Our Business, Challenges And Opportunities
www.cosan.com.br www.cosan.com.br
Introduction
For more information 2011/12 Annual Report www.cosan.com.br
Credits Executive Edition Corporate Communications Writing and editing Report Sustentabilidade
Contact Info
Graphic design and print production Report Sustentabilidade
Corporate Communications e-mail: falecosan@cosan.com.br Address: Avenida Presidente Juscelino Kubitschek, 1327 4º andar, São Paulo SP – CEP 04543-011 Phone: +55 (11) 3897-9797
Pictures Ricardo Teles Tuca Reines Frederico Bailoni
Investor Relations e-mail: ri@cosan.com.br Site: www.cosan.com.br/ri Phone: +55 (11) 3897-9797 Produced in October 2012
Printing and Finishing Stilgraf Paper Cover – Duodesign, 300 g/m2 Inside – Evenglow Opalina Diamond, 120 g/m2 Typeface Museo Sans, Jos Buivenga, 2008 We would like to thank our employees who granted images for this publication.
Cosan is undergoing significant change, with a new vision, new outlooks and a new strategic design. This publication provides a brief overview of the company and its transformations toward building today’s Cosan, focused on the infrastructure and energy sectors. It presents our businesses and their contributions for the solidity of our company.
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It also addresses the sustainability model under implementation. The model considers corporate risk, governance, reputation and operations to consolidate this matter as a strategic element within the company. We increasingly seek coherence and balance between our goals and practices. This is our commitment. Marcos Marinho Lutz Cosan Group CEO
Introduction
1
Growing with diversification
The capacity to integrate different businesses, manage them efficiently and grow solidly
2
Cosan
Overview
Sugarcane is at the origin of Cosan’s business. Since 1936, when the company’s first plant was founded in Piracicaba, São Paulo State, the Organization has grown in size, earnings and diversity of operations. The ability to perceive and quickly take advantage of opportunities stemming from its business – sugarcane – and quality of relationships established throughout the years have allowed the expansion of operations and portfolio, attracted different investor profiles and increased access to capital.
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About Cosan
3
Strategic management Cosan’s management is committed to monitoring fast market changes and opportunities for growth and value generation. This management, both bold and responsible, is conducted by a team of experienced and skilled professionals from the company’s various areas of operation. Professional qualification was one of Cosan’s pioneering actions in the sugar-energy industry, which was dominated by family businesses. This boldness was revealed when the Group went public in 2005 on the São Paulo Stock Exchange (currently BM&FBovespa), being listed on the highest level of corporate governance, the Novo
4
Cosan
Mercado. Two years later, in 2007, its controlling shareholder, Cosan Limited, was listed on the New York Stock Exchange (NYSE). It was the first company controlled by a Brazilian group to have assets directly traded on the NYSE. The company experienced significant growth with the business portfolio created throughout the last decade, supported by investments that seek a robust and stable cash flow, in addition to constant value generation for its stakeholders. In its strategic planning, Cosan considers six major action fronts for its business: growth, efficiency, internationalization, innovation, sustainability and strong corporate reputation.
Overview
2012
Strategic management
5
Key strategic operations (Net Revenue in R$ Billion)
6.3
0.5
1.4
2.5
1936
2000
2002
2005
2008
Foundation of Costa Pinto Mill, in Piracicaba (SP)
Official foundation of Cosan S/A
Acquisition of Da Barra Mill
IPO on BM&FBovespa (US$400 million)
Acquisition of Esso in Brazil. Launch of Radar. Creation of Rumo LogĂstica
6
Cosan
Overview
26 to 29* 24.1 15.4
18.1
*Estimate for the 2012/13 crop (April 1, 2012 to March 31, 2013)
2009
2010
2011
2012
Acquisition of Novamérica, including União brand
Partnership agreement with Shell in the sugar, ethanol and fuel distribution businesses
Start-up of Raízen, a joint venture between Cosan and Shell. Internationalization of Cosan Lubrificantes e Especialidades
Final agreement for the acquisition of 60.1% of Comgás’ capital stock. Acquisition of Comma Oil & Chemicals Limited in the U.K. Announcement of the company’s intention to take part in the control block of América Latina Logística (ALL). Sale of Cosan Alimentos to Camil
2012
Company history
7
A trajectory of value generation With vision to perceive opportunities and boldness to diversify investments, Cosan started focusing on businesses that contribute to strengthening sectors that are vital for the country’s development, such as the infrastructure sector. Operations throughout its history show that the organization was able to absorb the best aspects of each segment, doing so while integrating and strengthening various cultures. The recent acquisition of 60.1% of Comgás’ capital stock is a strategic action that strengthens this business line. The creation and acquisition of new businesses at Cosan were always based on spotting growth opportunities and on risk mitigation. An example of that was the creation of Rumo Logística, which has shown through its performance that it is possible to move forward in sectors seen as bottlenecks for Brazilian development and increase the efficiency of our exports. In another action focused on growth, efficiency and value generation in its operations,
8
Cosan
in February of 2012, the company announced its intention to become one of the controlling shareholders of América Latina Logística (ALL), offering R$897 million to acquire a 49.1% stake in the control block (the equivalent to 5.7% of the total capital). After beginning the exclusive distribution of Mobil lubricants to Bolivia, Paraguay and Uruguay in 2011, in March of 2012 the comapny announced its entrance in the European lubricants and automotive specialites market through the acquisition of Comma Oil and Chemicals Limited. Cosan’s quality and consistency in its relationships, in addition to its renowned management capacity, were key factors in the consolidation of this agreement. With the purpose of strengthening our positioning and focus our business portfolio to execute our strategic plan in the infrastructure and energy sectors, in October of 2012 we concluded negotiations with Camil to sell the Cosan Alimentos retail sugar operation.
Overview
Comgás Distribution of natural gas
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Raízen Combustíveis Fuel Distribution
Raízen Energia Sugar, ethanol and co-generation
Rumo Logística
Cosan LE
Sugar logistics
Lubricants and Specialties
Radar Agricultural real estate
A trajectory of value generation
9
Cosan’s business Purchase and management of land for sugarcane, corn, cotton and soybean plantations
Sugar, ethanol and biomass production
Manufacturing and distribution of Mobil braded lubricants in Brazil and exports to Bolivia, Paraguay and Uruguay. Production and distribution of lubricants and ancillary automotive products in the U.K. and exports to Europe and Asia
Railroad transportation of sugar and other bulk products from upstate SĂŁo Paulo to the Port of Santos
10
Cosan
Overview
Distribution of aviation fuel in 54 airports
8,000 km of natural gas distribution network to more than 1 million consumers residential, commercial and industrial – in 70 cities
4,600 fuel distribution stations throughout Brazil
Shipping potential of more than 14 million tonnes of sugar and other bulk products for export from the Port of Santos
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Cosan’s business
11
76 years of history Net revenue of
R$24.1 billion in the 2011/12 fiscal year, up
33.4% when compared to the previous year
12
Cosan
Overview
Payment of
R$250 million in dividends to shareholders Listed on the
highest level
of corporate governance on the BM&FBovespa (Novo Mercado)
Stock up 37% from January to September of 2012
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Strategic management
13
Rumo With services in multimodal transport, storage and port loading, Rumo is the world’s largest logistics company in terms of sugar exports
Rumo is the world’s largest sugar export logistics company. Through six transhipment terminals located in Sumaré, Jaú, Fernandópolis, Barretos Pradópolis, Itirapina in upstate São Paulo and the a port terminal in Santos, upstate São Paulo, the company has a warehousing capacity of more than one million tonnes of sugar or other bulk products. Between 2010 and 2015, the company will invest R$1.5 billion mainly in migrating sugar transport to primarily railroads rather than highways. As a result, approximately 30 thousand trucks per month will no longer circulate on the highways which connect upstate São Paulo to its coast. Goal is to transport 11 million tonnes by rail each year, 6 million tonnes more than today, by 2014. Through a partnership, Rumo uses railroads under the concession of América Latina Logística (ALL) and is investing to increase its rail transportation capacity from Itirapina to Santos.
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Technological forefront The Itirapina terminal is strategically located to serve all the region’s principal railroads. The R$200 million investment placed the terminal at the industry’s technological forefront. The terminal is equipped with special systems to maintain the quality standards of the transported product. Its climate-controlled warehouses also have stock protection technology to minimize losses caused by dissolution or air dispersion. The company’s initiatives are in line with the São Paulo State Policy for Climate Change, which provides for a 20% reduction in carbon dioxide emissions in the state by 2020. In addition to the terminal, the region will benefit from the construction of an amphitheater. Furthermore, in partnership with the Board of Education of Itirapina, Rumo will promote the expansion of the municipal library.
Rumo
15
Rumo highlights Global logistics leader in sugar for export Higher capacity for rail and road unloading at the Port of Santos Investment of R$1.5 billion in logistics infrastructure Warehousing capacity of more than 1,100 thousand tonnes for bulk and sacked products
16
Cosan
Overview
Investment of R$200 million to build the Itirapina terminal, the most modern logistics complex in Brazil
Pioneer in the project for total roofing of the Port of Santos’ mooring dock, allowing for operation in the rain
The largest intermodal terminal network in Brazil for sugar export logistics
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Rumo LogĂstica Rumo
17
Fernadópolis
Rumo’s Footprint in Brazil
18
Cosan
Overview
Barretos
Pradópolis
Jaú
Itirapina
Sumaré
São Paulo
Port of Santos
Railroad lines Sections in expansion Sugar mills Proprietary and partner terminals Main highways * Rumo exports sugar produced by mills in south-central Brazil through the Port of Santos.
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Rumo
19
Cosan Lubrificantes e Especialidades Diversifies portfolio and keeps conquering new markets
In 2008, Cosan acquired the assets of ExxonMobil in Brazil and started operating in the lubricants and specialties market under the Mobil brand. At the end of the 2011/12 fiscal year, Cosan LE had 15.2% market share, becoming the second largest player in the Brazilian lubricants market.
Another new business developed in 2012 was the agreement with South Korean S-Oil for commercialization and representation of the Ultra-S brand of G-III base oils in Brazil – an input used mainly to manufacture high-technology synthetic and semisynthetic lubricants.
The Cosan LE plant, located on Ilha do Governador, Rio de Janeiro State has its own pier to receive ships of up to 20,000 tonnes and produces more than 1 million barrels of lubricants every year, in addition to special application products like greases and cutting fluids.
Focusing on innovation, Cosan LE has established a joint venture with Amyris, forming Novvi. The main objective of this business is research and development of renewable, high-performance base oils made from sugarcane juice.
In 2011, the company assumed the distribution of ExxonMobil base oils in Brazil, increasing its business portfolio. In the same year, it acquired exclusive rights to distribute Mobil branded lubricants to Bolivia, Paraguay and Uruguay.
Through innovative solutions and advanced technology, Cosan LE offers clients products and services that can increase efficiency, productivity and savings. The better the protection provided by the lubricant, the greater the productivity and useful life of machines and equipment. Likewise, the longer the interval between oil changes, the less waste generated. This focus on more efficient and productive operations, together with the fundamental value of strict safety, is an example of sustainable operation.
March of 2012, Cosan LE entered the European market with the acquisition of Comma Oil & Chemicals Limited, which includes the blending and filling operation at the Gravesend site in Kent, U.K. Through this factory, the company produces and distributes lubricants and ancillary automotive products, such as anti-freeze, coolants, de-icer and brake fluids in the U.K. market and export to more than 40 European and Asian countries. The distribution of Mobil branded lubricants via specific U.K. channels is also part of Comma’s activities.
No accidents resulting in leave August of 2012, Cosan LE achieved the landmark of 16 years without accidents resulting in leave in its operations. That is almost 6 thousand work days operating safely.
* According to the National Fuel and Lubricant Distributors’ Association (Sindicom)
2012
Cosan Lubrificantes e Especialidades
21
Cosan LE highlights In the 2011/12 fiscal year, the company had a 15.2% market share* becoming the second largest lubricant player in Brazil Produces more than 1 million barrels of Mobil branded lubricants per year, exporting to Paraguay, Uruguay and Bolivia Brazil’s largest importer of base oils
* According to the National Fuel and Lubricant Distributors’ Association (Sindicom)
22
Cosan
Overview
With the acquisition of Comma, located in England, it produces and distributes lubricants and ancillary automotive products for more than 40 European and Asia countries Creation of Novvi, focusing on the research and development of renewable synthetic base oils made from sugarcane juice
2012
Cosan Lubrificantes e Especialidades
23
Cosan LE
AM
PE 1
2 Cosan LE Operations Brazil [1] Exports Bolivia [2], Paraguay [3] and Uruguay [4] Distribution centers Amazonas [AM], Pernambuco [PE] and Rio de Janeiro [RJ]
RJ
3
4
Rio de Janeiro plant 24
Cosan
Overview
5
Comma Operations U.K. [5] Kent plant Comma Exports Via Comma, Cosan LE exports to more than 40 European and Asian countries
2012
Cosan Lubrificantes e Especialidades
25
Radar The company manages approximately 150 thousand hectares of land for planting sugarcane, soybeans, cotton and corn
Founded in 2008, Radar seeks investment opportunities in agricultural properties in Brazil with high appreciation potential, making acquisitions and leasing them to large industry players. Since 2008, Radar has invested R$1.4 billion in land, leased for the planting of sugarcane, soybeans, corn and cotton. The company currently manages about 150 thousand hectares in the states of São Paulo, Goiás, Mato Grosso, Mato Grosso do Sul, Maranhão, Bahia and Piauí.
Sustainable practices In 2011, Radar began structuring its sustainability program to make the company more resilient and competitive through good practices and a strategic position in the industry. The works carried out in partnership with Uniethos, an entity that provides education and guidance on sustainability created by the Ethos Institute, include the engagement of all employees and the collection and compilation of the Ethos Indicators - a management tool for diagnosis and planning of Corporate Social Responsibility practices (CSR). After analysis, strategic actions were determined for the implementation of advances in issues identified throughout the diagnostic process.
Radar’s Presence in Brazil
MA
PI BA
MT GO MS SP
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Radar
27
Radar highlights Currently manages about 150 thousand hectares in the states of São Paulo, Goiás, Mato Grosso, Mato Grosso do Sul, Maranhão, Bahia and Piauí Establishes benchmark
sustainability standards in its relationships with agricultural operators of the properties it manages
28
Cosan
Overview
Uses a land monitoring system via satellite, which allows for detailed analysis of the terrain and physical and climate characteristics Conducts plant classification for an environmental diagnosis of approximately 110 thousand hectares of agricultural areas in S達o Paulo State
2012
Radar
29
RaĂzen
Produces more than 2 billion liters of ethanol and 4 million tonnes of sugar per year
One of the world’s largest sugar and ethanol exporters, Raízen is responsible for producing more than 2 billion liters of anhydrous and hydrous ethanol per year and 4 million tonnes of sugar. The company began operating in June of 2011. It currently has around 4,600 service stations throughout Brazil, 700 convenience stores, 57 distribution terminals and presence in 54 airports in the aviation fuel business. With an installed capacity of 900 MW, it is the world’s largest generator of electric energy from sugarcane bagasse. In co-generation, the bagasse disposed of during the crushing process is used to fire boilers for the production of steam and energy. Raízen’s 24 plants are self-sufficient in energy and 11 of these plants sell the excess energy directly to factories or on auctions promoted by the federal government. According to the Sugarcane Industry Association - Unica, electric energy from co-generation through the burning of sugarcane bagasse will provide 15% of Brazil’s electricity by 2020.
International certification In 2011, the São Paulo plants Maracaí (the world’s first accredited plant), Bom Retiro and Costa Pinto, in addition to the Jataí plant in Goiás State, were accredited by Bonsucro™, which acknowledges and certifies good socialenvironmental practices of the sugar-energy industry. Being assessed by Bonsucro™ - a nonprofit global initiative - is a European Union (EU) requirement for sugar and ethanol exporters.
Raízen’s Footprint in Brazil
Service stations Airports in the aviation fuel business Usinas Convenience stores
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Raízen
31
RaĂzen highlights Largest company in the renewable energy sector, operating in various links of the production chain One of Brazil’s largest fuel distributors, with 21 billion liters sold in 2011/12 under the Shell and Esso branded network
Largest sugar, ethanol and energy co-generation producer in Brazil, and one of the largest in the world, with a crushing capacity of 65 million tonnes of sugarcane in the 2011/12 crop
32
Cosan
Overview
Production of more than 2 billion
liters of anhydrous and hydrous ethanol per year and 4 million tonnes of sugar Has 24 plants in Brazil that are
self-sufficient in energy
The first company in the world to have a plant accredited by Bonsucro, which acknowledges and certifies good social-environmental practices in the sugar-energy industry
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RaĂzen
33
Results
Cosan’s performance reflects the excellence of its management, which values innovation, independence and creativity
34
Cosan
Overview
2012
Results
35
Net Revenue (R$ Million) Net revenue was 33.4% higher in the 2011/12 fiscal year (April 1, 2011 to March 31, 2012) when compared to 2010/11 (April 1, 2010 to March 31, 2011), reaching R$24.1 billion.
Rumo Other businesses Cosan Alimentos* Raízen Combustíveis Raízen Energia Eliminations
24,096.9 572.0 1,065.5 706.4
+33.4% 18,063.5 448.0 829.1
18,556.5 10,966.2
6,389.2 4,081.5 (569.0)
(885.0)
2010/11
2011/12
* In 2010/11, Cosan Alimentos was part of Raízen Energia.
36
Cosan
Overview
Net Income (R$ Million) Net income increased by 237.7% in the same period to more than R$2.6 billion, of which R$2.2 billion was derived from the foundation of RaĂzen. Excluding the effect of the foundation of RaĂzen, adjusted net income would be R$421.9 million - a 45.3% decrease when compared to 2010/11.
2,605.8
+237.7%
771.6
2010/11
2012
2011/12
Results
37
RESULTS BY BUSINESS UNIT 2011/12 (R$ BILLION)
Raízen Energia
Raízen Combustíveis (pro forma)
Cosan Alimentos (pro forma)
Rumo
Other businesses
Net operating revenue
7,247.7
39,691.8
941.6
572.0
1,065.5
(5,578.3)
(37,455.7)
(752.5)
(394.1)
(732.9)
1,669.4
2,236.1
189.1
177.9
332.6
23.0%
5.6%
20.1%
31.1%
31.2%
(511.4)
(1,209.6)
(110.6)
-
(187.5)
General and administrative expenses
(454.0)
(382.0)
(17.7)
(41.6)
(132.8)
Other operating revenues (expenses)
(18.2)
283.3
6.8
19.5
(11.9)
-
-
-
-
3,196.6
Depreciation and amortization
1,550.0
377.1
1.7
57.3
48.4
EBITDA
2,235.7
1,304.9
69.3
213.2
3,245.3
30.8%
3.3%
7.4%
37.3%
304.6%
-
62.4
-
-
-
2,235.7
1,304.9
69.3
213.2
48.7
30.8%
3.3%
7.4%
37.3%
4.6%
Cost of goods and services Gross profit (loss) Gross margin (%) Selling expenses
Effects of the foundation of Raízen
EBITDA Margin (%) EBITDA Margin (R$/m3) Adjusted EBITDA Adjusted EBITDA margin (%)
*Other businesses: Cosan Lubrificantes e Especialidades and corporate structures. Note: All of the information reflects 100% of the financial performance of business units, regardless of Cosan’s participation. The results of business units of Raízen Combustíveis and Cosan Alimentos are pro forma, to allow for comparison between the periods.
38
Cosan
Overview
EBITDA Cosan’s EBITDA guidance** for the 2012/13 fiscal year
24.5%
33.1%
3.4%
Comgás Rumo Sugar and ethanol Co-generation Fuels and lubricants*
31%
8%
*Raízen fuels and Cosan lubricants. **Considering the participation of Comgás, new operations of Cosan Lubrificantes e Especialidades and the sale of Cosan Alimentos.
2012
Results
39
Commitment to sustainability
40
Cosan
Overview
With its recent actions, Cosan reinforces its commitment to value generation through the quality of its operations and responsible growth. Based on this commitment, it has established sustainability as one of its strategic drivers. We will strengthen the consistent development of our business by rooting sustainability within the organization, identifying critical issues for management and adopting the best mechanisms and practices to face our challenges and take advantage of opportunities.
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Commitment to sustainability
41
Diagnosis and evaluation
Verification and reporting
Building the sustainability management model
Guidelines and strategies
Implementation and monitoring
42
Cosan
Overview
Sustainability management model To develop a more critical view of our operations, we developed a management model focusing on sustainability (see image on the next page). Based on this model, Cosan will create solutions that will contribute to the progress of our corporation and its business. Cosan believes that sustainability management is connected to a global agenda, which includes
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the management of risks, financial and environmental impacts, human rights, work relations and all kinds of relationships to which the company is exposed. This model is connected to issues of corporate identity, corporate risk management and governance and may be replicated for future Group businesses.
Commitment to sustainability
43
Rumo Working Group
Cosan LE Working Group
Corporate Working Group
Radar Working Group
To develop a comprehensive and inclusive process in all businesses, the sustainability management model was prepared by leaders from all Group companies, in addition to a team that will represent the corporate structure. The model was built on a diagnosis and analysis of current practices, sensitive issues and improvement opportunities for the establishment of sustainability guidelines for Cosan and its companies.
The Business WGs are comprised of representatives of the finance, human resources and QHSE divisions, as well as other key areas of each business. The Corporate WG will be comprised of corporate divisions and representatives of Rumo LogĂstica, Radar Propriedades AgrĂcolas and Cosan Lubrificantes e Especialidades.
The management model established the governance structure, which will be comprised of the Business Working Groups (Business WG) and Corporate Working Group (Corporate WG).
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Cosan
Overview
Introduction
For more information 2011/12 Annual Report www.cosan.com.br
Credits Executive Edition Corporate Communications Writing and editing Report Sustentabilidade
Contact Info
Graphic design and print production Report Sustentabilidade
Corporate Communications e-mail: falecosan@cosan.com.br Address: Avenida Presidente Juscelino Kubitschek, 1327 4º andar, São Paulo SP – CEP 04543-011 Phone: +55 (11) 3897-9797
Pictures Ricardo Teles Tuca Reines Frederico Bailoni
Investor Relations e-mail: ri@cosan.com.br Site: www.cosan.com.br/ri Phone: +55 (11) 3897-9797 Produced in October 2012
Printing and Finishing Stilgraf Paper Cover – Duodesign, 300 g/m2 Inside – Evenglow Opalina Diamond, 120 g/m2 Typeface Museo Sans, Jos Buivenga, 2008 We would like to thank our employees who granted images for this publication.
Our Business, Challenges And Opportunities
www.cosan.com.br www.cosan.com.br