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3Q18 Results
Economic-Financial Office and Investor Relations Office
DISCLAIMER
This presentation may contain forward-looking statements referring to SABESP’s businessoutlook, operating and financial results estimates, and growth prospects. These are onlyforecasts, and as such, they are exclusively based on SABESP’s management expectation inrelation to the future of business and its continuous access to capital to finance theCompany’s business plan. These forward-looking statements largely depend on changes inmarket conditions, governmental rules, industry performance and the Brazilian economy,among other factors, in addition to risks exhibited in disclosure documents filed by SABESP.Therefore, they are subject to changes without prior notice.
AGENDA
1 COMPANY OVERVIEW
2 OUR OPERATIONS
3 OUR FINANCIAL PERFORMANCE
4 SPMR – WATER SITUATION
...ONE OF THE LARGEST WATER AND SEWAGE PROVIDERS IN THE WORLD
COMPANY OVERVIEW MAIN OPERATIONAL INDICATORS(1)
Water Sewage
Connections (million) 9.0 7.4
Coverage(2) (%) 98 90
Service(3) (%) 95 83
Treatment(4)(%) 76
Billed Volume (m³ million) 1,574.0 1,225.0
(1) As of September 30, 2018 (2) Service Available(3) Households connected (4) Consumer units connected to the
sewage treatment
Regional Systems
Metropolitan Region
*The Metropolitan Region we consider for this estimate, includes 8municipalities outside the legal boundaries of the São PauloMetropolitan Region and represents the municipalities served by theCompany’s Metropolitan Division
Sabesp is one of the largest water and sewage service providers in the world based on the number of Customers
Provides water to 25.0 million people and sewage services to 21.7 million people
Also sells wholesale treated water to 5 municipalities (3.0 million people)
Natural monopoly, low operating risk
Serves the City of São Paulo and 368 out of 645 municipalities in the State
Covers around 66% of State's urban population, including the wholesale
Operations in the São Paulo Metropolitan Region* represent 70.3% of our total revenues
4
...WITH STRONG CORPORATE GOVERNANCE
OWNERSHIP STRUCTURE % (1)
We are a mixed capital company, majority-owned by the State of São Paulo, with significant private ownership State law requires the State of São Paulo to own at least 50% + 1 voting shares at all times Currently the Government of São Paulo has 50.3% share
100% common shares Market Cap: R$ 16.1 billion (as of September, 2018) Law nº 13.303/16 – Government-Controlled Companies Law
5(¹) September/2018
AGENDA
1 THE COMPANY
2 OUR OPERATIONS
3 OUR FINANCIAL PERFORMANCE
4 SPMR – WATER SITUATION
80% of water volume and revenue come from residential, commercial and industrial customer
90% of sewage volume and revenue come from residential, commercial and industrial customer
DIVERSIFIED CONSUMER BASE
WATER BILLED VOLUME BY TYPE OF CUSTOMER SEWAGE BILLED VOLUME BY TYPE OF CUSTOMER
WATER REVENUES BY TYPE OF CUSTOMER SEWAGE REVENUES BY TYPE OF CUSTOMER
7
30-year-service agreement between Sabesp, Municipality of São Paulo and State Government (expires in 2040)
Minimum investment of 13% of the Gross Revenue, net of Cofins and Pasep
Transfer of 7.5% of the Gross Revenue, net of Cofins and Pasep, to the Municipal Environmental Sanitation and Infrastructure Fund
BROAD COVERAGE OF MUNICIPALITIES
CONTRACTS
CONTRACT WITH THE MUNICIPALITY OF SÃO PAULO TOP 10 CONTRACTS
*Includes 2 partial contracts with Mogi das Cruzes
8
Nº OF CONTRACTS % OF REVENUERenewed/Secured (Program and Service Contract from 2007 to Sep/2018) 298 84.4%
Metropolitan Region Without Contract 27 6.7%
Expired Contracts / under negotiation 15 1.0%
To be expired (2018 - 2025) 4 0.2%
To be expired (2026 - 2030) 27 6.4%
Total Retail 371* 98.7%
Wholesale 5 1.27%
Total Sabesp 376 100.0%
Municipalities% of Total Revenue
RemainingPeriod
São Paulo 54.9% 22 years
São Bernardo do Campo 3.0% 30 years
Santos 2.0% 27 years
Osasco 1.8% 11 years
São José dos Campos 1.8% 20 years
Praia Grande 1.2% 30 years
Diadema 1.0% 26 years
Barueri 1.2% 28 years
Suzano 1.0% 14 years
Franca 1.0% 19 years
Total 10+ / Average 69.0% 23 years
CONTRACT WITH GUARULHOS
CONTRACT
9
TERM OF DEBT ADJUSTMENT
40-year service contract Water Supply Service Sewage collection, removal and treatment services(*)
(*) Part of the removal and treatment services will be remaine under the municipality’s direct and indirect responsibility
Contract signing parties: State, Municipality and Sabesp Planning shared among State and Municipality (SPMR) Regulator: ARSESP Tariff, control and monitoring Tariff: the same as SPMR (adjustment – catch-up period of approximately 2 years) Expected investment of R$ 2 billion over 40 years Transfers to the Municipal Fund for Environmental Sanitation and Infrastructure
R$ 150 million in 5 years (R$ 30 million per year) 4% of net revenue
The municipality withdraws pending appeals of Sabesp’s collections legal procedings Sabesp: Court orders debt payments (“Precatórios”)
Sabesp suspends the judicial collection of debt The payments remains suspended during the contract term The amounts are used as guarantees in the service contract If the service contract is interrupted, the court orders will be reactivated
Transfer R$ 50 million to the municipality in order to end SAAE’s activities SAAEs employees ceded to Sabesp:
During 6 months - All SAAE’s employees will be ceded to Sabesp From month 7 up to a maximum of 4 years up to 400 employees will continue to be ceded
REGULATORY FRAMEWORK
Sanitation services in metro regions are subject to shared responsibility between State and Municipality
State Legislative has to create an entity and mechanisms to implement the ruling to adjust to the legislation
Legal proceeding related to this matter under Supreme Court (STF) appraisal was ruled in March 2013 The decision was released in September 2013
FEDERAL LAW 11.445/07 / FEDERAL DECREES: 7.217/10, 8.211/14, 8.629/15, 9.254/17
CONCESSION POWER IN METROPOLITAN REGIONS
PROVISIONAL PRESIDENTIAL DECREE 868
Obligatory creation of a Regulatory Agency → Municipal or State level Clarifies the payment conditions of non-amortized investments → up to 4 years Disbursement of federal funds conditioned to the existence of a sanitation plan
10
The Provisional Presidential Decree 868 of December 28, 2018, provides changes on the followingLaws: 9,8984/2000 – Creation of the Brazilian National Water Agency (ANA) 10,768/2003 – Disposal of Staff for the Brazilian National Water Agency (ANA) 11,445/2007 – National Guidelines for the Basic Sanitation 13,529/2017 – Authorizes the Federal Government to participate in fund to finance specialized
..... ..technical services
TaxesRequired Revenue
Average
Tariff (P0)
PRICE CAP
Billed
Volume
Output of
the Model
= + +
Reduced by X
Factor X defined by
Arsesp (after year1)
Income
Taxes
Revenue
Taxes
TARIFF REVIEW
OPEX CAPEX+
Personnel
Energy
Materials
Others
Water
Sewage
Others
Sabesp 4 year Business Plan
+
Arsesp Review
RABt–RAB0
Amortization
Rate
Asset
Useful Life
WACC
Cost of Equity
Cost of Debt
Arsesp
Technical
Note
Productivity Factor(0.8885%)
New Average Tariff = 1
Inflation(IPCA)
100x Previous
Average Tariff
Quality
Factor*-
-+
*Not defined yet
METHODOLOGY OF TARIFF REVIEW (PRICE CAP)
ANNUAL TARIFF ADJUSTMENT FORMULA
11
TARIFF AJUSTMENTS AND REVISIONS
ORDINARY TARIFF REVISION (OTR) - 2º CYCLE FROM 2017 TO 2021
ADJUSTMENTS AND REVISIONS INDEXES
2015 Adjustment + Residual + ETR = 15.24%
12
OTR- Ordinary Tariff Revision ETR- Extraordinary Tariff Revision IPCA up to June/18
Inicial Stage - Oct/2017 Final Stage - May/2018
Preliminary Final Preliminary Final
RAB(1) (R$ Billion) 40.3 40.3 38.4 39.0
WACC (%) 8.01 8.11 8.11 8.11
Current Average Tariff (R$/m³) 3.47484 3.37255 3.6466 3.6425
X Fator (%) - - 0.9287 0.8885
P0 (R$/m³) 3.62652 3.63861 3.8207 3.7702
TRI(2) (%) 4.3650 7.8888 4.7744 3.5070
(1) Regulatory Asset Base(2) Tariff Repositioning Index
24/05/2018 Sabesp filed at ARSESP: (i) Reconsideration Request (compensatory adjustment in the revenue, cost of electricity and investments in the 1st Cycle); and (ii) Clarification and Revision Request (reasons for the reduction in the OPEX for the 2017-2020 period, revision of X Fator,
compensatory adjustment for the delay in the application of the 2nd OTR and the calculation of the financial component related to municipal funds)
Add 783 thousand new connections by 2022
Add 1.1 million new connections by 2022 Coverage: 93% in 2022 Treatment: 83% in 2022
WATER AND SEWAGE OPERATIONS
WATER CONNECTION EVOLUTION (million) WATER COVERAGE (Connection in 000’s)
SEWAGE CONNECTION EVOLUTION (million) SEWAGE COVERAGE (´000s)
13
Metropolitan Water Program
Tietê Project
Corporate Program for Water Loss Reduction
Clean Stream Program
Clean Wave Program
INVESTMENT AND FINANCING
INVESTMENT PLAN OF R$ 17.3 BILLION FROM 2018 TO 2022
FINANCING MAIN PROGRAMS
(*) Book Value – Includes non-cash items(**) Book Value – Items that affected cash
- Additional information is presented in
Note 30 of the 3Q Financial Information
14
Financial Values (in R$ million)
2,245*
1,384**
AGENDA
1 COMPANY OVERVIEW
2 OUR OPERATIONS
3 OUR FINANCIAL PERFORMANCE
4 SPMR – WATER SITUATION
LONG TERM AND LOW COST FUNDING
TOTAL DEBT BREAKDOWN TOTAL DEBT BY CURRENCY
DEBT AMORTIZATION PROFILE (R$ million)
16
2012 2013 2014 2015 2016 2017
Dividends declared (R$) 2.35 0.78 0.37 0.22 1.20 1.03
Pay Out % 27.9 27.9 27.9 27.9 27.9 27.9
Outstanding Shares (million)
227.8 683.5 683.5 683.5 683.5 683.5
CONSISTENT PERFORMANCES
NET REVENUE (R$ million) NET INCOME (R$ million)
ADJUSTED EBITDA (R$ million) DIVIDENDS / PAY OUT
Adjusted EBITDA – Last 12 months Adjusted EBTIDA Margin – Last 12 months Adjusted EBITDA Margin Without Construction – Last 12 months 17
HISTORICAL LEVERAGE (R$ million)
Covenant: 3.65 Covenant: 2.35
Covenant: 3.50
ADJUSTED TOTAL DEBT VS. ADJUSTED EBITDA* ADJUSTED EBITDA* VS. FINANCIAL EXPENSES**
NET DEBT VS. ADJUSTED EBITDA* NET DEBT VS. EQUITY
Adjusted Total Debt = Total Debt - Interest
* Adjusted EBITDA – LTM ** Financial Explosures paid - LTM Calculated in accordance with CPCs/IFRS18
19
COVENANT – ADJUSTED NET DEBT vs. EBITDA
COVENANT – ADJUSTED TOTAL DEBT vs. EBITDA
20
FINANCIAL HIGHLIGHTS (R$ million)
21
* In accordance with CPCs / IFRS, which includes Construction Costs.
** R$ / 000 shares
2002 2003 2004 2005 2006 2007 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 9M18*
Gross Revenues w / construction 3,962 4,308 4,642 5,356 5,984 6,448 6,839 9,085 9,787 10,530 11,391 11,985 11,823 12,284 14,855 15,375 11,901
Net Revenues 3,767 4,131 4,397 4,953 5,527 5,971 7,809 8,580 9,231 9,927 10,738 11,316 11,213 11,712 14,098 14,608 11,183
Adjusted EBITDA 1,860 2,076 1,927 2,286 2,446 2,699 2,865 2,727 3,222 3,371 3,605 4,007 2,919 3,974 4,572 5,269 4,216
Adjusted EBITDA Margin 49.4 50.3 43.8 46.1 44.3 45.2 36.7 31.8 34.9 34.0 33.6 35.4 26.0 33.9 32.4 36.1 37.7
Adjusted EBITDA w ithout Construction Margin - - - - - - 46.3 41.2 44.7 43.2 43.0 44.6 34.4 46.6 43.3 45.9 46.0
Net Income (651) 833 513 866 789 1,055 863 1,508 1,630 1,381 1,912 1,924 903 536 2,947 2,519 1,328
Net Margin (%) - 20.2 11.7 17.5 14.3 17.7 11.0 17.6 17.7 13.9 17.8 17.0 8.1 4.6 20.9 17.2 11.9
- - - - - - - - - - - - - - - -
Total Assets 16,332 16,590 16,784 17,431 18,000 18,660 17,206 20,243 23,293 25,019 26,476 28,274 30,355 33,707 36,745 39,546 42,246
Total Debt 7,878 7,264 7,051 6,664 6,327 5,685 6,865 6,560 8,209 8,423 8,875 9,450 10,786 13,122 11,964 12,101 13,727
Short-term Debt 1,132 997 1,497 759 853 742 1,449 1,010 1,240 1,629 1,343 641 1,207 1,526 1,247 1,747 2,104
Long-Term Debt 6,593 6,267 5,554 5,905 5,474 4,943 5,416 5,548 6,970 6,794 7,533 8,809 9,579 11,595 10,718 10,354 11,622
Foreign Currency Debt 3,708 3,013 2,681 1,576 1,472 1,242 2,281 1,746 2,249 3,053 3,216 3,699 4,346 6,618 5,660 5,673 6,934
Shareholders' Equity 4,217 7,577 7,952 8,483 9,019 9,781 6,758 8,439 9,682 10,546 11,257 12,931 13,304 13,717 15,419 17,513 18,787
Total Debt/Total Cap. (%) 65.1 48.9 47.0 44.0 41.2 36.8 50.4 43.7 45.9 44.4 44.1 42.2 44.8 48.9 43.7 40.9 42.2
Investments 619 594 601 678 905 921 1,734 2,059 2,194 2,440 2,536 2,716 3,211 3,482 3,878 3,388 2,245
Dividend Declared (R$/ share) - 17.7** 5.4** 12.2** 9.5** 1.3 1.3 1.7 2.0 2.5 2.3 0.8 0.4 0.2 1.2 1.0 -
Pay Out (%) - 60.5 29.8 40.2 34.7 28.5 34.3 26.1 28.0 47.3 27.9 27.9 27.9 27.9 27.9 27.9 -
Dividend Yield (%) - 10.8 3.4 7.8 3.2 3.2 4.7 5.0 4.7 4.9 2.7 3.0 2.2 1.2 4.2 3.0 -
Outstanding shares (million) 28.5 28.5 28.5 28.5 28.5 227.8 227.8 227.8 227.8 227.8 227.8 683.5 683.5 683.5 683.5 683.5 683.5
AGENDA
1 COMPANY OVERVIEW
2 OUR OPERATIONS
3 OUR FINANCIAL PERFORMANCE
4 SPMR – WATER SITUATION
Guarapiranga Alto Tietê
SPMR – WATER SITUATION
Cantareira
Long Term Average – Sep/17 to Oct/18
RAINFALL IN THE MAIN WATER PRODUCTION SYSTEMS (mm)
23
AVERAGE PRODUCTION (m³/s)VOLUME STORAGE (%)
Until February 26, 2019
76%
101%
58%
105%
47%
91%
26% 17% 32% 24%
213%61%
149%
82%
82%
85%104%
-
50
100
150
200
250
300
OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP
LTA
2017/2018
2018/2019
88%
111%
53%
80%
26%
120%
92%
34% 45%27%
81% 51%
149%
82%
87%
94%
171%
-
50
100
150
200
250
300
350
OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP
LTA
2017/2018
2018/2019
87%
139%
49%
79%
28%
80%
70%
18% 31% 27%120%50%
122%
71%62%
86%
177%
-
50
100
150
200
250
300
350
400
OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP
LTA
2017/2018
2018/2019
60,760.9
62.7
63.864.2
58
59
60
61
62
63
64
65
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2016/17 2017/18 2018/19
51.7%
7.7%11.0%
47.3%
53.7%
40.6%44,7 4648.5
52.2
62.7
-10
10
30
50
70
90
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Vo
lum
e St
ore
d (
%)
2012/13 2013/14 2014/15 2015/162016/17 2017/18 2018/19
1,578.2
1,259.3
1,503.61,545.1
1,431
1,115.8
0
200
400
600
800
1000
1200
1400
1600
Out12/Set13 Out13/Set14 Out14/Set15 Out15/Set16 Out16/Set17 Out17/Set18
Chuva acumulada no ano hidrológico (mm) média histórica (mm)
SPMR – PRODUCTION SYSTEMS
24
Historical Average = 1,567.3 /mm
Oct12/Sep13 Oct13/Sep14 Oct14/Sep15 Oct15/Sep16 Oct16/Sep17 Oct17/Sep18
Accrued rainfall in Hydrological Year (mm) Historical average (mm)
ACCRUED RAINFALL: HYDROLOGICAL YEAR (OCT TO SEP)
70.7
38.9
47.2
78.5
62.7
47.7
0
10
20
30
40
50
60
70
80
90
100
Out12/Set13 Out13/Set14 Out14/Set15 Out15/Set16 Out16/Set17 Out17/Set18
Nat
ura
l In
flo
w (
m3 /
s)
Qn média ano hidrológico (m3/s) média histórica (m3/s)
Oct12/Sep13 Oct13/Sep14 Oct14/Sep15 Oct15/Sep16 Oct16/Sep17 Oct17/Sep18
Qn historical Average = 86.5m3/s
Qn average in Hydrological Year (m³/s) Historical Average (m³/s)
SPMR – PRODUCTION SYSTEMS
25
NATURAL INFLOW (QN): HYDROLOGICAL YEAR (OCT TO SEP)
SPMR – WATER SITUATION
WATER SUPPLY SYSTEM STRONGER THAN BEFORE THE WATER CRISIS OF 2014/2015
RESERVOIRS 2013 2018 Var. %
Reservoirs (water right) (m³/s) 70.4 80.3 14%
Maximum storage capacity (hm³)(without the technical reserve)
1,816 2,106 16%
Transfers between reservoirs (m³/s) 13.2 35.4 168%
PRODUCTION AND DISTRIBUTION 2013 2018 Var. %
Urban population in the area served (source: SEADE)(million inhabitants)
20.1 20.9 3.6%
730,000 inhab.
Total water treatment capacity (m³/s) 73.4 82.3 12%
Water production systems 8 9 -
Average monthly production (m³/s) 69.1 60.9 (12%)
Average residential consumption (m³/month) 13.0 10.8 (17%)
Treated water transfers between the systems (m³/s) Up to 3 Up to 12 300%
IPDT (water loss per connection per day) in the SPMR 434 335 (23%) 26
WATER PLAN FOR SPMR – FROM 2015 TO 2019 (MAIN ACTIONS)
27
DESCRIPTION
FLOW (m³/s)
PREV. PURPOSE STATUSAVAILABILITY/ SECURITY
INITIATIVES ACCOMPLISHED IN 2015Reversal increase from Guaratuba River to the Ponte Nova reservoir by 0.5 m³/s
0.5 Jan-15• Recover the storage volume and ensure
Alto Tietê's water source
completed
Reversal from the Guaió River to the Taiaçupeba reservoir: 1 m³/s
1 May-15 completed
Increase of the ABV Water Treatment Station production from 15 to 16 m³/s
Jun-15• Transfer water from Guarapiranga to the
Cantareira area via the aqueduct systemcompleted
Interconnection between: Pequeno River → Grande River (Billings) → Taiaçupeba (Alto Tietê) 4 m³/s
4 Sep-15• Recover the storage volume and ensure
the Alto Tietê reservoir• Transfer water to Cantareira’s area
completed
1 m³/s transfer increase from Taquacetuba to Guarapiranga(from 4 to 5 m³/s)
1 Dec-15• Ensure Guarapiranga's water source• Transfer water to Cantareira’s area
completed
TOTAL 2015 6.5
INITIATIVES ACCOMPLISHED IN 2018
Jaguari → Atibainha Interconnection: 5.13 m³/s to the Cantareira system (security increase)
5.13 mar/18• Recover storage volume and ensure the
Cantareira System's water sourcecompleted
São Lourenço Production System: 6.4 m³/s 6.4 abr/18• Produce 6.4 m³/s for the Greater São
Paulo's western regioncompleted
TOTAL 2018 11.53
INITIATIVE PLANNED FOR 2019
Reversal from Itapanhaú River (Ribeirão Sertãozinho) to theBiritiba reservoir
2 2019• Recover the storage volume and assure
Alto Tietê's water sourceunder development
TOTAL 2019 2TOTAL 2015 – 2019 20.03
SPMR – WATER SITUATION
www.sabesp.com.br
IR Contacts
Mario Azevedo de Arruda Sampaio Angela Beatriz AiroldiHead of Capital Markets and IR Investor Relations [email protected] [email protected]+55 (11) 3388-8664 +55 (11) 3388-8793