1Q18 Results
Economic-Financial Office and Investor Relations Office
DISCLAIMER
This presentation may contain forward-looking statements referring to SABESP’s business outlook, operating and financial results estimates, and growth prospects. These are only forecasts, and as such, they are exclusively based on SABESP’s management expectation in relation to the future of business and its continuous access to capital to finance the Company’s business plan. These forward-looking statements largely depend on changes in market 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) 8.9 7.3
Coverage(2) (%) 98 90
Service(3) (%) 95 83
Treatment(4)(%) 75
Billed Volume (m³ million) 531.0 412.6
(1) As of Mar 31, 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 8 municipalities outside the legal boundaries of the São Paulo Metropolitan Region and represents the municipalities served by the Company’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 24.9 million people and sewage services to 21.6 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 367 out of 645 municipalities in the State
Covers around 60% of State's urban population, including the wholesale
Operations in the São Paulo Metropolitan Region* represent 69.5% of our total revenues
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...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$ 23.9 billion (as of March, 2018)
Law nº 13.303/16 – Government-Controlled Companies Law
5 (¹) March/2018
The Transaction involves:
Sabesp to raise capital to provide additional funding for expansion and investment plans
GESP to raise resources for the state (through the proceeds of the sale of GESP’s shares in Holdco), while helping Sabesp to accelerate its investment program, and maintaining control of Sabesp
The proceeds of the Transaction may allow:
Sabesp to raise capital to provide additional funding for expansion and investment plans
GESP to raise resources for the state (through the proceeds of the sale of GESP’s shares in Holdco), while helping Sabesp to accelerate its investment program, and maintaining control of Sabesp
THE POTENTIAL TRANSACTION
TRANSACTION OVERVIEW
USE OF PROCEEDS
State law requires the State of São Paulo to own at least 50% +1 voting shares at all times
Listed in the Novo Mercado segment of B3 under the ticker symbol SBSP3 since April 2002
Listed in the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) Level III, under the SBS code, since May 2002
Government of São Paulo
50.3%
HoldCo.
Holding Company is created to house all capital stock of the GESP, and is owned 100% by GESP
GESP remains in control of Sabesp
OS: 100.0% PS: 0.0%
49.7%
Government of São Paulo
A capitalization may be launched at Sabesp level with the subscription proceeds (primary component) raised at the HoldCo level. Proceeds may fund Sabesp expansion and investment plans
Should the capitalization be done through issuance of ordinary shares of Sabesp, existing shareholders have the right to subscribe to a follow-on capital increase in the proportion of their stake in Sabesp.
Potential Investor
HoldCo.
Government of São Paulo
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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
8
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 – to be recovered in tariff
Nº of contracts % of revenue
Renewed/Secured (Program and Service Contract from 2007-March 2018) 289 81.5%
Metropolitan Region Without Contract 34 9.3% Expired Contracts / under negotiation 15 0.9% To be Expired (2018 - 2025) 05 0.2% To be expired (2026 - 2030) 27 6.3% Total Retail 370* 98.2% Wholesale 5 1.8% Total Sabesp 375 100.0%
BROAD COVERAGE OF MUNICIPALITIES
CONTRACTS
CONTRACT WITH THE MUNICIPALITY OF SÃO PAULO
Municipality % of Total Revenue Remaining Period
São Paulo 55.0% 22 years
São Bernardo do Campo 2.9% 15 years
Santos 2.5% 27 years
São Jose dos Campos 0.9% 20 years
Osasco 1.8% 11 years
Barueri 1.1% 27 years
Franca 1.1% 19 years
Suzano 1.0% 23 years
Taboão de Serra 0.7% 24 years
Presidente Prudente 0.7% 25 years
Total 10+ / Average 67.6% 21 years
TOP 10 CONTRACTS
*Includes 2 partial contracts with Mogi das Cruzes
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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
As Regulation activities and responsibilities include: Service quality Tariff structure and reviews
Planning is a concession holder attribution
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
ARSESP’S ATTRIBUTION
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
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Taxes
Required 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 (0.9386%)
New Average Tariff = 1
Inflation (IPCA)
100 x Previous
Average Tariff
Quality
Factor* -
- +
*Not defined yet
METHODOLOGY OF TARIFF REVIEW (PRICE CAP)
ANNUAL TARIFF ADJUSTMENT FORMULA
11
TARIFF AJUSTMENTS AND REVISIONS
TARIFF REVISION - 2º CYCLE FROM 2017 TO 2021
19/01/2017 Resolution nº 706 → Arsesp approves the beginning of Sabesp’s 2nd Ordinary Tariff Revision (OTR) in two stages
06/10/2017 Arsesp discloses the Final Technical Note NT/F/004/2017 → First Stage
RAB = R$ 40.3 bn WACC = 8.11% Preliminary P0 = R$ 3.6386/m³ updated to the price of April, 2017 Repositioning Index = 7.8888% Regulatory, Control and Inspection Fee of 0,5% – in effect since November, 2017
ADJUSTMENTS AND REVISIONS INDEXES
2013
3.15% in April 22 + 2.35% in December 11
2015 Adjustment + Residual + ETR = 15.24%
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09/05/2018 Arsesp discloses the Resolution nº 794 and Final Technical Note NT/F/0006/2018 → Final Stage
RAB = R$ 39 bn X Factor = 0,8885% P0 = R$ 3.7702/m³ Tariff Repositioning Index = 3.507%
ORT- Ordinary Tariff Revision ERT- Extraordinary Tariff Revision IPCA up to May/18
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)
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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 29 of the 2018 Financial Information
14
Financial Values (in R$ million)
689* 232**
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/IFRS 18
COVENANT – ADJUSTED TOTAL DEBT vs. EBITDA
19
FINANCIAL HIGHLIGHTS (R$ million)
20 * In accordance with CPCs / IFRS, which includes Construction Costs.
** R$ / 000 shares
AGENDA
1 COMPANY OVERVIEW
2 OUR OPERATIONS
3 OUR FINANCIAL PERFORMANCE
4 SPMR – WATER SITUATION
SPMR – WATER SITUATION
WATER PRODUCTION IN HYDROLOGICAL YEAR
ACTIVE VOLUME AVALIABLE (daily)
22
(m³/s)
(hm³) 1,280*
1,157 *
-200
0
200
400
600
800
1000
1200
1400
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 *As of May 14th, 2018
SPMR – WATER SITUATION
WATER PLAN FOR SPMR – FROM 2015 TO 2019 (MAIN ACTIONS)
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DESCRIPTION
FLOW (m³/s)
EST. PURPOSE STATUS
AVAILABILITY / SECURITY
Initiatives accomplished in 2015
1 Reversal 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
2 Reversal from the Guaió River to the Taiaçupeba reservoir: 1 m³/s 1 May-15 completed
3 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 system
completed
4 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
completed
5 1 m³/s transfer increasefrom Taquacetuba to Guarapiranga (from 4 to 5 m³/s)
1 Dec-15 ◦ Assure Guarapiranga's water source completed
total 2015 6.5
Initiatives accomplished in 2018
6 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 source
completed
7 São Lourenço Production System: 6.4 m³/s 6.4 abr/18 ◦ Produce 6.4 m³/s for the Greater São Paulo's western region
completed
total 2018 11.53
Initiative planned for 2019
8 Reversal from Itapanhaú River (Ribeirão Sertãozinho) to the Biritiba reservoir
2 2019 ◦ Recover the storage volume and assure Alto Tietê's water source
under development
total 2019 2
Total 2015 – 2019 20.03
www.sabesp.com.br
IR Contacts
Mario Azevedo de Arruda Sampaio Angela Beatriz Airoldi Head of Capital Markets and IR Investor Relations Manager [email protected] [email protected] +55 (11) 3388-8664 +55 (11) 3388-8793