Cosan’s Strategy for Future Growth

AMSTERDAM – Cosan S/A is Brazil’s largest, most consolidated sugar and ethanol producer. With 17 operational plants that process 40 million tonnes of sugarcane per year, Cosan sold 1.32 billion litres of ethanol and 3.25 million tonnes of sugar in FY’07. It has realised a market share of 7 to 8.6%, depending on whether you look at sugarcane capacity, sugar sales or ethanol sales. This may not seem like much, until you realize that its closest competitor, the recently formed Santelisa Vale, has a market share of 4.3% followed by a number of companies with approximately 2%. In August this year, Cosan also raised $1.2 billion in its initial public offering on the New York and São Paulo stock exchange to fund acquisitions and the construction of new mills in order to keep up with soaring demand for ethanol. To put it in the words of Cosan´s Chief Commercial Officer, Marcos Lutz, “Cosan’s strategy is aimed at growth.”

With $2.02 billion net operating revenue and $1.2 billion raised through its IPO, Cosan certainly has the capital and cash flow to choose between almost all strategic options. Ethanol Statistics sat down with Marcos Lutz to discuss the future of Cosan, how it will expand and where. Mr. Lutz shared that Cosan is now actively seeking to expand abroad, beyond the CBI region, to establish ´lifelong marketing relations´. He also substantiated Cosan’s decision to start production in Goías, a Brazilian state just outside Brazil’s main production area of São Paulo. Perhaps Cosan’s strategy can be summarized in just one quote from Mr. Lutz: “If I want to go to 150 million tonnes of sugarcane per year, we will need to produce in other places as well.”

Acquisitions
Greenfields, brownfields, productivity improvements and acquisitions. These are the key strategic modes of expansion for Cosan in the next few years, in descending order of expected frequency and importance. With such a large capital injection from its IPO, one would expect Cosan to aggressively acquire some of its smaller competitors. The market however, is currently not ideally suited for such a strategy says Mr. Lutz. “We have seen a lot of people trying to sell mills in Brazil, but there is not much happening in terms of effective deals. In the end, expected cash flow has to be close to what is being asked. That is certainly not the case right now.” Further explaining his point of view, Mr Lutz says “at this point I believe we have to wisely wait for the right time and be very disciplined in pricing. Of course we could spend money in expensive acquisitions, but we won’t do that.”