Docoh
Loading...

CSAN Cosan

Filed: 30 Apr 21, 3:18pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

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

OR

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020

OR

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

OR

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

 

Commission file number: 001-40155

COSAN S.A.
(Exact name of Registrant as specified in its charter)

COSAN INC.
(Translation of Registrant’s name into English)

Federal Republic of Brazil
(Jurisdiction of incorporation or organization)

Av. Brigadeiro Faria Lima, 4,100 – 16th floor
São Paulo – SP, 04538-132, Brazil
+55 11 3897-9797
(Address of principal executive offices)

Marcelo Eduardo Martins

+55 11 3897-9797

ri@cosan.com

Av. Brigadeiro Faria Lima, 4,100 – 16th floor

São Paulo – SP, 04538-132, Brazil

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of each class

Trading Symbol

Name of each exchange on which registered

American depositary shares, each representing one common share, no par value 

CSAN

New York Stock Exchange

Common shares, no par value*

 

New York Stock Exchange*

* Not for trading purposes, but only in connection with the listing of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

 





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

None

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

None

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

The number of outstanding shares as of December 31, 2020 was:

Title of Class

Number of Shares Outstanding

Common shares, no par value

382,460,962

 

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

Yes  No

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

Yes  No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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

Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  Accelerated Filer  Non-accelerated Filer  Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the

effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.

7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

 

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

 U.S. GAAP

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

 Other

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

Item 17  Item 18

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

Yes  No

 





TABLE OF CONTENTSPage
Presentation of Financial and Other Informationiii
Forward-Looking Statementsviii
PART I1
Item 1. Identity of Directors, Senior Management and Advisers1
Item 2. Offer Statistics and Expected Timetable1
Item 3. Key Information1
A. Selected Financial Data1
B. Capitalization and Indebtedness5
C. Reasons for the Offer and Use of Proceeds5
D. Risk Factors5
Item 4. Information on the Company61
A. History and Development of the Company61
B. Business Overview70
C. Organizational Structure94
D. Property, Plant and Equipment95
E. Supplemental Information About Joint Venture97
Item 4A. Unresolved Staff Comments107
Item 5. Operating and Financial Review and Prospects107
A. Operating Results115
B. Liquidity and Capital Resources129
C. Research and Development, Patents, Licenses, etc.133
D. Trend Information133
E. Off-Balance Sheet Arrangements134
F. Tabular Disclosure of Contractual Obligations135
G. Safe Harbor136
Item 6. Directors, Senior Management and Employees136
A. Directors and Senior Management136
B. Compensation144
C. Summary of Significant Differences of Corporate Governance Practices144
D. Employees146
E. Share Ownership146
Item 7. Major Shareholders and Related Party Transactions149
A. Major Shareholders149
B. Related Party Transactions155
C. Interests of Experts and Counsel155
Item 8. Financial Information156
A. Consolidated Statements and Other Financial Information156
B. Significant Changes168
Item 9. The Offer and Listing169
A. Offer and Listing Details169
B. Plan of Distribution169
C. Markets169
D. Selling Shareholders171
E. Dilution171
F. Expenses of the Issue171



We present our consolidated financial statements in accordance with International Financial Reporting Standards, or “IFRS,” as issued by the International Accounting Standards Board, or “IASB,” for Securities and Exchange Commission, or “SEC,” filings.  

The consolidated financial statements are presented in Brazilian reais, the functional currency of Cosan S.A., or “Cosan” or “Cosan S.A.” and is the currency of the primary economic environment in which Cosan and its subsidiaries and jointly-controlled entities, located in Brazil, operate and generate and expend cash. The functional currency for the subsidiaries located outside Brazil is the U.S. dollar, British pound or the Euro. Cosan S.A. and its subsidiaries are collectively referred to as the “Company,” “we,” “us” and “our.”  

Financial Statements

We have included in this annual report the consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 of Cosan Limited, or “Cosan Limited,” the former parent company of Cosan and Cosan Logística S.A., or “Cosan Logística.”

We have not included in this annual report financial statements of Cosan S.A. for any period. Prior to the Merger (as defined below), Cosan Limited was the parent company of the group composed of Cosan Limited, Cosan S.A., Cosan Logística and their respective subsidiaries, or the “Cosan Group.” The combined effect of the exchange of shares in Cosan Limited for shares in Cosan S.A. and of Cosan S.A. becoming the sole holding company of our group as a result of Merger is that, in terms of financial presentation, it is as if Cosan Limited changed its name to Cosan S.A. with no further changes other than certain non-controlling interest amounts. Since the Merger was only completed on January 22, 2021, for purposes of this annual report for the fiscal year ended December 31, 2020, we believe that the presentation of the consolidated financial statements of Cosan Limited, as the predecessor entity of the Cosan Group, provide investors the necessary financial information regarding the Cosan Group both before and after the Merger. Accordingly, we have only included in this annual report the consolidated financial statements of Cosan Limited and its subsidiaries, as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 and consolidated financial information relating to Cosan Limited and its subsidiaries as of and for the year ended December 31, 2018 as this consolidated financial information reflects the results of operation and financial position of the Cosan Group for all periods prior to the Merger and will be the historical comparative consolidated financial information of Cosan S.A. going forward.

All references herein to “our financial statements,” “our consolidated financial statements,” and “our audited consolidated financial statements” are to Cosan Limited’s consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 included elsewhere in this annual report.

Certain Corporate Events

Our Corporate Reorganization

On January 22, 2021, the shareholders of Cosan Limited (the former parent company of Cosan and Cosan Logística) and the shareholders of Cosan and Cosan Logística approved an intra-group restructuring, announced on July 3, 2020 by Cosan, Cosan Limited and Cosan Logística, consisting of a merger of companies under common control, as provided by art. 264, paragraph 4, of Brazilian Law No. 6,404, pursuant to which Cosan Limited and Cosan Logística were merged into Cosan, or the “Merger.”

Prior to the Merger, the Cosan Limited group formed an energy and logistics conglomerate which, when taken together with Raízen, its Joint Venture (as defined further below) entities formed with Shell was active in fuel distribution, sugar, ethanol and bioenergy production, natural gas distribution, electricity trading, lubricants and railway-based logistics. Cosan Limited was a “foreign private issuer” in accordance with Rule 405 of the Securities Act. Cosan Limited’s class A common shares were registered with the SEC and listed on the NYSE under the ticker symbol “CZZ.” Cosan, Cosan Logística and their respective subsidiaries were subsidiaries of Cosan Limited prior to the Merger. The Cosan S.A. group was active in fuel distribution, sugar, ethanol and bioenergy production (through Raízen), natural gas distribution and lubricants. The Cosan Logística group was active in railway-based logistics, through Rumo S.A., its only subsidiary. Both Cosan and Cosan Logística were also publicly-traded on the B3 on the special New Market (Novo Mercado) segment under the ticker symbols “CSAN3” and “RLOG3” respectively.

As part of an effort to streamline our operations, we carried out the Merger to enhance our corporate structure by making Cosan the sole holding company of our group. The Merger simplified our corporate structure, unifying and consolidating the Cosan, Cosan Limited and Cosan Logística free floats, in order to increase share liquidity, and unlock value within our group’s portfolio. As part of the Merger, each of Cosan Limited and Cosan Logística were merged into Cosan. Following the completion of the Merger, the outstanding shares of Cosan are now directly owned by all shareholders of Cosan Limited, Cosan and Cosan Logística as of immediately prior to the completion of the Merger. As part of the Merger, Cosan issued American Depositary Shares, or ADSs, listed on the NYSE or common shares (as defined further below) listed under the Novo Mercado segment of the B3 to the shareholders of Cosan Limited immediately prior to the approval of the Merger. As for Cosan Logística, upon completion of the Merger, holders of Cosan Logística shares immediately prior to the approval of the Merger became owners of Cosan common shares.


As a result, Cosan is now the sole holding company of the Cosan Group, which continues the former activities of the Cosan S.A. and Cosan Logística groups, namely fuel distribution, sugar, ethanol and bioenergy production (through Raízen), natural gas distribution, lubricants and railway-based logistics. In addition to having ADSs listed on the NYSE under the symbol “CSAN,” Cosan remains publicly-traded on the B3 on the special New Market (Novo Mercado) segment under the ticker symbol “CSAN3.”

The following charts set forth simplified representations of our operating structure prior to and following the Merger.

SIMPLIFIED OPERATING STRUCTURE
PRIOR TO THE MERGER


Graphics

SIMPLIFIED OPERATING STRUCTURE
AFTER THE MERGER

Graphics

Other Events

On June 1, 2011, we and Shell Brazil Holdings B.V., or “Shell,” formed two joint ventures, or the “Joint Venture,” for a combined 50/50 investment, under the names Raízen Combustíveis S.A., or “Raízen Combustíveis” and Raízen Energia e Participações S.A. (currently Raízen Energia S.A.), or “Raízen Energia,” collectively referred to as “Raízen.” Our management evaluates the results of Raízen Energia and Raízen Combustíveis on the same basis as they are evaluated by the management of Raízen, which is on a 100% basis. Accordingly, unless the context requires otherwise, operational information pertaining to Raízen Energia and Raízen Combustíveis included in this annual report refers to 100% of the operations of these businesses. Upon the application of IFRS 11 Joint Arrangements, or “IFRS 11,” the Company retrospectively changed the accounting for its investments in Raízen Combustíveis and Raízen Energia, classifying them as investments in joint ventures. As disclosed in “Item 5. Operating and Financial Review and Prospects,” following the adoption of IFRS 11, starting in April 2013. We no longer proportionally consolidates Raízen Energia and Raízen Combustíveis in our consolidated statement of financial position, statement of profit or loss and comprehensive income and statement of cash flows, and the results of these investments have been presented using the equity method of accounting in accordance with IAS 28R—”Investments in Associates and Joint Ventures.” For additional information, see note 9 to our audited consolidated financial statements attached hereto.


On April 1, 2015, we, through our then subsidiary Rumo Logística Operadora Multimodal S.A. or “Rumo Logística,” acquired 100% of the common shares of ALL – América Latina Logística S.A., or “ALL.” Accordingly, we began consolidating ALL’s results within our own results of operations as from that date.

On September 30, 2016, we entered into a Share Purchase Agreement with Mansilla Participações Ltda. (a vehicle of TIAA Teachers Insurance and Annuity Association of America), another shareholder in Radar Propriedades Agrícolas S.A. and Radar II Propriedades Agrícolas S.A., or “Radar and Radar II,” through which we sold part of our shares in Radar and Radar II for an amount of R$1,053.8 million. The consideration was received on November 4, 2016. As a result of this transaction, we reduced our equity interest in Radar and Radar II from 37.7% to 3.0%. We retain significant influence over Radar and Radar II through a shareholders’ agreement as described in “Item 7. Major Shareholders and Related Party Transactions.” The criteria used to measure the remaining stake of the investment was the equity method, in accordance with IAS 28, and it is not consolidated due to the limitation on our decision-making power set forth the shareholders’ agreement.

On October 8, 2016, ALL – América Latina Logística S.A. changed its corporate name to Rumo S.A. or “Rumo.” Subsequently, on December 31, 2016, Rumo Logística was merged into its wholly-owned subsidiary Rumo, as a result of which Rumo S.A. is the successor entity to Rumo Logística.

In 2016, amendments to IAS 16 and IAS 41 changed the accounting requirements for biological assets that fall within the definition of “bearer plants.” These amendments substantially impact Raízen Energia, and the following line items: “Investments in Joint Ventures” in our statement of financial position and “Equity in Earnings of Joint Ventures” in our statement statements of profit or loss.


      On April 24, 2018, Raízen Combustíveis and its subsidiary Raízen Argentina Holdings S.A.U. entered into a contract for the acquisition of Shell’s downstream business in Argentina. Pursuant to the above-mentioned agreement, Raízen Argentina Holdings S.A.U. acquired 100% of the outstanding share capital of Shell Compañía Argentina de Petróleo S.A. and Energina Compañía Argentina de Petróleo S.A., or “Raízen Argentina,” for an amount of U.S.$916 million. The acquisition was completed on October 1, 2018.

      On December 21, 2018, Cosan Lubes Investments Limited, or “CLI,” and CVC Fund VII, or “CVC,” entered into an investment agreement pursuant to which CVC subscribed for shares in Moove’s capital in a total amount of R$588 million (which is equivalent to 30% of Moove’s capital). Considering all conditions precedent
provided in the investment agreement were satisfied, the transaction was concluded on March 29, 2019. As a result and pursuant to the terms of the investment agreement, Moove received R$454 million at the closing of the transaction, R$65 million on March 31, 2020 and will receive R$64 million
plus monetary variation in 2021, due to the satisfaction of conditions precedent on December 31, 2019. 

On November 1, 2019, Raízen Combustíveis and FEMSA Comercio, S.A. de C.V., or FEMSA Comercio, formed a joint venture in the convenience and proximity store business, called Rede Integrada de Lojas de Convenências e Proximidade S.A., formerly known as Raízen Conveniências S.A. The enterprise value was considered to be R$1,122 million, with an effect on interest in earnings of joint venture of R$529 million, resulting from gains related to dilution of shares, sale of shares and the fair value in the formation of this joint venture. The transaction was concluded on November 1, 2019, following which Raízen Combustíveis became the holder of 50% of Raízen Conveniências e Proximidade S.A.’s capital stock.

On December 2, 2019, we sold our shares in Cosan Biomassa S.A. to Raízen Energia. The comparative consolidated statement of profit or loss and statements of cash flows have been restated to show the discontinued operation separately from continuing operations.

On January 14, 2020, we contributed to the share capital of our wholly owned subsidiary Compass Gás e Energia S.A., or “Compass Gás e Energia,” formerly known as Distribuidora de Gás Participações S.A., the totality of the shares we held in Comgás (i.e., 103,699,333 common shares and 27,682,044 preferred shares), equivalent to 99.15% of the total share capital of Comgás, for an amount of R$2,862 million. As the parties to the transaction are under common control transaction, there is no effect on the consolidated financial statements. The investment in Comgás was derecognized by us and the investment in Compass Gás e Energia for the same amount was recognized.

On January 30, 2020, we acquired, through our subsidiary Compass Comercialização S.A., or “Compass Comercialização,” formerly known as Comercializadora de Gás S.A., control of Compass Comercializadora de Energia Ltda., or “Compass Comercializadora,” Compass Geração Ltda., or “Compass Geração,” and Compass Energia Ltda., or “Compass Energia,” jointly referred to as “Compass Trading,” for an amount equivalent to R$95 million. The purpose of the investment is to enter the electricity trading business. On March 9, 2020, we announced the creation of “Compass Gás e Energia,” our new gas and power business segment, referred to in this annual report as our “Gas and Energy” segment. Compass will integrate the operations of Comgás, Compass Comercialização, TRSP — Terminal de Regaseificação de GNL de São Paulo S.A., or “TRSP,” Rota 4 Participações S.A., or “Rota 4,” Compass Comercializadora, Compass Geração and Compass Energia. On November 30, 2020, our subsidiary Compass Comercializadora merged into Compass Comercialização, with Compass Comercialização being the surviving entity.  Our new Natural Gas and Energy segment is the vehicle through which we will develop our activities in the gas and power market.

Our Gas and Energy segment was created in March 2020. Prior to that, our natural gas distribution operations were concentrated in our Comgás segment, which was renamed Gas and Energy segment. Our financial condition for the historical periods prior to January 1, 2020 discussed in this presentation do not reflect the creation of Compass, which was completed in 2020. For additional information, see “Item 4. Information on the Company—A. History and Development of the Company.” 


On January 22, 2021, the shareholders of Cosan Limited (the former parent company of Cosan and Cosan Logística) and the shareholders of Cosan and Cosan Logística approved an intra-group restructuring, announced on July 3, 2020 by Cosan, Cosan Limited and Cosan Logística, consisting of a merger of companies under common control, as provided by art. 264, paragraph 4, of Brazilian Law No. 6,404, pursuant to which Cosan Limited and Cosan Logística were merged into Cosan, as further described under “—Our Corporate Reorganization.”

On February 8, 2021, Raízen entered into an acquisition agreement with Biosev S.A., or “Biosev,” and Hédera Investimentos e Participações S.A., or “Hédera,” in its capacity as the controlling shareholder of Biosev, among other parties, pursuant to which Raízen has agreed, on the terms and subject to the conditions set forth therein, to acquire up to 100% of the equity of Biosev. The acquisition will involve an exchange of shares, with Raízen issuing preferred shares amount to 3.5% of its share capital and also paid an amount of R$3,600 million in cash to refinance part of Hédera’s debt. The transaction also involves an issuance of redeemable shares equivalent to 1.49% of Raízen’s share capital at a symbolic value. On March 1, 2021, by the Brazilian Antitrust Authority (Conselho Administrativo de Defesa Econômica), or “CADE,” approved the transaction. The consummation of the acquisition is subject to the satisfaction of certain conditions precedent set forth in the acquisition agreement. It is expected that, following the acquisition, the shareholding structures of Raízen and Biosev will be as follows:

Graphics

On April 30, 2021 at our ordinary general meeting, our shareholders approved a share split at a ratio of one to four, whereby our 468,517,733 common shares were split into 1,874,070,932 common shares.

Special Note Regarding Non-GAAP Financial Measures

This annual report presents our Net debt, which is a non-GAAP financial measure. A non-GAAP financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure.

We calculate Net debt as current and non-current loans, borrowings and debentures plus preferred shareholders payable in subsidiaries plus cash and cash equivalents plus marketable securities plus derivatives on debt. Our calculation of Net debt may differ from the calculation of similarly titled measures used by other companies.

Our management believes that disclosure of Net Debt is useful to potential investors as it helps to give them a clearer understanding of our financial liquidity. Net Debt is also used to calculate certain leverage ratios. However, Net Debt is not a measure under IFRS and should not be considered as a substitute for measures of indebtedness determined in accordance with IFRS. For a reconciliation of Net debt to the most directly comparable IFRS measure, see “Item 3. Key Information—A. Selected Financial Data.”


Market Data

We obtained market and competitive position data, including market forecasts, used throughout this annual report from market research, publicly available information and industry publications, as well as internal surveys. We include data from reports prepared by LMC International Ltd., the Central Bank of Brazil (Banco Central do Brasil), or the “Brazilian Central Bank,” the Sugarcane Agroindustry Association of the state of São Paulo (União da Agroindústria Canavieira de São Paulo), or “UNICA,” the Brazilian Ministry of Agriculture, Livestock, and Supply (Ministério da Agricultura, Pecuária e Abastecimento), or “MAPA,” the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística), or “IBGE,” the Brazilian Ministry of Development, Industry and Foreign Trade (Ministério do Desenvolvimento e do Comércio Exterior), or “MDIC,” the Brazilian Ministry of Infrastructure (Ministério da Infraestrutura), or “MI,” the Food and Agriculture Organization of the United Nations, or “FAO,” the National Traffic Agency (Departamento Nacional de Trânsito—DENATRAN), the Brazilian Association of Vehicle Manufactures (Associação Nacional dos Fabricantes de Veículos Automotores—ANFAVEA), Datagro Publicações Ltda., F.O. Licht, Czarnikow, Apoio e Vendas Procana Comunicações Ltda., the São Paulo Stock, Commodities and Futures Exchange (B3 S.A. – Brasil, Bolsa, Balcão), or “B3,” the Brazilian Securities Commission (Comissão de Valores Mobiliários), or “CVM,” the International Sugar Organization, the Brazilian National Economic and Social Development Bank (Banco Nacional de Desenvolvimento Econômico e Social), or “BNDES,” the New York Board of Trade, or “NYBOT,” the New York Stock Exchange, or “NYSE,” the Brazilian Agricultural Research Corporation (Empresa Brasileira de Pesquisa Agropecuária), or “Embrapa,” the Brazilian Secretariat for Foreign Trade (Secretaria de Comércio Exterior), or “Secex,” the National Supply Company (Companhia Nacional de Abastecimento), or “Conab,” the United States Department of Agriculture, or “USDA,” the London Stock Exchange, the National Agency of Petroleum, Natural Gas and Biofuels (ANP - Agência Nacional do Petróleo, Gás Natural e Biocombustíveis), or “ANP,” the CADE, the National Union of Distributors of Fuels and Lubricants (Sindicato Nacional das Empresas Distribuidoras de Combustíveis e de Lubrificantes), or “Sindicom,” the Sanitation and Energy Regulatory Agency for the state of São Paulo (Agência Reguladora de Energia de São Paulo), or “ARSESP,” the Brazilian Gas Distributors Association (Associação Brasileira das Empresas Distribuidoras de Gás), or “ABEGÁS,” the Agriculture School of the University of São Paulo (Escola Superior de Agricultura Luiz de Queiroz), or “ESALQ,” the National Waterway Transportation Agency (Agência Nacional de Transportes Aquaviários), or “ANTAQ,” the Brazilian Transportation Authority (Agência Nacional de Transporte Terrestre), or “ANTT,” Estação da Luz Participações, or “EDLP,” the National Electric Energy Agency (Agência Nacional de Energia Elétrica), or “ANEEL,” and the Chamber of Electric Energy Commercialization (Câmara de Comercialização de Energia Elétrica), or “CCEE.” We believe that all market data in this annual report is reliable, accurate and complete.

Terms Used in This Annual Report

In this annual report, we present information in gallons, liters and cubic meters (m³). In addition, we also present information in tons. In this annual report, references to “ton” or “tonne” refer to the metric tonne, which is equal to 1,000 kilograms.

All references in this annual report to “TSR” are to total sugar recovered, which represents the total amount of sugar content in a given quantity of sugarcane.

All references in this annual report to “RTK” mean revenue ton kilometer.

All references to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references in this annual report to “U.S. dollars,” “dollars” or “U.S.$” are to U.S. dollars.

Rounding

We have made rounding adjustments to reach some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

This annual report contains estimates and forward-looking statements, mainly under “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects.” Some of the matters discussed concerning our business and financial performance include estimates and forward-looking statements.

Our estimates and forward-looking statements are mainly based on our current expectations and estimates on projections of future events and operating and financial trends, which affect or may affect our industry, market share, reputation, businesses, financial condition, results of operations, margins and/or cash flow. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to several risks and uncertainties, are made in light of information currently available to us and should not be considered a guarantee of the results of operations we may achieve. Many significant factors in addition to those stated in this annual report may adversely affect our current estimates and forward-looking statements, and whether these estimates or statements may be realized. Our estimates and forward-looking statements may be influenced by the following factors, among others:

  • the duration and severity of the 2019 novel coronavirus, or COVID-19, outbreak and its impacts on our business (see “Item 3. Key InformationD. Risk FactorsRisks Related to Our Businesses and the Industries in Which We Operate Generally—Our business, operations and results may be adversely impacted by COVID-19,” “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments—COVID-19 Pandemic” and “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting Our Results of Operations—Impact of COVID-19”);



  • general economic, political, demographic and business conditions in Brazil and in the world and the cyclicality affecting our selling prices;
  • the effects of global financial and economic crises in Brazil;
  • our ability to implement our expansion strategy in other regions of Brazil and international markets through organic growth, acquisitions or Joint Ventures;
  • our ability to successfully compete in all segments and geographical markets where we currently conduct business or may conduct businesses in the future;
  • competitive developments in the segments in which we operate;
  • our ability to implement our capital expenditure plan, including our ability to arrange financing when required and on reasonable terms;
  • government intervention resulting in changes in the economy, taxes and tariffs affecting the markets in which we operate;
  • price of natural gas, ethanol and other fuels, as well as sugar;
  • equipment failure and service interruptions;
  • our ability to compete and conduct our businesses in the future;
  • adverse weather conditions;
  • changes in customer demand;
  • changes in our businesses;
  • our ability to work together successfully with our partners to operate our partnerships (such as the Joint Venture);
  • technological advances in the natural gas sector, including developments of natural gas for use in other applications, and advances in the development of alternatives to natural gas;
  • technological advances in the ethanol sector and advances in the development of alternatives to ethanol;
  • changes in global energy usage;
  • government intervention and trade barriers, resulting in changes in the economy, taxes, rates, prices or regulatory environment including in relation to our regulated businesses such as Comgás and Rumo;
  • inflation, depreciation, appreciation and depreciation of the real;
  • other factors that may affect our financial condition, liquidity and results of our operations; and
  • other risk factors discussed under “Item 3. Key Information–D. Risk Factors.”

The words “believe,” “should,” “may,” “might,” “could,” “seek,” “aim,” “likely,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and other similar words used in this annual report are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only as of the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this annual report might not occur and our future results and our performance may differ materially from those expressed in these forward-looking statements due to but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.


Not applicable.

Not applicable.

The following tables present selected historical financial and operating data for the Company derived from our audited consolidated financial statements. You should read the following information in conjunction with our audited consolidated financial statements and related notes, and the information under “Item 5. Operating and Financial Review and Prospects” in this annual report.

The financial data at and for the fiscal years ended December 31, 2020, 2019, 2018, 2017 and 2016 have been derived from our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB, unless otherwise stated.

Business Segments and Presentation of Segment Financial Data

We present the following reportable segments:

(1) Raízen Combustíveis: distribution and marketing of fuels, mainly through a franchised network of service stations under the “Shell” brand and a proximity business throughout Brazil and Argentina. In Argentina, the operations of Raízen Combustíveis include petroleum refining, the operation of fuel resellers, the manufacture and sale of automotive and industrial lubricants, and the production and sale of liquefied petroleum gas;

(2) Raízen Energia: production and marketing of a variety of products derived from sugar cane, including raw sugar (Very High Polarization, or “VHP”) and renewable products, such as anhydrous and hydrated ethanol, second generation ethanol and activities related to energy cogeneration from sugarcane bagasse, among others. In addition, this segment holds interests in companies engaged in research and development on new technology;

(3) Gas and Energy (formerly the Comgás segment): (i) distribution of piped natural gas in part of the state of São Paulo to customers in the industrial, residential, commercial, automotive and cogeneration sectors through Comgás; and (ii) the sale of electricity, comprising the purchase and sale of electricity to other traders, to consumers who have a free choice of supplier and to other agents permitted by law;

(4) Moove: production and distribution of lubricants under the Mobil brand in Brazil, Argentina, Bolivia, Uruguay, Paraguay, the United States of America and Europe, as well as in the European and Asian markets under the “Comma” trademark and corporate activities

(5) Logistics: logistics services for rail transportation, storage and port loading of commodities, mainly for grains and sugar, leasing of locomotives, wagons and another railway equipment; and

Reconciliation

(6) Cosan Corporate: digital platform for logistics services and other investments, in addition to the corporate activities of the Company. This segment includes the financing subsidiaries for the Cosan group.

Gas and Energy

Our Gas and Energy segment was created in March 2020. Prior to that, our natural gas distribution operations were concentrated in our Comgás segment, which was contributed to our Gas and Energy segment.




 


As of and for the fiscal year ended December 31,(1)


 


2020




2019




2018


 


(in millions of reais, except where otherwise indicated)


Consolidated Profit or Loss Data:


 




 




 


Net sales


20,437.8




20,611.4




16,834.8


Cost of sales


(14,501.7

)

(14,160.2

)

(12,108.3

)

Gross profit


5,936.1




6,451.2




4,726.5


Selling expenses


(959.1

)

(1,122.9

)

(1,019.2

)

General and administrative expenses


(1,790.7

)

(1,236.1

)

(975.5

)

Other income (expense), net


176.9




404.7




747.2


Total operations expenses


(2,572.9

)

(1,954.3

)

(1,247.5

)

Profit before equity in earnings of investees, finance results and taxes


3,363.2




4,496.9




3,479.0


Equity in earnings of investees


611.8




1,132.6




991.3


Finance results, net


(1,984.0

)

(1,967.6

)

(1,598.4

)

Profit before taxes


1,991.0




3,661.9




2,871.9


Income taxes:


 




 




 


Current


(941.4

)

(1,000.1

)

(464.9

)

Deferred


438.7




220.5




(295.6

)

 


(502.7

)

(779.6

)

(760.5

)

Profit from continuing operations


1,488.3




2,882.3




2,111.4


Profit (loss) from discontinued operation, net of tax





11.0




(28.2

)

Profit for the year


1,488.3




2,893.3




2,083.2


Net income attributable to non-controlling interests


(628.8

)

(1,577.0

)

(1,107.8

)

Profit attributable to owners of the Company (including discontinued operations)


859.5




1,316.3




975.4


Consolidated Statement of Financial Position Data:


 




 




 


Cash and cash equivalents


13,642.9




8,472.3




3,621.8


Marketable securities


3,669.1




3,115.5




4,202.8


Inventories


935.3




787.3




716.3


Right-of-use assets


7,916.2




4,469.7





Property, plant and equipment


14,068.5




12,153.1




12,417.8


Intangible assets and goodwill


17,308.4




16,843.7




16,972.5


Total assets


83,713.6




65,717.9




56,360.7


Current liabilities


12,547.0




8,917.2




6,240.8


Non-current liabilities


50,347.7




40,560.2




32,150.5


Loans, borrowings and debentures


42,249.5




29,052.2




22,574.3


Preferred shareholders payable in subsidiaries


387.0




611.5




1,097.5


Provision for legal proceedings


1,360.9




1,354.2




1,363.2


Equity attributable to owners of the Company


5,260.1




5,401.9




6,614.4


Equity attributable to non-controlling interests


15,558.8




10,838.6




11,355.0


Total shareholders’ equity


20,818.9




16,240.5




17,969.4


Consolidated Other Financial Data:


 




 




 


Depreciation and amortization


2,340.9




2,287.9




2,051.8


Net debt(2)


17,629.9




14,332.6




13,324.0


Working capital(3)


10,887.9




7,074.6




5,718.8


Cash flow provided by (used in):


 




 




 


Operating activities


5,656.9




6,296.7




5,377.9


Investing activities


(4,523.1

)

(130.6

)

(1,498.8

)

Financing activities


3,686.3




(1,558.4

)

(5,106.4

)

Basic earnings per share from continuing operations

R$

            3.84



R$  

            5.74



R$  

            3.83


Diluted earnings per share from continuing operations

R$

            3.71



R$  

            5.51



R$ 

            3.95


Basic earnings/(loss) per share from discontinued operations




R$  

            0.05



R$ 

            0.17


Diluted earnings/(loss) per share from discontinued operations




R$ 

            0.05



R$

              0.16


Number of shares outstanding


238,447,578




221,809,303




244,675,712


Declared dividends (millions of reais)


1,514.1




243.3




425.5


Declared dividends (millions of U.S. dollars)

U.S.$

              375.6



U.S.$ 

            60.4



U.S.$

              109.8


Declared dividends per share (reais)

R$ 

            6.3498



R$ 

            1.0969



R$

              1.7390


Declared dividends per share (U.S. dollars)

U.S.$  

            1.5754



U.S.$ 

            0.2721



U.S.$ 

            0.4488




 


As of and for the fiscal year ended December 31,(1)


 


2020




2019




2018


 


(in millions of reais, except where otherwise indicated)


Other Operating Data:


 




 




 


Crushed sugarcane (in million tons)


61.4




59.8




60.1


Sugar production (in million tons)


4.4




3.8




3.7


Ethanol production (in billion liters)


2.5




2.5




2.5


Volume of fuel sold (in million liters)(4)


29,229.4




33,625.3




27,440.6


Volume loaded (Cosan Logística) (in million tons)


14.4




11.2




11.3


Transported volume (Cosan Logística) (in million TKU)


62,458.4




60,096.3




56,365.1


Natural gas (Comgás) (in million m³)


4,229.4




4,512.4




4,543.3


Volume of finished goods and base oil sold (in million liters)


398.4




397.7




345.9




(1) On December 2, 2019, we sold our shares in Cosan Biomassa S.A. to Raízen Energia. The comparative consolidated statement of profit or loss and statements of cash flows have been restated to show the discontinued operation separately from continuing operations.

(2) Net debt consists of current and non-current debt (including preferred shareholders payable in subsidiaries), net of cash and cash equivalents, marketable securities and derivatives on debt recorded in our consolidated financial statements as other non-current assets. Net debt is a non-GAAP measure.

(3) Working capital consists of total current assets less total current liabilities.

(4) Starting from 2015 the reported volumes are based on a methodology developed by Sindicom (Sindicato Nacional das Empresas Distribuidoras de Combustíveis e de Lubrificantes), an association of fuel distributors, which excludes volumes sold to other distributors.

 

The information in the table below presents a reconciliation of Net debt, a non-GAAP financial measure, the most directly comparable IFRS financial measure. Our calculation of Net debt may differ from the calculation of similarly titled measures used by other companies. Our management believes that disclosure of Net Debt is useful to potential investors as it helps to give them a clearer understanding of our financial liquidity. Net Debt is also used to calculate certain leverage ratios. However, Net Debt is not a measure under IFRS and should not be considered as a substitute for measures of indebtedness determined in accordance with IFRS.

 


As of December 31,(1)


 


2020



2019



2018


 


(in millions of reais, except where otherwise indicated)


Current loans, borrowings and debentures


4,929.1



3,518.2



2,115.3


Non-current loans, borrowings and debentures


37,320.4



25,534.0



20,459.0


Preferred shareholders payable in subsidiaries


387.0



611.5



1,097.5


Total


42,636.5



29,663.7



23,671.8


Cash and cash equivalents


(13,642.9

)

(8,472.3

)

(3,621.8

)

Marketable securities


(3,669.1

)

(3,115.5

)

(4,202.8

)

Total


(17,312.0

)

(11,587.8

)

(7,824.6

)

Derivatives on debt, net


(7,694.6

)

(3,743.4

)

(2,523.1

)

Net debt(2) 


17,629.9



14,332.5



13,324.1




(1) On December 2, 2019, we sold our shares in Cosan Biomassa S.A. to Raízen Energia. The comparative consolidated statement of profit or loss and statements of cash flows have been restated to show the discontinued operation separately from continuing operations.

(2) The Company’s covenants consider preferred shareholders payable in subsidiaries in the calculation of net debt.


 


Exchange Rates

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

Since 1999, the Brazilian Central Bank has allowed the real/U.S. dollar exchange rate to float freely, which resulted in increasing exchange rate volatility. Until early 2003, the real declined against the U.S. dollar. Between 2004 and 2008, the real strengthened against the U.S. dollar, except in the most severe periods of the global economic crisis. Given the recent turmoil in international markets and the current Brazilian macroeconomic outlook, the real depreciated against the U.S. dollar from mid-2011 to early 2016. Beginning in early 2016 through the end of 2016, the real appreciated against the U.S. dollar, primarily as a result of Brazil’s changing political conditions. In 2017, 2018, 2019 and 2020 the real depreciated 1.5%, 17.1%, 4.0% and 28.9% against the U.S. dollar, respectively. During 2020, the real depreciated against the U.S. dollar as compared to the situation as of December 31, 2019 due primarily to the impact of the COVID-19 pandemic on the Brazilian economy. In 2021, to April 23, 2021, the real depreciated 5.4% against the U.S. dollar. In the past, the Brazilian Central Bank has intervened occasionally to control high volatility in the foreign exchange rates. We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to permit the real to float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. In the future, the real may fluctuate substantially against the U.S. dollar.

Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are compelling reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. Any such restrictions on remittances of foreign capital abroad may limit our ability to receive dividends from our subsidiaries Cosan S.A. and Cosan Logística S.A. We cannot assure you that such measures will not be taken by the Brazilian government in the future. Exchange rate fluctuation will affect the U.S. dollar value of any distributions we receive from our subsidiaries Cosan S.A. and Cosan Logística S.A., which will be made in reais. See “—D. Risk Factors—Risks Related to Brazil.”

The following tables set forth the selling rate, expressed in reais per U.S. dollar (R$/U.S.$), for the periods indicated:

Year

Period-end

Average(1)

Low

High

2016

3.259

3.483

3.119

4.156

2017

3.308

3.193

3.051

3.381

2018

3.875

3.656

3.139

4.188

2019

4.031

3.946

3.652

4.260

2020

5.197

5.158

4.021

5.937

 

Month

Period-end

Average(2)

Low

High

October 2020

5.772

5.626

5.521

5.780

November 2020

5.332

5.418

5.282

5.693

December 2020

5.197

5.146

5.058

5.279

January 2021

5.476

5.356

5.163

5.509

February 2021

5.530

5.416

5.342

5.530

March 2021

5.697

5.646

5.495

5.840

April 2021 (through April 23, 2021)

5.479

5.612

5.479

5.706



Source: Brazilian Central Bank.

(1) Represents the average of the exchange rates on the closing of each day during the year.

(2) Represents the average of the exchange rates on the closing of each day during the month or partial month of 2020 or 2021, as applicable.



Not applicable.

Not applicable.

This section is intended to be a summary of more detailed discussion contained elsewhere in this annual report. Our business, financial condition or results of operations could be materially and adversely affected by any of the risks and uncertainties described below. As a result, the market price of our common shares and ADSs could decline, and you could lose all or part of your investment. Additional risks not presently known to us, or that we currently deem immaterial, may also impair our financial condition and business operations

Summary of Risk Factors

This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report. The risks described below are not the only ones we face. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of our common shares and our ADSs could decline.

Summary of Risks Related to the Merger, Our Businesses and the Industries in Which We Operate Generally

  • Our business, operations and results may be adversely impacted by COVID-19. Furthermore, public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.
  • We have recently completed the Merger. We have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Merger. We may also have difficulty attracting, motivating and retaining executives and other key employees due to uncertainty associated with the Merger.
  • We may be unable to implement our growth strategy successfully. Furthermore, the expansion of our business through acquisitions and strategic alliances creates risks that may reduce the benefits we anticipate from these transactions.
  • Government policies and regulations could have a material adverse effect on our operations and profitability. Furthermore, we are subject to extensive regulations, including anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations, environmental regulation, data protection laws and other regulations, and may be exposed to liabilities in the event we fail to comply with these regulations. Similarly, failure to comply with, obtain or renew the licenses and permits required for our business may have a material adverse effect on us.
  • We depend on our information technology systems, and any failure of these systems could adversely affect our business. Furthermore, we were the target of a cybersecurity incident which disrupted our systems. We could be the target of attempted cyber threats in the future and they could adversely affect our business.
  • We may be adversely affected by unfavorable outcomes in pending legal proceedings. Our inability to post judicial collateral or provide guarantees in pending legal or administrative proceedings could have a material adverse effect on our business, financial condition and results of operations.
  • Our debt level could adversely affect our financial health and prevent us from fulfilling our debt obligations, which would reduce our ability to raise capital to finance our investments and operations and would adversely impact our ability to recover from economic changes. Furthermore, we may be unable to comply with restrictive covenants under our financing agreements.
  • We are indirectly controlled by a single individual who holds 168,186,507 or 35.90% of our common shares and voting rights. Furthermore, we are highly dependent on our chairman and other members of our management to develop and implement our strategy and to oversee our operations. If we lose key personnel, our business, financial condition and results of operations may be adversely affected.
  • Our business would be materially adversely affected if operations at our transportation and distribution facilities experienced significant interruptions. Our business would also be materially adversely affected if the operations of our customers and suppliers experienced significant interruptions.

  • The production of lubricants, natural gas transportation and the storage and transportation of fuel products and lubricant products are inherently hazardous. Furthermore, fire and other disasters could affect our agricultural and manufacturing properties and our facilities and distribution networks, which would have a material adverse effect on our production and distribution volumes and, consequently, results of operations.
  • The shareholders’ and certain other definitive agreements with respect to the Joint Venture and certain other of our subsidiaries are subject to various put and call options and termination provisions.
  • Changes in taxes and other assessments may adversely affect us. The modification, suspension, cancellation or non-renewal of our tax benefits could have a material adverse effect on us.
  • Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.

Summary of Risks Related to Our American Depositary Shares and Our Common Shares

  • Our ADSs may not be as liquid as our common shares. Furthermore, our maintenance of two exchange listings may adversely affect liquidity in the market for our common shares and ADSs and result in pricing differentials between the two exchanges.
  • Holders of our ADSs do not have the same voting rights as our shareholders. Due to delays in notification to and by the Depositary, holders of our ADSs may not be able to give voting instructions to the Depositary or to withdraw our common shares underlying their ADSs to vote such shares in person, virtually or by proxy. Holders of our ADSs may also not be able to exercise the preemptive rights relating to the common shares. Furthermore, the holders of our common shares (including the common shares underlying the ADSs) may not receive dividends or interest on own capital.
  • Holders of our ADSs may also face difficulties in serving process on or enforcing judgments against us and other persons. Furthermore, judgments of Brazilian courts with respect to our shares will be payable only in reais.
  • Shareholders could be diluted in the future, which could also adversely affect the market price of our common shares and ADSs.
  • The market price of our common shares and ADSs may be volatile. Furthermore, the relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of our common shares and ADSs.
  • An exchange of ADSs for common shares risks the loss of certain foreign currency remittance advantages.
  • We are a foreign private issuer and, as a result, in accordance with the listing requirements of the NYSE, we rely on certain home country governance practices from Brazil, rather than the corporate governance requirements of the NYSE. Furthermore, as a foreign private issuer, we have different disclosure and other requirements than U.S. domestic registrants.

Summary of Risks Related to Brazil

  • Historically, the Brazilian government has influenced and continues to influence the economy of Brazil, which may negatively affect our business and financial performance. Future governmental policy and regulations may adversely affect our operations and profitability. For example, inflation and government measures to curb inflation may adversely affect the Brazilian economy, the Brazilian securities market, our business and operations, and the market prices of our shares. Furthermore, high interest rates may adversely affect our operations and financial condition.
  • The ongoing economic and political crisis in Brazil may have a material adverse effect on our business, operations and financial condition. Furthermore, developments and the perception of risk in other countries may adversely affect the Brazilian economy and market price of Brazilian issuers’ securities.
  • Significant volatility in the value of the real in relation to the U.S. dollar could harm our ability to meet our U.S. dollar-denominated liabilities.
  • Ongoing investigations relating to corruption and diversion of public funds that are being conducted by the Brazilian federal police as well as other Brazilian and non-Brazilian regulators and law enforcement officials may adversely affect the growth of the Brazilian economy and could have a material adverse effect on us.
  • If we do not successfully comply with laws and regulations designed to prevent governmental corruption in countries in which we operate and sell our products (notably Brazil), we could become subject to fines, penalties or other regulatory sanctions, which could cause our sales and profitability to be materially reduced.


Risks Relating to the Merger

As a holding company, we depend on limited forms of funding to fund our operations.

As a holding company, we have no significant assets other than the shares of our subsidiaries. Our primary sources of funding and liquidity are dividends from our subsidiaries, sales of the interests in its subsidiaries and direct borrowings and issuances of equity or debt securities. Our ability to meet the obligations to our direct creditors and employees and other liquidity needs and regulatory requirements depends on timely and adequate distributions from our subsidiaries and our ability to sell securities or obtain credit from our lenders.

Our ability to pay operating and financing expenses and dividends depends primarily on the receipt of sufficient funds from our principal operating subsidiaries. Statutory provisions regulate our operating subsidiaries’ ability to pay dividends. If our operating subsidiaries are unable to pay dividends to us in a timely manner and in amounts sufficient to pay for our operation and financing expenses or to declare and pay dividends and to meet our other obligations, we may not be able to pay dividends or we may need to seek other sources of funding.

Furthermore, our inability to sell our securities or obtain funds from its lenders on favorable terms, or at all, could also result in financial difficulties, among other adverse effects. There has been no prior market for the ADSs. An active public market in the ADSs may not develop or be sustained after their issuance. Our inability to meet our liquidity needs and regulatory requirements may disrupt our operations at the holding company level.

We may have difficulty attracting, motivating and retaining executives and other key employees due to uncertainty associated with the Merger.

Our success after completion of the Merger will depend in part upon our ability to retain key employees. Competition for qualified personnel can be intense. Our current and prospective employees may experience uncertainty about the effect of the Merger, which may impair our ability to attract, retain and motivate key management, sales, marketing, technical and other personnel prior to and following the Merger. Employee retention may be particularly challenging during the pendency of the Merger, as employees of may experience uncertainty about their future roles with the combined company.

In addition, if our key employees depart, the integration of the companies may be more difficult and the combined company’s business following the Merger may be harmed. Furthermore, the combined company may have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees and may lose significant expertise and talent relating to our businesses o, and the combined company’s ability to realize the anticipated benefits of the Merger may thus be adversely affected. Furthermore, there could be disruptions to or distractions for the workforce and management associated with activities of labor unions or works councils or integrating employees into the combined company. Accordingly, no assurance can be given that we will be able to attract or retain key employees to the same extent that those companies have been able to attract or retain their own employees in the past.

We have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Merger.

We have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Merger. These costs and expenses include fees paid to financial, legal, accounting and other advisors, severance and other potential employment-related costs, including payments that may be made to certain of our executives, filing fees, printing expenses and other related charges. Some of these costs are payable by us regardless of whether the Merger is completed. There are also processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Merger and the integration of the two companies’ businesses. While we have assumed that a certain level of expenses would be incurred in connection with the Merger and the other related transactions and continue to assess the magnitude of these costs, there are many factors beyond their control that could affect the total amount or the timing of the integration and implementation expenses.

There may also be additional unanticipated significant costs in connection with the Merger that we may not recover. These costs and expenses could reduce the realization of efficiencies and strategic benefits we expect to achieve from the Merger. Although we expect that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.


Risks Related to Our Businesses and the Industries in Which We Operate Generally

Our business, operations and results may be adversely impacted by COVID-19.

In response to the COVID-19 outbreak, we have implemented several measures aimed at safeguarding the health of our employees and the stability of our operations and financial condition, including: (1) having our employees work remotely if able to do so, (2) following health and safety guidelines to protect employees in our essential operations who need to work onsite, (3) optimizing the use of contractors and employee hours and (4) renegotiating, where possible, certain contracts with suppliers and clients to reflect reductions in demand for our products.

As of the date of this annual report, we have only experienced limited adverse financial and operational effects of the COVID-19 pandemic. The production and sale of our products and services are deemed to be an “essential service” by governmental authorities because of their role in the overall economy so we have been able to continue operating. However, we have experienced a decline in demand as a result of the fact that large sectors of the economy have shut down or slowed down considerably as a result of governmental measures to mitigate the effect of the COVID-19 pandemic. Our suppliers have also been impacted by the COVID-19 pandemic. As a result, access to materials, supplies and contract labor since the beginning of the COVID-19 pandemic has been more difficult than before. Failure to obtain the necessary inputs to produce our products and services may adversely affect our business, financial condition and results of operations.

The COVID-19 pandemic is ongoing and we cannot predict its future effects. Future adverse conditions, including new potential waves of the COVID-19 pandemic in the markets in which we operate, the emergence of new, more virulent and more resistant variants of the virus, could adversely affect our business, financial condition and results of operations.

In light of the significant uncertainty around the duration and extent of the impact of the COVID-19 pandemic, we are currently unable to make estimates or assumptions with any reasonable degree of certainty regarding how the COVID-19 pandemic may affect our consolidated financial statements and financial or operational performance in any given period. In addition, due to the unprecedented nature of the crisis caused by the COVID-19 pandemic, any estimates or assumptions which we may make regarding the impact on our financial statements may be subsequently revised.

There continues to be uncertainty and unpredictability about the impact of the COVID-19 pandemic on our financial and operating results in future periods. The extent to which the COVID-19 pandemic adversely impacts our future financial and operating results, and for what duration and magnitude, depends on several continuously evolving factors that are difficult to predict and, in many instances, are beyond our control. Such factors include: (i) the duration and extent of the pandemic, including any resurgences, and the impact on our workforce and operations; (ii) the negative economic impact of the pandemic on economic activity, such as travel restrictions and prolonged low demand for our products; the ability of our affiliates, suppliers and partners to successfully navigate the impacts of the pandemic; (iv) actions taken by governments, businesses and individuals in response to the pandemic; the extent and duration of recovery of economies and demand for our products after the pandemic subsides; and (v) our ability to keep our cost model in line with changing demand for our products and services.

The effects of the COVID-19 pandemic are ongoing, and its continuation or a resurgence could precipitate or aggravate the other risk factors identified in this annual report on Form 20-F, which in turn could further materially and adversely affect our business, financial condition, liquidity, results of operations and profitability, including in ways not currently known or considered by us to present material risks.

See also “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments—COVID-19 Pandemic” and “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting Our Results of Operations—Impact of COVID-19.”

We may not be successful in reducing operating costs and increasing operating efficiencies.

As part of our strategy, we continue to seek to reduce operating costs and increase operating efficiencies to improve our future financial performance. We may not be able to achieve the cost savings that we expect to achieve as a result of several factors, including increases in the price of our raw materials and other cost inputs. Given the highly competitive markets in which we operate, with prices often being defined based on global supply and demand, it is highly likely that we will not pass on material cost increases, which would materially and adversely affect our financial performance.

We may be unable to implement our growth strategy successfully.

Our future growth and financial performance will depend, in part, on the successful implementation of our business strategy, including (1) our ability to attract new clients or increase volume from existing clients in specific markets and locations, (2) our capacity to finance investments (through indebtedness or otherwise), (3) our ability to increase our operational capacity and expand our current capacity to supply to new markets, (4) our ability to maintain and renew our existing concessions, (5) our ability to reduce our operating costs and increase operating efficiency, (6) our ability to lead with regard to new technologies and market demands and (7) our ability to integrate our businesses. We cannot assure you that we will be able to achieve these objectives and/or strategies successfully or at all. Our failure to achieve any of these objectives and/or strategies as a result of competitive difficulties, cost increases or restrictions on our ability to invest, among others, may limit our ability to implement our growth strategy successfully. We may need to incur additional indebtedness in order to finance new investments to implement our growth strategy. Unfavorable economic conditions in Brazil and in the global credit markets, such as high interest rates on new loans, reduced liquidity or reduced interest of financial institutions in granting loans, may limit our access to new credit. Furthermore, failure to achieve our expected growth may have a material adverse effect on our business, financial conditions, results of operations and ability to repay our debt obligations.


The expansion of our business through acquisitions and strategic alliances creates risks that may reduce the benefits we anticipate from these transactions.

We have grown substantially through acquisitions. We may continue to expand by acquiring or investing, directly or indirectly, from time to time, in businesses considered suitable by our management that are consistent with our values and that are expected to generate positive returns. We may also enter into strategic alliances to increase our competitiveness. However, our management is unable to predict whether or when any prospective acquisitions or strategic alliances will occur, or the likelihood of any particular transaction being completed on favorable terms and conditions. Our ability to continue to expand our business through acquisitions or alliances depends on many factors, including our ability to identify acquisitions or access capital markets on acceptable terms. Even if we are able to identify acquisition targets and obtain the necessary financing to make these acquisitions, we could financially overextend ourselves.

Acquisitions, particularly those involving sizeable enterprises, may bring managerial and operational challenges, including the diversion of management’s attention from existing operations and difficulties in integrating operations and personnel. Any material failure by us in integrating new businesses or in managing any new alliances may adversely affect our business and financial performance. Additionally, some of our major competitors may pursue growth through acquisitions and alliances, which may reduce the likelihood that we will be successful in completing acquisitions and alliances. In addition, any major acquisition we consider may be subject to antitrust and other regulatory approvals. We may not be successful in obtaining required approvals on a timely basis or at all.

Acquisitions also expose us to the risk of successor liability-related actions involving any acquired entity, their respective management or contingent liabilities incurred before the acquisition. The due diligence investigation conducted in connection with an acquisition, and any contractual guarantees or indemnities that we may receive from sellers of acquired companies, may not be sufficient to protect us from, or compensate us for, actual liabilities. Material liabilities associated with an acquisition, such as labor or environmental liabilities, could materially and adversely affect our reputation, business, operating results or financial condition, and reduce the benefits that we expect to result from such acquisition.

We may engage in hedging transactions, which involve risks that can harm our financial performance.

We are exposed to market risks arising from the conduct of our business activities—in particular, market risks arising from changes in commodity prices, exchange rates or interest rates. In an attempt to minimize the effects of the volatility of prices and exchange rates on our cash flows and results of operations, for example, we engage in hedging transactions involving commodities and exchange rate futures, options, forwards and swaps. We also engage in interest rate-related hedging transactions from time to time. Hedging transactions expose us to the risk of financial loss in situations where the counterparty to the hedging contract defaults on its contract or there is a change in the expected differential between the underlying price in the hedging agreement and the actual price of commodities or the exchange rate. We may incur significant hedging-related losses in the future. In particular, Raízen enters into hedging transactions against market price fluctuations by fixing the prices of our sugar export volumes and exchange rates. Since we record derivatives at fair value, to the extent that the market prices of our products exceed the fixed price under our hedging policy, our results will be lower than they would have been if we had not engaged in such transactions as a result of the related non-cash derivative expenses. As a result, our financial performance would be adversely affected during periods in which commodities prices increase. Alternatively, we may choose not to engage in hedging transactions in the future, which could have a material adverse effect on our financial performance during periods in which commodities prices decrease.

We are subject to extensive environmental regulations and may be exposed to liabilities in the event we fail to comply with these regulations.

Our business activities in Brazil are subject to extensive laws and regulations concerning environmental protection, which impose on us various environmental obligations, such as environmental licensing requirements; standards for the release of effluents, management of solid waste, emission and discharge of hazardous materials, sugarcane burning, and health and safety of our employees; protection of certain areas (including the Legal Reserve, indigenous areas, quilombolas community areas, conservation units, archeological sites and permanent preservation areas); and the need for special authorizations for the use of water, among others.

Failure to comply with such laws and regulations (including a failure to obtain or maintain relevant environmental permits, as well as to comply with technical conditions imposed by environmental permits) may subject the violator to administrative fines (up to the amount of R$50 million), mandatory interruption of activities and criminal sanctions, in addition to the obligation to remedy and pay environmental and third-party damage compensation. In addition, Brazilian environmental law adopts a strict liability system for environmental damages, in connection with which a polluter is liable irrespective of whether the polluter was at fault or engaged in intentional misconduct, resulting in our joint and several liability for the obligations of our suppliers or customers, for example.

Brazilian law provides that separate legal personality may be disregarded where it would otherwise prevent the repayment of environmental damages. In such a situation, shareholders may be held personally liable for environmental liabilities.

If we become subject to environmental liability, any costs we may incur in connection with the indemnification against potential environmental damage would lead to a reduction in the financial resources that would otherwise remain at our disposal for current or future strategic investment, which may materially and adversely affect our business, results of operations or financial condition.


As environmental laws and their enforcement become increasingly stringent, our expenses for complying with environmental requirements are likely to increase in the future. Furthermore, the possible implementation of new regulations, changes in existing regulations or the adoption of other measures could cause the amount and frequency of our expenditures relating to environmental preservation to vary significantly compared to present estimates or historical costs. Any unplanned future expenses could force us to reduce or forego strategic investments, and as a result, could materially and adversely affect our business, results of operations or financial condition.

The occurrence of environmental damage may lead to the need to make significant financial resources available for both containment and repair of these damages. The occurrence of such events may also lead to a disruption in production due to intervention by government agencies. In either case, financial and/or image impacts may be significant. In addition, the creation of new regulations may lead to the need for greater expenses for environmental preservation. Furthermore, extensive environmental regulation can also lead to delays in the implementation of new projects as bureaucratic procedures for obtaining environmental licenses from various government agencies may take considerable time.

We are party to a number of administrative and judicial proceedings for alleged failures to comply with environmental and health laws, which may result in fines, shutdowns or other adverse effects on our operations. Claims that give rise to administrative proceedings may also lead to civil or criminal claims against us and our subsidiaries. Our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future claims, could adversely affect our business or financial performance. We may also be required to expend significant financial resources in order to remedy or contain environmental damage or failures to comply with certain environmental and social obligations.

The realization of any of these risks may have a material adverse effect on our business, results of operations or financial condition.

Technological advances could affect demand for our products and services or require substantial capital expenditures for us to remain competitive.

The development and implementation of new technologies may result in a significant reduction in the costs of the products and services we provide. We cannot predict when new technologies may become available, the rate of acceptance of new technologies by our competitors or the costs associated with such new technologies. Advances in the development of alternatives to the products and services which we currently sell could significantly reduce demand or eliminate the need for them.

For example, the development of alternative products to sugarcane, ethanol and natural gas may reduce the demand for our products or materially reduce the demand for ethanol or natural gas to be used as fuel, and the use of alternative sweeteners has adversely affected the overall demand for sugar in Brazil and abroad, which could have a material adverse effect on our business, results of operations and financial condition.

Any advances in technology which require significant capital expenditures to remain competitive or which otherwise reduce demand for our products and services will have a material adverse effect on our business and financial performance. Any other alternative products or technological advances which reduce demand for the products of our subsidiaries and joint ventures may have a material adverse effect on our results of operations and financial condition.

We may face conflicts of interest in transactions with related parties.

We engage in business and financial transactions with our controlling shareholder and other shareholders that may create conflicts of interest between our Company and these shareholders. Commercial and financial transactions between our affiliates and us, even if entered into on an arm’s-length basis, create the potential for, or could result in, conflicts of interests.

Lack of service providers for our expansion projects could adversely affect our business.

We are engaged in a number of expansion projects within our concession area that will require a significant number of service providers, which may not be available. Consequently, if we are unable to contract for the necessary services due to service industry shortages or a lack of providers with the technical ability to provide the services we require, this could have an adverse effect on our expansion projects or lead to delays in the execution of our expansion projects as new service providers go through an approval process and develop the technical qualification to commence operations. Any delay or failure to commence or continue our expansion projects within our projected time frame or budget could have a material adverse effect on our business, financial condition and results of operations.

We depend on our information technology systems, and any failure of these systems could adversely affect our business.

We depend on information technology systems for significant elements of our operations, including the storage of data and retrieval of critical business information. Our information technology systems are vulnerable to damage from a variety of sources, including network failures, malicious human acts, and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses, and similar disruptive problems. Failures or significant disruptions to our information technology systems or those used by our third-party service providers could prevent us from conducting our general business operations. Any disruption or loss of information technology systems on which critical aspects of our operations depend could have an adverse effect on our business, results of operations, and financial condition.


Further, we store highly confidential information on our information technology systems, including information related to our products. If our servers or the servers of the third party on which our data is stored are attacked by a physical or electronic break-in, computer virus or other malicious human action, our confidential information could be stolen or destroyed. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of our suppliers, customers, or others, whether by us or a third party, could have an adverse impact on our business, financial condition and results of operations.

In addition, any failure of our information technology systems to operate effectively or integrate with other systems, or inadequate performance of, or breaches of security regarding, such systems could result in interruptions in the availability of our online resources, delays in delivering products or services and reduced efficiency in our operations. Each of these factors may adversely affect our businesses as well as their financial condition, results of operations and reputation. We also hold certain highly confidential personal and financial data relating to our customers in our information technology systems. Any failures in the information technology systems on which we depend or any breaches resulting in the unauthorized disclosure of the personal or financial data of our customers may adversely affect our business, financial condition, results of operation and reputation.

See also “—We were the target of a cybersecurity incident which disrupted our systems” and “—We could be the target of attempted cyber threats in the future and they could adversely affect our business.”

We were the target of a cybersecurity incident which disrupted our systems.

During March 2020, we were subject to a ransomware cyberattack, which resulted in a partial and temporary interruption of our operations. The affected entities within our group implemented their own contingency plans, continued operating partially during the cyberattack, and progressively reconnected their operating systems following the attack.

As a result of the incident, we may incur losses arising from claims by third parties, as well as fines, penalties and other sanctions imposed by regulators relating to or arising from the incident. We are not able to forecast all of the losses that we may incur as a result of the incident reliably, and such excess losses could have a material adverse effect on our business, financial condition and results of operations.

Following the incident, we have taken certain additional precautionary measures to reduce cyber risks. However, we cannot assure you that our security frameworks and measures will be successful in preventing future cyberattacks. In addition, we expect that the cost to obtain cyber liability insurance in the future should we wish to do so (we do not currently have cyber liability insurance) will be higher than they would otherwise have been as a result of this incident.

Further, the incident may have a negative impact on our reputation and cause customers, suppliers and other third parties with whom we maintain relationships to lose confidence in us. We are unable to predict the impact to these relationships.

As of the date of this annual report, we have spent approximately R$7 million in connection with the abovementioned cyberattack. We have also taken the following actions and measures:

  • we hired a chief of information security and cybersecurity for the Cosan Group;
  • we have established a strategy, framework and roadmap to develop our cyber security measures over the next three years;
  • we have created a new information security and cybersecurity department composed of experts and specialists as well as business information security officers to better distribute roles and responsibilities for these matters in each company of the Cosan Group;
  • we have created a cyber-defense center including a security operations center which focuses on cyber-attacks and operates on a 24/7 basis;
  • we have created a new vulnerability management structure to focus on risk mitigation including periodic pentesting (i.e., an authorized simulated cyber-attack on a computer system, performed to evaluate the security of the system) exercises;
  • we have created a new governance and operational system to cover periodic report reviews of dashboards and key performance indicators with technical teams we as well as executives of all the companies of the Cosan Group; and
  • we have also created an awareness program including new security policies, standards, procedures and periodic phishing simulations to improve our security posture.

See “Item 4. Information on the Company—A. History and Development of the Company—Recent Developments—2020 Cybersecurity Incident” for further information.


We could be the target of attempted cyber threats in the future and they could adversely affect our business.

We face various cybersecurity risks, including but not limited to penetration of our information technology systems and platforms by ill-intentioned third parties, infiltration of malware (such as computer viruses) into our systems, contamination (whether intentional or accidental) of our networks and systems by third parties with whom we exchange data, unauthorized access to confidential customer and/or proprietary data by persons inside or outside our organization and cyberattacks causing systems degradation or service unavailability that may result in business losses.

We may be subject to potential fraud and theft by cyber criminals, who are becoming increasingly sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in our systems. We continuously monitor and develop our information technology networks and infrastructure. We also conduct annual tests to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact on us. However, we cannot assure you that these measures will be effective in protecting us against cyberattacks and other related breaches of our information technology systems. The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized until used against a target. Unauthorized parties may attempt to gain access to our systems or facilities through various means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems to disclose usernames, passwords, financial information or other sensitive information, which may in turn be used to access our information technology systems. Certain third-party efforts to access our information technology systems may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. We have seen in recent years computer systems of companies and organizations being targeted, not only by cyber criminals, but also by activists and rogue states. Cyberattacks could give rise to the loss of significant amounts of customer data and other sensitive information, as well as significant levels of liquid assets (including cash). In addition, cyberattacks could give rise to the disablement of our information technology systems, including systems used to service our customers. Any of these developments could have an adverse effect on our business, results of operations and financial condition.

Further, we store highly confidential information on our information technology systems, including personal data, financial information, and other types of information related to our products and customers. If our servers or the servers of the third parties on which our data is stored are the subject of a physical or electronic break-in, computer virus or other cyber risks, our confidential information could be stolen, rendered unavailable, devalued or destroyed. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential information of our suppliers, customers, or others, whether by us or a third party, could (1) subject us to civil and criminal penalties, (2) have a negative impact on our reputation or (3) expose us to liability to our suppliers, customers, other third parties or government authorities.

If we fail to effectively manage our cybersecurity risk, for example, by failing to update our systems and processes in response to new threats, this could harm our reputation and adversely affect our operating results, financial condition and prospects through the payment of customer compensation, regulatory penalties and fines and/or the loss of assets. Furthermore, upon a failure to comply with applicable laws and regulations, we may be ordered to change our business practices, policies or systems in a manner that adversely impacts our operating results.

We may also be subject to the effects of cyberattacks against critical infrastructures of Brazil and the other countries in which we operate. Our information technology systems are dependent on such critical infrastructure, and any cyberattack against such critical infrastructure could negatively affect our ability to service our customers. As we do not operate such critical infrastructure, we have limited ability to protect our information technology systems from the adverse effects of cyberattacks.

We have recently conducted a cybersecurity-focused review of our information technology systems with the assistance of external consultants. In the course of this review, a number of vulnerabilities and opportunities for enhancement were identified with respect to our information technology systems, including vulnerabilities that, if left unresolved, have the potential to increase both the frequency and severity of losses and disruptions due to cyberattacks. Although, as of the date of this annual report, the majority of the vulnerabilities identified in our review have been addressed, our work is ongoing, and we face increased risks until we are able to resolve or mitigate the remaining vulnerabilities.

We cannot assure you that our information technology systems will not suffer attacks in the future or that we will be able to adequately safeguard the confidential information which we hold. If we fall victim to successful cyberattacks or experience cybersecurity incidents in the future, we may incur substantial costs and suffer other negative consequences, such as remediation costs (liabilities for stolen assets or information, or repairs of system damage, among others), increased cybersecurity protection costs, lost revenues arising from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack, as already mentioned, litigation and legal risks, increased insurance premiums, reputational damage affecting our customers’ and investors’ confidence, as well as damage to our competitiveness, stock price and long-term shareholder value. Any failure by us to adequately protect our information technology systems and the confidential data which we hold could have a material adverse effect on our business, financial condition and results of operations.

It is important to highlight that even when a failure of or interruption in our systems or facilities is resolved in a timely manner or an attempted cyber incident or other security breach is successfully avoided or thwarted, substantial resources are normally expended in doing so, and we may be required to take actions that could adversely affect customer satisfaction or behavior, and that may also represent a threat to our reputation.


We are subject to the application of data protection laws. Compliance with such data protection laws could require changes to certain of our business practices, thereby increasing our costs, and noncompliance with the terms of such laws could adversely affect our business. In addition, we may be subject to penalties if we fail to comply with data protection rules.

We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks that could materially affect our business, financial condition and results of operations. These laws may change, sometimes significantly, as a result of political, economic or social events.

In addition, on August 14, 2018, the President of Brazil approved Law No. 13,709/2018, a comprehensive data protection law establishing general principles and obligations that apply across multiple economic sectors and contractual relationships (Lei Geral de Proteção de Dados), or the “LGPD.” The LGPD establishes detailed rules for the collection, use, processing and storage of personal data and will affect all economic sectors, including the relationship between customers and suppliers of goods and services, employees and employers, and other relationships in which personal data is collected, whether in a digital or physical environment. The data protection regime imposes more stringent data protection standards on Brazilian residents. Any breaches of the LGPD may subject us to penalties of up to R$50 million and a requirement to notify parties whose data has been affected.

The obligations established by the LGPD were initially going to become effective in August 2020 (24 months from the date of its publication in August 2018), by which date all legal entities would be required to adapt their data processing activities to these new rules.

However, due to recent developments regarding the COVID-19 outbreak, the president of Brazil has issued Provisional Measure No. 959/2020, which postpones the effectiveness of the applicable penalties under the LGPD. As a result, the LGPD became effective on September 18, 2020, but the entry into force of the applicable penalties under the LGPD was postponed to August 1, 2021.

We are currently evaluating the LGPD, its requirements and their potential effect on our business. We started the implementation of a compliance program by electing the data protection office, mapping all data activities processes, elaborating and reviewing our data protection and privacy policy and providing training on privacy matters to our employees. Moreover, additional data protection laws may be enacted in Brazil or in other jurisdictions in which we operate. Any such additional laws may require us to make additional changes to our business practices and may expose us to additional penalties for noncompliance.

Any of these developments could have a material adverse effect on our business, financial condition and results of operations.

Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs could adversely affect our business.

All of our employees are represented by labor unions. Our relationships with these organizations are governed by labor agreements or collective bargaining agreements which we negotiate with labor unions. Upon the expiry of such agreements, we are required to renegotiate new agreements with the applicable labor union. As part of these renegotiations, new terms and conditions may be established. In certain cases, these agreements may not be renewed, which could lead to strikes and/or stoppages in our activities and have an adverse impact on our business, financial condition and results of operations. Furthermore, since the enactment of Law No. 13,467/2017, labor agreements and collective bargaining agreements prevail over certain provisions of labor legislation, as stated in items I to XV, of Article 611-A, of the Consolidation of Brazilian Labor Laws (Consolidação das Leis do Trabalho), such as working time arrangements and the manner in which these are recorded, work breaks, and certain employer-specific internal rules, among others. As a result, employers may expand or reduce certain labor rights, provided this is done pursuant to the terms of labor agreements negotiated with unions and/or individual agreements negotiated with the respective employees.

Failure to comply with, obtain or renew the licenses and permits required for our business may have a material adverse effect on us.

We are required to obtain specific licenses with respect to our terminals from the applicable environmental authorities, which are required in connection with the emission, ejection and emanation of products and by-products resulting from distribution activities. We are also required to obtain specific licenses and permits from governmental authorities for rural producers in order to carry out certain of our operations. The laws and regulations which govern these licenses may occasionally require us to purchase and install costly pollution control equipment or to make operational changes to limit our impact on the environment and/or the health of our employees. Any failure to comply with the terms of such laws, regulations and licenses and permits may result in significant financial penalties, criminal sanctions, revocation of operating licenses and permits, and/or the prohibition of certain of our activities.

In addition, we are currently in the process of obtaining or renewing, as the case may be, certain licenses and permits (including real estate and environmental permits) required for the continuity of our activities. Our business, financial condition and results of operations may be materially and adversely affected if we are unable to obtain or renew all licenses and permits required for our business and operations.

Contamination of our products and other related risks could adversely affect our reputation, leading to judicial and administrative proceedings and/or resulting in the closure of our production facilities.

Certain of our products may have adverse effects on consumers (including certain components, raw materials and supplies used to produce these products), including as a result of product contamination or subsequent errors in the production or distribution chain.



Contamination of any of our products may result in a need for recalls or the beginning of legal and administrative proceedings against us, which may adversely affect our reputation, our business, the operation of our production facilities, our financial condition and our operating results. Any damage to our reputation could have a material adverse effect on us.

We may not successfully acquire or develop additional production capacity through greenfield projects or expansion of existing facilities.

We may explore growth opportunities in the future through the acquisition or development of greenfield projects or through the expansion of our existing facilities. We may be unable to complete these projects on a timely basis or at all, and may not realize the related benefits we anticipate. The factors which may prevent us from doing so include, among other things, (1) our failure to obtain environmental and other licenses; (2) our inability to obtain supplies of appropriate equipment or raw materials; (3) increases in costs and/or decreases in revenue; (4) a lack of qualified workforce; (5) lack of service providers; and (6) our inability to obtain any required financing on satisfactory terms, or at all.

Our greenfield projects and/or expansion of existing facilities require a significant number of service providers. Any inability on our part to enter into contracts with duly qualified service providers who are able to provide the technical services that we require may prevent us from completing our greenfield projects and/or expansions of existing facilities on a timely basis, or at all. In addition, the integration of greenfield projects or expansion of our existing facilities may result in unforeseen operating difficulties and may require significant financial and managerial resources that would otherwise be used for our current operations. Planned or future greenfield projects or expansions of existing facilities may not enhance our financial performance. Any failure in the implementation of growth projects and/or expansion of existing facilities may have a material adverse effect on our business, financial condition and results of operations.

We are exposed to the possibility of losses related to natural disasters, catastrophes, accidents, fire and other events not in our control, which may have a material adverse effect on our financial performance.

Our operations are subject to certain risks that affect our properties, facilities, permanent passageways, rail banks and inventory, including, among others, fire, which may destroy machinery, equipment and facilities as well as client cargo being transported. Fires, explosions, fuel leaks and other flammable products as well as other environmental events, cargo loss or damage to railroads or cargo loading and unloading terminals, accidents, business interruptions due to political events as well as labor claims, demonstrations by social and/or environmental groups or associations, strikes (of our own employees or of those linked to entities with which we have a relationship, such as port operators), disease outbreaks, such as COVID-19, adverse weather conditions and natural disasters, such as floods, may result in the loss of revenues, assumption of liabilities or cost increases. We are also subject to stoppages and blockades of highways and other public roads, such as the truckers’ strike in May 2018, when Brazilian truck drivers started a national strike for a reduction of taxes levied on diesel and changes in the fuel price policy in Brazil. Stoppages and blockages of highways and other public roads may adversely affect our business and results. Moreover, our operations may be periodically affected by crop shortfalls, landslides and other natural disasters.

Our transportation and handling of cargo exposes us to risks relating to catastrophes, mechanical and electrical failures, collisions and loss of assets. A portion of our freight activities involves petroleum products and other flammable materials, and the presence of such products may aggravate the effects of any catastrophe.

Because our insurance does not cover all potential risks and losses we may incur, the occurrence of a natural disaster of large proportions, catastrophes, cyberattacks, pandemics, mechanical failures, loss of assets or any other of the events referred to above, and any resulting damage to our business, may have a material adverse effect on our business, operating results and financial condition, including as a result of civil, administrative and/or criminal sanctions relating to environmental liability (including civil, administrative and/or criminal sanctions of such nature imposed on our management).

We are exposed to credit and other counterparty risks of our customers in the ordinary course of our business.

We have various credit terms with various types of customers, including fuel distributors, wholesalers, retailers, trading companies and consumers of the energy which we generate or trade. Our customers have varying degrees of creditworthiness and are subject to different rules and regulations. We are therefore exposed to the risk of nonpayment or other default under our contracts and other arrangements with them.

As part of our relationships with our customers, we set different credit conditions for each customer based on their perceived creditworthiness. Economic conditions may also affect our customers’ ability to meet their obligations to us. In addition, we are also exposed to other types of counterparty risk, including reputational risk, as well as risks relating to money laundering, embargos, breaches of labor regulations and other related matters.

In the event that a significant number of material customers default on their payment obligations to us, our financial condition, results of operations or cash flows, could be materially and adversely affected. Any of these risks could have an adverse effect on our business, financial condition and results of operations.

Our inability to post judicial collateral or provide guarantees in pending legal or administrative proceedings could have a material adverse effect on our business, financial condition and results of operations.


We may not have sufficient funds to post collateral or provide guarantees in judicial or administrative proceedings involving substantial amounts. Even if we do not post such collateral or provide guarantees, we will be liable for paying any amounts due pursuant to any unfavorable outcomes in legal proceedings. We cannot assure you that, if we cannot make such payments, our assets, including financial assets, will not be attached or that we will be able to obtain tax good-standing certificates, all of which may have a material adverse effect on our business, financial condition and results of operations.

We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations.

We are subject to anti-corruption, anti-bribery, anti-money laundering and other international trade laws and regulations. We are required to comply with the laws and regulations of Brazil and various jurisdictions where we conduct operations. In particular, we are subject to the Brazilian Anti-corruption Law No. 12.846, to the U.S. Foreign Corrupt Practices Act of 1977, or the “FCPA,” to the United Kingdom Bribery Act of 2010, as well as economic sanction programs, including those administered by the United Nations, the European Union and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control, or “OFAC.” The FCPA prohibits providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of our business, we may deal with entities and employees which are considered foreign officials for purposes of the FCPA. In addition, economic sanctions programs restrict our dealings with certain sanctioned countries, individuals and entities. Although we have internal policies and procedures designed to ensure compliance with applicable anti-fraud, anti-bribery and anti-corruption laws and sanctions regulations, potential violations of anti-corruption laws have been identified on occasion as part of our compliance and internal control processes. When such issues arise, we attempt to act promptly to learn relevant facts, conduct appropriate due diligence and take any appropriate remedial action to address the risk. Given the size of our operations and the complexity of the production chain, there can be no assurance that our internal policies and procedures will be sufficient to prevent or detect all inappropriate practices, fraud or violations of law by our employees, directors, officers, partners, agents and service providers or that such persons will not take actions in violation of our policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which we or they may be ultimately held responsible. Violations of anti-bribery and anti-corruption laws and sanctions regulations could have a material adverse effect on our business, reputation, results of operations and financial condition. In addition, we may be subject to one or more enforcement actions, investigations and proceedings by authorities for alleged infringements of these laws. These proceedings may result in penalties, fines, sanctions or other forms of liability and could have a material adverse effect on our reputation, business, financial condition and results of operations.

Funding, especially on terms acceptable to us, may not be available to meet our financial obligations and future capital needs.

We rely on obtaining financing and refinancing of existing loans in order to operate our business, implement our strategy and grow our business. We need bank guarantees to obtain credit facilities and we typically need insurance guarantees in order to participate in court proceedings to which we are a party.

If we are unable to obtain new financing or to refinance existing loans when necessary, or obtain or renew insurance guarantees on reasonable terms or at all, we may not be able to comply with our financial obligations or explore business opportunities, and responding to competitive pressures may become challenging. This would have a material adverse effect on our business, financial condition and results of operations.

Our debt level could adversely affect our financial health and prevent us from fulfilling our debt obligations, which would reduce our ability to raise capital to finance our investments and operations and would adversely impact our ability to recover from economic changes.

Our debt level and the composition of our debt could, among other things: (1) require us to reserve a substantial part of our operational cash flows to pay principal and interest on our debt, which will reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and investments; (2) limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; (3) limit our ability to borrow additional funds, obtain bank guarantees or collateral insurance and generally increase our borrowing costs; and (4) place us at a competitive disadvantage compared to our competitors that have less debt. Any of the aforementioned developments could have a material adverse effect on us, our financial condition and our results of operations.

We may be unable to comply with restrictive covenants under our financing agreements.

We are subject to certain restrictive covenants based on certain financial and non-financial indicators which are set forth in the majority of the indebtedness and finance agreements to which we are a party. The majority of such covenants relate to requirements to comply with certain predetermined levels of leverage.

Any failure by us to comply with the restrictive covenants in our credit agreements as a result of adverse conditions in our business environment may trigger the acceleration of part of our indebtedness, limit our access to new credit facilities as well as adversely affect our business and results of operations.


We may not effectively manage risks associated with the replacement of benchmark indices.

Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks” are the subject of increased regulatory scrutiny. In 2017, the United Kingdom’s Financial Conduct Authority, or the FCA, announced that it will no longer persuade or compel banks to submit rates for the calculation of the London interbank offered rate (“LIBOR”) benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021. This and other reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated and which introduce a number of risks for us including legal risks arising from potential changes required to documentation for new and existing transactions. In addition, financial risks arising from any changes in the valuation of financial instruments linked to benchmark rates, and pricing risks arising from changes to benchmark indices could impact pricing mechanisms on some instruments. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect us. However, the implementation of alternative benchmark rates may have a material adverse effect on our business, results of operations, financial condition and prospects.

We may raise additional capital in the future for strategic partnerships or by issuing securities, which may result in a potential dilution of your equity interest.

In light of the intensive capital needs of our operations, we are constantly analyzing alternatives and considering the possibility of entering into strategic partnerships, disposing of assets, or raising additional capital through a public or private issuance of shares and/or securities convertible into or exchangeable for shares. Any strategic partnership, issuance or placement of shares and/or securities convertible into or exchangeable for shares may affect the market price of our common shares and ADSs and could result in dilution of your equity interest.

Our insurance coverage may be inadequate to cover all losses and/or liabilities that may be incurred in our operations.

Our operations are subject to a number of hazards and risks. We maintain insurance at levels that are customary in our industry to protect against these liabilities; however, our insurance may not be adequate to cover all losses or liabilities that might be incurred in our operations.

For example, we do not maintain coverage for business interruptions of any nature for our Brazilian operations, including business interruptions caused by labor disruptions. If, for instance, our workers were to strike, the resulting work stoppages could have a material and adverse effect on us. Similarly, we do not insure most of our assets against war or sabotage. Therefore, an attack or an operational incident causing an interruption of our business could have a material and adverse effect on our financial condition or results of operations.

Moreover, we will be subject to the risk that we may not be able to maintain or obtain insurance of the type and amount desired at reasonable rates. If we were to incur a significant liability for which we were not fully insured, it could have a materially adverse effect on our business, financial condition and results of operations.

Any failure relating to our strategic partnerships may result in additional financial or performance obligations by us, which would reduce our profitability.

We may enter into strategic partnerships, joint ventures, combinations, alliances and collaborations, including, among other things, partnerships with our customers. The success of these and other partnerships depends, in part, on the satisfactory performance of our and our partners’ obligations.

If we or our partners do not satisfactorily perform such obligations, our strategic partnerships may fail to perform as expected or to deliver the agreed services. Should this occur, we may be required to make additional investments and provide additional services to guarantee the adequate performance and delivery of the agreed services, or terminate such partnerships prior to their stated maturity. The performance by us of additional obligations with respect to our strategic partnerships may result in the reduction of our profits and material losses to us.

Likewise, the failure of our strategic partners to fulfill their obligations under our partnership agreements may have a material adverse effect on such partnerships. In addition, the failure to reach an agreement as to certain matters may result in deadlock pursuant to certain of the shareholders’ and other agreements governing our strategic partnerships.

Strategic partnerships are essential to the continuity of our operations and our growth. If we fail to maintain our existing partnerships or identify new partnerships, or if our business or strategic partnerships are unsuccessful, our business, financial condition and results of operations may be materially and adversely affected.

We are highly dependent on our chairman and other members of our management to develop and implement our strategy and to oversee our operations. If we lose key personnel, our business, financial condition and results of operations may be adversely affected.

We are dependent upon the ability and experience of a number of our key personnel who have substantial experience with our operations. Such key personnel include our chairman and controlling shareholder, other members of senior management and certain members of our board of directors. Many of our key personnel have worked for us for a significant amount of time or were recruited by us specifically due to their industry experience. It is possible that the loss of the services of one or a combination of our key personnel could have a material adverse effect on our business, financial condition and results of operations. In particular, our business is particularly dependent on our chairman, who is also our controlling shareholder. We currently do not carry any key-man insurance.


We are indirectly controlled by a single individual who holds 168,186,507 or 35.90% of our common shares and voting rights.

Our controlling shareholder and chairman has the power to indirectly control the Company, including the power to:

  • elect a majority of our directors and appoint our executive officers, set our management policies and exercise overall control over our Company and subsidiaries;
  • agree to sell or otherwise transfer his controlling stake in our Company; and
  • determine the outcome of substantially all actions requiring shareholder approval, including transactions with related parties, corporate reorganizations, acquisitions and dispositions of assets, and dividends.

Currently, because of our share capital structure, our controlling shareholder is able to control substantially all matters submitted to our shareholders for a vote or approval. The concentrated control will limit your ability to influence corporate matters and, consequently, we may take actions that our shareholders do not view as beneficial. Moreover, our controlling shareholder may make decisions that are contrary to the interests of our other shareholders, and diverge from those of our minority shareholders. These may include actions to conduct acquisitions, divest assets, engage in new business partnerships and engage in new financings or similar operations. As a result, the market price of our common shares and ADSs could be adversely affected.

We operate in industry sectors that require significant financial resources that will require access to the capital markets and bank financing in significant volumes to meet our investment objectives.

We obtain funds for our activities through loans from financial institutions, domestic and foreign lenders, and through access to the capital markets. Our ability to obtain funding to finance our growth or operate our business depends on several factors, including our level of indebtedness and market conditions. Global market and economic conditions have been, and continue to be, disruptive and volatile. The debt capital markets have been impacted by significant write-offs in the financial services sector and the re-pricing of credit risk, sovereign defaults, political and economic developments in and affecting Brazil such as the “Lava Jato” scandal, among other things. These events have negatively affected general economic conditions. In particular, the cost of raising money in the debt capital markets has increased substantially while the availability of funds from those markets for Brazilian companies has diminished significantly. Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards and reduced and, in some cases, ceased to provide funding to borrowers on commercially reasonable terms or at all. Our failure to obtain the necessary resources on reasonable terms may adversely affect our investment strategy. If we decide to increase our debt levels, we may be subject to risks, including our inability to pay outstanding debt, which may adversely affect our financial condition.

In addition, in connection with any new indebtedness we incur, we may be required to meet certain covenants in our financing arrangements, such as maintaining financial ratios, and may be subject to restrictions on our ability to incur new debt or make new investments. A breach of these covenants may result in a mandatory prepayment or acceleration of the maturity of our outstanding debt. In the event of a prepayment or acceleration, our assets and cash flow might not be sufficient to pay the full amount due, which would have a material adverse effect on our financial condition.

Our compliance and governance policies and our internal controls may not be sufficient to prevent regulatory penalties and reputation damage.

Our compliance and governance policies, which include the review of internal controls over financial reporting, may not be sufficient to ensure that we are able to comply with existing and future legal, regulatory (including applicable anti-corruption and antitrust laws), accounting and other corporate governance requirements and standards. Accordingly, we, our subsidiaries and our affiliates may be subject to violations of our code of conduct and anti-corruption policies, and cases of fraudulent behavior or corrupt or anti-competitive practices by employees, contractors or other agents. Failure to comply with the applicable rules and legislation may subject us, our subsidiaries, our affiliates, our employees, contractors or other agents, to, among other things, litigation, investigations, expenses, fines, loss of operating licenses, reputation damage, preventive arrest warrants, coercive measures and other applicable sanctions, penalties and damage, each of which may adversely affect our business, results of operations and financial condition.

Government policies and regulations could have a material adverse effect on our operations and profitability.

Government policies in Brazil and elsewhere, in each case whether at the federal, state or local level, may adversely affect the supply, and demand for, and prices of, our products or restrict our ability to do business in our existing and target markets, which could adversely affect our financial performance.

Agricultural production and trade flows are significantly affected by Brazilian federal, state and municipal, as well as foreign, government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies and import and export restrictions on agricultural commodities and commodity products, may influence industry profitability, the planting of certain crops versus others, the uses of agricultural resources, the location and size of crop production, the trading levels for unprocessed versus processed commodities, and the volume and types of imports and exports.


Our gas distribution operations are currently concentrated in the state of São Paulo. Any changes affecting governmental policies and regulations regarding natural gas in the state of São Paulo (at the federal, state or municipal level) may have a material adverse effect on our business and financial performance.

In addition, petroleum and petroleum products have historically been subject to price controls in Brazil. Currently there is no legislation or regulation in force giving the Brazilian government the power to set prices for petroleum, petroleum products, ethanol or vehicular natural gas. However, given that Petrobras, the only supplier of domestically produced oil-based fuels in Brazil, is a government-controlled company, prices of petroleum and petroleum products are subject to government influence, resulting in potential inconsistencies between international prices and internal oil derivative prices that affect our business and our financial results.

As a payment institution (instituição de pagamento) and payment scheme settlor (instituidor de arranjo de pagamento) in Brazil, Payly Soluções de Pagamentos S.A., or “Payly,” is subject to Brazilian laws and regulations relating to electronic payments in Brazil, comprised of Brazilian Federal Law No. 12,865/13 and related rules and regulations. Any failure by Payly to comply with such legislation could result in disciplinary or punitive action by the relevant regulators. Furthermore, we cannot assure you that Payly will be able to obtain and maintain all required operating licenses. Any of these developments could have a material adverse effect on Payly’s business, financial condition and results of operations.

Raízen Energia, Raízen Combustíveis, Moove, Compass and WX Energy are subject to the application of regulatory penalties in the event of noncompliance with the terms and conditions of their respective authorizations, including the possible revocation of such authorizations.

Raízen Energia performs generation activities in accordance with the regulations applicable to the energy sector and with the terms and conditions of authorizations granted by the Brazilian government through ANEEL. The duration of such authorizations varies from 20 to 35 years.

ANEEL may apply regulatory penalties to Raízen Energia in the event of noncompliance with the authorizations or with the regulations applicable to the energy sector. Such penalties may include, depending on the seriousness of the infraction, warnings, fines (in some cases up to 2% of our revenues for the last 12 months), restrictions on Raízen Energia’s operations, temporary suspension from participating in public bidding procedures to obtain new permissions, authorizations and concessions, prohibition from contracting with ANEEL, and revocation of its authorizations.

In addition, Raízen Combustíveis conducts its fuel distribution activities and Moove manufactures and distributes lubricants and base oil in accordance with the rules and regulations applicable to the oil and gas sector in Brazil as well as with the terms of the licenses and permits granted to them by the Brazilian government acting through the ANP. Failure to comply with the applicable rules and regulations or with the terms of the relevant licenses and permits may result in fines and other penalties (including confiscation or destruction of products, cancellation of product registrations, bans on certain facilities, and revocation of existing licenses and permits, among others). The applicable fines vary between R$5 thousand and R$5 million, depending on the gravity of the infraction.

Furthermore, the electricity trading operations of WX Energy Comercializadora de Energia Ltda., or “WX Energy,” which Bioenergia Barra Ltda., a wholly-owned subsidiary of Raízen Energia, acquired on July 5, 2018, and Compass, which was acquired on January 31, 2020, are highly regulated and supervised by the Brazilian government, including through ANEEL as well as other regulatory authorities. Such regulatory authorities have discretionary authority to implement and change policies, interpretation and rules applicable to different aspects of WX Energy and Compass’s businesses, especially their operations, maintenance, safety, compensation and inspection. Any significant regulatory measure implemented by the competent authorities may impose a significant burden on both companies’ activities.

We cannot assure you that Raízen Energia, Raízen Combustíveis, Moove, Compass and WX Energy will not be penalized by ANEEL, ANP or other regulatory authorities, as applicable, nor can we assure you that they will comply with all terms and conditions of their authorizations and with the regulations applicable to their respective businesses, which may have a material adverse effect on their and our business, results of operations and financial condition.

We face significant competition, which may have a material adverse effect on our market share and profitability.

The ethanol and sugar industries in which Raízen Energia operates are highly competitive. Internationally, Raízen Energia competes with global ethanol and sugar producers in the United States, India, Thailand, Australia and Europe, among others. Some of Raízen Energia’s competitors are divisions of larger enterprises and may have greater financial resources than Raízen Energia has or than we have. In Brazil, Raízen Energia competes with numerous small to medium-size producers. The Brazilian ethanol and sugar industries remain highly fragmented. Raízen Energia’s major competitors in Brazil are Biosev (the second largest ethanol and sugar producer in Brazil), Tereos - Guarani (the third-largest ethanol and sugar producer in Brazil), Bunge, Santa Terezinha and São Martinho, among others. Each of these producers markets ethanol and sugar products through the Cooperative of Sugarcane, Sugar and Ethanol Producers of the state of São Paulo (Cooperativa de Produtores de Cana-de-açúcar, Açúcar e Álcool do Estado de São Paulo), or “Copersucar.” Copersucar consists of producers in the states of São Paulo, Minas Gerais and Paraná. Raízen Energia is not a member of Copersucar.


Raízen Energia also faces strong competition from international producers, particularly in highly regulated and protected markets such as the United States and the European Union. With regard to sugar exports, Raízen Energia faces intense competition from producers all around the world, including India, Thailand, and the European Union, among others. There are global producers of sugar whose costs are lower than those of Brazilian producers, including Raízen Energia, and whose production capacity and prices could lead to a decrease in prices on the global sugar market. Furthermore, Raízen Energia faces very strong competition internationally with regards to ethanol, especially from the United States. Ethanol production in the United States is based on corn-derived ethanol and is undertaken on a larger scale than Brazilian ethanol production. Accordingly, a reduction in corn prices may lead to material reductions in the price of ethanol produced in the United States and result in increased competition in the Brazilian market.

Historically, imports of sugar have not provided substantial competition for us in Brazil due to, among other factors, the production and logistical cost-competitiveness of sugar produced in Brazil. If the Brazilian government were to create incentives for sugar imports, Raízen Energia could face increased competition in the Brazilian market by foreign producers. Many factors influence our competitive position, including the availability, quality and cost of fertilizer, energy, water, chemical products and labor. Some of our international competitors might have greater financial and marketing resources, larger customer bases and broader product ranges than Raízen Energia does. If Raízen Energia is unable to remain competitive with these producers in the future, its market share may be adversely affected.

The fuel distribution market in Brazil in Raízen Combustíveis is active and highly competitive. For example, we compete with domestic fuel distributors who purchase substantially all of their fuel from Petrobras and from suppliers based outside of Brazil. There are few domestic competitors, such as Raízen Combustíveis, who import fuels into Brazil. In addition, Raízen Combustíveis competes with producers and marketers in other industries that supply alternative forms of energy and fuel to satisfy the requirements of Raízen Combustíveis’s industrial, commercial and retail consumers. Certain measures currently being taken by participants in the fuel distribution market, including the expansion of their distribution networks, as well as the arrival of new participants, may result in an increase in fuel supply and a consequent decrease in fuel prices, which may have an adverse effect on our business, financial condition and results of operations. Raízen Combustíveis’s main competitor in Argentina is state-owned YPF, which has more than half of the market share in the country.

Moove’s principal competitors in the lubricant market are larger and have substantially greater resources than Moove. Because of their larger capitalization, these companies may be more flexible in responding to volatile industry or market conditions, such as shortages of crude oil and other feedstock or intense price fluctuations. The actions of Moove’s competitors could lead to lower prices or reduced margins for Moove’s products, which could have a material and adverse effect on Moove and on our business, results of operations and financial performance.

Competition in the transportation services industry in which Rumo operates is intense and includes (1) competition with other transportation modes, such as road freight; (2) competition with alternative export options for agricultural products through other ports; (3) dependence on operating quality and port and terminal capacity; (4) the limitations established by the maximum tariffs established by the ANTT; (5) a reduction in road tariffs, particularly during times of declining growth rates in the economy or low demand from agricultural producers, which may limit our ability to maintain or increase rates, operating margins or growth of Rumo’s business; and (6) establishment of cooperative relationships by Rumo’s competitors to increase their ability to address shipper needs. Rumo’s main competitors are companies in the truck transportation business, which has historically been the main cargo transportation mode in Brazil. Any new measures by the Brazilian government that benefit or reduce costs for road transportation, such as cheaper toll fares or permanent suspension of the toll-road concession program, may also limit Rumo’s growth prospects. Rumo may also face significant competition from third parties if the granting authority decides to subject its maturing concessions to a rebidding process.

The market for payment processing services, in which Payly operates, is highly competitive. Other providers of payment processing services in the acquirer market have also established a sizable market share in the small and mid-sized merchant processing and servicing sector.

The intense competition in the Brazilian markets in which we operate and the actions of our competitors could lead to lower prices or reduced margins for the products we sell, as well as reductions in our sales volumes, which could have a material and adverse effect on our business, results of operations and financial performance.

Adverse weather conditions may have an adverse effect in our businesses.

Raízen’s sugar production depends on the volume and sucrose content of the sugarcane that we cultivate or that is supplied to us by sugarcane producers located in the vicinity of our mills. Crop yields and sucrose content depend primarily on weather conditions such as rainfall and temperature, which vary and may be influenced by global climate change. Weather conditions have historically caused volatility in the ethanol and sugar industries and, consequently, in our results of operations, by causing crop failures or reduced harvests. Flood, drought or frost, which may be influenced by global climate change, may have a material adverse effect on the supply and pricing of the agricultural commodities that we sell and use in our business. Future weather patterns may reduce the amount of sugar or sugarcane that we can recover in a given harvest or its sucrose content.

WX Energy, Compass Comercializadora de Energia Ltda. and Compass Geração Ltda., which are energy trading companies, may also be affected by adverse weather conditions, principally reduced rainfall. If rainfall is reduced compared to normal levels, this would result in a decrease in the flow of rivers, a reduction in the reservoirs of the hydroelectric plants, and adversely affect the generation of energy thereby leading to an increase in the price of energy traded in the local market.


During the third and fourth quarters of 2014, a severe drought affected southeast Brazil, Comgás’s concession area, during which time residents were encouraged to save water. As a relevant portion of Comgás’s revenues is derived from the residential segment, and a significant portion of natural gas used by residential consumers is used for heating water, Comgás experienced a decrease in its net revenues derived from the residential segment. Therefore, our and Comgás’s business may be materially affected by unusual climate patterns.

Rumo’s operations may be adversely affected by climatic conditions. For example, excessive rainfall may result in a deterioration in the conditions of railroads and an increase in transit time, which may lead to losses. Infrastructure deficiencies resulting from adverse weather conditions, among other things, may make it more difficult to conduct business in the areas in which Rumo operates.

In Brazil, Petrobras is the main supplier of base oils, the primary distributor of fuel and the dominant company in the natural gas sector. In the event of an interruption of supply of fuels from Petrobras, significant disruption to Raízen Combustíveis’s, Comgás’s and Moove’s operations and sales may occur.

Petrobras is the principal supplier of fuel in Brazil and the distribution policies it sets forth directly affect the Brazilian energy matrix. With the discoveries in the pre-salt oil fields, and the beginning of production in the Santos basin, which is located close to our concession area, we face uncertainties regarding the production of alternative fuel. Petrobras is also the subject of “Lava Jato” investigations by the Brazilian Federal Police, the Brazilian Federal Prosecutor’s Office, the CVM and the SEC in connection with corruption allegations, which could cause disruption in Petrobras’ activities. Significant disruption to our fuel, lubricant and natural gas sales may occur in the event of an interruption of supply from Petrobras. Any interruption would immediately affect our ability to provide fuel, lubricant and natural gas products to our customers. If we are not able to obtain an adequate supply of fuel, base oil and natural gas products from Petrobras under acceptable terms, we may seek to meet our demands through purchases on the international market. The cost of fuel and base oil products on the international market may be more expensive than the price we obtain through Petrobras.

In addition, we may be adversely affected if Petrobras significantly modifies its business plan or reduces its activities related to the distribution of fuel in Brazil. In particular, the most recently published divestment plan of Petrobras suggests that Petrobras is scaling back its positions in logistics, which may result in disruption of logistics services and changes to distribution policies, which may adversely affect the competitiveness of fuel distributors.

Our business is subject to seasonal trends.

Raízen Energia’s business is subject to seasonality according to the sugarcane growth cycle in the Central-South region of Brazil. The annual sugarcane harvesting period in the Central-South region of Brazil begins in April or May and ends in November or December. This creates fluctuations in Raízen Energia’s inventory and in its ability to generate energy, both of which usually peak in December, to cover sales between crop harvests (primarily from January to March), and a degree of seasonality in our gross profit, with ethanol and sugar sales significantly lower in the quarter ended on December 31. Rural producers of sugar and ethanol with whom Raízen Energia maintains a commercial relationship may experience a similar degree of seasonality, which may impact the supply of ethanol and/or other products necessary for Raízen Energia’s activities. Seasonality and any reduction in the volumes of sugar recovered could have a material adverse effect on our business, results of operations and financial condition.

Raízen Energia is also subject to seasonality with respect to demand for the energy which it generates and sells. Specifically, demand for energy is subject to various factors which vary from season to season according to the type of customer, geographical location and consumption type (e.g., residential, commercial or industrial), among other factors, and demand for energy and trading activities may be affected by variations in such factors.

Furthermore, Rumo is subject to the seasonality that influences the sugar production cycle and grain harvest. During the peak months of each harvest, there is higher demand for transport and logistics operations.

Seasonality could have a material adverse effect on our business, results of operations and financial condition.

We are subject to developments affecting the Brazilian agribusiness sector as a whole.

We cannot assure you that in the future, the Brazilian agribusiness sector (i) will maintain the rate of growth and development which it has experienced in recent years and (ii) will not suffer losses due to unfavorable climatic conditions, reduction of the prices of the agricultural commodities in the national and international markets, changes in credit policies for domestic producers, both by government agencies and private entities, that may affect our income, as well as other economic and political crises that may affect the agricultural industry in general. Any deterioration in the overall condition of the Brazilian agribusiness sector may have a material adverse effect on us.


Fire and other disasters could affect our agricultural and manufacturing properties and our facilities and distribution networks, which would have a material adverse effect on our production and distribution volumes and, consequently, results of operations.

Our operations are subject to risks affecting our agricultural properties and facilities and distribution networks, including fire potentially destroying some or all of our crop and facilities. In addition, our operations are subject to hazards associated with the manufacture of flammable products and transportation of raw materials and flammable products. Our insurance coverage may not be sufficient to provide full protection against these types of casualties.

We may be adversely affected by unfavorable outcomes in pending legal proceedings.

We are involved in a significant number of tax, civil (including regulatory and environmental) and labor proceedings. As of December 31, 2020, we had recorded a provision totaling R$1,360.9 million for proceedings in which we deem the risk of loss as probable (equivalent to R$875.8 million net of judicial deposits or restricted bank accounts). We cannot predict whether we will prevail in these or other proceedings, or whether we will have to pay significant amounts, including penalties and interest, as payment for our liabilities, which would materially and adversely impact our business and financial performance.

In addition, unfavorable decisions in criminal proceedings involving members of our management may have a material adverse effect on us. Certain members of our management have been named as defendants in criminal proceedings (1) in their capacity as officers of the predecessor entity of Raízen Energia for alleged artificial price fixing of fuel and the formation of a cartel with the purpose of establishing control over the regional market, (2) in their capacity as officers of Raízen Energia and in our Company for alleged tax evasion carried out by these entities and (3) in their capacity as officers of the predecessor entities of Raízen for the crimes of disobedience and pollution in connection with the alleged burning of sugarcane contrary to a judicial decision. In the event of a final non-appealable conviction, one or more of these officers may be barred from holding executive positions within our Company, and depending on the development of the proceedings, our reputation in the opinion of our clients, suppliers and investors may be materially adversely affected.

We cannot predict whether we will prevail in these or other proceedings, or whether we will have to pay significant amounts, including penalties and interest, as payment for our liabilities, which would materially and adversely impact our business, results of operations and financial condition. If we are the subject of an unfavorable outcome in any of these legal proceedings, the amount of such unfavorable decisions will have a material adverse effect on our financial position and operating results.

Our business would be materially adversely affected if operations at our transportation and distribution facilities experienced significant interruptions. Our business would also be materially adversely affected if the operations of our customers and suppliers experienced significant interruptions.

The distribution of fuels, natural gas and other products is by its nature subject to inherent risks, including interruptions or disturbances in the distribution system which may be caused by accidents or force majeure events. Our operations are dependent upon the uninterrupted operation of our terminals and storage facilities and various means of transportation and distribution facilities. We are also dependent upon the uninterrupted operation of certain facilities owned or operated by our suppliers and customers. Operations at our facilities and at the facilities owned or operated by our suppliers and customers could be partially or completely shut down, temporarily or permanently, as the result of any number of circumstances that are not within our control, such as:

  • catastrophic events, including hurricanes, floods and fire;
  • environmental matters (including environmental licensing processes or environmental incidents, contamination, wildlife preservation obligations and others);
  • labor difficulties (including work stoppages, strikes and other events);
  • changes to legislation; and
  • disruptions in the supply of our products to our facilities or means of transportation.

Any significant interruption at these facilities or inability to transport products to or from these facilities or to or from our customers for any reason could subject us to liability in judicial, administrative or other proceedings, even for disruptions caused by events outside of our control. If we are held liable for such events, our business, financial condition, results of operations and cash flow would be materially adversely affected.


For example, between May 21 and May 31, 2018, Brazil suffered an extensive nationwide trucking strike. With trucks stopped and blocking highways, fuel refineries and terminals, food and medical supplies ceased being delivered to distribution points. The stoppage began to subside on May 27, 2018, after representatives of the trucking industry and the Brazilian government reached an agreement. We estimate that the nationwide trucking strike impacted our results (principally those of Raízen Combustíveis) by approximately R$220 million during the fiscal year ended December 31, 2018.

Volatility in the price of the products we sell, through subsidiaries and joint ventures, may have a material adverse effect on us.

Our results of operations may be significantly affected by volatility in the prices of the products we sell, through subsidiaries and joint ventures. The prices of these products are subject to significant fluctuation as a result of domestic and international demand, production volumes and global stock levels. Price volatility may have a significant impact on our results of operations, particularly if our revenues fall below our production costs.

The prices at which our subsidiaries and joint ventures are able to sell their products depend on market conditions, both in Brazil and internationally, which are outside of our control. The prices at which our subsidiaries and joint ventures are able to sell their products have a significant impact on our results of operations. As is the case with other commodities, the prices of the products we sell, through subsidiaries and joint ventures, are subject to significant fluctuation as a result of natural disasters, harvest levels, agricultural investments, governmental policies (in particular with regard to the agricultural sector), trade policies, changes in supply and demand patterns, increases or decreases in purchasing power, the production of similar or competing products and other factors beyond our control. A significant portion of our products are also traded on commodities exchanges and their prices may therefore be affected by speculation on financial markets.

In addition, the price of sugar is also affected by the obligation to comply with certain requirements relating to exports and the consequent effects on supply within Brazil. As a result, the price of sugar has historically been subject to greater volatility than the prices of other products. Sugar prices may decrease as a result of, directly or indirectly, competition from alternative sweeteners, including saccharine and high fructose corn syrup, changes in agricultural policies or international or Brazilian trade policies (including those mandated by the World Trade Organization).

Any significant or prolonged decrease in the price of sugar and/or ethanol may have adverse effects on our business, financial condition and results of operations.

The production of lubricants, natural gas transportation and the storage and transportation of fuel products and lubricant products are inherently hazardous.

The complex manufacturing operations performed at (i) Raízen’s facilities (mills, terminals and its refinery in Argentina), (ii) Comgás (infrastructure used in the distribution of piped natural gas), (iii) Moove (a lubricants oil blending plant), and (iv) Rumo (storage terminals, ports and railcars) involve a variety of safety and other operating risks, including the handling, production, storage and transportation of toxic materials. These risks could result in personal injury and death, severe damage to or destruction of property and equipment and environmental damage. A material accident at one of these could result in a suspension of operations and result in significant remediation costs and lost revenue. In addition, insurance proceeds, if available, may not be received on a timely basis and may be insufficient to cover all losses, including lost profit. Equipment breakdowns, natural disasters, and delays in obtaining supplies or required replacement parts or equipment could also have a material adverse effect on our manufacturing operations and results of operations. Disruption of transportation and logistics services or insufficient investment in public infrastructure could have a material adverse effect on operating results.



The shareholders’ and certain other definitive agreements with respect to the Joint Venture and certain other of our subsidiaries are subject to various put and call options and termination provisions.

We have entered into certain definitive agreements with Shell with respect to the Joint Venture. Specifically, these agreements set forth the rights and obligations of each shareholder in respect of our and Shell’s interest in the Joint Venture and establish certain options whereby we or Shell may acquire the other shareholder’s interest in the Joint Venture, certain lock-up provisions, rules governing intra-group transfers regarding our economic group and Shell, and remedies for fundamental breaches of the documentation governing the incorporation and operation of the Joint Venture. If triggered, these provisions may cause the Joint Venture, or our participation in it, to terminate prior to the scheduled expiration date of the agreements in June 2031.

In November 2016, we executed amendments to certain agreements with Shell to remove the fixed-date call options over Raízen Energia and Raízen Combustíveis shares exercisable in 2021 and 2026 and replace them with certain call and put options exercisable by us or Shell in certain circumstances, including, among others, (i) fundamental breaches of the obligations provided for in the agreements governing the Joint Venture; (ii) breach of anticorruption laws, (iii) insolvency or bankruptcy of a party, (iv) change of control and (v) in the event of the death or disability of our current Chairman, Mr. Rubens Ometto Silveira Mello. Moreover, we and Shell agreed to renew the existing lock-up period for five years from the date of the execution of the amendment, following which the parties may sell their shares in each of Raízen Energia and Raízen Combustíveis subject to compliance with certain preemption rights in each other’s favor.

If any of these or other similar provisions are triggered under the shareholders’ agreements or any of the other related agreements, our partnerships, or certain rights we hold in connection therewith, could terminate prior to the scheduled expiration, which could adversely affect our results of operations.

The modification, suspension, cancellation or non-renewal of the tax benefits which we have been granted could have a material adverse effect on us.

We benefit from certain federal, state and municipal tax incentives, benefit programs and special regimes, including reductions in corporate income tax, suspensions of PIS and COFINS (respectively, the profit participation contribution and the social security financing contribution, both of which are social contributions due on certain revenues net of some expenses on certain products, reductions in ICMS on certain activities, and suspensions or reductions in certain other taxes (including import duties, tax on industrial products (Imposto sobre Produtos Industrializados) and certain other social security charges). We cannot assure you that these tax benefits will be maintained or renewed or that we will be able to obtain new tax benefits. If we lose our existing tax benefits due to our noncompliance with future requirements or if the current tax programs and agreements from which we benefit are modified, suspended, canceled or not renewed, we could be materially and adversely affected.

Disclosure controls and procedures over financial reporting may not prevent or detect all errors or acts of fraud.

Disclosure controls and procedures over financial reporting are designed to provide reasonable assurance that information required to be disclosed by the Company is accumulated and communicated to management, and recorded, processed, summarized and reported in accordance with applicable rules.


These disclosure controls and procedures have inherent limitations which include the possibility that judgments in decision-making can be faulty and that breakdowns occur because of errors or mistakes. Additionally, controls can be circumvented by any unauthorized management override of controls. Consequently, our businesses are exposed to risk from potential noncompliance with policies, employee misconduct or negligence and fraud, which could result in regulatory sanctions, civil claims and serious reputational or financial harm. It is not always possible to deter employee misconduct and the precautions we take to prevent and detect this activity may not always be effective. Accordingly, because of the inherent limitations in the control system, misstatements due to error or fraud may occur and not be detected.

Since the completion of the corporate reorganization of the Cosan group, which included the Merger, Cosan, as a foreign private issuer, began to be required to comply with the reporting, disclosure control and other applicable obligation under the Exchange Act, the Sarbanes-Oxley Act and Dodd Frank Act, as well as rules adopted, and to be adopted, by the SEC and NYSE.

We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our cash flows, results of operations or financial condition. If we are unable to conclude that our internal controls over financial reporting are effective, or if the independent registered public accounting firm reports that we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the trading price of our shares and ADSs could decline, and we could be subject to sanctions or investigations by NYSE, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal controls over financial reporting, or to implement or maintain other effective control systems required of public companies in the United States, could also restrict our future access to capital markets and reduce or eliminate the trading market for our shares and ADSs.

For details of the controls and remediation plan mentioned above, see the section of this annual report entitled “Item 15. Controls and Procedures—A. Disclosure Controls and Procedures.”

Public health threats or outbreaks of communicable diseases could have an adverse effect on our operations and financial results.

We may face risks related to public health threats or outbreaks of communicable diseases. The outbreak of communicable diseases could result in a widespread health crisis that could adversely affect the global economy and our ability and our business partners’ ability to conduct business in Brazil for an indefinite period of time. For example, the recent outbreak in China of COVID-19 has spread across the globe, and is already resulting in a global or regional economic slowdown, a shutdown of production and supply chains and a disruption of international trade, all of which may negatively impact the industries in which we operate.

For example, disruptions in public and private infrastructure, including communications and financial, could materially and adversely disrupt our normal business operations. We have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us, our hub partners, our students or other third-parties. See “—We were the target of a cybersecurity incident which disrupted our systems” and “—We could be the target of attempted cyber threats in the future and they could adversely affect our business.”

We may not be successful in meeting our environmental, social and corporate governance, or ESG, commitments, which may have an adverse effect on our business, financial condition and results of operations.


Market participants have been increasingly concerned with how companies assess and manage ESG risks to protect themselves and capture new opportunities. In light of this, we have sought to identify key focus areas within our business relating to adapting to the impacts of climate change, environmental management practices, working and safety conditions, respect for human rights, anti-bribery and corruption practices and compliance with applicable laws and regulations. Based on this work, we have publicly committed to meeting certain ESG targets, among which:

  • help our customers reduce their carbon footprint, while taking into account the impact and the socioeconomic context in which we operate;
  • offer efficient, sustainable, and safe solutions before, during and after the energy transition;
  • provide cargo transportation solutions with lower levels of greenhouse gas emissions than alternative solutions;
  • comply with legislation and standards applicable to the products and services we offer, environment, health and safety;
  • maintain our competitiveness by researching, developing and continuously improving existing and new processes, products and services to meet the expectations of customers, employees, shareholders, suppliers and other stakeholders;
  • be aware of the impact of our operations on communities and the environment, monitor and assess such impacts on a continuous basis and develop solutions that meet the demands of our stakeholders;
  • create value, multiply and share opportunities along the supply chain in all sectors in which we operate;
  • improve working, health and safety conditions on a continuous basis to preserve the integrity of our people and our operations;
  • promote the personal and professional growth of our employees; and
  • develop and implement the best corporate governance practices, with a focus on ethical behavior.

Failure to meet our ESG commitments, partially or at all, may have a material adverse effect on our business, reputation, financial condition and results of operations.

In addition to the commitments we have made, there has been an increase in ESG rules and regulations applicable to our business and we expect this trend to continue. Given the pace of evolution of legislation in this area, we may not be able to comply with new regulations fully or at all. We are also exposed to the risk that future ESG rules and regulations may adversely affect our ability to run our business, require us to mark down the value of our assets or to reduce their useful life, face increased compliance costs or take other steps which may be detrimental to us. Any such developments could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Raízen

Raízen operates in industries in which the supply, demand and the market price for its products are cyclical and are affected by a number of factors and conditions in Brazil and globally.

The ethanol and sugar industries, globally and in Brazil, have historically been cyclical and sensitive to domestic and international changes in supply and demand. Raízen’s sugar production depends on the volume and sucrose content of the sugarcane that it cultivates or is provided to it by farmers located near its plants. Crop yields and sucrose content of the sugarcane mainly depend on weather conditions, such as rainfall and temperature, which may vary and may be influenced by global climate change.


Raízen’s sugar production depends on the volume and sucrose content of the sugarcane that it cultivate or that is supplied to Raízen by growers located in the vicinity of its mills. Weather conditions have caused volatility in the ethanol and sugar sectors and, consequently, in Raízen’s operational results by causing crop failures or reduced harvests. Floods, droughts and frosts, which can be influenced by global climate change, may affect the supply and prices of the agricultural commodities Raízen sells and uses in its business. Future climate conditions may reduce the quantity of sugar and sugarcane obtained in a given crop or the sucrose content of the sugarcane. In addition, Raízen’s production of sugar and ethanol is contingent on its ability to incur capital expenditures to renew sugarcane crops.

Historically, the international sugar market has experienced periods of limited supply, causing sugar prices and industry profit margins to increase, followed by an expansion in the industry that results in oversupply, causing declines in sugar prices and industry profit margins. In addition, fluctuations in prices for ethanol or sugar may occur, for various other reasons, including factors beyond Raízen’s control, such as:

  • reduced demand for motor vehicles powered by internal combustion engines (including, without limitation, as a result of increased demand for electric vehicles);
  • fluctuations in gasoline prices (including as a result of global oil prices);
  • fluctuations in competitors’ production capacities; and
  • the availability of substitute goods for the ethanol and sugar products produced.

The prices that may be obtained for sugar depend, in large part, on prevailing market conditions. These market conditions, both in Brazil and internationally, are beyond Raízen’s control. The wholesale price of sugar has a significant impact on Raízen’s profits. Like other agricultural commodities, sugar is subject to price fluctuations resulting from weather, natural disasters, harvest levels, agricultural investments, government policies and programs for the agricultural sector, domestic and foreign trade policies, shifts in supply and demand, increasing purchasing power, global production of similar or competing products, and other factors beyond Raízen’s control. In addition, a significant portion of the total worldwide sugar production is traded on exchanges and thus is subject to speculation, which could affect the price of sugar and Raízen’s results of operations and, consequently, us.

The price of sugar, in particular, is also affected by producers’ compliance with sugar export requirements and the resulting effects on domestic supply. As a consequence, sugar prices have been subject to high historical volatility. Competition from alternative sweeteners, including saccharine and high fructose corn syrup changes in Brazilian or international agricultural or trade policies or developments relating to international trade, including those under the World Trade Organization, are factors that can directly or indirectly result in lower domestic or global sugar prices. Any prolonged or significant decrease in sugar prices could have a material adverse effect on Raízen’s and our business and financial performance.

Ethanol is marketed as a fuel additive to reduce vehicle emissions from gasoline, as an enhancer to improve the octane rating of gasoline with which it is blended or as a substitute fuel for gasoline. As a result, ethanol prices are influenced by the supply of and demand for gasoline, and Raízen’s business and financial performance may be materially adversely affected by fluctuations in the demand for and/or price of gasoline. The increase in the production and sale of flex fuel vehicles (hybrid vehicles, that run with ethanol or gasoline or both combined in any proportion) has resulted, in part, from lower taxation, since 2002, of such vehicles compared to gasoline only cars. This favorable tax treatment may be eliminated and the production of flex fuel vehicles may decrease, which could adversely affect demand for ethanol.

If Raízen is unable to maintain sales at generally prevailing market prices for sugar and ethanol in Brazil and internationally, or if it is unable to export sufficient quantities of ethanol and sugar to assure an appropriate domestic market balance, Raízen’s ethanol and sugar business as well as its cash flow may be adversely affected, which may have a material adverse effect on our business, financial condition and results of operations.


Ethanol prices are directly influenced by sugar and gasoline prices, so that a decline in those prices will adversely affect both our ethanol and sugar businesses.

The price of ethanol generally is closely associated with the sugar and gasoline prices in international and local markets. A vast majority of ethanol in Brazil is produced at sugarcane mills that produce both ethanol and sugar. Because sugarcane millers are able to alter their product mix in response to the relative prices of ethanol and sugar, this results in the prices of both products being directly correlated, and the correlation between them may increase over time. In addition, sugar prices in Brazil are determined by prices in the world market, so that there is a correlation between Brazilian ethanol prices and world sugar prices.

Because flex fuel vehicles allow consumers to choose between gasoline and ethanol at the pump rather than at the showroom, ethanol prices are correlated to gasoline prices as well and, consequently, international oil prices. We believe the correlation among the three products will increase over time. Accordingly, a decline in sugar prices will have an adverse effect on the financial performance of our ethanol and sugar businesses, and a decline in oil prices may have an adverse effect on that of our ethanol business, including on its cash flows.

Raízen may not successfully implement our plans to sell energy from our bioenergy projects, and the Brazilian government’s regulation of the energy sector may adversely affect our business and financial performance.

Raízen’s current total installed bioenergy capacity is approximately 1 GW, which is used to generate energy for our own industrial operations and to sell surplus energy to the Brazilian energy grid. The Brazilian government regulates the energy sector extensively. Raízen may not be able to satisfy all the requirements necessary to enter into new contracts or to otherwise comply with Brazilian energy regulation. Changes to the current energy regulation or federal authorization programs, and the creation for more stringent criteria for qualification in future public energy auctions, in addition to lower prices, may adversely affect our results of operations from our bioenergy business.

Any failure in the implementation of these plans may have a material adverse effect on our business, financial condition and results of operations.

A reduction in market demand for ethanol or a change in governmental policies requiring ethanol be added to gasoline may materially adversely affect our business.

Raízen produces and sells three main types of ethanol: hydrous ethanol, anhydrous ethanol for fuel and industrial ethanol. The primary type of ethanol consumed in Brazil is hydrous ethanol, which is used as an alternative to gasoline for flex fuel vehicles (as opposed to anhydrous ethanol which is used as an additive to gasoline).

Governmental authorities of several countries, including Brazil and the United States, currently require the use of a certain percentage of anhydrous ethanol in gasoline. Law 8,723 dated October 28, 1993 (as amended) provides that the executive branch may determine the percentage of anhydrous ethanol in the gasoline. The Brazilian Sugar and Alcohol Inter-ministerial Council (Conselho Interministerial do Açúcar e Álcool), or CIMA, has set the recommendation and the Ministry of Agriculture, Livestock and Supply (Ministério da Agricultura, Pecuária e Abastecimento), or MAPA, provides for the percentage of anhydrous ethanol that must be used as an additive to gasoline. According to CIMA Resolution No. 1 dated March 4, 2015 and MAPA Normative Instruction (Portaria) 75 dated March 5, 2015, the current anhydrous ethanol percentage for regular gasoline is 27% and for additive/premium gasoline is 25%. Approximately one-half of all fuel ethanol in Brazil is used to fuel automobiles that run on a blend of anhydrous ethanol and gasoline; the remainder is used in either flex fuel vehicles or vehicles powered by hydrous ethanol alone. Other countries have similar governmental policies requiring various blends of anhydrous ethanol and gasoline. In addition, flex fuel vehicles in Brazil are currently taxed at lower levels than gasoline-only vehicles, which has contributed to the increase in the production and sale of flex fuel vehicles. Any reduction in the percentage of ethanol required to be added to gasoline or increase in the levels at which flex fuel vehicles are taxed in Brazil, as well as growth in the demand for natural gas and other fuels as an alternative to ethanol, lower gasoline prices or an increase in gasoline consumption (versus ethanol), may cause demand for ethanol to decline and affect our business. In addition, ethanol prices are influenced by the supply and demand for gasoline; therefore, a reduction in oil prices resulting in a decrease in gasoline prices and an increase in gasoline consumption (versus ethanol), may have a material adverse effect on our business, results of operations and financial condition.


Raízen may be adversely affected by a shortage of sugarcane or by high sugarcane costs and the consequent lack of sugar cane may materially impact Raízen’s ability to produce and distribute ethanol and sugar.

Sugarcane is the principal raw material Raízen uses for the production of ethanol and sugar. As of December 31, 2020, sugarcane purchased from suppliers accounted for 50% of Raízen Energia’s total crushed sugarcane. Raízen generally enters into medium- and long-term supply contracts for periods varying from three and one-half to seven years. As of December 31, 2020, Raízen also leased approximately 460 thousand hectares to produce its own sugarcane in contracts with an average term of 12 years.

Raízen’s supply of sugarcane in Brazil may be significantly reduced as a result of the termination of supply contracts or lease agreements, which may result in a shortage of sugarcane supply and an increase in the price of sugarcane. If there is a shortage of sugarcane or any supply contracts or lease agreements are terminated, Raízen Energia may experience a material reduction in the sugarcane available for processing or an increase in sugarcane prices, which may materially adversely affect our business, results of operation and financial condition.

In Brazil, the price of sugarcane may increase as a result of changes in the criteria established by the Association of Producers of Sugarcane, Sugar and Ethanol of the State of São Paulo (Conselho dos Produtores de Cana-de-açúcar, Açúcar e Álcool do Estado de São Paulo), or “Consecana,”, which is composed of sugarcane producers and sugar mill operators. The price of sugarcane is set in supply agreements, lease agreements and partnership agreements and is partially fixed and partially variable, as provided for in the criteria set forth by Consecana. As a result, any changes to the criteria established by Consecana may lead to an increase in the cost of sugarcane, which may have a material adverse effect on our business, financial condition and results of operations.

In addition, in certain cases, as a result of the price-setting formulas in the contracts which Raízen has entered into with its customers, Raízen may not be able to pass on the full amount of these cost increases to its customers. This may have a material adverse effect on Raízen’s business, financial condition and results of operations.

Furthermore, the availability of sugarcane may be affected by various environmental and climate-related factors, including water scarcity, excessive or insufficient rainfall and other weather patterns.

Raízen may be subject to expropriation of real estate intended for rural production.

The real estate used by Raízen, or by third parties with whom Raízen maintains a partnership or lease relationship, for the cultivation of sugarcane may be unilaterally expropriated by the Brazilian government for purposes of public and social interest, and we cannot assure you that the payment of the indemnification that they may have to pay to Raízen will be fair. Pursuant to Brazilian law, the Brazilian government may expropriate the real estate of rural producers where the sugarcane is planted by necessity or for public utility or social interest, partially or totally. In the event of expropriation, we cannot assure you that the price paid by the Brazilian government will be fair or equivalent to the market value, or that it will effectively and adequately compensate Raízen for the amounts invested. Accordingly, any expropriation of any real estate used by Raízen, or by third parties with whom Raízen maintains partnership or lease relationships, may adversely and significantly affect Raízen’s financial situation and results, and may also impact Raízen’s activities, which may have a material adverse effect on our business, financial condition and results of operations.

Social movements may affect the use of Raízen’s agricultural properties or cause damage to them.

Social movements are active in Brazil and advocate land reform and property redistribution by the Brazilian government. Invasion and occupation of agricultural land by large numbers of people is a common practice among the members of such movements, and in certain regions, including those in which Raízen owns or leases property, remedies such as police protection or eviction procedures might be inadequate or non-existent. As a result, we cannot assure you that Raízen’s agricultural properties will not be subject to invasion or occupation by any of such social movements. Any invasion or occupation may materially impair the use of our lands and have a material adverse effect on Raízen’s and our business, financial condition, and results of operations.


Raízen Energia’s sugar and ethanol products are sold to a small number of customers who may be able to exercise significant bargaining power concerning pricing and other sale terms.

A substantial portion of Raízen Energia’s sugar and ethanol is sold to a small number of customers that acquire large portions of our production and thus may be able to exercise significant bargaining power concerning pricing and other sale terms. In addition, intense competition in the ethanol and sugar industries further increases the bargaining power of customers, which may have a material adverse effect on Raízen Energia’s sales volumes and, consequently, on us.

Raízen Energia’s export sales are subject to a broad range of risks associated with international operations.

In the fiscal year ended December 31, 2020, Raízen Energia’s net sales from exports represented 47.2% of Raízen Energia’s total net sales, while in the year ended December 31, 2019, the net sales from exports represented 25.0% of Raízen Energia’s total net sales. Furthermore, in the fiscal year ended December 31, 2020, Raízen Energia’s net sales from sugar exports were R$8,299.8 million, representing 26.2% of its total net sales for the period. In the year ended December 31, 2019, Raízen Energia’s net sales from sugar exports were R$2,428.1 million, representing 8.4% of Raízen Energia’s total net sales for the period. Further, in the fiscal year ended December 31, 2020, Raízen Energia’s net sales from exports of ethanol were R$6,641.2 million, representing 21.0% of Raízen Energia’s total net sales for that period, and in the year ended December 31, 2019, Raízen Energia’s net sales from ethanol exports were R$4,791.0 million, representing 16.6% of Raízen Energia’s total net sales for that period.

Exports of ethanol are subject to factors beyond our control which may affect the competitiveness of Brazilian ethanol in other markets, such as import regulations, tax legislation, incentives for local production and the establishment of distribution systems for hydrous ethanol in countries outside of Brazil. Raízen Energia’s and our future financial performance will depend, to a significant extent, on economic, political and social conditions in Raízen Energia’s main export markets.

Most ethanol and/or sugar producing countries, including the United States and member countries of the European Union, protect local producers from foreign competition by establishing government policies and regulations that affect ethanol and sugar production, including quotas, import and export restrictions, subsidies, tariffs and duties. As a result of these policies, domestic ethanol and sugar prices vary greatly in individual countries. We have limited or no access to these large markets as a result of trade barriers. If these protectionist policies continue, we may not be able to expand our export activities at the rate we currently expect, or at all, which could have a material adverse effect on our business, results of operations and financial condition. Also, if new trade barriers are established in our key export markets, Raízen Energia may face difficulties in reallocating products to other markets on favorable terms, and both Raízen Energia’s and our business and financial performance may be adversely affected.

Raízen Energia may be adversely affected if the outsourcing of mechanized sugarcane cutting becomes prohibited.

Raízen Energia is a defendant in a public civil action in which the Labor Public Prosecutor’s Office (Ministério Público de Trabalho) is seeking the prohibition of the outsourcing of planting, loading and transportation of sugarcane. If the courts decide that outsourced activities are a core part of our activities (and may therefore not be outsourced), Raízen Energia may be required to undertake these activities itself on a permanent basis (including hiring employees and acquiring appropriate machinery), which may have a material adverse effect on Raízen Energia.

The Superior Labor Court (Tribunal Superior do Trabalho) decided in favor of authorizing outsourcing as from November 11, 2017. The Labor Public Prosecutor’s Office has appealed this decision. Raízen Energia has also appealed to reverse a related decision requiring payment of collective moral damages in an amount of R$3 million. Both of these appeals are pending.


Raízen is subject to risks arising from legal proceedings based on claims related to alleged breaches of the intellectual property rights of third parties.

Raízen is subject to risks arising from legal proceedings based on claims related to alleged breaches of the intellectual property rights of third parties. Raízen may alter the way in which it produces, in whole or in part, products which third parties allege infringe their intellectual property rights and/or pay significant indemnification amounts, royalties or licensing fees in connection with the use of third parties’ patents or copyrighted materials. The filing of a lawsuit or the review of a product that is in violation of third parties’ intellectual property rights may adversely affect Raízen’s reputation and the demand for our products. In addition, new lawsuits require the attention of Raízen’s management, as well as additional defense costs and, in certain cases, the establishment of provisions that could affect our results.

Any mismatches between the cash outflows for the payment of litigation costs of Raízen and the time of receipt of the related reimbursement by the Joint Venture’s shareholders may lead to pressures on Raízen Energia’s and Raízen Combustíveis’s cash flows.

Pursuant to the framework agreement which was entered into during the formation of the Joint Venture, Raízen has agreed that it will reimburse us and Shell or will be reimbursed by them, as applicable, for any amounts received or paid in connection with legal proceedings, provided that the triggering events for such payments or receipts occurred before the formation of the Joint Venture on June 1, 2011 and provided that any such sums have actually been paid or received.

The framework agreement also provides that we are required to indemnify Raízen for any expense related to litigation (tax, labor, civil and other) that has been caused by events prior to the formation of the Joint Venture.

Any mismatches between the cash outflows from Raízen for the payment of litigation costs and the time of receipt of the related reimbursement by us or Shell, as applicable, or any failure by us or Shell to reimburse Raízen, may lead to pressures on Raízen’s cash flows.

Brazilian courts, in some circumstances, have understood that a controlling shareholder, a successor entity of another corporation, an assignee company of another company’s assets and other companies subject to common control to the assignor or predecessor company shall all be liable, jointly and severally, for, among other obligations, labor, social security, civil, tax or environmental obligations of the assignor, assignee or predecessor. Therefore, we may be liable for obligations of their controlling shareholders for which we have not constituted and do not intend to constitute any provisions, which may adversely affect our business, results of operations and financial condition.

Crop disease and pestilence may strike our crops which may result in destruction of a significant portion of the harvest.

Crop disease and pestilence can occur from time to time and have a devastating effect on Raízen’s crops, potentially rendering useless or unusable all or a substantial portion of affected harvests. Even when only a portion of the crop is damaged, Raízen’s business, results of operations and financial condition could be adversely affected because we may have incurred a substantial portion of the production cost for the related harvest. The cost of treatment of crop disease tends to be high. Any serious incidents of crop disease or pestilence, and related costs, may adversely affect Raízen’s production levels and, as a result, our net sales and overall financial performance.

Anticompetitive practices in the fuel distribution market may distort market prices.

In the last few years, anticompetitive practices have been one of the main problems affecting fuel distributors in Brazil. Generally these practices have involved a combination of tax evasion and fuel adulteration, such as the dilution of gasoline by mixing solvents or adding anhydrous ethanol in an amount greater than that permitted by applicable law (the overall taxation of anhydrous ethanol is lower than hydrated ethanol and gasoline).


Taxes constitute a significant portion of the cost of fuels sold in Brazil. For this reason, tax evasion by some fuel distributors has been prevalent, which allows them to lower the prices they charge. These practices have enabled certain distributors to supply large quantities of fuel products at prices lower than those offered by the major distributors, including us, which has resulted in a considerable increase in the sales volumes of the distributors who have adopted these practices. The final prices for fuels are calculated based on the taxes levied on their purchase and sale, among other factors. If such practices become more prevalent, it could lead to lower prices or reduced margins for the products Raízen sells, which could have a material adverse effect on our business, results of operations or financial condition.

Disruption of Raízen Energia’s transportation and logistics services or insufficient investment in public infrastructure could materially adversely affect our operating results.

One of the principal disadvantages of the Brazilian agriculture sector is that key growing regions lie far from major ports. As a result, efficient access to transportation infrastructure and ports is critical to the growth of Brazilian agriculture as a whole and of our operations in particular. As part of its business strategy, Raízen Energia is investing in areas where existing transportation infrastructure is underdeveloped.

A substantial portion of Brazilian agricultural production is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to U.S. and other international producers. Raízen Energia’s dependence on truck transport may affect our position as a low-cost producer, such that its ability to compete in world markets may be impaired. Furthermore, Raízen Energia’s supply chain is dependent on road transport and may be adversely affected by weather conditions which require a decrease or stoppage in road transport. Any such impediments to road traffic along the routes typically used within Raízen Energia’s supply chain could require it and its suppliers to use alternative routes, which may result in delays and have a material adverse effect on Raízen Energia’s business, financial condition and results of operations.

Given that a significant part of Raízen Energia’s sales are exported to countries other than Brazil (both with regards to sugar and ethanol), we may be adversely affected by the lack of port capacity or an increase in the costs of such port capacity as a result of limitations in supply.

Raízen Energia currently outsources the transportation and logistics services necessary to operate its business. Any disruption in these services, or any obligation to take over these services from existing service providers as a result of judicial orders banning the outsourcing of these services, could result in supply problems at Raízen Energia’s processing plants and impair its ability to deliver processed products to our customers in a timely manner. In addition, a natural disaster or other catastrophic event could result in disruption in regional transportation infrastructure systems affecting Raízen Energia’s third-party transportation providers.

Even though road and rail improvement projects have been considered for some areas of Brazil, and in some cases have been implemented, substantial investments are required for road and rail improvement projects, which may not be completed on a timely basis, if at all. Any delay or failure in developing infrastructure systems could hurt the demand for our products, impede our delivery of products or impose additional costs on Raízen Energia.

Raízen depends on third parties to provide its customers and Raízen with facilities and services that are integral to its business. Additionally, Raízen depends on the renewal of contracts with retail dealers that operate Shell-branded sites in Brazil and Argentina.

Raízen has entered into agreements with third-party contractors to provide facilities and services required for its operations, including fuel distribution, storage facilities and transportation services for Raízen’s ethanol and sugar operations. Additionally, Raízen depends on contracts entered into with retail dealers that operate Shell-branded sites in Brazil and Argentina. The loss or expiration of Raízen’s agreements with third-party contractors and retail dealers, or Raízen’s inability to renew these agreements or to negotiate new agreements with other suppliers and retail dealers at comparable rates could harm its business and financial performance. Raízen’s reliance on third parties to provide essential services on its behalf, and retail dealers that operate Shell-branded sites in Brazil and Argentina, also gives Raízen less control over the costs, efficiency, timeliness and quality of those services. Contractors’ negligence could compromise the safety of the transportation of ethanol from Raízen’s production facilities to its export facilities