cosan final

Brazilians ConglomerateProducer of Ethanol, Sugar & Energy

14th March 2011

Agenda

Recap: Brazil Market Overview

Cosan History

Current Business Model: Problems

Current Business Model: Options

Joint Venture: Royal Dutch Shell

Recap: Biofuel

Biofuels are a wide range of fuels which are in some way derived from biomass (biological material).

Bioethanol is an alcohol made by fermenting the sugar components of plant materials and it is made mostly from sugar and starch crops

Biodiesel s made from vegetables, oils, animal fats or recycled greases. Biodiesel can be used as a fuel for vehicles in its pure form


7.5 millions hectares sugar cane plantation

Natural advantages to plant cane: Large landmass Warm climate Abundant water Large amount of unused

fertile land


Brazil is the world's second largest producer of ethanol fuel

The world's largest exporter. Together

Brazil and the United States lead the industrial production of ethanol fuel

Accounting together for 89% of the world's production in 2009

Recap: The Development of Sugarcane

1920: Sugarcane cultivation was boosted

1973: major oil crisis caused gasoline shortage dangers of oil dependence

1975: Brazilian government launched Pro-Alcool

Twenty first century: Ethanol gained momentum as a viable and renewable source of fuel

2003: Flex-fuel vehicles in the market drivers could decide either to buy ethanol, gasoline or amixture of both


2007

•More than 70% of the new cars produced in Brazil had “flex”engines

•Brazil produces sugar and ethanol 12 months per year for both its domestic and export market

•Sugarcane crops increased an average of 3,9% year-over-year

2007/2008

•Gross earnings from the sugarcane sector were forecasted to be U$20 billion

•Brazil current produces 7.000 liters of ethanol per hectare planted

Recap: Environmental and Social Impact

Ethanol produced from sugarcane were renewable

Less carbon intensive Could be produced

domestically by most countries

Burst farm income Creating new jobs Reducing dependence on

foreign sources for energy

Potential to drive up food prices in poor countries

Use a significant amount of water: agricultural and industrial processing phases

Application of fertilizers and agrochemicals: water pollution

Soil erosion Tear up Amazonian rainforest Slave labor, abuse of worker’s

right Worker displacement by 2017

Supporters Critics

Cosan History: Facts

Type Public company

Founded 1936 (Establishment of the Costa Pinto mill)

Headquarters Piracicaba city , State of Sao Paulo, Brazil

Industry Bioenthanol & food

Main Shareholder

• Indústria Açucareira São Francisco S/A• Irmãos Francheschi Administração e Participação

S/A• Usina Costa Pinto S/A Açúcar e Álcool• Nova Celisa S/A

CEO Marcos Marinho Lutz

Employees 43.000 Employees

Production facilities

23 (21 in São Paulo State, one in the city of Jataí (Goiás State) and one in Caarapó (Mato Grosso do Sul State))

Other assets Operates 4 refineries and 2 port terminals

Cosan History

1936 - Cosan started with one sugar mill (Costa Pinto) in Piracicaba city in State of São Paulo

1980 – Rubens Ometto took the reigns of the company• Restructuring of the family

business• Beginning the mid 1980s:

Growth via vertical expansion

1975 – Pro-Álcool was launched by the Brazilian Government

Cosan History

1988 - Beginning of sugar exports from the center-south of Brazil after a change in Federal law (previously exports were exclusively controlled by northeastern producers)

1996 – Gain of port terminal concession in Santos

2001 - Cosan Foundation established

2002 - Implementation of geoprocessing technology and use of satellite images to monitor crops.

Problems

• Sector prone to cyclical crises (foreign exchange rates and commodity prices)

• Logistical problems

• Inability to penetrate the American market

Possible Options

1

•New Acquisitions and Greenfield Projects

2

•Cogeneration of Energy

3

•International Expansion

4

•The Ethanol Pipeline Network

5

•Domestic Distribution

Option 1: New Acquisitions and Greenfield Projects

Goiás Project • 3 mills with crushing capacity of 3.5 million tons sugar• Total costs: US$ 650 million• Installation costs accounting to US$ 600 million

Nova America• Crushing capacity of 7.8 million tons sugar• Company: debt of R$ 1.0 billion

Option 1: New Acquisitions and Greenfield Projects

Pro

Anticipate increase in demand for Ethanol

Growth

Synergy

Con

Oversupply of sugar cane

Environmental Issues

Option 2: Cogeneration of Energy

• Initial Investment amounting to R$ 2.0 million /MW• 2007: Investment of R$ 87 million• Expectation 2008: Investment of R$ 179 million• Contract, fixed energy price for 15 years

Option 2: Cogeneration of Energy

Pro

Diversification of risk/revenue

Stable cash flow

Growing market

Con

No strategic advantage (experience)

High initial investment

Difficulty getting governmental licensing

Option 3: International Expansion

• Buy and lease assets in the U.S ., Mexico or or Caribbean country

• Producing in a Caribbean country while allowing to export to U.S /European country tariff free

Option 3: International Expansion

Pro

Tariff free

Diversification/new markets

Shipping costs

Con

Expanding to a new market (country risk)Potential governemtal policy change

Uniduto Logística• 618 kilometer pipeline connecting the

producing regions to Cosan’s port• Total investment: US$ 1.0 billion• Petrobas might create their own

pipeline

Option 4: The Ethanol Pipeline Network

Option 4: The Ethanol Pipeline Network

Pro

Cost reduction for transportation by 35-40%Reduction in carbon footprint

Quick responsiveness

Eleminate risk of Petrobas‘ first mover advantage

Con

Decision based on fear/prestige

Inefficient: bad ROI

Option 5: Domestic Distribution

• Acquisition of ExxonMobil’s retail distribution Esso• Total costs: US$ 830 million • 1.500 service stations• Market share opportunity 7%

Option 5: Domestic Distribution

Pro

First vertically integrated ethanol producer in Brazil

Possbile synergy

Brand awareness

Con

No expertise in retail

Final Decision

Option 2• Diversification of risk/revenue• Stable cash flow• Growing market

Option 5• First vertically integrated ethanol

producer in Brazil• Possbile synergy• Brand awareness

Target: Horizontal and vertical integration

New wave of Acquisitions and Joint Ventures


Adquisition price US$ 954 million

Operating areas Gasoline, gas and ethanol distribution

Asset Composition 1,500 service stations in Brazil (mostly of them in São Paulo State)

Market Share 7.2% of retail fuel distribution (fifth largest fuel retailer in Brazil)

Net Revenue R$ 9.2 billion

Gross Profit R$ 609 million

Ebitda R$ 276 million

Net Income R$ 138 millions

Main Objectives • Consolidate its position in the retail fuel distribution• Benefit from direct and indirect synergies• Reinforce the importance of ethanol in the industry.• natural hedge against price volatility

Raizen: Facts

Turnover R$ 50 Billion (fifth largest company in Brazil)

Operating areas Ethanol production, logistics, co-generation and food distribution

Asset Value R$ 20 Billion

Asset Composition

23 industry plants, 4,500 service stations, 53 terminals and 52 bases at airports.

Main Shareholder

• Royal Dutch Shell (50%)• Cosan S.A. (50%)

Expected Synergies

R$ 3.4 Billion (logistics, distribution, freight costs, distribution terminal modernization and centralized ethanol marketing)

Employees 43.000 Employees

President Vasco Dias

Main Objectives • Expand crushing capacity to 100 million tons per year• Increase ethanol production from 2.2 billion liters to 5 billion• Increase cogeneration of energy from 900 MW to 1.300 MW

Logum Logistica: Facts

Investments R$ 6 Billion (until 2020)

Operation Multimodal logistics system for the transportation and storage of ethanol

Extension 1300 Km passing through 45 municipalities

Capacity 21 billion liters of ethanol a year

Main Shareholder • Petrobras (20%)• Copersucar S.A.(20%)• Cosan S.A. (20%)• Odebrecht Transport Participações S.A. (20%)• Camargo Correa Óleo e Gás S.A. (10%)• Uniduto Logística S.A. (10%)

Labour force 10 million employees

Main Objectives • Reduce 7 million tons of CO2. • R$ 80 million cost reduction for Cosan• 20% cost reduction on transportation• Efficiency and rapidity

Conclusion

• Vertical integration with the acquisition of Esso, the joint venture with Shell , and the creation of Logum Logistica

• Less dependence on the ethanol and sugar industry

• By 2010, 45% of the EBITDA comes from other business areas such as oil and gas distribution, logistics and cogeneration of energy

• Future goal: transforming ethanol into an commodity

cosan final

Documents