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Financial assets and liabilities
 12 Months Ended
Dec. 31, 2019
Text block [abstract]  
Financial assets and liabilities
5
Financial assets and liabilities
 
Accounting policy
 
Measurement of financial assets and liabilities
 
The Company initially measures a financial asset at its fair value plus, in the case of a financial asset not measured at fair value through profit or loss, transaction costs, except those measured at amortized cost maintained within a business model with the objective to obtain contractual cash flows that meet the criteria of principal and interest only.
 
Debt financial instruments are subsequently measured at fair value through profit or loss, amortized cost or fair value through other comprehensive income.
 
The classification is based on two criteria: (i) the Company’s business model for managing assets; and (ii) whether the contractual cash flows of the instruments represent only payments of principal and interest on the principal amount outstanding.
 
The Company recognizes its financial assets at amortized cost for financial assets that are maintained within a business model in order to obtain contractual cash flows that meet the “Principal and Interest” criteria. This category includes accounts receivable from customers, cash and cash equivalents, receivables from related parties, other financial assets and dividends and interest on equity receivable.
 
No remeasurement of financial assets was carried out.
 
Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.
 
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The Company also derecognizes a financial liability when its terms are modified, and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.
 
The carrying amount of financial assets and financial liabilities are as follows:
 
 
  
Note
 
  
December 31,
2019
 
  
December 31,
2018
 
Assets
  
   
  
   
  
   
Fair value through profit or loss
  
   
  
   
  
   
Cash and cash equivalents
  
 
5.1
 
  
 
3,279,170
 
  
 
1,600,590
 
Marketable securities
  
 
5.2
 
  
 
3,115,503
 
  
 
4,202,835
 
Derivative financial instruments
  
 
5.9
 
  
 
3,824,410
 
  
 
2,548,857
 
Other financial assets
  
   
  
 
134,637
 
  
 
—  
 
 
  
   
  
 
 
 
  
 
 
 
 
  
 
 
  
10,353,720
 
  
8,352,282
 
Amortized cost
  
   
  
   
  
   
Cash and cash equivalents
  
 
5.1
 
  
 
5,193,104
 
  
 
2,021,208
 
Trade receivables
  
 
5.3
 
  
 
1,814,394
 
  
 
1,588,192
 
Receivables from related parties
  
 
5.4
 
  
 
173,341
 
  
 
135,070
 
Dividends receivable
  
   
  
 
23,252
 
  
 
27,320
 
Restricted cash
  
 
5.2
 
  
 
147,910
 
  
 
115,124
 
 
  
   
  
 
 
 
  
 
 
 
 
  
 
 
  
7,352,001
 
  
3,886,914
 
 
  
   
  
 
 
 
  
 
 
 
Total assets
  
   
  
 
17,705,721
 
  
 
12,239,196
 
 
  
   
  
 
 
 
  
 
 
 
   
Liabilities
  
   
  
   
  
   
Amortized cost
  
   
  
   
  
   
Loans, borrowings and debentures
  
 
5.5
 
  
 
12,682,049
 
  
 
10,005,187
 
Leases
  
 
5.6
 
  
 
4,594,888
 
  
 
553,350
 
Trade payables
  
 
5.7
 
  
 
2,190,264
 
  
 
1,923,920
 
Dividends payable
  
   
  
 
214,104
 
  
 
187,415
 
Payables to related parties
  
 
5.4
 
  
 
392,458
 
  
 
355,971
 
Other financial liabilities
  
   
  
 
543,879
 
  
 
455,702
 
Preferred shareholders payable in subsidiaries
  
 
5.8
 
  
 
611,537
 
  
 
1,097,490
 
Tax installments—REFIS
  
 
12
 
  
 
213,360
 
  
 
216,984
 
 
  
   
  
 
 
 
  
 
 
 
 
  
   
  
 
21,442,539
 
  
 
14,796,019
 
Fair value through profit or loss
  
   
  
   
  
   
Loans, borrowings and debentures
  
 
5.5
 
  
 
16,370,166
 
  
 
12,569,126
 
Contingent consideration
  
   
  
 
184,370
 
  
 
64,969
 
Derivative financial instruments
  
 
5.9
 
  
 
81,051
 
  
 
25,714
 
 
  
   
  
 
 
 
  
 
 
 
 
  
   
  
 
16,635,587
 
  
 
12,659,809
 
 
  
   
  
 
 
 
  
 
 
 
Total liabilities
  
   
  
 
38,078,126
 
  
 
27,455,828
 
 
  
   
  
 
 
 
  
 
 
 
 
5.1
Cash and cash equivalents
 
Accounting policy
 
Cash and cash equivalents comprise cash balances, call deposits and highly liquid short-term investments with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value.
 
 
  
December 31,
2019
 
  
December 31,
2018
 
Cash and bank accounts
  
 
363,084
 
  
 
111,410
 
Savings account
  
 
885,740
 
  
 
1,335,774
 
Financial investments
  
 
7,223,450
 
  
 
2,174,614
 
 
  
 
 
 
  
 
 
 
 
  
8,472,274
 
  
3,621,798
 
 
  
 
 
 
  
 
 
 
Financial investments are composed as follows:
 
 
  
December 31,
2019
 
  
December 31,
2018
 
Investment fund
  
   
  
   
Repurchase agreements
  
 
2,799,706
 
  
 
1,179,503
 
Bank certificate of deposits—CDB
  
 
479,464
 
  
 
421,087
 
 
  
 
 
 
  
 
 
 
 
  
3,279,170
 
  
1,600,590
 
 
  
 
 
 
  
 
 
 
Bank investments
  
   
  
   
Repurchase agreements
  
 
1,400,735
 
  
 
—  
 
Bank certificate of deposits—CDB
  
 
2,340,125
 
  
 
571,840
 
Other
  
 
203,420
 
  
 
2,184
 
 
  
 
 
 
  
 
 
 
 
  
3,944,280
 
  
574,024
 
 
  
 
 
 
  
 
 
 
 
  
7,223,450
 
  
2,174,614
 
 
  
 
 
 
  
 
 
 
The Company’s onshore financial investments are remunerated at rates around 100% of the interbank deposit certificate (“CDI”) in 2019 (100% of CDI in 2018) and offshore financial investments are remunerated at rates around 100% of Fed Funds. The sensitivity analysis on interest rate risks is in Note 21.
 
5.2
Marketable securities and restricted cash
 
Accounting policy
 
Marketable securities are measured and classified at fair value through profit or loss. Restricted cash are measured and classified at amortized cost, both of them with the average maturity of government bonds between two and five years, however they can be promptly redeemed and are subject to an insignificant risk of change in value.
 
 
  
December 31,
2019
 
  
December 31,
2018
 
Marketable securities
  
   
  
   
Government security
(i)
  
 
2,719,630
 
  
 
4,144,797
 
Bank certificate of deposit - CDB
  
 
125,413
 
  
 
58,038
 
Repurchase agreements
  
 
270,460
 
  
 
—  
 
 
  
 
 
 
  
 
 
 
 
  
3,115,503
 
  
4,202,835
 
Restricted cash
  
   
  
   
Investments linked to loans
  
 
86,681
 
  
 
31,254
 
Securities pledged as collateral
  
 
61,229
 
  
 
83,870
 
 
  
 
 
 
  
 
 
 
 
  
147,910
 
  
115,124
 
 
(i)
Sovereign debt securities have stated interest connected to Special System for Settlement and Custody (
Sistema Especial de Liquidação e de Custódia
), or “SELIC.”
 
5.3
Trade receivables
 
Accounting policy
 
Trade receivables are recognized initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognized at fair value. The Company holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortized cost using the effective interest method.
 
To measure the expected credit losses and trade receivables have been grouped based on shared credit risk characteristics and overdue. The provision allowance for doubtful accounts is recorded in selling expense.
 
Expected loss rates are based on corresponding historical credit losses suffered in the period. Historical loss rates may be adjusted to reflect current and forward-looking information regarding macroeconomic factors that affect the customers’ ability to settle the receivables. The Company identified the interest rate implied in the agreement as the most relevant factor, and consequently adjusts historical loss rates based on the expected changes in this factor.
 
 
  
December 31,
2019
 
 
December 31,
2018
 
Domestic – Brazilian Reais
 
(
i
)
 
  
 
1,874,400
 
 
 
1,609,421
 
Export – Foreign currency
  
 
60,401
 
 
 
104,355
 
 
  
 
 
 
 
 
 
 
 
  
1,934,801
 
 
1,713,776
 
 
  
   
 
   
Expected credit losses
  
 
(120,407
) 
 
 
(125,584
) 
 
  
 
 
 
 
 
 
 
 
  
1,814,394
 
 
1,588,192
 
 
  
 
 
 
 
 
 
 
 
  
   
 
   
Current
  
 
1,786,095
 
 
 
1,545,643
 
Non-current
  
 
28,299
 
 
 
42,549
 
 
  
 
 
 
 
 
 
 
 
  
1,814,394
 
 
1,588,192
 
 
  
 
 
 
 
 
 
 

 
(i)
R$622,572 (R$430,596 on December 31, 2018) is related to the unbilled revenue from the subsidiary Comgás, which refers to that part of the gas supplied in the month, whose billing have not yet been made.
The ageing of trade receivables is as follows:
 
 
  
December 31,
2019
 
 
December 31,
2018
 
Not overdue
  
 
1,552,912
 
 
 
1,382,193
 
Overdue:
  
   
 
   
From 1 to 30 days
  
 
175,112
 
 
 
116,665
 
From 31 to 60 days
  
 
32,925
 
 
 
27,649
 
From 61 to 90 days
  
 
36,337
 
 
 
20,734
 
More than 90 days
  
 
137,515
 
 
 
166,535
 
Expected credit losses
  
 
(120,407
) 
 
 
(125,584
) 
 
  
 
 
 
 
 
 
 
 
  
1,814,394
 
 
1,588,192
 
 
  
 
 
 
 
 
 
 
Changes in the expected credit losses are as follows:
 
At January 1, 2018
  
 
(121,052
) 
Provision / reversal
  
 
(4,532
) 
At December 31, 2018
  
 
(125,584
) 
Provision / reversal
  
 
5,177
 
 
  
 
 
 
At December 31, 2019
  
 
(120,407
) 
 
  
 
 
 
 
5.4
Related parties
 
Accounting policy
 
Sales and purchases involving related parties are made at regular market prices. The outstanding balances at
year-end
are not guaranteed nor subject to interest, and they are settled in cash. There were no guarantees given or received regarding any accounts receivable or payable involving related parties. In the year ended December 31, 2019, the Company did not account for any impairment of trade receivable related to amounts owed by related parties.
 
a)
Summary of balances to related parties
 
 
  
December 31,
2019
 
  
December 31,
2018
 
Current Asset
  
   
  
   
Corporate operation / Agreements
  
   
  
   
Raízen Energia S.A.
(i)
  
 
50,296
 
  
 
38,205
 
Aguassanta Participações S.A.
  
 
444
 
  
 
29
 
Raízen Combustíveis S.A.
(i)
  
 
7,588
 
  
 
6,263
 
Other
  
 
291
 
  
 
183
 
 
  
 
 
 
  
 
 
 
Total current Asset
  
 
58,619
 
  
 
44,680
 
   
Non-current
assets
  
   
  
   
Corporate operation / Agreements
  
   
  
   
Raízen Combustíveis S.A.
(i)
  
 
36,410
 
  
 
27,523
 
 
  
 
 
 
  
 
 
 
 
  
 
36,410
 
  
 
27,523
 
 
  
 
 
 
  
 
 
 
Preferred shares
  
   
  
   
Raízen Energia S.A.
(i)
  
 
78,304
 
  
 
37,470
 
Janus Brasil Participações S.A.
  
 
8
 
  
 
—  
 
 
  
 
 
 
  
 
 
 
 
  
 
78,312
 
  
 
37,470
 
Financial operations
  
   
  
   
Rezende Barbosa
(ii)
  
 
—  
 
  
 
23,144
 
Other
  
 
—  
 
  
 
2,253
 
 
  
 
 
 
  
 
 
 
 
  
 
—  
 
  
 
25,397
 
Total non-current assets
  
 
114,722
 
  
 
90,390
 
 
  
 
 
 
  
 
 
 
Total assets
  
 
173,341
 
  
 
135,070
 
 
  
 
 
 
  
 
 
 
Current liabilities
  
   
  
   
Corporate operations / agreements
  
   
  
   
Raízen Energia S.A.
(i)
  
 
262,612
 
  
 
215,582
 
Raízen Combustíveis S.A.
(i)
  
 
127,773
 
  
 
136,779
 
Radar Propriedades Agrícolas S.A.
  
 
150
 
  
 
—  
 
Other
  
 
1,923
 
  
 
3,610
 
 
  
 
 
 
  
 
 
 
Total liabilities
  
 
392,458
 
  
 
355,971
 
 
  
 
 
 
  
 
 
 
 
(i)
Current and
non-current
assets receivable from Raízen Energia and Raízen Combustíveis are, primarily, tax credits which will be reimbursed to the Company when realized. The preferred shares are used to Raízen reimburse Cosan, with preferential dividends, when the net operating loss is consumed in Raízen.
Current liabilities represent reimburse to Raízen Energia and Raízen Combustíveis related to expenses regarding legal disputes and other liabilities, generated before the formation of joint ventures, which are responsibility of Cosan S.A.
(ii)
On September 13, 2019, Cosan and Rezende Barbosa entered into a Private Instrument for Settlement and Termination of Contracts and Other Covenants in which the balance of receivables was settled through the delivery of 1,908,783 and 477,196 shares of Cosan S.A. and Cosan Logística to the Company that were blocked and in custody with a Financial Institution. The equity instruments received in said instrument represent an increase in the Company’s interest of 0.48% and 0.10% in Cosan S.A. and Cosan Logística. Additionally, during the exercise in which the shares held in custody remained blocked, such shares were not entitled to any dividends received, pursuant to the agreement in effect at the time, and the amount of R$20,751 recorded as dividends payable to this shareholder was reversed against retention profit in subsidiary Cosan S.A.
 
b) Related party transactions
 
 
  
December 31,
2019
 
 
December 31,
2018
 
 
December 31,
2017
 
Product sales
  
   
 
   
 
   
Raízen Energia S.A.
  
 
298,980
 
 
 
304,648
 
 
 
411,443
 
Raízen Combustíveis S.A
  
 
221,369
 
 
 
188,895
 
 
 
154,104
 
Other
  
 
7,010
 
 
 
15,117
 
 
 
8,381
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
527,359
 
 
508,660
 
 
573,928
 
Purchase of goods / inputs
  
   
 
   
 
   
Raízen Energia S.A.
  
 
(7,010
) 
 
 
(3,672
) 
 
 
(1,347
) 
Raízen Combustíveis S.A
  
 
(1,240,781
) 
 
 
(1,205,231
) 
 
 
(1,006,515
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
(1,247,791
) 
 
 
(1,208,903
) 
 
 
(1,007,862
) 
Shared income (expense)
  
   
 
   
 
   
Raízen Energia S.A.
  
 
(71,978
) 
 
 
(73,105
) 
 
 
(70,914
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
(71,978
) 
 
 
(73,105
) 
 
 
(70,914
) 
Financial result
  
   
 
   
 
   
Usina Santa Luiza
  
 
(41
) 
 
 
(241
) 
 
 
(378
) 
Raízen Energia S.A.
  
 
—  
 
 
 
4,100
 
 
 
7,727
 
Raízen Combustíveis S.A
  
 
5,729
 
 
 
—  
 
 
 
—  
 
Other
  
 
(5
) 
 
 
2,879
 
 
 
3
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
5,683
 
 
6,738
 
 
7,352
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Total
  
 
(786,727
) 
 
 
(766,610
) 
 
 
(497,496
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
c) Officers’ and directors’ compensation
The Company has a compensation policy approved by the Board of Directors. Compensation of the Company’s key management personnel includes salaries,
non-cash
benefits and contributions to a post-employment defined benefit plan.
 
 
  
December 31,
2019
 
  
December 31,
2018
 
  
December 31,
2017
 
Short-term benefits to officers and directors
  
 
88,440
 
  
 
86,810
 
  
 
76,976
 
Share-based payment transactions
(i)
  
 
16,823
 
  
 
11,423
 
  
 
63,658
 
Post-employment benefits
  
 
728
 
  
 
476
 
  
 
934
 
Other long-term benefits
  
 
—  
 
  
 
547
 
  
 
664
 
Benefits from termination of employment contract
  
 
—  
 
  
 
1,193
 
  
 
635
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
  
 
105,991
 
  
 
100,449
 
  
 
142,867
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
(i)
Replacement of the stock option plans to the stock-based compensation plan (Note 23).
 
5.5
Loans, borrowings and debentures
 
Accounting policy
 
Borrowings are initially recognized at fair value, net of transaction costs incurred Borrowings are subsequently measured at amortized cost.
 
Borrowings are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any
non-cash
assets transferred or liabilities assumed, is recognized in profit or loss as other income or finance costs.
 
Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the reporting exercise.
 
Financial guarantee contracts issued by the Company are initially measured at their fair values and, if not designated as at fair value through profit or loss, are subsequently measured at the higher of:
 
i.   the amount of the obligation under the contract; and
 
ii.  the amount initially recognized less, where appropriate, cumulative amortization recognized in accordance with the revenue recognition policies.
 
 
 
Interest
 
 
 
 
 
 
 
  
 
 
  
 
Description
 
Index
 
Annual interest
 
December 31,
2019
 
 
December 31,
2018
 
  
Maturity
 
  
Objective
With guarantee
 
 
 
   
 
   
 
   
  
   
  
 
BNDES
 
URTJLP
 
 
7.86
% 
 
 
2,213,704
 
 
 
2,584,347
 
  
 
Dec-2029
 
  
Expansion project
 
 
Fixed
 
 
5.36
% 
 
 
834,039
 
 
 
1,055,281
 
  
 
Jan-2025
 
  
Expansion project
 
 
TJ462
 
 
8.37
% 
 
 
144,573
 
 
 
316,854
 
  
 
Oct-2020
 
  
Investment
 
 
Selic
 
 
6.28
% 
 
 
73,540
 
 
 
152,562
 
  
 
Oct-2020
 
  
Investment
 
 
Selic
 
 
6.45
% 
 
 
52,031
 
 
 
63,852
 
  
 
Jun-2023
 
  
Investment
 
 
TJLP
 
 
7.57
% 
 
 
83,174
 
 
 
107,731
 
  
 
Jun-2023
 
  
Investment
 
 
TJLP
 
 
5.95
% 
 
 
1,667
 
 
 
—  
 
  
 
Jun-2023
 
  
Investment
 
 
Selic
 
 
13.65
% 
 
 
—  
 
 
 
3,930
 
  
 
Sep-2020
 
  
Expansion project
 
 
Selic
 
 
6.80
% 
 
 
1,118
 
 
 
—  
 
  
 
Sep-2020
 
  
Expansion project
 
 
Fixed
 
 
3.50
% 
 
 
1,426
 
 
 
2,261
 
  
 
Jan-2024
 
  
Expansion project
 
 
IPCA
 
 
12.07
% 
 
 
1,528
 
 
 
2,211
 
  
 
Nov-2021
 
  
Expansion project
 
 
URTJLP
 
 
7.87
% 
 
 
4,952
 
 
 
—  
 
  
 
Mar-2022
 
  
Expansion project
Export credit agreement (ECA)
 
Euribor + 0.58%
 
 
0.58
% 
 
 
79,528
 
 
 
—  
 
  
 
Sep-2026
 
  
Investment
EIB
 
U.S.$
 
 
3.88
% 
 
 
31,770
 
 
 
89,003
 
  
 
Jun-2020
 
  
Investment
 
 
U.S.$
 
 
2.94
% 
 
 
29,081
 
 
 
54,508
 
  
 
Sep-2020
 
  
Investment
 
 
U.S.$ + LIBOR
 
 
2.46
% 
 
 
71,129
 
 
 
115,581
 
  
 
May-2021
 
  
Investment
 
 
U.S.$ + LIBOR
 
 
2.66
% 
 
 
89,336
 
 
 
130,402
 
  
 
Sep-2021
 
  
Investment
FINEP
 
Fixed
 
 
5.00
% 
 
 
—  
 
 
 
93,309
 
  
 
Dec-2019
 
  
Investment
 
 
 
 
   
 
 
 
 
 
 
 
 
  
   
  
 
 
 
 
 
   
 
 
3,712,596
 
 
 
4,771,832
 
  
   
  
 
 
 
 
 
   
 
 
 
 
 
 
 
 
  
   
  
 
Without guarantee
 
 
 
   
 
   
 
   
  
   
  
 
Foreign loans
 
GBP + Libor
 
 
1.96
% 
 
 
106,643
 
 
 
—  
 
  
 
Dec-2022
 
  
Acquisition
 
 
GBP + Libor
 
 
2.36
% 
 
 
186,604
 
 
 
—  
 
  
 
Dec-2022
 
  
Acquisition
 
 
GBP + Libor
 
 
4.37
% 
 
 
—  
 
 
 
363,250
 
  
 
Dec-2019
 
  
Acquisition
 
 
GBP + Libor
 
 
2.22
% 
 
 
150,253
 
 
 
199,794
 
  
 
Nov-2020
 
  
Acquisition
 
 
Fixed
 
 
1.16
% 
 
 
3,561
 
 
 
—  
 
  
 
Mar-2022
 
  
Acquisition
Export credit note (NCE)
 
126% of CDI
 
 
8.13
% 
 
 
—  
 
 
 
514,817
 
  
 
Dec-2019
 
  
Exportation
 
 
CDI + 0.80%
 
 
5.24
% 
 
 
512,078
 
 
 
—  
 
  
 
Dec-2023
 
  
Exportation
 
 
125% of CDI
 
 
8.06
% 
 
 
—  
 
 
 
646,024
 
  
 
Jan-2019
 
  
Exportation
Perpetual Notes
 
U.S.$
 
 
8.25
% 
 
 
2,040,752
 
 
 
1,961,819
 
  
 
—  
 
  
Acquisition
Resolution 4131
 
U.S.$
 
 
4.79
% 
 
 
20,688
 
 
 
39,738
 
  
 
Oct-2020
 
  
Working capital
 
 
U.S.$ + Libor
 
 
3.75
% 
 
 
—  
 
 
 
156,387
 
  
 
Feb-2020
 
  
Working capital
 
 
U.S.$ + Libor
 
 
2.90
% 
 
 
81,107
 
 
 
—  
 
  
 
Feb-2020
 
  
Working capital
 
 
U.S.$
 
 
3.67
% 
 
 
313,493
 
 
 
292,172
 
  
 
May-2023
 
  
Working capital
 
 
U.S.$
 
 
4.34
% 
 
 
—  
 
 
 
41,033
 
  
 
Dec-2019
 
  
Working capital
 
 
U.S.$
 
 
2.65
% 
 
 
217,537
 
 
 
209,987
 
  
 
Nov-2022
 
  
Working capital
Senior Notes Due 2023
 
U.S.$
 
 
5.00
% 
 
 
438,985
 
 
 
409,590
 
  
 
Mar-2023
 
  
Acquisition
Senior Notes Due 2027
 
U.S.$
 
 
7.00
% 
 
 
3,234,647
 
 
 
2,977,721
 
  
 
Jan-2027
 
  
Acquisition
Senior Notes Due 2024
 
U.S.$
 
 
7.38
% 
 
 
3,318,895
 
 
 
3,061,566
 
  
 
Feb-2024
 
  
Acquisition
Senior Notes Due 2024
 
U.S.$
 
 
5.95
% 
 
 
903,636
 
 
 
2,022,793
 
  
 
Sep-2024
 
  
Acquisition
Senior Notes Due 2025
 
U.S.$
 
 
5.88
% 
 
 
2,182,089
 
 
 
1,997,394
 
  
 
Jan-2025
 
  
Acquisition
Senior Notes Due 2029
 
Fixed
 
 
5.50
% 
 
 
3,071,052
 
 
 
—  
 
  
 
Sep-2029
 
  
Acquisition
Commercial banks
 
Fixed U.S.$
 
 
—  
 
 
 
—  
 
 
 
15,499
 
  
 
Aug-2019
 
  
Working capital
Working capital
 
120.25% of CDI
 
 
6.53
% 
 
 
—  
 
 
 
30,828
 
  
 
Dec-2019
 
  
Working capital
 
 
125% of CDI
 
 
6.79
% 
 
 
—  
 
 
 
5,018
 
  
 
Dec-2019
 
  
Working capital
 
 
122% of CDI
 
 
7.86
% 
 
 
—  
 
 
 
15,402
 
  
 
Dec-2019
 
  
Working capital
Bank overdrafts
 
125.5% of CDI
 
 
5.53
% 
 
 
740
 
 
 
—  
 
  
 
Jan-2020
 
  
Working capital
Prepayment
 
U.S.$+Libor
 
 
3.64
% 
 
 
—  
 
 
 
11,706
 
  
 
Dec-2019
 
  
Working capital
 
 
100% Libor
 
 
2.90
% 
 
 
80,932
 
 
 
—  
 
  
 
Nov-2021
 
  
Working capital
 
 
100% Libor 0,76%
 
 
2.72
% 
 
 
40,474
 
 
 
—  
 
  
 
Oct-2020
 
  
Working capital
Debentures
 
IGPM + 6,10%
 
 
10.59
% 
 
 
240,900
 
 
 
228,010
 
  
 
May-2028
 
  
Working capital
 
 
IPCA + 5.57%
 
 
9.84
% 
 
 
108,133
 
 
 
203,613
 
  
 
Sep-2020
 
  
Working capital
 
 
IPCA + 7.14%
 
 
11.47
% 
 
 
318,412
 
 
 
305,894
 
  
 
Dec-2020
 
  
Working capital
 
 
IPCA + 7.48%
 
 
11.82
% 
 
 
286,271
 
 
 
275,014
 
  
 
Dec-2022
 
  
Working capital
 
 
IPCA + 7.36%
 
 
11.70
% 
 
 
94,367
 
 
 
90,656
 
  
 
Dec-2025
 
  
Working capital
 
 
IPCA + 5.87%
 
 
10.15
% 
 
 
859,996
 
 
 
767,638
 
  
 
Dec-2023
 
  
Working capital
 
 
IPCA + 4.33%
 
 
8.54
% 
 
 
431,817
 
 
 
414,583
 
  
 
Oct-2024
 
  
Working capital
 
 
IPCA + 4.68%
 
 
8.91
% 
 
 
570,098
 
 
 
—  
 
  
 
Feb-2026
 
  
Working capital
 
 
IPCA + 4.50%
 
 
8.72
% 
 
 
668,034
 
 
 
—  
 
  
 
Feb-2029
 
  
Working capital
 
 
IPCA + 3,90%
 
 
8.10
% 
 
 
895,249
 
 
 
—  
 
  
 
Oct-2029
 
  
Working capital
 
 
IPCA + 4,00%
 
 
8.20
% 
 
 
219,466
 
 
 
—  
 
  
 
Oct-2029
 
  
Working capital
 
 
106 % of CDI
 
 
5.73
% 
 
 
1,727,459
 
 
 
—  
 
  
 
Feb-2021
 
  
Acquisition
 
 
128 % of CDI
 
 
8.26
% 
 
 
—  
 
 
 
501,064
 
  
 
Feb-2019
 
  
Working capital
 
 
100% CDI + 0,50%
 
 
4.92
% 
 
 
2,015,251
 
 
 
—  
 
  
 
Oct-2022
 
  
Working capital
 
 
CDI + 0.90%
 
 
5.30
% 
 
 
—  
 
 
 
43,471
 
  
 
Sep-2019
 
  
Working capital
 
 
 
 
   
 
 
 
 
 
 
 
 
  
   
  
 
 
 
 
 
   
 
 
25,339,619
 
 
 
17,802,481
 
  
   
  
 
 
 
 
 
   
 
 
 
 
 
 
 
 
  
   
  
 
Consolidated Debt
 
 
 
   
 
 
29,052,215
 
 
 
22,574,313
 
  
   
  
 
 
 
 
 
   
 
 
 
 
 
 
 
 
  
   
  
 
Current
 
 
 
   
 
 
3,518,225
 
 
 
2,115,305
 
  
   
  
 
 
 
 
 
   
 
 
 
 
 
 
 
 
  
   
  
 
Non-current
 
 
 
   
 
 
25,533,990
 
 
 
20,459,008
 
  
   
  
 
 
 
 
 
   
 
 
 
 
 
 
 
 
  
   
  
 
 
The Company used the annual average rate of the Interbank Deposit Certificate (“CDI”) of 4.40% and Long-term Interest Rate (“TJLP”) of 5.57%.
Non-current
borrowings are scheduled to fall due as follows:
 
 
  
December
31, 2019
 
  
December
31, 2018
 
13 to 24 months
  
 
1,813,849
 
  
 
2,113,502
 
25 to 36 months
  
 
3,240,861
 
  
 
1,310,790
 
37 to 48 months
  
 
2,294,198
 
  
 
1,201,227
 
49 to 60 months
  
 
5,032,388
 
  
 
2,429,146
 
61 to 72 months
  
 
2,520,671
 
  
 
5,783,465
 
73 to 84 months
  
 
456,983
 
  
 
2,332,961
 
85 to 96 months
  
 
3,821,149
 
  
 
475,964
 
Thereafter
  
 
6,353,891
 
  
 
4,811,953
 
 
  
 
 
 
  
 
 
 
 
  
 
25,533,990
 
  
 
20,459,008
 
 
  
 
 
 
  
 
 
 
The carrying amounts of loans, borrowings and debentures are denominated in the following currencies:
 
 
  
December 31,
2019
 
  
December 31,
2018
 
Brazilian
reais
(R$)
  
 
12,360,023
 
  
 
8,424,370
 
U.S. dollar (U.S.$)
  
 
16,165,603
 
  
 
13,586,899
 
British pound (GBP)
  
 
443,500
 
  
 
563,044
 
Euro (EUR)
  
 
83,089
 
  
 
—  
 
 
  
 
 
 
  
 
 
 
 
  
 
29,052,215
 
  
 
22,574,313
 
 
  
 
 
 
  
 
 
 
 
At December 31, 2019, all dated debts denominated in U.S. dollar, in the subsidiaries, have currency risk protection through derivatives (Note 5.9), except for perpetual notes. For the Fifth Issuance of debentures denominated in Brazilian
reais
of the Comgás, a derivative operation was carried out in which its future cash flow was protected, and the Extended National Consumer Price Index (
Índice Nacional de Preços ao Consumidor Amplo
), or “IPCA,” interest rate risk was changed by percentage of the CDI.
Below are the movements that occurred for the year ended December 31, 2019:
 
At January 1, 2018
  
 
21,688,946
 
 
  
 
 
 
Raised
  
 
3,685,290
 
Repayment of principal
  
 
(5,301,421
) 
Payment of interest
  
 
(1,454,712
) 
Interest, exchange rate and fair value
  
 
3,956,210
 
 
  
 
 
 
At December 31, 2018
  
 
22,574,313
 
Raised
  
 
9,352,123
 
Repayment of principal
  
 
(4,422,026
) 
Payment of interest
  
 
(1,384,184
) 
Interest, exchange rate and fair value
  
 
2,931,989
 
 
  
 
 
 
December 31, 2019
  
 
29,052,215
 
 
  
 
 
 
a) Guarantees
Some financing agreements with the Brazilian National Economic and Social Development Bank (
Banco Nacional de Desenvolvimento Econômico e Social
), or “
BNDES
,” of the subsidiaries Comgás and Rumo, are guaranteed by bank guarantee, or by real guarantees (assets) and escrow account. On December 31, 2019, the balance of bank guarantees contracted was R$532,558 and R$1,387,627 with an average cost of 0.99% p.a. and 0.86% p.a., respectively (R$1,195,048 and R$2,475,175 as of December 31, 2018).
b) Available credit line
As of December 31, 2019, the subsidiary Rumo had available credit lines from BNDES, which were not used, in the total amount of R$ 1,946,195 (R$ 2,108,824 on December 31, 2018).
At December 31, 2019, the subsidiary Cosan S.A. had available credit lines from financial institutions AA, which were not used, in the total amount of R$ 501,000 in December 31, 2019 and 2018.
The use of these credit lines is subject to certain contractual conditions.
 
 
c) Financial covenants
Under the terms of the major borrowing facilities, the Company is required to comply with the following financial covenants:
 
Debt
  
Triggers
  
Ratios
Debenture 3
rd
Issue - Comgás
  
Net onerous debt / EBITDA subsidiary cannot exceed 4.00
  
1.43
 
  
Short-term indebtedness / Total indebtedness cannot exceed 0.6
  
0.16
Debenture 4
th
Issue - Comgás
  
Net onerous debt / EBITDA subsidiary cannot exceed 4.00
  
1.43
  
Short-term indebtedness / Total indebtedness cannot exceed 0.6
  
0.16
Debenture 5
th
Issue - Comgás
  
Net onerous debt / EBITDA subsidiary cannot exceed 4.00
  
1.43
Debenture 6
th
Issue - Comgás
  
Net onerous debt / EBITDA subsidiary cannot exceed 4.00
  
1.43
 
Debenture 7
th
Issue - Comgás
  
Net onerous debt / EBITDA subsidiary cannot exceed 4.00
  
1.43
Debenture 8
th
Issue - Comgás
  
Net onerous debt / EBITDA subsidiary cannot exceed 4.00
  
1.43
Debenture 2
nd
Issue - Cosan S.A.
  
Net debt / EBITDA subsidiary not higher than or equal to 4.5
  
1.8
Senior Notes Due 2024 – Cosan Limited
  
Pro forma(i) / EBITDA
pro forma
not higher than or equal to 3.5
  
2.3
Senior Notes Due 2024 – Rumo S.A.
  
Net debt / EBITDA subsidiary not higher than or equal to 4.0
  
2.2
Senior Notes Due 2025 - Rumo S.A.
  
Net debt / EBITDA subsidiary not higher than or equal to 4.0
  
2.2
Senior Notes 2027 - Cosan S.A.
  
Net debt (i)|(ii) / EBITDA subsidiary not higher than or equal to 3.5
  
1.8
Senior Notes Due 2029 – Cosan Limited
  
Pro forma(i) / EBITDA
pro forma
not higher than or equal to 3.5
  
2.3
BNDES – Rumo S.A.
  
Net Financial Debt / EBITDA subsidiary not higher than or equal 4.0x in December 2019
  
2.06
BNDES – Rumo S.A.
  
EBITDA subsidiary / Consolidated Financial Result not higher than or equal 1.40x in December 2019
  
2.68
 
(i)
Net debt and EBITDA
pro forma
, including joint ventures numbers;
(ii)
The effects of initial recognition of IFRS 16 are not part of triggers measures for financial covenants purposes.
For the other loans, borrowings and debentures of the Company there are no financial clauses.
At December 31, 2019, the Company and its subsidiaries were in compliance with all debt financial covenants.
d) Fair value and exposure to financial risk
The fair value of the loans is based on the discounted cash flow using its implicit discount rate. They are classified as a level 2 fair value in the hierarchy (Note 5.10) due to the use of unobservable data, including own credit risk.
The details of the Company’s exposure to risks arising from loans are shown in Note 21.
 
5.6
Leases
 
Accounting policy
 
Accounting policies applicable from January 1, 2019
 
At the beginning or in the modification of a contract, the Company assesses whether a contract is or contains a lease.
 
The lease liability is initially measured at the present value of lease payments that are not made on the start date, discounted at the interest rate implicit in the lease or, if that rate cannot be determined immediately, by the Company’s incremental loan rate. The Company generally uses its incremental loan rate as a discount rate.
 
Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments included in the measurement of the lease liability comprise the following:
 
i.   fixed payments, including fixed payments in essence;
 
ii.  variable lease payments that depend on index or rate, initially measured using the index or rate on the start date;
 
iii.   amounts expected to be paid by the lessee, in accordance with the residual value guarantees; and
 
iv.   the exercise price of the call option if the lessee is reasonably certain to exercise that option, and payment of fines for terminating the lease, if the lease term reflects the lessee exercising the option to terminate the lease.
 
To determine the incremental borrowing rate, the Company:
 
i.   where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received;
 
ii.  uses a
build-up
approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Company, which does not have recent third party financing; and
 
iii.   makes adjustments specific to the lease, e.g. term, country, currency and security.
 
The Company is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the
right-of-use
asset.
 
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
 
Payments associated with short-term leases of equipment and vehicles and all leases of
low-value
assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
Low-value
assets comprise IT equipment and small items of office furniture.
 
In determining the lease term, the Company considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
 
For leases of warehouses, retail stores and equipment, the following factors are normally the most relevant:
 
•  If there are significant penalties to terminate (or not extend), the group is typically reasonably certain to extend (or not terminate).
 
•  If any leasehold improvements are expected to have a significant remaining value, the Company is typically reasonably certain to extend (or not terminate).
 
•  Otherwise, the Company considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset.
 
Most extension options in offices and vehicles leases have not been included in the lease liability, because the Company could replace the assets without significant cost or business disruption.
 
Subsequent valuation of the lease liability is at amortized cost, using the effective interest method. It is remeasured when there is a change in future lease payments resulting from a change in index or rate, if there is a change in the amounts that are expected to be paid according to the residual value guarantee, if the Company changes its valuation, an option will be exercised purchase, extension or termination or if there is an essentially fixed revised lease payment.
 
When the lease liability is remeasured in this way, an adjustment corresponding to the carrying amount of the
right-of-use
asset is made or is recorded in the income statement if the carrying amount of the
right-of-use
asset has been reduced to zero.
 
Accounting policies applicable before January 1, 2019
 
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The classification of the lease as operational or financial is determined based on an evaluation of the terms and conditions of the contracts. The Company identified the cases in which it assumes substantially all the risks and benefits of ownership of the said assets, recording such cases as a financial lease.
 
a)  Finance leases
 
Leases of property, plant and equipment that transfer to the Company substantially all of the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset.
 
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
 
Assets held under other leases are classified as operating leases and are not recognized in the Company’s statement of financial position.
 
b)  Operating leases
 
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
 
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term to produce a constant periodic rate of interest on the remaining balance of the liability.
 
The amounts paid in advance by the Company are recorded as assets and allocated in income linearly during the term of the contract. The expenses incurred during the grace period are recorded in income and maintained as payables, being written off in proportion to the payment of current installments.
 
 
The balance sheet shows the following amounts relating to leases:
 
 
  
Finance
leases
 
 
Operating
leases
 
 
Total
 
At January 1, 2018
  
 
944,138
 
 
 
—  
 
 
 
944,138
 
Recognition of interest
  
 
144,763
 
 
 
—  
 
 
 
144,763
 
Payment of principal
  
 
(384,752
) 
 
 
—  
 
 
 
(384,752
) 
Payment of interest
  
 
(150,799
) 
 
 
—  
 
 
 
(150,799
) 
 
  
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
  
 
553,350
 
 
 
—  
 
 
 
553,350
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Initial recognition of IFRS 16
  
 
—  
 
 
 
1,469,959
 
 
 
1,469,959
 
At January 1, 2019
  
 
553,350
 
 
 
1,469,959
 
 
 
2,023,309
 
Additions
  
 
—  
 
 
 
2,777,275
 
 
 
2,777,275
 
Recognition of interest
  
 
81,982
 
 
 
430,982
 
 
 
512,964
 
Transfer of liabilities
(i)
  
 
—  
 
 
 
(117,428
) 
 
 
(117,428
) 
Payment of principal
  
 
(132,100
) 
 
 
(291,723
) 
 
 
(423,823
) 
Payment of interest
  
 
(73,641
) 
 
 
(175,684
) 
 
 
(249,325
) 
Contracts monetary correction
  
 
—  
 
 
 
71,916
 
 
 
71,916
 
 
  
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2019
  
 
429,591
 
 
 
4,165,297
 
 
 
4,594,888
 
 
  
 
 
 
 
 
 
 
 
 
 
 
Current
  
 
97,242
 
 
 
445,233
 
 
 
542,475
 
Non-current
  
 
332,349
 
 
 
3,720,064
 
 
 
4,052,413
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
429,591
 
 
 
4,165,297
 
 
 
4,594,888
 
 
 
(i)
Transfer of installments under judicial discussion to lease and concessions (Note 11).
The lease agreements have varying expirations, with last due to expire in June 2049. The amounts are adjusted annually for inflation rates
(IGP-M
or IPCA) or may incur interest based on the TJLP or CDI and some contracts have renewal or purchase options that were considered in determining the classification as lease.
The Company does not face a significant liquidity risk with regard to its lease liabilities. Lease liabilities are monitored within the Company’s treasury function.
In addition to the payment and appropriation of interest and exchange variation highlighted in the previous tables, the following impacts on income during the year ended December 31, 2019 were recorded for other lease agreements that were not included in the measurement of lease liabilities:
 
 
  
December 31,
2019
 
Variable lease payments not included in the measurement of lease liabilities
  
 
10,691
 
Expenses relating to short-term leases
  
 
37,143
 
Expenses relating to leases of low-value assets, excluding short-term leases of
low-value
assets
  
 
348
 
 
  
 
48,182
 
 
5.7
Trade payables
 
Accounting policy
 
Trade payables are unsecured and are usually paid within 30 days of recognition.
The carrying amounts of trade and other payables are the same as their fair values, due to their short-term nature.
 
 
  
December 31,
2019
 
  
December 31,
2018
 
Materials and service suppliers
  
 
1,356,978
 
  
 
1,073,227
 
Natural gas suppliers
  
 
815,798
 
  
 
838,105
 
Fuels and lubricants suppliers
  
 
370
 
  
 
1,367
 
Other
  
 
17,118
 
  
 
11,221
 
 
  
 
 
 
  
 
 
 
 
  
2,190,264
 
  
1,923,920
 
 
  
 
 
 
  
 
 
 
Comgás, a subsidiary of the Company, has entered into natural gas supply contracts with Petróleo Brasileiro S.A. (“Petrobras”) and Gas Brasiliano Distribuidora S.A. (“Gas Brasiliano”) which contain the following conditions:
 
 
•
 
Contract with Petrobras entered into in January 2008 and due to expire in December 2021 providing for the delivery of 5.22 million m³/day of Brazilian-sourced natural gas (“Firme Nacional”).
 
 
•
 
Contract with Petrobras started in January 2020, effective until December 2023, and with a daily contractual amount of national gas of 4.62 million m³/day, called NMG.
 
 
•
 
Contract with Petrobras entered into in June 1999 and due to expire in June 2021 providing for the delivery of 8.10 million m³/day of Bolivian-sourced natural gas (“TCQ”).
 
 
•
 
Gas contract entered into as part of the Priority Thermoelectric Program (“PTP”) with Petrobras for the supply of 0.3 million m³/day to Ingredion Brasil Ingredientes Industriais Ltda., due to expire on March 31, 2023.
 
 
•
 
Contract with Gas Brasiliano entered into in April 2008 and due to expire on March 26, 2019 with a contracted average monthly volume of 0.760 million m³ and contracted annual volume of 9.12 million m³.
The contracts for the supply of natural gas, TCQ, have the price composed of two installments (molecule and transport): one indexed to a basket of fuel oils in the international market and adjusted quarterly; and another adjusted annually based on local inflation. The price of the NMG contract is indexed to Brent, with a quarterly adjustment, and the transport portion follows the same rationale as the TCQ contract, with an annual adjustment based on the
IGP-M.
 
5.8
Preferred shareholders payable in subsidiaries
 
Accounting policy
 
Financial liabilities are measured at amortized cost, taking into account the outstanding balance of the initial contribution, increased by interest on the principal, less dividends paid.
On June 27, 2014, the subsidiary Cosan S.A. performed a corporate reorganization and created the subsidiary Cosan Investimentos e Participações S.A. (“CIP”), to optimize its capital structure and improve its debt profile. A contribution of R$ 2,000,000 was received through two
non-voting
preferred shares—Fundo de Investimentos em Participações Multisetoriais Plus II (“FIP Multisetorial”) and Razac Fundo de Investimentos em Participações (“FIP Razac”). CIP received from Cosan a 50% interest in the joint ventures, Raízen Energia and Raízen Combustíveis, and the commitments contributed were debentures and working capital financing.
The shareholders’ agreement has exit clauses, in which the Company may repurchase these interests and for the reason was recorded a financial liability and amount of R$2,000,000 plus interest minus dividends from Joint Ventures considered as repayments.
The Company will be required to pay investors if they exercise the option to sell the investment in 2021.
Below the movement of the obligation with preferred shareholders:
 
At January 1, 2018
  
 
1,442,680
 
Dividend distribution
  
 
(422,639
) 
Monetary variation
  
 
77,449
 
 
  
 
 
 
At December 31, 2018
  
 
1,097,490
 
Dividend distribution
  
 
(535,832
) 
Monetary variation
  
 
49,879
 
 
  
 
 
 
At December 31, 2019
  
 
611,537
 
 
  
 
 
 
 
5.9
Derivative financial instruments
 
Accounting policy
 
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting exercise. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates certain derivatives as either:
 
i.   hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedges); or
 
ii.  hedges of a particular risk associated with the cash flows of recognized assets and liabilities and highly probable forecast transactions (cash flow hedges).
 
At inception of the hedge relationship, the Company documents the economic relationship between hedging instruments and hedged items including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The Company documents its risk management objective and strategy for undertaking its hedge transactions. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognized immediately in profit or loss and are included in other gains / (losses).
 
The fair values of derivative financial instruments designated in hedge relationships are disclosed below. The full fair value of a hedging derivative is classified as a
non-current
asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
 
The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 60% to 140%.
To protect the Company’s exposure to risk were are using observable data such as quoted prices in active markets, or discounted cash flow based on market curves, and the consolidated data are presented below:
 
 
  
Notional
 
  
Fair value
 
 
  
December 31,
2019
 
  
December 31,
2018
 
  
December 31,
2019
 
 
December 31,
2018
 
Exchange rate derivatives
  
   
  
   
  
   
 
   
Forward agreements
  
 
1,542,535
 
  
 
907,832
 
  
 
(30,784
) 
 
 
1,719
 
Interest rate and exchange rate risk
  
   
  
   
  
   
 
   
Swap agreements (interest rate)
  
 
2,633,796
 
  
 
2,114,926
 
  
 
692,642
 
 
 
394,497
 
Swap agreements (exchange and interest rate)
  
 
10,888,474
 
  
 
11,896,908
 
  
 
3,081,501
 
 
 
2,126,927
 
 
  
 
13,522,270
 
  
 
14,011,834
 
  
 
3,774,143
 
 
 
2,521,424
 
Total financial instruments
  
   
  
   
  
 
3,743,359
 
 
 
2,523,143
 
 
  
   
  
   
  
   
 
   
Assets
  
   
  
   
  
 
3,824,410
 
 
 
2,548,857
 
Liabilities
  
   
  
   
  
 
(81,051
) 
 
 
(25,714
) 
Derivatives are only used for economic hedging purposes and not as speculative investments.
Currently the Company has adopted the hedge accounting of fair value for some its operations that both the hedging instruments and the hedged items are accounted for at fair value through profit or loss.
 
The effects of the foreign currency-related hedging instruments and interest rate swaps on the Company’s financial position and performance are as follows:
 
 
  
 
 
 
Book value
 
 
Accumulated fair value
adjustment
 
 
  
Notional
 
 
December 31,
2019
 
 
December 31,
2018
 
 
December 31,
2019
 
 
December 31,
2018
 
Loans, financing and debentures
 
Designated items
  
   
 
   
 
   
 
   
 
   
Debenture 3rd issue—3rd series (Comgás)
  
 
79,299
 
 
 
(108,133
) 
 
 
(203,613
) 
 
 
(14,822
) 
 
 
(34,040
) 
Debenture 5th issue—single series (Comgás)
  
 
684,501
 
 
 
(859,996
) 
 
 
(767,638
) 
 
 
(90,110
) 
 
 
(80,532
) 
Senior notes 2023 (Cosan S.A.)
  
 
403,070
 
 
 
(438,985
) 
 
 
(409,590
) 
 
 
(99,541
) 
 
 
(193,295
) 
Senior notes 2024 (Rumo S.A.)
  
 
3,023,025
 
 
 
(3,318,895
) 
 
 
(3,061,566
) 
 
 
(471,159
) 
 
 
(689,141
) 
Senior notes 2025 (Rumo S.A.)
  
 
2,015,350
 
 
 
(2,182,089
) 
 
 
(1,997,394
) 
 
 
(295,208
) 
 
 
(447,674
) 
Senior notes 2024 (Cosan)
  
 
806,140
 
 
 
(903,636
) 
 
 
(2,022,793
) 
 
 
(865,908
) 
 
 
(1,541,898
) 
Total debt
  
 
7,011,385
 
 
 
(7,811,734
) 
 
 
(8,462,594
) 
 
 
(1,836,748
) 
 
 
(2,986,580
) 
 
Derivative financial instruments
 
Hedge instruments
  
   
 
   
 
   
 
   
 
   
Debenture 3rd issue swaps—3rd series (Comgás)
  
 
(79,299
) 
 
 
24,842
 
 
 
41,286
 
 
 
5,510
 
 
 
11,488
 
Debenture 5th issue swaps—single series (Comgás)
  
 
(684,501
) 
 
 
175,262
 
 
 
86,679
 
 
 
88,583
 
 
 
42,248
 
Senior swaps notes 2023 (Cosan S.A.)
  
 
(403,070
) 
 
 
418,340
 
 
 
311,937
 
 
 
128,357
 
 
 
121,350
 
Senior swaps notes 2024 (Rumo S.A.)
  
 
(3,023,025
) 
 
 
989,022
 
 
 
486,944
 
 
 
340,264
 
 
 
486,944
 
Senior swaps notes 2025 (Rumo S.A.)
  
 
(2,015,350
) 
 
 
479,481
 
 
 
243,790
 
 
 
201,679
 
 
 
243,790
 
Senior swaps notes 2024 (Cosan)
  
 
(806,140)
 
 
 
2,156,068
 
 
 
1,344,589
 
 
 
805,312
 
 
 
988,806
 
Derivative total
  
 
(7,011,385)
 
 
 
4,243,015
 
 
 
2,515,225
 
 
 
1,569,705
 
 
 
1,894,626
 
Total
  
 
—  
 
 
 
(3,568,719
) 
 
 
(5,947,369
) 
 
 
(267,043
) 
 
 
(1,091,954
) 
 
There is an economic relationship between the hedged item and the hedge instrument, since the terms of the interest rate and foreign exchange swap correspond to the terms of the fixed rate loan, that is, notional amount, term and payment. The Company established a 1:1 hedge ratio for hedge relationships, since the underlying risk of the interest rate and exchange rate swap is identical to the hedged risk component. To test the effectiveness of the hedge, the Company uses the discounted cash flow method and compares the changes in the fair value of the hedge instrument with the changes in the fair value of the hedged item attributable to the hedged risk.
 
5.10
Recognized fair value measurements
 
Accounting policy
 
When the fair value of financial assets and liabilities cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but when this is not feasible, a degree of judgment is required in determining fair values. Judgment is required in the determination of inputs such as liquidity risk, credit risk and volatility. Changes in these variables could affect the reported fair value of financial instruments.
 
The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the Board.
 
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the treasury assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of Company’s policy, including the level in the fair value hierarchy in which the valuations should be classified.
 
Significant valuation issues are reported to the Board. When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
 
•  Level 1: inputs represent unadjusted quoted prices for identical instruments exchanged in active markets.
 
•  Level 2: inputs include directly or indirectly observable inputs (other than Level 1inputs) such as quoted prices for similar financial instruments exchanged in active markets, quoted prices for identical or similar financial instruments exchanged in inactive markets and other market observable inputs. The fair value of the majority of the company’s investments in securities, derivative contracts and bonds.
 
•  Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Management is required to use its own assumptions regarding unobservable inputs as there is little, if any, market activity in these instruments or related observable inputs that can be corroborated at the measurement date.
 
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
 
Specific valuation techniques used to value financial instruments include:
 
i.   the use of quoted market prices;
 
ii.  the fair value is calculated as the present value of the estimated future cash flows. Estimates of future floating-rate cash flows are based on quoted swap rates, futures prices and interbank borrowing rates. Estimated cash flows are discounted using a yield curve constructed from similar sources and which reflects the relevant benchmark interbank rate used by market participants for this purpose when pricing interest rate swaps. The fair value estimate is subject to a credit risk adjustment that reflects the credit risk of the Company and of the counterparty; this is calculated based on credit spreads derived from current credit default swap or bond prices; and
 
iii.   for other financial instruments we analyze discounted cash flow.
 
The market value of the Senior Notes are listed on the Luxembourg Stock Exchange (Note 5.5) is based on their quoted market price are as follows:
 
 
  
Company
  
December 31, 2019
  
December 31, 2018
Senior notes 2023
  
Cosan S.A
  
101.46%
  
96.86%
Senior notes 2024
  
Rumo S.A
  
107.90%
  
104.27%
Senior notes 2024
  
Cosan Limited
  
105.18%
  
98.55%
Senior notes 2025
  
Rumo S.A.
  
107.27%
  
94.94%
Senior notes 2027
  
Cosan S.A.
  
109.18%
  
101.15%
Senior notes 2029
  
Cosan Limited
  
104.48%
  
—  
Perpetual notes
  
Cosan S.A.
  
104.06%
  
101.21%
All of the resulting fair value estimates are included in level 2 except for a contingent consideration payable where the fair values have been determined based on present values and the discount rates used were adjusted for counterparty or own credit risk.
 
The carrying amounts and fair value of financial assets and financial liabilities are as follows:
 
 
  
 
 
  
 
 
 
 
 
 
Assets and liabilities measured at fair value
 
 
  
 
 
  
Carrying amount
 
 
December 31, 2019
 
 
 
 
 
  
Note
 
  
December 31,
2019
 
 
December 31,
2018
 
 
Level 1
 
  
Level 2
 
 
Level 3
 
 
Level 2
 
 
Level 3
 
Assets
  
   
  
   
 
   
 
   
  
   
 
   
 
   
 
   
Investment funds
  
 
5.1
 
  
 
3,279,170
 
 
 
1,600,590
 
 
 
—  
 
  
 
3,279,170
 
 
 
—  
 
 
 
1,600,590
 
 
 
—  
 
Marketable securities
  
 
5.2
 
  
 
3,115,503
 
 
 
4,202,835
 
 
 
—  
 
  
 
3,115,503
 
 
 
—  
 
 
 
4,202,835
 
 
 
—  
 
Other financial assets
  
   
  
 
134,637
 
 
 
—  
 
 
 
134,637
 
  
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
Derivate financial instruments
  
 
5.9
 
  
 
3,824,410
 
 
 
2,548,857
 
 
 
—  
 
  
 
3,824,410
 
 
 
—  
 
 
 
2,548,857
 
 
 
—  
 
 
  
   
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
  
   
  
 
10,353,720
 
 
 
8,352,282
 
 
 
134,637
 
  
 
10,219,083
 
 
 
—  
 
 
 
8,352,282
 
 
 
—  
 
 
  
   
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
  
   
  
   
 
   
 
   
  
   
 
   
 
   
 
   
Loans, borrowings and debentures
  
   
  
 
(16,370,166
) 
 
 
(12,569,126
) 
 
 
—  
 
  
 
(16,245,132
) 
 
 
—  
 
 
 
(12,569,126
) 
 
 
—  
 
Contingent consideration
(i)
  
   
  
 
(184,370
) 
 
 
(202,365
) 
 
 
—  
 
  
 
(158,251
) 
 
 
(26,119
) 
 
 
(129,013
) 
 
 
(73,352
) 
Derivative financial instruments
  
 
5.9
 
  
 
(81,051
) 
 
 
(25,714
) 
 
 
—  
 
  
 
(81,051
) 
 
 
—  
 
 
 
(25,714
) 
 
 
—  
 
 
  
   
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
  
   
  
 
(16,635,587
) 
 
 
(12,797,205
) 
 
 
—  
 
  
 
(16,484,434
) 
 
 
(26,119
) 
 
 
(12,723,853
) 
 
 
(73,352
) 
 
  
   
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(i)
Composed of: (i) consideration payable related to the intangible asset of the contract with ExxonMobil in the amount of R$158,261 (level 2); and (ii) a variable contingent consideration payable of R$26,119 (level 3), which considers the present value of the expected payment discounted, using a risk-adjusted discount rate. The expected payment is determined considering the most likely scenario of revenues and projected EBITDA, which in turn determine the cash generation capacity. Significant unobservable inputs are the forecast annual revenue growth rate, EBITDA margin forecast and the 9.8% risk-adjusted discount rate.
The table below shows the movements in the items of level 3:
 
At January 1, 2018
  
 
116,134
 
Addition
  
 
4,242
 
Principal amortization
  
 
(61,847
) 
Interest and exchange variation
  
 
14,823
 
 
  
 
 
 
At December 31, 2018
  
 
73,352
 
Addition
  
 
21,206
 
Principal amortization
  
 
(63,686
) 
Interest and exchange variation
  
 
(4,753
) 
 
  
 
 
 
At December 31, 2019
  
 
26,119