consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the combined 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 combined consolidated financial statements.

 

KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça.    KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

 

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LOGO

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the combined consolidated financial statements referred to above present fairly, in all material respects, the combined consolidated financial position of Raízen Group as of March 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2018, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of matter

We draw attention to Note 2.1(a) to the combined consolidated financial statements, which describes the basis of preparation and presentation of these combined consolidated financial statements. These combined consolidated financial statements do not necessarily represent the financial position, financial performance, or related cash flows that would have been obtained if the Raízen Group had operated as a single legal entity during the period. The combined consolidated financial statements were prepared to present the financial position, performance, and cash flows of the entities under indirect joint control of Cosan Limited and Royal Dutch Shell and, therefore may not be useful for others purposes. Our opinion is not modified with respect to this matter.

/s/    KPMG Auditores Independentes

São Paulo, SP

May 18, 2018

 

KPMG Auditores Independentes, uma sociedade simples brasileira e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça.    KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

 

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Raízen Group

Combined consolidated statement of financial position as of March 31

In thousands of Reais—R$

 

 

     Note      2018      2017  

Assets

        

Current assets

        

Cash and cash equivalents

     3        3,663,168        3,201,598  

Securities

     4        1,078,945        753,804  

Restricted cash

     5        143,606        325,237  

Derivative financial instruments

     24        228,092        342,464  

Trade accounts receivable

     6        2,756,767        1,902,542  

Inventories

     7        2,552,513        2,283,090  

Biological assets

     8        947,815        1,276,321  

Recoverable income and social contribution taxes

     16.b        887,416        862,268  

Recoverable taxes and contributions

        628,397        539,913  

Other financial assets

     9        408,379        11,048  

Related parties

     10        709,027        539,328  

Other receivables

        346,868        372,212  
     

 

 

    

 

 

 

Total current assets

        14,350,993        12,409,825  
     

 

 

    

 

 

 

Non-current assets

        

Trade accounts receivable

     6        447,856        443,730  

Derivative financial instruments

     24        273,762        81,505  

Other financial assets

     9        502,433        1,222,820  

Recoverable income and social contribution taxes

     16.b        300,930        191,878  

Recoverable taxes and contributions

        337,495        262,562  

Related parties

     10        1,329,549        1,108,551  

Deferred income and social contribution tax

     16.d        158,295        99,831  

Judicial deposits

     17        406,898        335,529  

Other receivables

        181,554        163,403  

Investments

     11        346,461        244,429  

Property, plant and equipment

     12        11,304,718        10,731,444  

Intangible assets

     13        4,689,901        4,179,495  
     

 

 

    

 

 

 

Total non-current assets

        20,279,852        19,065,177  
     

 

 

    

 

 

 

Total assets

        34,630,845        31,475,002  
     

 

 

    

 

 

 

See the accompanying notes to the combined consolidated financial statements.

 

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Raízen Group

Combined consolidated statement of financial position as of March 31

In thousands of Reais—R$

 

 

     Note      2018      2017  

Liabilities

        

Current liabilities

        

Loans and financing

     15        1,532,009        1,021,741  

Derivative financial instruments

     24        142,343        280,039  

Suppliers

     14        3,743,572        2,006,246  

Payroll and related charges payable

        553,491        468,237  

Income and social contribution taxes payable

     16.c        97,197        36,901  

Taxes payable

        276,066        229,360  

Dividends and interest on own capital payable

     19.c        23,417        61,341  

Related parties

     10        781,397        743,018  

Advances from clients

     6        51,677        203,363  

Other liabilities

        617,994        521,935  
     

 

 

    

 

 

 

Total current liabilities

        7,819,163        5,572,181  
     

 

 

    

 

 

 

Non-current liabilities

        

Loans and financing

     15        11,986,340        10,338,758  

Derivative financial instruments

     24        199,602        337,118  

Taxes payable

        183,434        177,565  

Related parties

     10        406,052        832,823  

Provision for legal disputes

     17        1,260,168        988,326  

Deferred income and social contribution tax

     16.d        452,166        437,281  

Other liabilities

        490,796        424,523  
     

 

 

    

 

 

 

Total non-current liabilities

        14,978,558        13,536,394  
     

 

 

    

 

 

 

Total liabilities

        22,797,721        19,108,575  
     

 

 

    

 

 

 

Equity

     19        

Attributed to controlling shareholders

        11,607,394        12,160,702  

Non-controlling shareholders

        225,730        205,725  
     

 

 

    

 

 

 

Total equity

        11,833,124        12,366,427  
     

 

 

    

 

 

 

Total liabilities and equity

        34,630,845        31,475,002  
     

 

 

    

 

 

 

See the accompanying notes to the combined consolidated financial statements.

 

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Raízen Group

Combined consolidated statements of income

Years ended March 31

In thousands of Reais—R$

 

 

     Note      2018     2017     2016  

Net operating revenue

     20        86,261,206       79,209,442       74,109,187  

Costs of products sold and services provided

     21        (80,050,279     (72,547,575     (68,077,699
     

 

 

   

 

 

   

 

 

 

Gross income

        6,210,927       6,661,867       6,031,488  
     

 

 

   

 

 

   

 

 

 

Operating income (expenses)

         

Selling

     21        (2,139,156     (1,875,271     (1,814,897

General and administrative

     21        (1,095,238     (994,318     (924,070

Other operating income, net

     22        622,064       646,227       398,472  

Equity accounting result of associated companies

     11        (21,423     (72,556     (65,891
     

 

 

   

 

 

   

 

 

 
        (2,633,753     (2,295,918     (2,406,386
     

 

 

   

 

 

   

 

 

 

Income before financial income (expense) and income tax and social contribution

        3,577,174       4,365,949       3,625,102  
     

 

 

   

 

 

   

 

 

 

Financial income (expense)

     23         

Financial expenses

        (904,397     (1,011,680     (968,872

Financial income

        619,106       736,856       731,821  

Exchange variation, net

        (324,948     443,314       (373,960

Net effect of the derivatives

        187,081       (327,150     171,435  
     

 

 

   

 

 

   

 

 

 
        (423,158     (158,660     (439,576
     

 

 

   

 

 

   

 

 

 

Income before income and social contribution taxes

        3,154,016       4,207,289       3,185,526  
     

 

 

   

 

 

   

 

 

 

Income and social contribution taxes

     16.a         

Current

        (962,957     (972,098     (658,545

Deferred

     16.d.1        119,925       (173,087     (322,168
     

 

 

   

 

 

   

 

 

 
        (843,032     (1,145,185     (980,713
     

 

 

   

 

 

   

 

 

 

Net income for the year

        2,310,984       3,062,104       2,204,813  
     

 

 

   

 

 

   

 

 

 

Attributable to:

         

Group’s controlling shareholders

        2,249,836       3,002,347       2,168,624  

Group’s non-controlling shareholders

        61,148       59,757       36,189  
     

 

 

   

 

 

   

 

 

 
        2,310,984       3,062,104       2,204,813  
     

 

 

   

 

 

   

 

 

 

See the accompanying notes to the combined consolidated financial statements.

 

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Raízen Group

Combined consolidated statements of comprehensive income

Years ended March 31

In thousands of Reais—R$

 

 

     2018     2017     2016  

Net income for the year

     2,310,984       3,062,104       2,204,813  

Comprehensive income

      

Items that will not be reclassified to profit or loss

      

Actuarial gain (loss), net

     (528     (3,132     705  

Deferred taxes on actuarial gain (loss) (Note 16.d.1)

     177       1,049       (241
  

 

 

   

 

 

   

 

 

 
     (351     (2,083     464  
  

 

 

   

 

 

   

 

 

 

Items that may be reclassified to income

      

Net gain (loss) on financial instruments designated as hedge accounting (Note 24.e)

     60,761       748,045       (831,530

Effect of foreign currency translation—CTA

     (3,765     2,605       57  

Deferred taxes on financial instruments (Note 16.e)

     (20,659     (254,334     282,735  
  

 

 

   

 

 

   

 

 

 
     36,337       496,316       (548,738
  

 

 

   

 

 

   

 

 

 

Other components of the comprehensive income for the year

     35,986       494,233       (548,274
  

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

     2,346,970       3,556,337       1,656,539  
  

 

 

   

 

 

   

 

 

 

Attributable to:

      

Group’s controlling shareholders

     2,285,822       3,496,575       1,620,350  

Group’s non-controlling shareholders

     61,148       59,762       36,189  
  

 

 

   

 

 

   

 

 

 
     2,346,970       3,556,337       1,656,539  

See the accompanying notes to the combined consolidated financial statements.

 

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Raízen Group

Combined consolidated statements of changes in equity

Year ended March 31

In thousands of Reais—R$

 

 

     Attributable
to Group’s
shareholders
    Non-controlling
shareholders
    Total equity (*)  

Balances at April 1, 2017

     12,160,702       205,725       12,366,427  

Comprehensive income for the year

      

Net income for the year

     2,249,836       61,148       2,310,984  

Actuarial loss, net

     (351     —         (351

Net gain on financial instruments designated as hedge accounting

     40,102       —         40,102  

Effect of foreign currency translation—CTA

     (3,765     —         (3,765
  

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year (Note 19.d)

     2,285,822       61,148       2,346,970  
  

 

 

   

 

 

   

 

 

 

Distributions to Group’s shareholders

      

Reflex effect of preferences shares in subsidiaries

     2,851       (2,851     —    

Redemption and allocation of dividends to holders of preferred shares (Note 19.c)

     (4,166     —         (4,166

Payment of dividends and interest on own capital (Note 19.c)

     (2,836,836     (34,575     (2,871,411

Capital reduction on subsidiary

     (1,088     (3,453     (4,541

Others

     109       (264     (155
  

 

 

   

 

 

   

 

 

 

Total distributions to Group’s shareholders

     (2,839,130     (41,143     (2,880,273
  

 

 

   

 

 

   

 

 

 

March 31, 2018

     11,607,394       225,730       11,833,124  
  

 

 

   

 

 

   

 

 

 

 

(*) As disclosed in Note 1.d, the combined consolidated companies are not operated as a single legal entity.

See the accompanying notes to the combined consolidated financial statements.

 

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Raízen Group

Combined consolidated statements of changes in equity

Year ended March 31

In thousands of Reais—R$

 

 

     Attributable
to Group’s
shareholders
    Non-controlling
shareholders
    Total equity (*)  

Balances at April 1, 2016

     10,982,504       169,573       11,152,077  

Comprehensive income for the year

      

Net income for the year

     3,002,347       59,757       3,062,104  

Actuarial loss, net

     (2,088     5       (2,083

Net gain on financial instruments designated as hedge accounting

     493,711       —         493,711  

Effect of foreign currency translation—CTA

     2,605       —         2,605  
  

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year (Note 19.d)

     3,496,575       59,762       3,556,337  
  

 

 

   

 

 

   

 

 

 

Distributions to Group’s shareholders

      

Redemption and allocation of dividends to holders of preferred shares (Note 19.c)

     (2,892     —         (2,892

Payment of dividends and interest on own capital (Note 19.c)

     (2,315,485     (23,610     (2,339,095
  

 

 

   

 

 

   

 

 

 

Total distributions to Group’s shareholders

     (2,318,377     (23,610     (2,341,987
  

 

 

   

 

 

   

 

 

 

March 31, 2017

     12,160,702       205,725       12,366,427  
  

 

 

   

 

 

   

 

 

 

 

(*) As disclosed in Note 1.d, the combined consolidated companies are not operated as a single legal entity.

See the accompanying notes to the combined consolidated financial statements.

 

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Raízen Group

Combined consolidated statements of changes in equity

Year ended March 31

In thousands of Reais—R$

 

 

     Attributable
to Group’s
shareholders
    Non-controlling
shareholders
    Total equity
(*)
 

Balances at April 1, 2015

     11,228,108       152,161       11,380,269  

Comprehensive income for the year

      

Net income for the year

     2,168,624       36,189       2,204,813  

Actuarial gain, net

     464       —         464  

Net loss on financial instruments designated as hedge accounting

     (548,795     —         (548,795

Effect of foreign currency translation—CTA

     57       —         57  
  

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year (Note 19.d)

     1,620,350       36,189       1,656,539  
  

 

 

   

 

 

   

 

 

 

Distributions to Group’s shareholders

      

Redemption and allocation of dividends to holders of preferred shares (Note 19.c)

     (729     —         (729

Payment of dividends and interest on own capital (Note 19.c)

     (1,864,810     (18,383     (1,883,193

Initial recognition of non-controlling interest

     —         (963     (963

Others

     (415     569       154  
  

 

 

   

 

 

   

 

 

 

Total distributions to Group’s shareholders

     (1,865,954     (18,777     (1,884,731
  

 

 

   

 

 

   

 

 

 

March 31, 2016

     10,982,504       169,573       11,152,077  
  

 

 

   

 

 

   

 

 

 

 

(*) As disclosed in Note 1.d, the combined consolidated companies are not operated as a single legal entity.

See the accompanying notes to the combined consolidated financial statements.

 

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Raízen Group

Consolidated combined statements of cash flows – Indirect method

Years ended March 31

In thousands of Reais—R$

 

 

     2018     2017     2016  

Cash flow from operating activities

      

Income before income and social contribution taxes

     3,154,016       4,207,289       3,185,526  

Adjustments:

      

Depreciation and amortization (Notes 20 and 21)

     2,742,288       2,355,486       2,410,149  

Loss (gain) arising from change in the fair value and realization of the gain or loss of changes in fair value of biological assets (Note 21)

     367,432       (304,621     (375,581

Equity accounting result of associated companies (Note 11)

     21,423       72,556       65,891  

Gain on disposal of fixed assets (Note 22)

     (95,198     (82,246     (70,981

Interest, monetary and exchange variations, net

     883,501       (100,451     1,105,403  

Change in fair value of financial instruments (Notes 15 and 23)

     (19,776     90,150       (49,556

Unrealized loss (gain) on derivative instruments

     (565,098     1,206,330       (711,899

Changes in fair value of inventories – fair value hedge (Notes 7 and 24.e)

     (16,827     —         —    

Gain in the disposal of shares (Note 22)

     (53,747     (166,103     —    

Recognition of credits and tax credits, net (Note 22)

     (218,699     (403,113     (86,766

Constitution of estimated loss with non-realization of taxes(Notes 21 and 22)

     8,701       73,873       —    

Loss with commercial operations (Note 22)

     7,577       16,742       59,464  

Impairment (reversal) of investment, property, plant and equipment and intangible assets, net (Notes 12 and 22)

     (3,823     163,088       (1,869

Capital gain on dilution of ownership interest in associates (Note 11.c.i)

     —         (14,697     (15,583

Income from investment subsidy—ICMS (Notes 21.a and 22)

     (76,885     (67,758     (40,646

Other

     42,846       189,383       35,773  

Changes in assets and liabilities

      

Trade accounts receivable and advances from clients

     (836,799     (15,454     (46,957

Inventories

     (281,413     (609,890     (180,481

Restricted cash

     204,853       571,241       (651,056

Derivative financial instruments

     194,055       (179,471     419,131  

Related parties transactions

     (16,257     (236,269     81,899  

Suppliers and advances to suppliers

     1,659,936       259,974       177,061  

Recoverable and payable taxes, net

     (522,826     (470,239     (180,500

Payroll and related charges payable

     74,032       (7,184     49,301  

Other assets and liabilities, net

     (14,982     (18,869     (18,460

Income and social contribution taxes on net income—paid

     (249,351     (245,693     (303,043
  

 

 

   

 

 

   

 

 

 

Net cash generated in operating activities

     6,388,979       6,284,054       4,856,220  
  

 

 

   

 

 

   

 

 

 

Cash flow from investment activities

      

Acquisition of new businesses, net of cash acquired (Note 27)

     (792,494     —         —    

Additions to investment (Note 11.b)

     (121,347     (144,709     (48,513

Investment in securities

     (325,141     (648,899     397,701  

Additions to property, plant and equipment and intangible assets (Notes 12, 13 and 28)

     (2,476,713     (2,270,661     (1,927,424

Additions to biological assets (Notes 8 and 28)

     (555,785     (530,209     (494,457

Cash received upon disposal of fixed assets

     221,165       160,399       152,064  

Cash received upon disposal of Investment (Note 11.b.ii)

     96,338       413,556       —    

Dividends received from associates

     —         20,014       3,242  
  

 

 

   

 

 

   

 

 

 

Net cash used in investment activities

     (3,953,977     (3,000,509     (1,917,387
  

 

 

   

 

 

   

 

 

 

Cash flow from financing activities

      

Loans and financing

     2,988,749       2,539,445       2,951,102  

Amortizations of principal of loans and financing

     (1,236,508     (3,447,367     (2,701,957

Payment of interest on loans and financing

     (667,607     (695,856     (732,085

Redemptions (investments) in securities linked to financing, net (Restricted cash)

     571       10,413       (9,527

Dividends and interest on own capital (Note 19.c)

     (3,092,893     (2,713,391     (1,701,132

Related parties and others

     1,208       (4,303     19  
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (2,006,480     (4,311,059     (2,193,580
  

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents, net

     428,522       (1,027,514     745,253  

Cash and cash equivalents at the beginning of the year (Note 3)

     3,201,598       4,267,726       3,525,624  

Effect of exchange variation on cash and cash equivalents

     33,048       (38,614     (3,151
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the year (Note 3)

     3,663,168       3,201,598       4,267,726  
  

 

 

   

 

 

   

 

 

 

Supplementary information to the statements of cash flows is shown in Note 28.

See the accompanying notes to the combined consolidated financial statements.

 

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

1. Operations

Raízen Group (“Group”) is basically engaged in the following activities and comprises the following companies:

 

  (a) Raízen Energia S.A. and subsidiaries (“Raízen Energia” or “RESA”):

Raízen Energia S.A. (“Company”, “Group”, “Raízen Energia” or “RESA”) is a publicly-held company enrolled in the Brazilian Securities and Exchange Commission (“CVM”) in Category B, headquartered at Avenida Brigadeiro Faria Lima Avenue, number 4.100, 11° floor, Part V, Itaim Bibi, São Paulo—SP. The Company was established on June 1, 2011 and is indirectly and jointly controlled by Royal Dutch Shell (“Shell”) and Cosan Limited (“Cosan”).

RESA is mainly engaged in producing and marketing sugar and ethanol, and the trading, including abroad through its subsidiaries Raízen Trading LLP (“Raízen Trading”) and Raízen International Universal Corporation, and co-generating energy produced from bagasse at its 26 plants located in Brazil’s Center-Southern Region.

Sugarcane farming requires a period ranging from 12 to 18 months for maturing and harvesting and generally start between the months of April and May every year, the crop usually ends between November and December, period in which sugar and ethanol are also produced. Production is sold during the whole year and does not fluctuate over the seasons, but is affected by normal market supply and demand. Because of RESA’s production cycle, its fiscal year and the fiscal year of Raízen Combustíveis S.A. and therefore of Raízen Group starts on April 1 and ends on March 31.

 

    Joint venture Raízen and Wilmar Sugar Pte. Ltd (“RaW”)

During the year ended March 31, 2017, RESA and Wilmar Sugar Pte. Ltd., created a joint venture named “RaW”, to attend growing global demand of Very High polarization (“VHP”) sugar from Brazil. RaW is a typical joint venture in which each shareholder holds 50% interest, for the main purpose of combining strengths of the largest VHP sugar Brazilian producer with the largest global trader of such commodity. RaW transactions had begun on April 1, 2017. See Notes 10 and 11.

 

    Hibernation of manufacturing mills

During the month of August 2017, RESA returned the sugar and ethanol production and trading activities in Bom Retiro mill, located in Capivari, São Paulo State, after two years of hibernation.

During the month of November 2017, RESA hibernated the industrial activities for a two-year estimated period of the mills Dois Córregos (located in Dois Córregos—SP) and Tamoio (Araraquara—SP) due to the lower availability of sugarcane in the region. The hibernation of activities purpose is to optimize the production of other plants of RESA located in nearby areas, redirecting the raw material formerly destined to these units. The agricultural operation of sugarcane suppliers of Raízen in the region will not be impacted, as well as the RESA’s production estimated for the period of hibernation. In addition, no impairment adjustment was necessary as result of this temporary hibernation of the manufacturing plants as the assets value in use continues to exceed their carrying amount.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

  (b) Raízen Combustíveis S.A. and its subsidiaries (“Raízen Combustíveis” or “RCSA”):

RCSA is a closely held corporation. The address of its registered office is Rua Victor Civita, 77, Block 1, Edifice 6, 4th floor—Rio de Janeiro—Brazil. RCSA is indirectly jointly controlled by Shell and Cosan.

RCSA is engaged in: (i) distributing and marketing oil and ethanol by-products, and other fluid hydrocarbons and their by-products under Shell brand; (ii) trading of natural gas; (iii) operate as franchiser and licenser of Select convenience stores; (iv) importing and exporting the products previously mentioned; and (v) holding ownership interest in other companies.

 

    Agreement to acquire 100% of the shares of the fuel and lubricants refining and distribution business in Argentina held by Shell Overseas Investments B.V. and B.V. Dordtsche Petroleum Maatschappij (“Shell Group”)

On September 29, 2017, RCSA submitted a binding proposal to acquire the fuel and lubricants refining and distribution business in Argentina held by the Shell Group.

On April 24, 2018, RCSA and its wholly owned subsidiary Raízen Argentina Holdings S.A.U., entered into an agreement for the acquisition of Shell’s downstream business (“DS”) in Argentina, through the acquisition of 100% of the shares issued by Shell Compañía Argentina de Petróleo S.A. and Energina Compañía Argentina de Petróleo SA (“Acquired Companies”) held by the Shell Group. The Acquired Companies operate in Argentina in the petroleum refining business, fuel distribution, the operation of fuel retailers, the manufacture and sale of automotive and industrial lubricants, and the manufacture and sale of liquefied petroleum gas (“LPG”), among others.

Shell’s DS operation in Argentina has a network of 645 gas stations with annual sales of approximately 6 billion liters, ranked the second player in the market with approximately a 20% market share. This acquisition also includes a refinery, a lubricant plant, three inland terminals, two airport supply terminals and five LPG bottling plants.

The purchase price of the Acquired Companies totals US$ 950,000 thousand, equivalent to approximately R$ 3,157,610 (considering the PTAX of March 31, 2018) at the date of these combined consolidated financial statements, and Shell will continue to be present in the Argentine DS market as a Raízen shareholder. The referred value assumes that the Acquired Companies have no debt and is subject to adjustments of working capital changes and the amount of net debt at closing.

After Raízen takes over the DS business in Argentina, the Acquired Companies will enter into various contracts with companies of the Shell Group, according market conditions, including a supply agreement for the import of hydrocarbons and the use of Shell license in Argentina.

The closing of this transaction is subject to the fulfillment of certain previous conditions, among which the carve out of the assets related to the oil exploration and production operation, as well as other usual conditions for operations of this nature.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

This acquisition represents an important growth opportunity for RCSA, expanding and replicating its successful model implemented in Brazil and also supports the business of the Acquired Companies and the Shell brand in Argentina, allowing operational, financial and marketing synergies.

 

  (c) Corporate restructuring and business combinations

During the year ended March 31, 2018, the Group had the following corporate events: (i) acquisition of Santa Cândida and Paraíso mills of Tonon Bioenergia S.A., Tonon Holding S.A. and Tonon Luxembourg S.A, all of them under a Court-Ordered Reorganization; and, (ii) an internal corporate restructuring involving net assets linked to franchising activity and licensing of the “Select” brand. The details of these transactions are described on Note 27.

 

  (d) Other information

The synergy between RESA and RCSA makes Raízen Group to be currently positioned in a special place in the Brazilian market. The two companies work in a complementary manner, and therefore, reporting their combined consolidated businesses is a key tool to allow the market to evaluate the Raízen Group as a whole.

Although they are not set up as a group pursuant to article 265 of Brazilian Corporation Law (“LSA”), companies of Raízen Group disclose such combined consolidated financial statements to provide information that best reflects their gross cash flows from operating activities.

The Raízen Group’s combined consolidated financial statements are being presented exclusively to provide information about all the Raízen Group’s activities in a single set of financial statements, regardless of the Group’s corporate structure.

As a result, these combined consolidated financial statements do not represent the individual or consolidated financial statements of an entity and its subsidiaries and should not be used as a basis for the calculation of dividends or taxes, or for any other corporate or statutory purposes and does not necessarily provide indicators of the current or future profit or loss that would have been earned had these companies been operating as one single legal entity.

 

2. Presentation of financial statements and significant accounting policies

 

  2.1. Preparation basis

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

The issuance of Raízen Group’s combined consolidated financial statements was authorized by Management on May 18, 2018.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  a) Combination criteria

Such combined consolidated financial statements include the following companies:

 

    Raízen Energia S.A and its subsidiaries

 

    Raízen Combustíveis S.A. and its subsidiaries

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the combined consolidated financial information, when applicable.

The breakdown of assets and equity as of March 31, 2018 and 2017, as well as results and comprehensive income of the companies for years ended March 31, 2018, 2017 and 2016 have been included in the combined consolidated financial statements and the respective combined consolidated balances, after the elimination of intragroup transactions, as follows:

 

     Total assets      Total equity  
     2018      2017      2018      2017  

Raízen Energia S.A. and its subsidiaries

     24,530,296        23,780,800        8,824,167        9,384,192  

Raízen Combustíveis S.A. and its subsidiaries

     13,341,520        11,101,940        3,021,769        2,992,934  
  

 

 

    

 

 

    

 

 

    

 

 

 
     37,871,816        34,882,740        11,845,936        12,377,126  
  

 

 

    

 

 

    

 

 

    

 

 

 

Elimination of commercial transactions unrealized profits and financial transactions

     (3,240,971      (3,407,738      (12,812      (10,699
  

 

 

    

 

 

    

 

 

    

 

 

 

Combined consolidated balances

     34,630,405        31,475,002        11,833,124        12,366,427  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Net income      Comprehensive income  
     2018      2017      2016      2018      2017      2016  

Raízen Energia S.A. and its subsidiaries

     642,807        1,404,667        1,012,490        682,895        1,855,189        503,246  

Raízen Combustíveis S.A. and its subsidiaries

     1,668,220        1,658,573        1,200,476        1,666,193        1,703,781        1,161,446  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2,311,027        3,063,240        2,212,966        2,349,088        3,558,970        1,664,692  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Elimination of commercial transactions unrealized profits and financial transactions

     (43      (1,136      (8,153      (2,118      (2,633      (8,153
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Combined consolidated income

     2,310,984        3,062,104        2,204,813        2,346,970        3,556,337        1,656,539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The combined consolidated financial statements are a single set of financial statements of two entities that are jointly controlled. RESA and RCSA used the definition of control in conformity with IFRS 10—Consolidated Financial Statements, with respect to both the existence of joint control and also to the consolidation procedures.

 

  b) Measuring basis

The combined consolidated financial statements were prepared using historical cost as the value base, except, when applicable, for the valuation of certain assets and liabilities such inventories and non-derivative financial instruments (including derivative instruments) and biological assets, which are measured at fair value.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  c) Functional and presentation currency

These combined consolidated financial statements are being presented in Reais, functional currency of the Group. All balances have been rounded to the nearest value, except otherwise indicated. The financial statements of each subsidiary included in the consolidation and combination, as well as those utilized as a basis to account for investments under the equity method, are prepared based on the functional currency of each company. For the subsidiaries located abroad, the financial statements have been translated into Reais based on the foreign exchange rate in effect at the end of the year. The results were translated at the average monthly rate during the year. Translation effects are recognized in equity in these subsidiaries.

 

  d) Significant judgments, estimates and assumptions

The preparation of combined consolidated financial statements requires management to make judgments,estimates and adopt assumptions that affect the amounts presented for revenues, expenses, assets and liabilities at the reporting date.

These estimates and assumptions are continuously reviewed. Reviews in relation to accounting estimates are recognized in the period in which the estimates are reviewed and in any future periods affected.

In case of there be a significant change in the facts and circumstances on which the estimates and assumptions made are based, there may be a material impact on the Group’s results and financial position.

The significant accounting estimates and assumptions are set out below:

Income tax, social contribution and other taxes payable

The Group is subject to income tax and social contribution, when applicable, in all countries in which it operates. Significant judgment is required to determine the provision for income taxes in these various countries.

In many operations, the final determination of the tax is uncertain. When applicable, the Group also recognizes provisions to cover certain situations in which it is probable that additional tax amounts will be owed. When final result of such issues differs from initially estimated and recorded amounts, these differences affect current and deferred tax liabilities and income (loss) and comprehensive income in the period in which definitive value is determined.

Deferred income and social contribution taxes

Deferred income tax and social contribution assets are recognized for all tax loss carryforwards not utilized and that it is probable that there will be future taxable income to enable their use in the future. In addition, the Group recognized deferred taxes based on temporary differences determined based on tax basis and book value of certain assets and liabilities, using prevailing rates. Substantial judgment from Management is required to determine the amount of the deferred income tax and social contribution assets that can be recognized, based on the reasonable term and amount of future taxable income, along with future tax rationalization.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Deferred income tax assets and liabilities are presented at net value in the statement of financial position only when there is a legal right and the intention of offsetting them upon calculation of current taxes, related to the same legal entity and the same tax authority. For further details on deferred taxes, see Note 16.

Biological assets

Biological assets are measured at fair value on the reporting date, and the effects of changes in fair value between the periods are recognized directly in the cost of products sold. For further information on the assumptions used, see Note 8.

Property, plant and equipment and intangible assets, including goodwill

The accounting treatment given to property, plant and equipment and intangible assets includes estimates to determine the useful life for depreciation and amortization purposes, in addition to the fair value at acquisition date of the assets acquired through business combinations.

The Group annually tests the recoverable values of goodwill and intangible assets with indefinite useful lives. Property, plant and equipment and defined-intangible assets that are subject to depreciation and amortization are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

The determination of the recoverable amount of the cash-generating unit to which the goodwill was allocated also includes the use of estimates and assumptions and requires a significant degree of Management’s judgment.

Provision for legal disputes

The Group constitutes a provision for tax, civil, environmental and labor contingencies. Determination of the likelihood of loss includes determination of evidences available, hierarchy of laws, jurisprudence available, more recent court decisions and relevance thereof in legal system, as well as evaluation of internal and external attorneys. Such provisions are reviewed and adjusted to take into account changes in circumstances, such as statute of limitations applicable, tax inspection conclusions 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 and oil by-products imported presented in the statement of financial position cannot be obtained from active markets, it is determined by using valuation method, including the discounted cash flow method. The data for these methods are based on those adopted by the market, when possible. However, when such data are not available, a certain level of judgment is required to establish the fair value. Judgment includes considerations on the data utilized, such as liquidity risk, credit risk and volatility. Changes in the assumptions related to these factors can affect the fair value presented for the financial instruments and inventories. For more details on financial instruments, see Note 24.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  2.2. Basis of consolidation

The combined consolidated financial statements include information of RESA and its subsidiaries, and of RCSA and its subsidiaries, and the exclusives investment funds. The direct and indirect subsidiaries of RESA and RCSA and the investment funds are listed below:

 

Subsidiaries of RESA

   Direct and
indirect
ownership
interests
 
     2018     2017  

Agrícola Ponte Alta Ltda.

     100     100

Agropecuária Santa Hermínia Ltda. (“Santa Hermínia”) (i)

     —         100

Benálcool Açúcar e Álcool Ltda.

     100     100

Bioenergia Araraquara Ltda.

     100     100

Bioenergia Barra Ltda.

     100     100

Bioenergia Caarapó Ltda.

     100     100

Bioenergia Costa Pinto Ltda.

     100     100

Bioenergia Gasa Ltda.

     100     100

Bioenergia Jataí Ltda.

     100     100

Bioenergia Maracaí Ltda.

     100     100

Bioenergia Rafard Ltda.

     100     100

Bioenergia Serra Ltda

     100     100

Bioenergia Tarumã Ltda.

     100     100

Bioenergia Univalem Ltda.

     100     100

Raízen Araraquara Açúcar e Álcool Ltda. (“Raízen Araraquara”)

     100     100

Raízen Ásia PT Ltd.

     100     100

Raízen Biogás Ltda.

     100     100

Raízen Biogás SPE Ltda.

     100     100

Raízen Biotecnologia S.A.

     100     100

Raízen Caarapó Açúcar e Álcool Ltda. (“Raízen Caarapó”)

     100     100

Raízen Centroeste Açúcar e Álcool Ltda. (“Raízen Centroeste”)

     100     100

Raízen e Wilmar Açúcar Ltda. (ii)

     —         100

Raízen Energy Finance Ltd.

     100     100

Raízen Fuels Finance S.A.

     100     100

Raízen-Geo Biogás S.A. (iii)

     100     —    

Raízen International Universal Corp.

     100     100

Raízen North América, Inc.

     100     100

Raízen Paraguaçú Ltda. (“Paraguaçu”)

     100     100

Raízen Trading LLP.

     100     100

São Joaquim Arrendamentos Agrícolas Ltda. (“São Joaquim”) (i)

     100     —    

TEAS Terminal Exportador de Álcool de Santos Ltda. (“TEAS”) (iv)

     —         100

Unimodal Ltda.

     73     73

 

  (i) On June 21, 2017, the subsidiary Raízen Araraquara, through a process of exchange of quotas, transferred its interest in the company Agropecuária Santa Hermínia Ltda. and, in return, received 1,806,090 quotas equivalent to 100% of São Joaquim Arrendamentos Agrícolas Ltda. equity.
  (ii) On April 18, 2017, through a Private Instrument for the 1st Amendment to the Articles of Association of Raízen e Wilmar Açúcar Ltda., RESA and its subsidiary Raízen Araraquara transferred portions and the totality, respectively, of their quotas issued by Raízen and Wilmar Açúcar Ltda. to the company RaW. Thus, RESA now holds a minority interest and Raízen Araraquara ceased to be a partner. This transaction had no impact on the combined consolidated financial statements as it related to corporate restructuring under common control.
  (iii) On February 19, 2018, Bio Barra ceased to be a partner, transforming the entity into a closely-held Corporation and 15% of the equity interest was transferred to the new minority partner Geo Energética Participações S.A..
  (iv) On March 29, 2018, the interest on TEAS was integrally sold to the Ultra Group. See Note 11.b.ii.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

Subsidiaries of RCSA

   Direct and
indirect
ownership
interests
 
     2018     2017  

Blueway Trading Importação e Exportação Ltda.

     100     100

Petróleo Sabbá S.A. (“Sabbá”)

     80     80

Raízen Argentina Holdings S.A.U. (i) / (ii)

     100     —    

Raízen Conveniências Ltda. (“Raízen Conveniências”) (iii)

     100     —    

Raízen S.A. (ii)

     100     100

Raízen Sabbá Conveniências Ltda. (“Sabbá Conveniências“) (iii)

     96     —    

Raízen Mime Conveniências Ltda. (“Mime Conveniências”) (iii)

     91     —    

Raízen Mime Combustíveis S.A. (“Mime”)

     76     76

Sabor Raíz Alimentação S.A. (“Sabor Raiz”)

     69     60

Saturno Investimentos Imobiliários Ltda. (“Saturno”)

     100     100

 

  (i) On March 28, 2018, this entity was created to be used in the acquisition of the DS business in Argentina
  (ii) Dormant entities as of March 31, 2018
  (iii) As mentioned in Note 1.c, RCSA and its subsidiaries Sabbá and Mime conducted, on April 3 and 4, 2017, capital increases in such companies through net assets linked to franchising activity and licensing of the “Select” brand.

 

Exclusive investments funds

   Total
ownership
interest
 
     2018     2017  

Fixed income IF for private credit RJ – Banco Santander S.A.

     100     100

Fixed income IF for private credit RAÍZEN I – Banco BNP PARIBAS BRASIL S.A.

     100     100

The subsidiaries are fully consolidated from the date of control acquisition, and continue to be consolidated up to the date when control no longer exists. The financial statements of the subsidiaries are prepared for the same reporting period as the Group, and utilizing accounting policies consistent and, when required, with the policies adopted by the Group.

All balances maintained between combined consolidated companies, revenues and expenses, unrealized gains and losses, arising from transactions between companies are eliminated as a whole.

A change in the ownership interest in a subsidiary which does not result in loss of control is accounted as a transaction between shareholders in equity.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is equal to the fair value of the assets transferred, liabilities assumed and equity instruments issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement, when applicable. Acquisition-related costs are recorded in the statement of income as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Non-controlling interests to be recognized are determined for each acquisition carried out.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

The difference between the consideration paid and the acquisition-date fair value of any previous ownership interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. For acquisitions in which the Group attributes fair value to non-controlling interests, the determination of goodwill also includes the value of any non-controlling interest in the acquiree, and the goodwill is determined considering the Group’s and non-controlling interests. When the consideration paid is less than the fair value of the net assets of the acquired subsidiary, the difference is recognized directly in the statement of income for the year as bargain purchase.

 

  2.3. Description of significant accounting policies

The accounting policies described below have been consistently applied to all the years presented in these combined consolidated financial statements.

 

  a) Revenue recognition

Revenues from sales of products or goods, including sales in the foreign market made by RESA’s subsidiaries, Raízen Trading LLP and Raízen International Universal Corporation, are recognized when the entity transfers to the buyer the significant risks and rewards of ownership of the products and goods, and when it is probable that future economic benefits will be received by companies of the Group. Selling prices are established based on purchase orders or contracts. Goods or services whose income is deferred are recorded within “Other obligations” and accounted for as income upon transfer of significant risks and goods of ownership to the client or provision of the service itself.

The revenue from the sale of the electric power co-generated is recorded based on the energy available in the network and the tariffs specified in the supply agreements, or the current market price, according to each case. Due to the billing flow, the electric power produced and sold through auctions is initially recognized as prepaid income, during the billing to clients and, is only recognized in the statement of income for the year when it is available to be used by the clients.

Revenue from leases and storage comprises leases of gas stations and storage of fuel and similar products in the RCSA terminals and its subsidiaries, and is recognized as the services are rendered, under “Other operating income, net” (Note 22).

Revenue is presented net of taxes (Excise Tax—IPI, Value-added Tax on Sales and Services—ICMS, Social Integration Program—PIS, Social Contribution on Revenues (COFINS), Economic Domain Intervention Contribution (CIDE), National Institute of Social Security (INSS) and other.), returns, rebates and discounts, amortization referring to exclusive supply rights, as well as of sales between Group companies.

 

  b) Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions, or the dates of valuation when items are remeasured.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Monetary assets and liabilities denominated in a foreign currency are converted into Reais using the foreign exchange rates prevailing at the statement of financial position date, and foreign exchange gains and losses arising from the settlement of these transactions and the translation at year-end exchange rates are recognized in the statement of income within “Financial income (loss)”, unless they qualify as hedge accounting, in which case they are recognized in the Statement of Comprehensive Income.

Non-monetary items that are measured at the historical cost in a foreign currency are translated using the translation rate of the transaction start date. Non-monetary assets that are measured at fair value in a foreign currency are translated using the exchange rate at the date when 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: at fair value through profit or loss and loans and receivables. The Group classifies its financial assets upon initial recognition.

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

The Group’s financial assets are presented in Note 24.

Subsequent measurement

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

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and assets designated in the initial recognition, as measured at fair value through profit or loss. They are classified as held-for-trading if they are originated with the purpose of being sold or repurchased in the short term. Derivatives are measured at fair value through profit or loss, except for those designated as cash flow hedge instruments, which are recognized in shareholders’ equity and subsequently recognized in the Statement of income, as described in Item (v) below. Interest, monetary variation and foreign exchange variation and variations arising from measurement at fair value in income (loss) when incurred, are recognized under financial income (loss).

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments and usually not quoted in an active market. After the initial measurement, these financial assets are accounted for at amortized cost using the effective interest rate method (effective interest rate), less impairment loss, when applicable. Amortized cost is calculated taking into account any discount or “premium” in the acquisition and fees or costs incurred. The amortization of the effective interest rate method is included under Financial income (loss) in the statement of income.

Derecognition (write-off)

A financial asset is written off when: (i) The rights to receive cash flows from the asset expire; and, (ii) The Group transfers its rights to receive cash flows from the asset or assumes an obligation to pay the cash flows received in full to a third party under a transfer deal arrangement; and (a) the Group transfers substantially all risks and rewards of the assets, or (b) the Group neither transfers nor retains substantially all the risks and rewards related to the asset, but transfers the control over the asset.

Impairment of financial assets

The Group assesses, at the reporting dates, whether there is any evidence that determines that an asset or group of financial assets is impaired. A financial asset or group of financial assets is considered impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (known as a loss event) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets and can be reliably estimated.

The criteria used by the Group to determine whether there is objective evidence of an impairment loss include: (i) issuer or debtor’s relevant financial difficulties; (ii) a breach of contract, such as a default or delay on payment of interest or the principal; (iii) The Group, due to economic or legal reasons relating to the financial difficulty of the borrower, assures the borrower a concession that the creditor would not consider; (iv) It is likely that the borrower will declare bankruptcy or other financial reorganization; (v) the disappearance of an active market for that financial asset due to the financial difficulties; (vi) observable data indicating a measurable reduction in estimated future cash flows from a financial asset portfolio since the initial recognition of the assets, even if the decrease cannot yet be identified with the individual financial assets in the portfolio, including: (a) national or local economic conditions correlating with adverse changes in the payment situation of the portfolio’s loan; and, (b) national or local economic conditions correlating with defaults on the portfolio’s assets.

If, in a subsequent period, the value of the impairment loss decreases and the decrease is objectively be related to an event occurring after the impairment is recognized (such as, an improvement in the debtor’s credit classification) the reversal of the previously recognized impairment loss will be recognized in the statement of income in the period that the event occurs.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (ii) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified in the following categories: (i) fair value through profit or loss, including derivatives classified as effective hedge instrument, or (ii) amortized cost. The Group classifies its financial liabilities upon initial recognition.

Financial liabilities are initially recognized at fair value, and in the case of loans and financings, include directly related transaction cost.

The Group’s financial liabilities are presented in Note 24.

Subsequent measurement

The measurement of financial liabilities depends on their classification, which can be as follows:

Financial liabilities at fair value through profit or loss

It includes financial liabilities usually traded before maturity, liabilities designated in the initial recognition at fair value by means of the result and derivatives, except those designated as cash flow hedge instruments. Interest, monetary variation and foreign exchange variation and variations arising from measurement at fair value, when applicable, are recognized in Statement of income when incurred.

Amortized cost

After initial recognition, loans and financing subject to interest are subsequently measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in the income statement upon settlement of liabilities, as well as during the amortization process by the effective interest rate method.

Interest payments on loans and financing are classified as cash flows from financing activities.

Derecognition (write-off)

A financial liability is derecognized when the obligation under the liability is discharged, canceled or expired.

 

  (iii) Offset of financial instruments—net presentation

Assets and liabilities are presented net in the statement of financial position if, and only if, there is a current legal and enforceable right to offset the recognized amounts and if there are an intention of offsetting, or realizing the asset and settling the liability simultaneously.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (iv) Fair value of financial instruments

The fair value of financial instruments actively traded in organized financial markets is determined based on quoted market prices at the close of business at the statement of financial position date, without deduction of transaction costs.

The fair value of financial instruments for which there is no active market is determined using valuation methods. These methods may include: (i) the use of recent market transactions (on an arm’s length basis); (ii) by reference to the current fair value of another similar instrument; (iii) discounted cash flow analysis or (iv) other valuation models.

An analysis of the fair value of financial instruments and more details on how they are calculated are provided in Note 24.

 

  (v) Derivative financial instruments and hedge accounting

Initial recognition and subsequent measurement

The Group uses derivative financial instruments, such as non-deliverable forwards, commodity forward contracts and interest rate swaps to provide protection against the risk of variation in the foreign exchange rates, prices of commodities and interest rates, respectively. The derivative financial instruments designated in hedging operations are initially recognized at fair value on the date on which the derivative is obtained, and are subsequently valuated also at fair value. Derivatives are presented as assets when the fair value of the financial instrument is positive; and as liabilities when the fair value is negative.

Any gains or losses resulting from changes in the fair value of derivatives during the year are recognized directly in the statement of income, with the exception of the effective portion of the hedge designated as hedge accounting, which is recognized directly in equity in other comprehensive income.

For hedge accounting purposes, there are the following classifications:

 

    fair value hedge, in providing protection against exposure to changes in the fair value of recognized asset or liability or of unrecognized firm commitment, or of identified part of such asset, liability or firm commitment, which is attributable to a particular risk and may affect the result;

 

    cash flow hedge, in providing protection against the variation in the cash flows that is attributable to a particular risk associated with a recognized asset or liability or with a foreseen transaction that is highly likely and that might affect the result; or

 

    hedge of a net investment in a foreign operating unit.

In the initial recognition of a hedge relationship, the Group formally classifies and documents the hedge relationship to which they wish to apply hedge accounting, as well the objective and the risk management strategy of company’s management.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

The documentation includes: (i) the identification of the hedge instrument, (ii) the hedged item or transaction, (iii) the nature of the risk to be hedged, (iv) the prospective demonstration of the efficacy of the hedge relationship and (v) the way in which the Group intends to assess the efficacy of the hedge instrument for purposes of offsetting the exposure to changes in the fair value of the hedged item or cash flows related to the hedged risk. As regards cash flow hedge, the nature of the high probability of occurrence of the foreseen transaction to be hedged, as well as the foreseen periods of transfer of the gains or losses resulting from the hedge instruments from equity to income, are also included in the documentation of the hedge relationship.

These hedges are expected to be highly effective to offset changes in the fair value or cash flows. They are constantly evaluated to verify whether they were indeed highly effective over the course of all the base periods for which they were intended.

In practice, Group’s main hedges that meet accounting hedge criteria are as follows:

Cash flow hedge

The effective portion of the gain or loss on the hedging instrument is initially recorded directly in equity in the other comprehensive income (loss), while any ineffective portion is recognized directly in the Statement of income.

Amounts recognized in other comprehensive income are transferred to the income statement when the hedged transaction affects profit or loss, such as when the hedged income or interest expense is recognized, or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts recognized in equity are transferred to the initial book value of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, the amounts previously recognized in equity are transferred to the statement of income.

If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognized in comprehensive income (loss) remains deferred in equity within reserve for other comprehensive income (loss) until the forecast transaction or firm commitment affects profit or loss.

The types of financial instruments designated as hedge accounting are presented in Note 24.

Fair value hedge and fair value option of certain financial liabilities

The Group designates certain debts, mainly, related to exports pre-payment contacts (“PPEs”) as liabilities measured at fair value through profit or loss, in order to eliminate, or significantly reduce, the mismatch in measurement that would otherwise result in the recognition of gains or losses on the loans and related derivatives on different bases. As a result, fluctuations of certain loans at fair value are recognized in Financial income, as Fair value of liability financial instruments, as part of Financial expenses.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Fair value hedge of inventories

During the year ended March 31, 2018, RCSA has designated as a fair value hedged the imported inventory of oil by-products linked with derivatives (forward sold), the details of which in Note 24.e.

 

  d) Inventories

Inventories are valued at the average cost of acquisition or production, except the ethanol inventory of Raízen Trading and the imported inventory of oil by-products linked with derivatives designated as a fair value hedged item (Note 2.3.c), not exceeding net realizable value. Costs of finished products and products in process include raw material, direct labor costs and other direct costs as well as respective direct production expenses (based on regular operating capacity) less loan costs. The net realizable value is the sales price estimated for the normal course of the businesses, less estimated completion execution costs and selling expenses.

The estimated losses for slow-moving or obsolete warehouse inventories are constituted when these inventories have not moved for a period of 2 years in RESA and three-months in RCSA and are not considered strategic by the Management.

 

  e) Investments in associates and joint-ventures

Investments in companies over which the Group has significant influence or joint control are accounted for under the equity method. They are initially recognized at in the statement of financial position at cost, plus any changes after the acquisition of the ownership interest.

The statement of income reflects the share in the results from operations of associated companies and joint ventures based on the equity accounting method. When a change is directly recognized in the shareholders’ equity of the associated company or joint venture, the Group will recognize its share in the variations in the statement of changes in equity.

After applying the equity accounting method, the Group determines whether it is necessary to recognize additional impairment on the investment. The Group determines, at each statement of financial position closing date, if there is objective evidence that investment in the associated company or joint venture suffered impairment loss. If so, the Group calculates the amount of impairment loss as the difference between the recoverable amount of the associated company or joint venture and the book value and recognizes the amount in the statement of income.

When there is loss of significant influence on the associated company or joint control of the joint venture, the Group recognizes the remainder investment at fair value.

Unrealized gains from transactions between the Group and its associated companies and joint ventures are eliminated to the extent of the Group’s interest. The accounting policies of the associated companies and joint ventures are changed when required in order to assure consistency with the policies adopted by the Group.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  f) Biological assets

Biological assets refer to standing sugarcane, which are measured at fair value.

The standing sugarcane are measured at fair value, excluding the land on which they are located, under the discounted cash flow method.

For standing sugarcane, the Group uses future cash flows in accordance with the productivity cycle projected for each harvest, taking into consideration the estimated useful life of each crop, the prices of total recoverable sugar, estimated productivities, estimated costs to be incurred with production, harvesting, loading and transportation per planted hectare.

Changes in fair values between periods are allocated to in Statement of Income under “Cost of products sold”.

Any land owned by the Group in which the biological asset is produced are recorded under Property, plant and equipment.

 

  g) Property, plant and equipment

Property, plant and equipment items (sugarcane roots included) are stated at historical acquisition or construction cost less accumulated depreciation and impairment losses, when applicable.

The cost includes expenditures that are directly attributable to the acquisition of assets. The cost of assets built by the Company includes materials and direct labor, as well as any other costs attributable to bringing the assets to the location and condition requires for them to operate in the manner intended by Management, and loan costs on qualifying assets. Borrowing costs relating to funds raised for works in progress related the assets are capitalized until the projects are concluded.

RESA and its subsidiaries perform the main maintenance activities scheduled for their mills on an annual basis. This usually occurs between the months from January to March, with the objective of inspecting and replacing components.

The main annual maintenance costs include costs of labor, materials, outsourced services and overhead allocated during the off-season period. These costs are classified as frequent replacement parts and components, in property, plant and equipment, and are fully amortized in the following crop season.

The cost of an equipment item that must be replaced on an annual basis is accounted for as a component of the equipment costs and depreciated over the following crop. The costs of normal periodic maintenance are accounted for in expenses when incurred as the replaced components do not improve the production capacity of the asset or introduce refinements in the equipment.

In RCSA, estimated costs to be incurred with removal of fuel storage tanks are estimated and recorded as part of the cost of property, plant and equipment, with a corresponding entry to the provision that supports such costs in current and non-current liabilities, depending on the estimated obligation term.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of any renewal to increase useful life should be activated and included in the asset’s book value, if it is probable that future economic benefits following the renewal will exceed the performance standard initially assessed for the existing asset and that such benefits will accrue to the Group. The main refurbishments are depreciated over remaining useful lives of related assets.

Gains and losses from divestments are determined by the comparison of results with the book value and are recognized in the statement of income under “Other operating income, net”.

Lands are not depreciated. On March 31, 2018 and 2017 the depreciation was calculated based on estimated useful life for each asset. The annual weighted average depreciation rates are as follows:

 

Class of fixed assets

   Average
rate
 

Buildings and improvements

     2%  

Machinery, equipment and facilities

     5%  

Aircrafts and vehicles

     8%  

Furniture and fixtures and IT equipment

     14%  

Sugarcane roots

     20%  

Other

     5%  

Residual values and useful lives are reviewed and adjusted, if necessary, at the end of each year.

 

  h) Leases

Whether a contract is, or contains, a lease is determined based on the substance of the contract at the inception date.

Under finance lease contracts where substantially all risks and rewards are transferred to the Group, incidental to ownership of the leased asset, they are capitalized at the inception of the lease at the fair value of the leased property, or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the statement of income. A leased asset is depreciated during its useful life or lease term, whichever is shorter, unless there is evidence that the leased asset will be acquired at the end of the lease.

Operating lease agreements are recognized as operating expenses in the statement of income on a straight-line basis over the term of the lease.

 

  i) Intangible assets

 

  (i) Goodwill

Goodwill is represented by the positive difference between the paid amount for the acquisition of a business and the net fair value of assets and liabilities of the acquired company.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Goodwill is measured at cost, less impairment losses, when applicable, and the impairment test is carried out at least every year. For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each cash-generating units of the Group that are expected to benefit from the business combination, regardless of other assets or liabilities of the acquiree being allocated to those units.

 

  (ii) Intangible assets with defined useful lives

Intangible assets with defined useful lives are carried at cost, less accumulated amortization and accumulated impairment losses, when applicable.

On March 31, 2018 and 2017 the annual weighted average amortization rates are as follows:

 

Class of intangible assets

   2018     2017  

Software license (a)

     20     20

Brands (b)

     10     10

Agricultural partnership agreements (c)

     9     9

Sugarcane supply agreements (c)

     10     10

Contractual relationships with clients (c)

     4     4

Exclusive supply rights (d)

     14     12

Public concession rights to use (e)

     20     20

Technology (f)

     10     10

Other (g)

     29     29

 

  (a) Software license

Licenses from computer programs acquired are capitalized and amortized over the useful life estimated by the Group. Expenses associated with maintaining software are recognized as expenses to the extent they are incurred. Expenses directly associated with software development, controlled by the Group and likely to generate economic benefits greater than costs for more than one year, are recognized as intangible assets.

 

  (b) Brands

Corresponds to the right to use the Shell brand, contributed to the formation of Raízen by the shareholder Shell, recognized by historical cost. The brand is amortized using the straight-line method by the end of this contractual right.

 

  (c) Agricultural partnership agreements, sugarcane supply agreements and contractual relationships with clients

These intangible assets were acquired in a business combination and were recognized at fair value at the acquisition date. They have a defined useful life and are recorded at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the contractual relationship with the supplier and the customer.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (d) Exclusive supply rights

Represent bonuses granted to clients (Note 13) based on contractual terms and future purchase performance, in particular as to volumes as provided in supply agreements. Inasmuch as contractual conditions are met, bonuses are amortized and recognized in the statement of income, as Taxes, deductions and rebates on sales as a reduction to net operating revenue (Note 20).

 

  (e) Public concession rights to use

The concession rights correspond to the right to operate the concessions related to RESA’s electricity cogeneration activity, and are amortized on a straight-line basis over the concession period.

 

  (f) Technology

Refers to technologies developed by Iogen Corp. for the production of second generation ethanol (“E2G”), represented by contractual rights including, among others, exclusivity to RESA for the commercialization of these rights in the territories in which it operates.

 

  (g) Others

Refers basically to the intangibles registered in Raízen Trading, controlled by RESA, corresponding to the portfolio of clients and licenses acquired in the business combination of the operation in Europe and the United States.

 

  j) Impairment of non-financial assets

The Group evaluate every year whether there are indicators of an asset’s loss of value. In the event such indicators are identified, the Group estimates the asset’s recoverable amount. The recoverable value of an asset is the greater among: (a) fair value less costs that would be incurred to sell it, and (b) its value in use. When required, value in use is usually determined based on the discounted cash flow (before taxes) from the continued use of the asset until the end of its useful life.

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

When the book value of an asset exceeds its recoverable value, the loss is recognized as an operating expense in the statement of income.

 

  k) Provisions

Provisions are recognized when: (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is likely that an outflow of funds will be required to settle the obligation; and (iii) the amount can be reliably estimated.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  l) Employee benefits

The Group has an optative defined contribution and partial defined benefit plan, in which maintains a private pension plan for the employees.

The Group recognizes a liability based on a methodology that considers a number of factors determined by actuarial estimates, which employ assumptions for defining pension plan costs or income.

Gains and losses arising from adjustments and changes in actuarial assumptions are stated directly in equity as other comprehensive income, when they occur.

Past costs of services are immediately recognized in the statement of income.

The Group recognizes an estimated liability when it is contractually compelled or when there is a past practice that created a constructive obligation.

 

  m) Income and social contribution taxes

Income (expenses) tax and social contribution expenses of the period include current and deferred taxes. Income taxes are recognized in the statement of income, except to the extent they are related to items directly recognized in equity or comprehensive income, when applicable. In that case, the tax is also recorded in equity or comprehensive income.

The current and deferred income tax and social contribution charge is calculated based on enacted, or substantially enacted, tax acts, at the statement of financial position date of countries in which the Group’s entities operate and generate taxable income. Management periodically evaluates the positions taken by the Group in the calculations of income tax with respect to situations in which applicable tax regulation is subject to interpretations and establishes provisions when appropriate, on the basis of amounts expected to be paid to the tax authorities.

Income tax is computed on taxable income at the rate of 15%, plus 10% surtax for income exceeding R$ 240 in the 12-month period, whereas social contribution is computed at the rate of 9% on taxable income, recognized on the accrual basis. That is, on a compound basis, the Group is subject to a theoretical tax rate equivalent to 34%.

Deferred income tax and social contribution in connection with tax losses, social contribution negative base and temporary differences are shown as net in the statement of financial position when there is a legal right and an intention to offset these on calculation current taxes related with the same legal entity and the same tax authority. Accordingly, deferred tax assets and liabilities in different entities or countries are in general presented separately, and not at net value. Deferred taxes are calculated based on the tax rates in force when they are realized or reviewed annually.

Tax assets are only recognized to the extent that it is probable that future taxable income will be available against which these temporary differences can be offset.

Prepayments or current amounts that can be offset are presented in current and non-current assets, in accordance with their expected realization.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  n) Capital and remuneration to shareholders

The capital is comprised of common and preferred shares. Incremental expenses attributed directly to share issued, if any, are shown as a deduction from equity, as an additional capital contribution, net of tax effects.

In the parent companies RESA and RCSA, the only existing class A preferred share as well as each common share, is entitled to one vote on resolutions by each company’s shareholders’ meetings, as well as R$ 0.01 (one centavo) fixed annual dividends. Such voting rights are restricted to subsidiaries and not to the Group.

Class B preferred shares issued by RESA have no voting rights and are intended to refund assets, mainly represented by tax benefits contributed by shareholders Cosan and Shell respectively, as these benefit the Group.

Class D preferred shares have no voting rights and are entitled to a fixed annual dividend in RESA as well as in RCSA, to shareholder Shell. Shareholder compensation will take place in the form of dividends and/or interest on own capital, based on the limitations defined in RESA and RCSA company by-laws and in legislation in force.

Class E preferred shares issued by RESA and RCSA have voting rights and are entitled to a fixed annual dividend to shareholder Shell. Shareholder compensation will take place in the form of dividends and/or interest on own capital, based on the limitations defined in RCSA company by-laws and in legislation in force.

 

  o) Business combinations

Business combinations are accounted for according to the acquisition method and assets liabilities and contingent liabilities identifiable of the company or acquired business are measured at fair value for the purposes of evaluation and recognition of the goodwill arising on the transaction in accordance with effective accounting standards. Goodwill represents the surplus of acquisition cost in view of the Group’s interest in fair value, net of identifiable assets, liabilities and contingent liabilities in the company acquired. If consideration is lower than fair value of assets, liabilities and contingent liabilities acquired, the difference must be recognized in statement of income.

 

  p) Environmental issues

The group reduces risks in connection with environmental issues by means of operating procedures and controls and investments in equipment and pollution control systems. The Group recognizes a provision for losses with environmental expenditures inasmuch as it is necessary to undertake remedial actions for the damages caused.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

2.4. New IFRS and IFRIC Interpretations (IASB Financial Reporting Interpretations Committee) applicable to financial information

The following new standards and interpretations were issued by the IASB but are not yet effective for the year ended March 31, 2018.

IFRS 9 – Financial Instruments

IFRS 9 includes new models for the classification and measurement of financial instruments and measurement of expected credit losses for financial and contractual assets, and new requirements on hedge accounting.

IFRS 9 becomes effective for annual periods starting on or after January 1, 2018 (in the case of the Group, April 1, 2018) and replaces guidelines of IAS 39—Financial Instruments: Recognition and Measurement.

The Group will adopt IFRS 9 in its financial statements for year ending March 31, 2019, and expect to have immaterial effects.

 

  (i) Classification and measurement of financial assets and liabilities

IFRS 9 retains a large part of the requirements of IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the old categories for financial assets: (i) held to maturity, (ii) loans and receivables and (iii) available for sale.

At the initial recognition, as required by IFRS 9, a financial asset is classified as measured: (i) at amortized cost, (ii) at fair value through other comprehensive income (FVTOCI) and (iii) fair value though profit or loss (FVTPL).

In relation to financial liabilities, in accordance with IAS 39, all changes in fair value of the liabilities designated as FVTPL are recognized in statement of income, whereas, according to IFRS 9, the changes in fair value attributable to changes in in credit risk of the Group are presented in OCI. The impacts of Group’s own credit risk tend to be immaterial as the Group´s credit risk classification is low and with reduced volatility. Thus, until the issuance of these financial statements, no relevant impacts are expected in OCI, which, accordingly to IAS 39, would have been recognized in income (loss).

 

  (ii) Impairment – Financial and contractual assets

IFRS 9 replaces the “incurred losses” model of IAS 39 with a prospective “expected credit losses” model. The new model of expected losses will be applied to financial assets measured at amortized cost or FVTOCI, with the exception of investments in equity instruments and contractual assets.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

The Group’s management assessed scenarios and decided to adopt the expected loss matrix, according to the practical expedient. The matrix considers the grouping of customers with similar default characteristics, in the case of RCSA, by sales channel and rating (customer risk rating measured internally). The Group operates with short term receivables outstanding, which justifies not considering future economic factors in this matrix.

 

  (iii) Hedge accounting

IFRS 9 will require the Group to assure that hedge accounting relationships are aligned with the Group’s risk management objectives and strategies, and that the Group applies a more qualitative and forward-looking approach to assessing the effectiveness of the hedge. IFRS 9 also introduces new requirements for rebalancing hedging relationships and prohibits the voluntary discontinuation of hedge accounting. According to the new model, it is likely that more risk management strategies, particularly those of a hedge of a risk component (other than foreign currency risk) of a non-financial item, may qualify for hedge accounting.

The adoption of IFRS 9 for hedge accounting will be prospective. In the management’s evaluation, the changes in the standard do not represent significant impacts for the Group’s current operations. The effectiveness tests will be adequate, considering prospective and qualitative analyzes, and it will be possible to designate future new strategies for hedge accounting, with the greatest flexibility.

IFRS 15 – Revenue from Contracts with Customers

IFRS 15 introduces a comprehensive framework for determining whether and when revenue from contracts with customers is recognized. IFRS 15 will become effective for annual periods starting on or after January 1, 2018 (in the case of Raízen, beginning as of April 1, 2018) and will replace current guidelines for recognition of revenue in IAS 18—Revenues, IAS 11—Construction Contracts and IFRIC 13—Client Loyalty Programs.

Currently, most of the Group’s revenues refer to the sales of oil by-products, ethanol and sugar, and are recognized when the goods are delivered at the client’s location or picked up by them at the Group’s distribution centers, considering the moment in which the customer accepts the goods and the risks and benefits related to ownership of the transferred items. Thus, revenue is recognized at this time as long as revenue and costs can be measured reliably, receipt of the consideration is probable and there is no continuous involvement of the Management with the products.

The revenue from the sale of the electric power is currently recorded based on the energy available in the network and the tariffs specified in the supply agreement, or the current market price, according to each case. The electric power produced and sold through auctions is initially recognized as other liabilities, and is only recognized in the statement of income for the year when it is available to be used by the clients.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

In respect of this accounting standard, the Group concluded that the contracts for exclusive rights to supply to the fuel stations should be classified in the financial position as operating assets and, no longer, in the caption “Intangible assets”. The main possible impacts to be considered in the combined consolidated interim accounting information as of June 30, 2018 are as follows, based on the fiscal year ended on the base date of these annual combined consolidated financial statements: (i) segregation of non-current assets to current between R$ 300 million and R$ 500 million; (ii) exclusion from the adjustment of EBITDA, since treatment is no longer treated as amortization of intangible, in the range of the amount mentioned in the previous item, but the same amount will be adjusted to reflect the Group’s business direction in adjusted EBITDA (Management report); (iii) reclassification from investment activities to operating activities, in the statements of cash flows, between R$ 500 million and R$ 700 million.

IFRS 16 – Leases

IFRS 16 introduces a single model for accounting of leases in the financial position for lessees. A lessee recognizes an asset of right of use, which represents its right to use the leased asset and a lease liability, which represents its obligation to make lease payments. Optional exemptions are available for short-term leases and low value items. The lessor’s accounting remains similar to the current standard, that is, lessors continue to classify leases as financial or operating.

IFRS 16 replaces the existing lease standards, including the IAS 17 Leases (IFRIC 4, SIC 15 and SIC 27). Early adoption is permitted only for entities that apply IFRS 15 at or before the date of initial application of IFRS 16.

The Group initiated an assessment of the potential impact on its financial statements. So far, the most significant impact identified is that the Group will recognize new assets and liabilities for its operating leases from fuel distribution bases, lands, warehouse, machinery and vehicles. In addition, the nature of the expenses related to these leases will be changed, since IFRS 16 replaces the linear operating lease expense for depreciation expenses related to the right of use and interest on the lease liabilities.

The Group’s Management is still evaluating whether to use the optional exemptions and transition approach.

IFRIC 22 – Foreign Currency Transactions and Advance Consideration

IFRIC 22 defines that the date of transaction for effects of determination of the exchange rate should be the date on which the entity first recognizes the non-monetary asset or liability derived from the early payment or receipt.

This interpretation will become effective for annual periods starting on or after January 1, 2018 (in the case of the Group, as from April 1, 2018).

Management analyzed the impacts of the early adoption of IFRIC 22 and considered them immaterial. Accordingly, the adoption will be made on prospective basis.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

There are no IFRS standards or IFRIC interpretations other than the aforementioned, that are not effective yet and accordingly with the current assessment of management could have a relevant impact on the combined consolidated financial statements of the Group.

 

3. Cash and cash equivalents

 

            Weighted
average
remuneration
              
     Index      2018     2017     2018      2017  

Funds in banks and in cash

            1,388,365        503,252  

Values awaiting foreign exchange closure (1)

            —         —         63,338        171,873  

Financial investments:

            

Bank deposit certificate—CDB and commitments (2)

     CDI        100.0     100.9     2,210,857        2,525,894  

Other investments

            —         —         608        579  
         

 

 

    

 

 

 
                        2,211,465      2,526,473  
         

 

 

    

 

 

 
            3,663,168        3,201,598  
         

 

 

    

 

 

 

Domestic (domestic currency)

            2,375,152        2,719,541  

Abroad (foreign currency) (Note 24.d)

            1,288,016        482,057  
         

 

 

    

 

 

 
            3,663,168        3,201,598  
         

 

 

    

 

 

 

 

  (1) Refer basically to receiving foreign currency funds from overseas clients, for which obtaining foreign exchange from financial institutions that was not yet concluded until the statement of financial position date, and foreign funds intended to settle debts related to export performance. There is no restriction to immediate use of these amounts.
  (2) Refer to fixed income investments in first-class financial institutions.

 

4. Securities

 

     2018      2017  

Financial Treasury Bills (“LFT”) (1)

     1,078,945        753,804  
  

 

 

    

 

 

 
     1,078,945        753,804  
  

 

 

    

 

 

 

 

  (1) Refers to investments made through Investment Funds, which have original maturity over 90 days, remunerated by SELIC. As of March 31, 2018 the Group earned interest in the amounts of R$ 48,866 (R$ 56,421 in 2017 and R$ 21,026 in 2016) related to the LFTs.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

5. Restricted cash

 

            Weighted
average
remuneration
              
     Index      2018     2017     2018      2017  

Financial investments linked to financing (1)

     CDI        100.0     100.1     67,767        63,093  

Financial investments linked to derivative operations (2) (Note 24.g)

     CDI        100.9     101.2     38,863        77,582  

Margin on derivative operations (3) (Note 24.g)

            —         —         36,976        184,562  
         

 

 

    

 

 

 
            143,606        325,237  
         

 

 

    

 

 

 

Domestic (domestic currency)

            106,630        140,675  

Abroad (foreign currency) (Note 24.d)

            36,976        184,562  
         

 

 

    

 

 

 
            143,606        325,237  
         

 

 

    

 

 

 

 

  (1) Correspond to LFTs with prime banks, held by virtue of Banco Nacional de Desenvolvimento Econômico e Social (“BNDES”) debts and with redemption subject to payment of certain portions of the mentioned financing.
  (2) Refer to investments such as CDBs and foreign government bonds with first-class financial institutions, employed in transactions with derivative financial instruments.
  (3) Margin deposits in derivative operations refer to margin requirements by counterparts in transactions with derivative instruments, and are exposed to US dollar exchange fluctuations.

 

6. Trade accounts receivable

 

     2018      2017  

Domestic (domestic currency)

     2,667,210        1,866,064  

Abroad (foreign currency) (Note 24.d)

     178,237        141,679  

Funding to clients (i)

     572,090        548,974  

Allowance for doubtful accounts

     (212,914      (210,445
  

 

 

    

 

 

 
     3,204,623        2,346,272  

Current

     (2,756,767      (1,902,542
  

 

 

    

 

 

 

Non-current

     447,856        443,730  
  

 

 

    

 

 

 

 

  (i) Funding to clients substantially consists of payment in installments of outstanding debts and sales of properties, as well as financing agreements backed by security interest, pledges and endorsements whose main purpose is the setup or modernization of gas stations. Finance charges and repayment deadlines are agreed by contract and set according to a business assessment of each negotiation.

The Group did not pledge any trade receivable to guarantee financial transactions.

The maximum exposure to credit risk on the statement of financial position date is the book value of each of the types of accounts receivable mentioned above.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

The aging schedule of trade and other receivables and funding to clients is as follows:

 

     2018      2017  

Falling due

     2,900,317        2,050,149  

Overdue—in days

     

Up to 30

     54,155        126,525  

From 31 to 90

     99,619        23,983  

From 91 to 180

     21,920        37,065  

Above 180

     341,526        318,995  
  

 

 

    

 

 

 
     3,417,537      2,556,717  
  

 

 

    

 

 

 

For long overdue trade and other receivables, which have no allowance recognized, the Group has real guarantees as mortgage and credit letters.

The estimated loss in allowance for doubtful accounts was calculated on credit risk analysis, which contemplates loss history, individual situation of clients, and situation of the corporate group to which they belong, real guarantees for debts and the assessment of the legal advisors.

Allowance for doubtful accounts is considered sufficient by Management to cover possible losses on amounts receivable; changes during the years are as follows:

 

March 31, 2016

     (200,585
  

 

 

 

Estimated loss

     (28,181

Reversal

     14,157  

Write-off

     3,768  

Foreign exchange variation

     396  
  

 

 

 

March 31, 2017

     (210,445
  

 

 

 

Estimated loss

     (50,004

Reversal

     26,492  

Write-off

     21,212  

Foreign exchange variation

     (169
  

 

 

 

March 31, 2018

     (212,914
  

 

 

 

As at March 31, 2018, the Group had the amount of R$ 51,677 (R$ 203,363 in 2017) recorded in current liabilities, in the line item Advances from clients, which substantially refer to the receipts from foreigners for acquisition of sugar, as well as prepayments by customers for purchase of fuels. When applicable, accounts receivable and advances from clients are presented net.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

7. Inventories

 

     2018      2017  

Finished goods:

     

Ethanol

     681,500        435,473  

Sugar

     55,215        204,923  

Diesel (1)

     761,781        696,921  

Gasoline (1)

     752,035        750,551  

Jet fuel (Jet A-1)

     93,364        68,485  

Other fuels

     10,903        10,353  

Storeroom and others

     221,256        195,343  

Estimated loss for net realizable value and obsolescence

     (23,541      (78,959
  

 

 

    

 

 

 
     2,552,513      2,283,090  
  

 

 

    

 

 

 

 

  (1) As of March 31, 2018, said inventory is increased by R$ 16,827, resulting from fair value measurement under a fair value hedge. The Group uses the Tier 2 hierarchy to determine and disclose said fair value. See Note 24.e

The changes in the estimated loss for net realizable value and obsolescence is as follows and was recognized in the statement of income under the caption Cost of products sold and services rendered:

 

March 31, 2016

     (18,134
  

 

 

 

Estimated loss

     (73,490

Reversals

     12,665  
  

 

 

 

March 31, 2017

     (78,959
  

 

 

 

Estimated loss

     (18,756

Reversals / realization (1)

     74,174  
  

 

 

 

March 31, 2018

     (23,541
  

 

 

 

 

  (1) Refers mainly to realization of estimated loss on ethanol inventories recognized on March 31, 2017 due to sale of this product.

 

8. Biological assets

The Group’s biological assets correspond to the agricultural products under development (standing sugarcane) produced in sugarcane plantations, which will be used as raw material for the production of sugar, ethanol and bioenergy at the time of harvest. Fair value is evaluated using the discounted cash flow method. Valuation model considers present value of cash flows to be generated, including two-year projections, depending on which crop sugarcane is expected to be harvested.

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Planted areas refer only to sugarcane plantations, and do not consider planted land and the sugarcane roots, which are recorded as Property, plant and equipment. The following assumptions were used in the determination of the fair value:

 

     2018      2017  

Estimated harvest area (hectares) (1)

     447,277        415,095  

Productivity expected (tons of sugar-cane per hectare)

     77.31        77.06  

Amount of ATR (kg/ton)

     132.88        132.30  

Average ATR price per Kg projected (R$/Kg)

     0.60        0.70  

 

  (1) Increase in estimated crop area is mainly due to acquisition of Santa Cândida and Paraíso mills. See Note 27.

As of March 31, 2018, cash flows were discounted at 6.37% (6.08% in 2017) which is the WACC (Weighted Average Capital Cost) of the Group.

The Group periodically reviews assumptions used to calculate biological assets, adjusting it in case there are significant variations in relation to those previously projected.

Changes in biological assets (sugar cane) are detailed below:

 

     2018      2017  

Balance at the beginning of the year

     1,276,321        973,373  
  

 

 

    

 

 

 

Additions of cultural treatments

     579,081        545,134  

Absorption of harvested sugar-cane costs

     (552,881      (547,109

Change in fair value

     272,564        652,984  

Realization of fair value

     (640,006      (348,061

Business combination (1)

     12,736        —    
  

 

 

    

 

 

 

Balance at the end of the year

     947,815        1,276,321  
  

 

 

    

 

 

 

 

  (1) It refers to the impacts of the acquisition and merger of Santa Cândida and Paraíso mills. See Note 27.

Fair value estimate could increase (decrease) if:

 

    Estimated ATR price were higher (lower);

 

    Estimated productivity (tons per hectare and ATR quantity) were higher (lower); and,

 

    Discount rate were lower (higher)

The Company’s sugarcane operations are exposed to variations from climate changes, pests and diseases, forest fires and other forces of nature.

Weather conditions may historically cause fluctuations in the sugar and alcohol industry and therefore in the Group operating income because they affect crops by means of increasing or reducing harvests. Moreover, Group’s businesses are subject to seasonal fluctuations determined by the sugar cane growth cycle in Brazil’s Center-Southern region.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

9. Other financial assets

 

     2018      2017  

Credits from indemnity suits (1)

     83,769        496,779  

National Treasury Certificates (CTN) (2)

     827,042        737,088  

Other

     1        1  
  

 

 

    

 

 

 
     910,812      1,233,868  

Current

     (408,379      (11,048
  

 

 

    

 

 

 

Non-current

     502,433        1,222,820  
  

 

 

    

 

 

 

 

  (1) Receivables from legal disputes on which a final judgment favorable to RESA was obtained in February 2007, December 2013 and 2015, which are not part of the net assets contributed by Cosan to set up the Group. Therefore, RESA recognized a liability in the same amount, classified as current and non-current in the related parties account, considering that RESA has the obligation to reimburse those receivables to Cosan when they are actually collected. These credits yield IPCA-E (Special Amplified Consumer Price Index) and Selic rate variation plus annual interest of 6%, if applicable.

On December 21, 2017, occurred a sale of credit receivables of Univalem mill’s to Cosan amounting to R$ 426,438. This right is from indemnity suits seeking compensation for the Federal Government’s conviction because of the fixing of sugar and ethanol prices below production cost. Such transactions neither did nor will produce impact on the RESA’ statements of income and cash flows.

  (2) Brazilian Treasury Certificates are government bonds issued by the Brazilian Treasury within the Special Agriculture Industry Securitization Program—PESA, with a 20-year original maturity (falling due between 2018 and 2025) and which pledged to secure its related financing transaction called PESA. These bonds bear annual compound interest of 12%, plus the IGP-M (General Market Price Index). Their value on maturity date will match the principal of the debt due under PESA and may be used for settlement.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

10. Related parties

 

  (a) Summary of related party balances

 

     2018      2017  

Assets

     

Assets classification per currency:

     

Domestic (domestic currency)

     1,937,848        1,570,764  

Abroad (foreign currency) (Note 24.d)

     100,728        77,115  
  

 

 

    

 

 

 
     2,038,576        1,647,879  
  

 

 

    

 

 

 

Framework agreement (1)

     

Shell Brazil Holding B.V.

     922,077        702,123  

Cosan S.A. Indústria e Comércio

     576,945        502,167  

Shell Brasil Petróleo Ltda.

     67,419        43,500  

Other

     9,317        7,117  
  

 

 

    

 

 

 
     1,575,758        1,254,907  

Commercial operations (2)

     

Rumo group

     139,263        121,594  

Nova América Agrícola Caarapó Ltda.

     120,383        103,036  

Shell Aviation Limited

     94,631        72,874  

Agroterenas S.A.

     40,026        49,883  

Cosan S.A. Indústria e Comércio

     10,057        3,953  

Other

     58,458        35,377  
  

 

 

    

 

 

 
     462,818        386,717  

Paid-in capital

     

Sapore S.A.

     —          4,541  

Logum Logística S.A.

     —          1,714  
  

 

 

    

 

 

 
     —          6,255  
  

 

 

    

 

 

 
     2,038,576        1,647,879  
  

 

 

    

 

 

 

Current

     (709,027      (539,328
  

 

 

    

 

 

 

Non-current

     1,329,549        1,108,551  
  

 

 

    

 

 

 

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

     2018      2017  

Liabilities

     

Liabilities classification per currency:

     

Domestic (domestic currency)

     1,054,447        1,570,172  

Abroad (foreign currency) (Note 24.d)

     133,002        5,669  
  

 

 

    

 

 

 
     1,187,449        1,575,841  
  

 

 

    

 

 

 

Framework agreement (1)

     

Cosan S.A. Indústria e Comércio

     436,535        793,283  

Shell Brasil Petróleo Ltda.

     100,028        81,992  

Shell Brazil Holding B.V.

     34,438        53,907  

Other

     1,282        1,192  
  

 

 

    

 

 

 
     572,283        930,374  

Financial operations

     

Shell Finance (Netherlands) B.V.

     3,567        3,021  

Cosan S.A. Indústria e Comércio

     3,032        2,301  

Sapore S.A.

     1        69  
  

 

 

    

 

 

 
     6,600        5,391  

Commercial operations (2)

     

Shell Trading US Company

     114,142        —    

Rumo Group

     38,808        11,798  

Shell Aviation Limited

     14,652        1,630  

Agroterenas S.A.

     12,934        17,568  

Nova América Agrícola Ltda.

     9,428        9,172  

Cosan S.A. Indústria e Comércio

     7,104        18,610  

Agrobio Investimento e Participações

     6,435        2,712  

Nova América Agrícola Caarapó Ltda.

     9,731        19,299  

Other

     24,212        22,347  
  

 

 

    

 

 

 
     237,446        103,136  

Preferred shares (3)

     

Shell Brazil Holding B.V.

     284,554        401,193  

Cosan S.A. Indústria e Comércio

     10,828        60,009  
  

 

 

    

 

 

 
     295,382        461,202  

Corporate restructuring (4)

     

Logum logística S.A.

     61,457        61,457  

Uniduto Logística S.A.

     14,281        14,281  
  

 

 

    

 

 

 
     75,738      75,738  
  

 

 

    

 

 

 
     1,187,449        1,575,841  
  

 

 

    

 

 

 

Current

     (781,397      (743,018
  

 

 

    

 

 

 

Non-current

     406,052        832,823  
  

 

 

    

 

 

 

 

 

F-44


Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (1) Framework agreement

The amounts stated in assets and liabilities refer to refundable values chargeable to shareholders, existing prior to the creation of Raízen, when actually realized or settled. Main changes occurred during the year were:

During the year ended March 31, 2018, RCSA recorded an addition to the recoverable balance of Shell Brasil Holding B.V., in the amount of R$ 219,954, substantially related to legal tax claims of ICMS, which are the responsibility of said shareholder. See Note 17.

The reduction in liabilities refers mainly to the Assignment of the Receivables from the Univalem mill, which occurred on December 21, 2017, which Cosan carried out with third parties. See Note 9.

 

  (2) Commercial operations

On March 31, 2018, the amounts stated in assets of R$ 462,818 (R$ 386,717 in 2017) refers to transactions for the sale of goods, such as gasoline, diesel, jet fuel, sugar and ethanol.

On March 31, 2018, the amount recorded in liabilities of R$ 237,446 (R$ 103,136 in 2017), substantially refers to the commercial operations of purchase of products and rendering of services (freights and warehousing), as well as advances from clients to sugar export.

As mentioned in Note 1, as of April 1, 2017, RESA and its subsidiaries started commercial operations with RaW.

 

  (3) Preferred shares

Mostly tax benefits to reimburse Shell and Cosan, when effectively utilized by the Group, determined based on NOLs and tax benefits on goodwill amortization (“GW”) from prior years before the Raízen Group’s formation. Reimbursement shall occur through distribution of exclusive dividends and/or capital decrease to holders of C and E class preferred shares (liability financial instrument).

At the Annual and Special Shareholders’ Meeting (“AGOE”) held on July 31, 2017, the RCSA shareholders approved remuneration to Shell through preferred dividends and redemption of class C and E preferred shares, in the amount of R$ 131,023. See Note 19.a.

Additionally, at same date, the RESA shareholders approved remuneration to Cosan through preferred dividends of class B, in the amount of R$ 26,361, representing a reversal of R$ 2,061, since such operation had been provisioned in the amount of R$ 28,422.

At the Special Shareholders’ Meeting (“AGE”) held on January 29, 2018, the RESA shareholders discussed and approved dividends to holders of preferred shares class B, in the amount of R$ 40,886.

During the year ended March 31, 2018, RESA proposed destination of dividends in the amount of R$ 10,355 to holders of preferred shares class B.

During the year ended March 31, 2018, the tax credits arising from overpayments of corporate income tax (“IRPJ”) and social contribution (“CSLL”) for 2010 and 2011, related to Class E preferred shares due to Shell, adjusted by the Selic rate, totaled R$ 14,384 (R$ 22,094 in 2017).

 

  (4) Corporate restructuring

As at March 31,2018 and 2017, the amounts recorded in liabilities refer to the capital subscription that RESA has to pay to its associated companies Logum Logística S.A and Uniduto Logística S.A., in the amounts of R$ 61,457 and R$ 14,281, respectively.

 

 

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Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (b) Summary of related-party transactions (k)

 

     2018      2017      2016  

Sale of products

        

Raízen and Wilmar Sugar Pte. Ltd. (Note 1)

     2,223,935        —          —    

Rumo Group (f)

     1,055,243        819,818        647,791  

Shell Aviation Limited

     818,515        825,100        956,499  

Agricopel Group (j)

     718,136        619,605        585,202  

Shell Trading US Company

     280,725        154,278        71,188  

Shell Trading Rotterdam

     20,118        16        34,216  

Philipinas Shell Petroleum Corp.

     16,866        86,081        99,736  

Other

     92,543        119,288        160,890  
  

 

 

    

 

 

    

 

 

 
     5,226,081      2,624,186      2,555,522  
  

 

 

    

 

 

    

 

 

 

Purchase of goods and services

        

Shell Trading US Company (e)

     (2,714,945      (3,134,308      (174,055

Rumo Group (f)

     (533,235      (486,915      (488,487

Agroterenas S.A.

     (271,178      (279,953      (248,133

Nova América Agrícola Ltda.

     (169,119      (160,919      (182,914

Nova América Agrícola Caarapó Ltda.

     (139,572      (199,587      (110,230

Other

     (172,897      (200,082      (92,978
  

 

 

    

 

 

    

 

 

 
     (4,000,946)      (4,461,764)      (1,296,797)  
  

 

 

    

 

 

    

 

 

 

Renewed collection of shared expenses (a)

        

Comgás—Companhia de Gás de São Paulo

     33,868        31,104        26,264  

Rumo Group (f)

     26,969        27,375        13,380  

Cosan Lubrificantes e Especialidades S.A.

     6,801        7,116        5,375  

Other

     7,527        7,119        6,268  
  

 

 

    

 

 

    

 

 

 
     75,165      72,714      51,287  
  

 

 

    

 

 

    

 

 

 

Land leases

        

Radar Group (g)

     (78,069      (83,413      (60,124

Janus Brasil Participação S.A.

     (31,224      (16,491      (7,636

Tellus Group (h)

     (24,322      (25,116      (16,232

Aguassanta Group (i)

     (11,625      (27,063      (26,803

Barrapar Participações S.A.

     (64      (67      (53
  

 

 

    

 

 

    

 

 

 
     (145,304)      (152,150)      (110,848)  
  

 

 

    

 

 

    

 

 

 

Financial income (expense) (b)

        

Shell Trading US Company

     (12,761      44,571        —    

Shell Finance (Netherlands) B.V.

     (4,578      (3,970      (5,478

Nova América Agrícola Caarapó Ltda.

     8,257        10,299        9,318  

Shell Aviation Limited

     4,787        (2,702      —    

Agroterenas S.A.

     1,441        3,148        3,397  

Other

     13,030        (800      (2,125
  

 

 

    

 

 

    

 

 

 
     10,176      50,546      5,112  
  

 

 

    

 

 

    

 

 

 

Service income (c)

        

Agricopel Group (j)

     4,422        1,224        —    

Shell Aviation Limited

     3,118        3,234        753  

Shell Brasil Petróleo Ltda.

     1,278        16,174        18,236  

Shell Downstream Services International BV

     760        —          —    

Other

     2,060        604        2  
  

 

 

    

 

 

    

 

 

 
     11,638        21,236        18,991  
  

 

 

    

 

 

    

 

 

 

Service expenses (d)

        

Shell Brasil Petróleo Ltda.

     (16,402      (25,378      (14,117

Shell International Petroleum

     (3,367      (3,043      (5,297

Other

     (2,677      (7,692      (2,713
  

 

 

    

 

 

    

 

 

 
     (22,446      (36,113      (22,127
  

 

 

    

 

 

    

 

 

 

 

  (a) Reimbursement of shared expenses consists of expenses incurred by shared corporate, managerial and operating costs reimbursed from related parties.
  (b) Financial expenses basically consist of expenses incurred with commissions on available credit facilities and monetary adjustment of balances of advances granted to finance sugar cane crops as well as the foreign exchange rate of commercial activities from imports and sales of fuel.
  (c) Mainly consists of commissions on the sales of lubricants to Shell.
  (d) Technical support, billing and collection, commissions on the sale of jet fuel and secondees from Shell.
  (e) Group’s purchase transactions from Shell Trading US Company are substantially represented by those originated from imports of ethanol and its by-products in foreign market.
  (f) The term Rumo Group refers to the railway and port operations represented by the companies Rumo S.A., Elevações Portuárias S.A, Logispot Armazéns Gerais S.A., Rumo Malha Sul S.A., Rumo Malha Oeste S.A., Rumo Malha Paulista S.A., Rumo Malha Norte S.A., ALL América Latina Logística Rail Management, Portofer Transporte Ferroviário Ltda. and Brado Logística S.A..
  (g) The term Radar Group refers to operations of purchase, sale and lease of own fixed assets, mainly represented by the entities Radar Propriedades Agrícolas S.A., Nova Agrícola Ponte Alta S.A., Nova Amaralina S.A., Bioinvestiments Negócios e Participações S.A. and Proud Participações S.A..
  (h) The term Tellus Group refers to operations of purchase, sale and lease of own fixed assets, mainly represented by the entities Tellus Brasil Participações S.A., Terrainvest Propriedades Agrícolas S.A. and Agrobio Investimentos e Participações S.A..
  (i) The term Aguassanta Group refers to operations of purchase, sale and lease of own fixed assets, mainly represented by the entities Aguassanta Participações S.A., Santa Bárbara Agrícola S.A., Aguassanta Agrícola Ltda., Agua par Agrícola Ltda. and Palermo Agrícola S.A..
  (j) The term Agricopel Group refers to operations of selling fuels represented, mainly, by the entities Agricopel Comércio de Derivados de Petróleo Ltda. and Posto Agricopel Ltda., relationship is through Fix Investimentos Ltda., which is the non-controlling shareholder of Mime.
  (k) Transactions with related parties are entered into under reasonable and cumulative conditions, in line with those prevailing in the market or that the Group would contract with third parties.

 

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (c) Directors and member of the Board of Directors

Fixed and variable compensation payment to key managers, including statutory directors and members of the Board of Directors that is recognized in the statement of income is as follow:

 

     2018      2017      2016  

Regular remuneration

     (51,401      (46,983      (42,362

Bonuses and other variable compensation

     (39,489      (45,207      (63,461
  

 

 

    

 

 

    

 

 

 

Total compensation

     (90,890      (92,190      (105,823
  

 

 

    

 

 

    

 

 

 

 

  (d) Other significant information involving related parties

Committed Back-up Credit Facility Agreement

RESA is a beneficiary of a US$ 700,000 thousand Revolving Committed Back-up Credit Facility Agreement granted by Shell Finance B.V. (Netherlands) and Cosan S.A. Indústria e Comércio, valid until May 10, 2019 and renewed periodically. Until the closing of the year ended on March 31, 2018 the mentioned credit facility had not been used.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

11. Investments

 

     Investments (1)      Equity pick-up on associates  
     Country      Business      Percentage
of
Interest
    2018      2017      2018      2017      2016  

Book value

                      

Centro de Tecnologia Canavieiras S.A.

     Brazil        P&D        19.58     110,989        108,128        2,863        4,220        1,840  

Logum Logística S.A.

     Brazil        Logistics        20.81     132,986        62,906        (29,521      (35,074      (46,829

Uniduto Logística S.A.

     Brazil        Holding        46.48     31,416        15,773        (7,500      (38,783      (25,514

Raízen and Wilmar Sugar Pte. Ltd. (3)

     Singapore        Trading        50.00     13,448        —          12,735        —          —    

Serviços e Tecnologia de Pagamentos S.A. (4)

     —          —          —         —          —          —          (2,919      11,227  

Other

     —          —          —         —          —          —          —          (2,752
          

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                         288,839      186,807      (21,423)      (72,556)      (62,028)  
          

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Asset remeasurement to fair value

 

                   

Serviços e Tecnologia de Pagamentos S.A. (4)

 

       —          —          —          —          (3,862
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
       —          —          —          —          (3,862
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investment goodwill (2)

 

                

Uniduto Logística S.A.

 

       5,676        5,676        —          —          —    

Centro de Tecnologia Canavieira S.A.

 

       51,946        51,946        —          —          —    
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
       57,622        57,622        —          —          —    
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

 

       346,461        244,429        (21,423      (72,556      (65,890
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Provision for negative equity

 

                

Other

 

             —          —          (1
          

 

 

    

 

 

    

 

 

 

Total provision for negative equity

 

             —          —          (1
       

 

 

    

 

 

    

 

 

 
             (21,423      (72,556      (65,891
                

 

 

    

 

 

    

 

 

 

 

  (1) Investments accounted for under the equity method;
  (2) Goodwill on acquisition and /or transference of shares;
  (3) Refers to the income (loss) of RaW that RESA started recognizing as of April 1, 2017, according with its interest equity participation; and
  (4) Ownership interest disposed in the year ended March 31, 2017 (Note 11.c.ii).

The changes in the investments in associated companies, is as follows:

 

March 31, 2016

     210,425  
  

 

 

 

Equity pick-up on subsidiaries

     (72,556

Additions to the investment

     219,838  

Capital gain due to dilution of corporate interest

     14,697  

Estimated investment impairment loss (Note 11.c.iii)

     (131,792

Other

     3,817  
  

 

 

 

March 31, 2017

     244,429  
  

 

 

 

Equity pick-up on subsidiaries

     (21,423

Additions to the investment

     123,058  

Other

     397  
  

 

 

 

March 31, 2018

     346,461  
  

 

 

 

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (a) Summarized financial information on investments, considering adjustments to equity value, when applicable.

 

  (i) The main associated companies’ accounts, are as follows:

 

    March 31, 2018

 

     Logum
Logística
S.A. (1)/(2)
     Uniduto
Logística
Ltda.
(1)/(2)
     Centro de
Tecnologia
Canavieira
S.A. (2)/(4)
     Iogen
Energy
Corporation
(3)
     Raízen and
Wilmar
Sugar PTE
Ltd. (4)
 

Assets

     2,287,895        98,340        801,551        34,594        93,584  

Liabilities

     (1,015,609      (30,743      (234,701      (265,464      (66,688
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity

     1,272,286        67,597        566,850        (230,870      26,896  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net operating revenue

     93,834        —          90,011        —          2,804,380  

Net income (loss)

     (140,515      (200      14,619        (1,214      25,398  

 

    March 31, 2017

 

     Logum
Logística
S.A. (1)/(2)
     Uniduto
Logística
Ltda.
(1)/(2)
     Centro de
Tecnologia
Canavieira
S.A. (2)/(4)
     Iogen
Energy
Corp. (3)
 

Assets

     2,603,854        32,818        824,612        29,855  

Liabilities

     (1,689,053      (30,791      (272,381      (248,287
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity

     914,801        2,027        552,231        (218,432
  

 

 

    

 

 

    

 

 

    

 

 

 

Net operating revenue

     123,871        —          120,917        —    

Net income (loss)

     (162,633      (83,387      20,945        (1,505

 

  (1) The fiscal year of these investees ends on December 31.
  (2) Significant influence over these companies has been defined, mainly, based on the Group’s right to elect key management personnel and to decide on their significant operational and some strategic issues.
  (3) Jointly controlled entity in which the Group participation is 50% in common shares, whose fiscal year ends on August 31. RESA did not recognize a loss for shareholders’ deficit or share of loss of equity-accounted investees, given that it has no legal or constructive obligations to make payments on account of that company.
  (4) The fiscal year of these investees ends on March 31.

 

  (b) Investment transactions in associated companies occurred in the year ended March 31, 2018

 

  (i) Addition to the investment

Capital increase in Logum Logística S.A. (“Logum”)

During the year ended March 31, 2018, capital increases by the Company were resolved and approved totaling R$ 498,000. The amount subscribed and paid-in by RESA in these operations totals R$ 99,600, of which R$ 97,889 paid-in cash and R$ 1,711 as settlement of advance for future capital increase.

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

At the end of these transactions, RESA started to hold direct and indirect ownership interests of 20.81% and 25.65%, respectively, in Logum (21.28% and 26.23% in 2017).

Capital increase in Uniduto Logística S.A. (“Uniduto”)

During the year ended March 31, 2018, during Meetings of the Board of Directors, capital increases were resolved and approved totaled R$ 49,800. The amount subscribed and partially paid-in cash by RESA in these operations totaled R$ 23,146.

In these operations, there were no changes in the percentage of interest in capital of the investee, since all shareholders effected capital contributions in proportion to their existing holding.

Capital increase at Raízen and Wilmar Sugar PTE. Ltd. (“RaW”)

On September 30, 2016, a capital increase of US$ 200 thousand was deliberated, corresponding to R$ 623, through a subscription of 200,000 shares in the amount of US$ 1 each. On April 3, 2017, the RESA paid in capital of US$ 100 thousand, corresponding to R$ 312 in cash, proportional to its 50% participation in the capital.

(ii) Disposal of ownership interest

Disposal of ownership interest in TEAS

On March 29, 2018, RESA sold TEAS, corresponding to 100% of the company’s equity, to UltraCargo Operações Logísticas e Participações Ltda. The adjusted final sale price of this operation was R$ 106,430, of which an amount of R$ 100,000 was received in cash on March 29, 2018, and the remaining balance, R$ 6,430, was recognized on the same date as other credits receivable for working capital adjustments and advance of the sale. The above amounts were recorded as income, net of net assets sold and goodwill, as shown in the table below:

 

     Total  
  

 

 

 

Proceeds from the sale

     106,430  

Net assets sold

     (47,865

Write-off of goodwill

     (4,818
  

 

 

 

Gain in the disposal of ownership interest

     53,747  
  

 

 

 

The detail of the net assets sold is as follows:

 

Accounts

   Total  

Cash and cash equivalents

     3,662  

Recoverable income and social contribution taxes

     1,967  

Recoverable taxes and contribution

     1,863  

Deferred income and social contribution tax (Note 16)

     1,054  

Judicial deposits

     72  

Property, plant and equipment (Note 12)

     39,261  

Provision for legal disputes (Note 17)

     (14
  

 

 

 
     47,865  
  

 

 

 

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (c) Investment transactions in associated companies occurred in the year ended March 31, 2017

 

  (i) Additions to the investment

Capital increase in Logum Logística S.A. (“Logum”)

During the year ended March 31, 2017 capital increases by the Company were resolved and approved totaling R$ 809,000 by means of cash contributions. The amount subscribed and paid-in by RESA in these operations totals R$ 176,086, of which R$ 114,629 paid-in in cash, and R$ 61,457 recorded as capital to be paid-in recognized in Related Parties, in current liabilities, which shall be paid-in until December 31, 2018.

At the end of these operations, RESA started to hold direct and indirect ownership interests of 21.28% and 26.23%, respectively, in Logum.

Capital increase in Uniduto Logística S.A. (“Uniduto”)

Uniduto is a Logum shareholder and became liable, by means of the commitments provided for in the Shareholders’ Agreements and the announcements of subscriptions for capital increase of Logum, to pay-in the amount of R$ 88,043, in the year ended March 31, 2017.

In these operations, RESA subscribed the amount of R$ 40,922, pursuant to its interest, of which R$ 26,641 paid-in in cash, and R$ 14,281 recorded as capital to be paid-in in Related Parties, in current liabilities, which shall be paid-in until December 31, 2018.

In these operations, there were no variations in the percentage of participation in the capital of the investee, since all shareholders effected capital contributions in proportion to their existing holding.

Capital increase in Centro de Tecnologia Canavieira S.A. (“CTC”)

During the year ended March 31, 2017 it was paid-in the amount of R$ 609, according to the Board of Directors’ Meeting (“RCA”), resolved and approved on February 24, 2016.

During the RCA held on December 12, 2016 a capital increase of R$ 98,802 was approved by members of CTC’s Board of Directors, through an issue of 41,869 new common shares. The amount underwritten by RESA in this transaction totaled R$ 2,830, equal to 1,157 common shares. Hence, RESA recognized investment and goodwill totaling R$ 723 and R$ 2,107 respectively.

As provided for in the CTC shareholders’ agreement, in this transaction, RESA and all other shareholders waived 89.83% of their pre-emptive rights to underwrite CTC shares to BNDES. Hence, its ownership interest in the capital of this investee dropped from 20.50% to 19.58%, therefore creating an R$ 14,697 capital gain by diluting the corporate interest, recognized in the statement of income as Other operating income, net (Note 22).

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

  (ii) Disposal of ownership interest

Disposal of ownership interest in Serviços e Tecnologia de Pagamentos S.A (“STP”)

On March 14, 2016, by means of the share purchase and sale contract, the shareholders of STP announced the disposal of 100% of the shares representing the capital of STP to DBTRANS -Administração de Meios de Pagamentos Ltda. (“DBTRANS”), which ownership interest held by RCSA corresponded to 10%.

During the year ended March 31, 2017, from the approval of the Administrative Council for Economic Defense (CADE), and later on by the transfer of shares of DBTRANS, the Company wrote-off the investment cost recorded in the line item Assets held for sale, and recognized the gain on the disposal of the STP shares, in the amount of R$ 166,103, recorded in profit or loss for the year in the line item Other operating income, net, detailed below:

 

Proceeds from the sale of 10% interest held by RCSA in STP

     413,556  

Investment cost classified as assets held for sale

     (243,086

Complement to investment cost

     2,919  

Expenditure on business intermediation and others

     (7,286
  

 

 

 

Gain in the disposal of shares of STP (Note 22)

     166,103  
  

 

 

 

 

  (iii) Analysis of investment impairment losses

Following an impairment test for Logum pursuant to IAS 36 and IAS 28, on March 31, 2017, RESA recognized estimated impairment losses with Logum’s investment in income for the year, in the amount of R$162,384, being R$131,792 accounted for in Other operating expenses, net (Note 22), referring to direct interest of 21.3% in Logum, and R$30,592 accounted for as equity pick-up in investees, referring to RESA’s indirect interest of 4.9% in Logum by Uniduto.

Current infrastructure of Logum project is the backbone of the next business plan stages, which will increase volumes as system gains capillarity, connecting ethanol producers and consumers. However, for the impairment test on March 31, 2017, we considered that it would be appropriate to use only the current project stage estimated cash flows, net of financial debts, without considering future stages and synergies that may be generated in the future. To the extent that investments are made in new project stages, impairment tests will be made and may indicate reversal of the provision recognized. As of March 31, 2018, the Group assessed and did not find any indicator to revert the estimated impairment losses with Logum’s investment.

 

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

12. Property, plant and equipment

 

    March 31, 2018

 

     Lands
and rural
properties
     Buildings and
improvements
     Machinery,
equipment
and
facilities
     Aircrafts,
craft and
vehicles
     Furniture,
fixtures
and IT
equipment
     Constructions
in progress
     Frequently
replaced
parts and
accessories
     Sugarcane
roots
     Other      Total  

Cost:

                             

At March 31, 2017

     626,896        1,547,789        9,525,085        666,772        235,837        867,083        1,066,582        4,382,729        45,574        18,964,347  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Additions

     —          3,956        30,568        3,107        1,298        788,020        629,504        478,359        —          1,934,812  

Business combination (2)

     5,586        74,640        228,136        25,923        1,032        —          —          115,830        —          451,147  

Write-offs

     (40,542      (21,625      (246,737      (40,305      (22,445      (3,989      —          —          (5,490      (381,133

Net reversal of provision for estimated loss and others (4)

     (1,982      33        8,965        (125      825        —          —          —          —          7,716  

Write-off by disposal of ownership interest (3)

     (1,366      (17,800      (34,740      —          (36      (9      —          —          —          (53,951

Transferences (1)

     7,167        327,308        487,260        45,502        16,789        (896,108      2,560        —          1,222        (8,300

Transferences between cost and depreciation

     —          —          —          —          —          —          (452,744      —          —          (452,744
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2018

     595,759        1,914,301        9,998,537        700,874        233,300        754,997        1,245,902        4,976,918        41,306        20,461,894  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated depreciation:

                             

At March 31, 2017

     —          (439,918      (3,586,638      (315,773      (150,029      —          (452,744      (3,253,454      (34,347      (8,232,903

Depreciation of the year

     —          (44,155      (469,069      (54,727      (23,682      —          (665,300      (391,099      (3,129      (1,651,161

Write-off

     —          9,913        189,704        32,846        20,101        —          —          (346      5,402        257,620  

Write-off by disposal of ownership interest (2)

     —          4,434        10,229        —          27        —          —          —          —          14,690  

Transferences (1)

     —          (8,594      10,281        (263      394        —          —          —          16        1,834  

Transferences between cost and depreciation

     —          —          —          —          —          —          452,744        —          —          452,744  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2018

     —          (478,320      (3,845,493      (337,917      (153,189      —          (665,300      (3,644,899      (32,058      (9,157,176
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net residual value:

                             

At March 31, 2018

     595,759        1,435,981        6,153,044        362,957        80,111        754,997        580,602        1,332,019        9,248        11,304,718  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2017

     626,896        1,107,871        5,938,447        350,999        85,808        867,083        613,838        1,129,275        11,227        10,731,444  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1) As at March 31, 2018, the net transferences in the amount of R$ 6,466, includes: (a) Includes transferences to intangible assets (software), in the amount of R$ 12,888, e (b) amounts transferred to recorded under trade accounts receivable and other credits in the amount of R$ 6,422;
  (2) Refers to acquisition of Santa Cândida and Paraíso mills in the scope of Tonon’s business combinations. For further details, see Note 27;
  (3) Refers to the disposal of ownership interest of TEAS. For further details, see Note 11.b.ii.
  (4) Refers, mainly, to the net reversal of estimated loss due to inventory counts, recorded under Other operating income, net (Note 22).

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

    March 31, 2017

 

     Lands
and rural
properties
     Buildings and
improvements
     Machinery,
equipment
and
facilities
     Aircrafts,
craft and
vehicles
     Furniture,
fixtures
and IT
equipment
     Constructions
in progress
     Frequently
replaced
parts and
accessories
     Sugarcane
roots
     Other      Total  

Cost:

                             

At March 31, 2017

     653,278        1,481,329        9,184,174        668,567        212,816        861,219        1,051,480        4,050,364        52,967        18,216,194  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Additions

     —          913        17,616        1,402        1,324        659,232        626,858        332,365        —          1,639,710  

Write-off

     (27,523      (18,448      (147,207      (34,075      (3,780      (1,875      —          —          (1,588      (234,496

Net constitution of provision for estimated loss and others (2)

     441        829        (27,566      (469      (2,199      (2,166      —          —          234        (30,896

Transferences (1)

     700        83,166        498,068        31,347        27,676        (649,327      —          —          (6,039      (14,409

Transference between cost and depreciation

     —          —          —          —          —          —          (611,756      —          —          (611,756
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                                                      —                  

At March 31, 2017

     626,896        1,547,789        9,525,085        666,772        235,837        867,083        1,066,582        4,382,729        45,574        18,964,347  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated depreciation:

                             

At March 31, 2016

     —          (424,314      (3,240,049      (305,481      (138,060      —          (611,756      (2,822,080      (34,422      (7,576,162
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation for the year

     —          (27,926      (463,901      (35,725      (17,105      —          (452,744      (426,874      (1,532      (1,425,807

Write-offs

     —          12,729        114,578        27,743        4,733        —          —          (4,500      1,588        156,871  

Transferences (1)

     —          (407      2,734        (2,310      403        —          —          —          19        439  

Transference between cost and depreciation

     —          —          —          —          —          —          611,756        —          —          611,756  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2017

     —          (439,918      (3,586,638      (315,773      (150,029      —          (452,744      (3,253,454      (34,347      (8,232,903
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net residual value:

                             

March 31, 2017

     626,896        1,107,871        5,938,447        350,999        85,808        867,083        613,838        1,129,275        11,227        10,731,444  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2016

     653,278        1,057,015        5,944,125        363,086        74,756        861,219        439,724        1,228,284        18,545        10,640,032  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1) As at March 31, 2017, the net transferences in the amount of R$ 13,970, includes: (a) transferences to intangible assets (software), in the amount of R$ 13,343; and, (b) net transferences of recoverable amounts deriving from recharge of pools and other credits, in the amount of R$ 627;
  (2) Refers mainly to the estimated loss of fixed assets, in the income (loss) for the year under Other operating income, net (Note 22).

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Constructions in progress

The balances of constructions in progress consist basically of: (i) stillage concentration project; (ii) project for receiving the chopped sugar cane and separate the straw for the co-generation of energy; (iii) installation of tanks to increase ethanol storage capacity; (iv) investments for industrial maintenance and improvement, agricultural automation, in addition to safety, health and environment; (v) construction projects for new fuel distribution terminals and the expansion, modernization and improvement of existing terminals; (vi) investments in Shell gas stations to replace fuel pumps, make environmental adaptations, image renovation, renovate and refurbish gas station convenience stores, purchase and install furniture and equipment for the gas station convenience stores; (vii) investments in major clients (B2B) such as the acquisition and installation of equipment, installation of gas stations in these major consumer clients; (viii) investments in airports where RCSA distributes fuels, such as the acquisition of supply vehicles, expansion of the networks of hydrants and points of supply

In year ended March 31, 2018, several projects were concluded, namely: industrial maintenance and improvement and agricultural automation, safety, health and environment, investment in administrative structures, improvement and expansion of terminals and airports, as well as investments in gas stations with Shell flag (B2B), totaling approximately R$ 847,256.

Borrowing cost capitalization

During the year ended on March 31, 2018 the cost of loans capitalized in the Group were R$ 36,150 (R$ 26,904 in 2017). The annual weighted average rates of finance charges were 7.52% as of March 31, 2018 (7.33% in 2017).

Financial lease

As of March 31, 2018, the machinery and equipment, vehicles and aircraft class include net residual values of R$ 24,344 (R$ 4,194 in 2017), in which RESA is the lessee under a finance lease, guaranteed by promissory note in the original amount of R$ 13,076. The increase compared to 2017 was mainly due to the acquisition of Santa Cândida and Paraíso, within the scope of the business combination described in Note 27.

Property, plant and equipment pledged and commitments to acquisition to property, plant and equipment

As of March 31, 2018, loans and financing are secured by land, building and machinery in the total amount of R$ 1,093,646 (R$ 1,307,185 in 2017).

On March 31, 2018, RESA has contracts for the purchase of industrial equipment for the maintenance and expansion of the plants, as well as for the electricity cogeneration projects, in the total amount of R$ 37,778 (R$ 28,807 in 2017).

 

 

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Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

13. Intangible assets

 

    March 31, 2018

 

     Software
license
     Goodwill      Brands      Agricultural
Partnership
Agreements
     Sugarcane
supply
agreements
     Contractual
relationships
with clients
     Exclusive
supply
rights
     Public
concession
rights of
use
     Technology      Other      Total  

Cost:

                                

At March 31, 2017

     426,109        1,978,031        532,348        18,411        181,516        362,834        3,166,208        12,541        179,876        24,380        6,882,254  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Additions

     32,285        —          —          —          —          —          605,899        —          3,854        —          642,038  

Business combinations(2)

     —          410,137        —          —          —          —          —          —          —          —          410,137  

Write-off

     (451      —          —          —          —          —          (39,863      —          —          —          (40,314

Write-off by disposal of ownership interest (2)

     (50      (4,818      —          —          —          —          —          —          —          —          (4,868

Transferences

     12,862        —          —          —          —          —          —          —          —          —          12,862  

Constitution (reversal) of provision for estimated loss and others

     —          —          —          —          —          —          (4,745      —          —          380        (4,365
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2018

     470,755        2,383,350        532,348        18,411        181,516        362,834        3,727,499        12,541        183,730        24,760        7,897,744  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization:

                                

At March 31, 2017

     (288,083      (431,380      (317,947      (12,251      (79,690      (94,886      (1,411,382      (10,787      (35,976      (20,377      (2,702,759
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization in the year

     (39,861      —          (52,504      (3,224      (11,508      (18,748      (396,951      (1,408      (17,988      (828      (543,020

Write off

     451        —          —          —          —          —          37,409        —          —          —          37,860  

Write-off by disposal of ownership interest (2)

     50        —          —          —          —          —          —          —          —          —          50  

Transferences

     26        —          —          —          —          —          —          —          —          —          26  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2018

     (327,417      (431,380      (370,451      (15,475      (91,198      (113,634      (1,770,924      (12,195      (53,964      (21,205      (3,207,843
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net residual value:

                                

At March 31, 2018

     143,338        1,951,970        161,897        2,936        90,318        249,200        1,956,575        346        129,766        3,555        4,689,901  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2017

     138,026        1,546,651        214,401        6,160        101,826        267,948        1,754,826        1,754        143,900        4,003        4,179,495  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1) As of March 31, 2018, includes the transference from property, plant and equipment in the amount of R$ 12,888;
  (2) Refers to acquisition of Santa Cândida and Paraíso mills in the scope of Tonon’s business combinations. For further details, see Note 27;
  (3) Refers to the disposal of ownership interest of TEAS. For further details, see Note 11.b.ii.

 

F-56


Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

 

    March 31, 2017

 

     Software
license
     Goodwill      Brands      Agricultural
Partnership
Agreements
     Sugarcane
supply
agreements
     Contractual
relationships
with clients
     Exclusive
supply
rights
     Public
concession
rights of
use
     Technology      Other      Total  

Cost:

                                

At March 31, 2016

     374,684        1,978,031        532,348        18,411        181,516        362,834        2,656,293        12,541        179,876        25,535        6,322,069  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Additions

     37,866        —          —          —          —          —          623,103        —          —          —          660,969  

Write-off

     (4      —          —          —          —          —          (114,342      —          —          —          (114,346

Transferences (1)

     13,563        —          —          —          —          —          1,680        —          —          —          15,243  

Net constitution of provision for estimated loss and others (Note 22)

     —          —          —          —          —          —          (526      —          —          (1,155      (1,681
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2017

     426,109        1,978,031        532,348        18,411        181,516        362,834        3,166,208        12,541        179,876        24,380        6,882,254  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Accumulated amortization:

                                

At March 31, 2016

     (253,237      (431,380      (265,443      (9,027      (67,462      (76,138      (1,181,390      (8,278      (17,988      (18,935      (2,329,278
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Amortization in the year

     (35,346      —          (52,504      (3,224      (11,508      (18,748      (344,358      (2,509      (17,988      (1,442      (487,627

Write off

     2        —          —          —          —          —          114,342        —          —          —          114,344  

Transferences (1)

     498        —          —          —          (720      —          24        —          —          —          (198
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2017

     (288,083      (431,380      (317,947      (12,251      (79,690      (94,886      (1,411,382      (10,787      (35,976      (20,377      (2,702,759
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net residual value:

                                

At March 31, 2017

     138,026        1,546,651        214,401        6,160        101,826        267,948        1,754,826        1,754        143,900        4,003        4,179,495  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At March 31, 2016

     121,447        1,546,651        266,905        9,384        114,054        286,696        1,474,903        4,263        161,888        6,600        3,992,791  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1) As at March 31, 2017, the net transference of R$ 15.045, includes: (a) transfer from property, plant and equipment in the amount of R$ 13.343 and (b) exclusive supply rights and other in the amount of R$ 1,702;

 

 

F-57


Table of Contents

Raízen Group

Management notes to combined consolidated financial statements on March 31, 2018

In thousand of Reais – R$, unless otherwise indicated

 

 

Goodwill </