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3Q19 Results
Economic-Financial Office and Investor Relations Office
DISCLAIMER
This presentation may contain forward-looking statements referring to SABESP’sbusiness outlook, operating and financial results estimates, and growth prospects. Theseare only forecasts, and as such, they are exclusively based on SABESP’s managementexpectation in relation to the future of business and its continuous access to capital tofinance the Company’s business plan. These forward-looking statements largely dependon changes in market conditions, governmental rules, industry performance and theBrazilian economy, among other factors, in addition to risks exhibited in disclosuredocuments 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)(2) 9.9 8.3
Coverage(3) (%) 97 89
Treatment(4)(%) --- 77
Billed Volume (m³ million) 522.4 436.6
(1) As of September 30, 2019(2) Active and Inactive water connections. It includes Guarulhos(3) Services Available. It includes Guarulhos(4) Consumer units connected to the sewage treatment – It does not include Guarulhos
*Source: Depth Water Yearbook 2014-2015**The Metropolitan Region we consider for this estimate, includes 8 municipalities outside thelegal boundaries of the São Paulo Metropolitan Region and represents the municipalities servedby the Company’s Metropolitan Division, including the wholesale
Sabesp is one of the largest water and sewage service providers in the world based on the number of Customers*
Provides water directly to 27.0 million people and sewage services to 23.7 million people
Also sells wholesale treated water to 3 municipalities of SPMR (1.0 million people)
Natural monopoly, low operating risk
Serves the City of São Paulo and 371 out of 645 municipalities in the State
Covers around 69% of State's urban population, including the wholesale
Operations in the São Paulo Metropolitan Region**
represent 73.9% of our total revenues
4
São Paulo
Regional SystemsSPMR
...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 (State Law 11,454/2003)
Currently the State of São Paulo has 50.3% share
100% common shares
Market Cap: R$ 33.9 billion (as of September, 2019)
Law nº 13,303/16 – Government-Controlled Companies Law
5(1) September/2019
AGENDA
1 THE COMPANY
2 OUR OPERATIONS
3 OUR FINANCIAL PERFORMANCE
4 SPMR – WATER SITUATION
90% 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*Managerial information
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
Since May/18 – Pass-through of 4%
BROAD COVERAGE OF MUNICIPALITIES
CONTRACTUAL BASE
CONTRACT WITH THE MUNICIPALITY OF SÃO PAULO TOP 10 CONTRACTS
8
Municipalities% of Total Revenue
(9M19)Remaining Period
(Years)
São Paulo 43.6 21
São Bernardo do Campo 3.1 40
Guarulhos(1) 2.4 39
Praia Grande 2.1 29
Osasco 1.9 10
Santos 1.8 26
São José dos Campos 1.6 19
Barueri 1.5 26
Diadema 1.2 25
Itaquaquecetuba 1.0 28
Total 10+ / Avg. 60,0 26
(1) Program and Service Contract from 2007 to Sep/2019
Nº MUNICIPALITIES % OF REVENUE
Renewed/Secured(1) 319 92.1%
Metropolitan region without contract 16 2.5%
Expired Contracts / Under negotiation 9 0.8%
To be expired (2019 - 2025) 3 0.2%
To be expired (2026 - 2030) 25 3.8%
Total Retail 372 99.4%
Wholesale 3 0.6%
Total Sabesp 375 100.0%
(1) Operation started in January 2019 / Considers 50% of sewage revenue
CONTRACT WITH GUARULHOS
SERVICE CONTRACT
9
TERM OF DEBT ADJUSTMENT
40-year service contract Water Supply Service Sewage collection, removal and treatment services ( 50% under the municipality’s 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 from the second year onwards
The municipality withdraws pending appeals of Sabesp’s collections legal proceedings Sabesp: Court orders debt payments (“Precatórios”) Sabesp suspends the judicial collection of debt The payments remains suspended during the contract term The amounts will be reduced according to an agreed schedule and will be used as guarantee to the performance
of the 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
CONTRACT WITH SANTO ANDRÉ
SERVICE CONTRACT
10
TERM OF DEBT ADJUSTMENT
40-year service contract Water Supply Service Sewage collection, removal and treatment services
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 starting in 2021 Expected investment of R$ 917 million over 40 years Transfers to the Municipal Fund for Environmental Sanitation and Infrastructure
R$ 90 million in the first year of the contract 4% of net revenue from the second year onwards
The municipality withdraws pending appeals of Sabesp’s collections legal proceedings Sabesp: Court orders debt payments (“Precatórios”)
Sabesp suspends the judicial collection of debt The payments remains suspended during the contract term The amounts will be used as guarantee in the service contract If the service contract is interrupted, the court orders will be reactivated R$ 600 million discount on fines and interest
Transfer R$ 70 million to the municipality in order to end Semasa’s activities Semasa employees ceded to Sabesp:
During 6 months - All Semasa’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 (judged by the Supreme Court in 2013)
If not metro region, concession power belongs to the municipality
FEDERAL LAW 11,445/07 AND FEDERAL DECREE 7,217/10
CONCESSION POWER
REVISION OF THE REGULATORY FRAMEWORK (under discussion)
Separation of duties: planning, service provision and regulation
Obligation to install the service regulation → Municipal, State level or Consortium
Clarifies the payment conditions of non-amortized investments → up to 4 years
Disbursement of federal funds conditioned to the existence of a contract
11
Bill of Law 3,261/2019 proposed by Senator Tasso Jereissati approved by the Senate on June 6 is under discussion in the Lower House
On October 30, the Lower House Special Committee made changes to the text approved in the Senate and is waiting to be voted by the Lower House
If approved by the Lower House, the Bill of Law 3,261/2019 shall return to the Senate for final approval
Productivity
Factor
(0.6920%)New Average
Tariff= 1
Inflation
(IPCA)
100x Previous
Average Tariff
QualityFactor*
-+
TARIFF REVIEW
*Effective in 2020
METHODOLOGY OF TARIFF REVIEW (PRICE CAP)
ANNUAL TARIFF ADJUSTMENT FORMULA
12
+/-
TaxesRequired Revenue
Average
Tariff (P0)
Output of
the Model
= + +
Income Tax
Revenue
Taxes
OPEX +
Personnel
Energy
Materials
Others
Water
Sewage
Others
RABt –RAB0
Initial Asset Base
(-) Depreciation
(+) WK Variation
(+) Capex
Asset
Useful LifeSabesp 4 year Business Plan
+
Arsesp Review
CAPEX
Billed
Volume
W
A
C
C
(8,11%)
Initial Phase - Oct/2017 Final Phase- May/2018
RAB(1) (R$ Billion) 40.3 39.0
WACC (%) 8.11 8.11
Current Average Tariff (R$/m³) 3.37255 3.6425
X Factor(%) - 0.6920
P0 (R$/m³) 3.63861 3.7702
TRI(2) (%) 7.8888 3.507
TARIFF READJUSTMENTS AND REVISIONS
ORDINARY TARIFF REVISION (OTR) - 2º CYCLE FROM 2017 TO 2020
READJUSTMENTS AND REVISIONS INDEXES
13
(1) Regulatory Asset Base (2) Tariff Repositioning Index
ARSESP’s Resolutions nº 865 and nº 866 → Tariff Structure Revision (to be defined by June 2020) Public Consultation 06/2019 General Quality Index (effective in 2020) Public Consultation 09/2019 Methodology for Updating the RAB of 3rd OTR (Final Technical Note to be released) Public Consultation 10/2019 Quadrennial Research and Technological Development Program for Innovation (Final Technical Note to be
released)
OTR- Ordinary Tariff Revision
ETR- Extraordinary Tariff Revision
2015 - Readjustment + Residual + ETR = 15.24%
IPCA Index – Between the readjustement/revision periods
Add 954 thousand new connections by 2023
Add 1.2 million new connections by 2023 Coverage: from 90% in 2018 to 93% in 2023 Treatment: from 76% in 2018 to 84% in 2023
WATER AND SEWAGE OPERATIONS
WATER CONNECTION EVOLUTION (million) WATER COVERAGE (Connection in 000’s)
SEWAGE CONNECTION EVOLUTION (million) SEWAGE COVERAGE (´000s)
14
Metropolitan Water Program
Tietê Project
Corporate Program for Water Loss Reduction
Clean Stream Program
Clean Wave Program
CAPEX AND FINANCING
CAPEX PLAN OF R$ 18.7 BILLION FROM 2019 TO 2023
FINANCING MAIN PROGRAMS
(*) Book Value – Includes non-cash items
(**) Book Value – Items that affected cash
Additional information is presented in
Note 31 of the 3Q19 Financial Information
15
Financial Values (in R$ million)
3.735*
1.917**
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)
17
2013 2014 2015 2016 2017 2018
Dividends declared (R$) 0.8 0.4 0.2 1.2 1.0 1.2
Pay Out % 27.9 27.9 27.9 27.9 27.9 27.9
Outstanding Shares (million)
683.5 683.5 683.5 683.5 683.5 683.5
CONSISTENT PERFORMANCES
NET REVENUE (R$ 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 18
HISTORICAL LEVERAGE (R$ million)
ADJUSTED DEBT VS. ADJUSTED EBITDA* ADJUSTED EBITDA* VS. FINANCIAL EXPENSES**
NET DEBT VS. ADJUSTED EBITDA* NET DEBT VS. EQUITY
* Adjusted EBITDA – LTM / ** Financial Explosures paid - LTM / Calculated in accordance with CPCs/IFRS 19
20
COVENANT – ADJUSTED NET DEBT vs. EBITDA
COVENANT – ADJUSTED TOTAL DEBT vs. EBITDA
21
FINANCIAL HIGHLIGHTS (R$ million)
22
* In accordance with CPCs / IFRS, which includes Construction Costs.
** R$ / 000 shares
*** Last 12 months
2002 2003 2004 2005 2006 2007 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018* 9M19
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 16,085 13,287
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 6,541 5,786
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 40.7 43.5
Adj. EBITDA without Constr. Margin 46.3 41.2 44.7 43.2 43.0 44.6 34.4 46.6 43.3 45.4 48.8 63.5
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 2,835 2,310
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 17.6 17.4
2002 2003 2004 2005 2006 2007 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018* 9M19
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 43,565 45,838
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 13,153 13,667
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 1,714
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 11,049 11,953
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 6,669 6,729
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 19,552 21,802
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 40.2 38.5
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 4,177 3,735
2002 2003 2004 2005 2006 2007 2008* 2009* 2010* 2011* 2012* 2013* 2014* 2015* 2016* 2017* 2018* 9M19
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 1.2 -
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 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 3.8 -
Outstanding shares (million) 28.5 28.5 28.5 28.5 28.5 227.8 227.8 227.8 227.8 227.8 227.8 683.5 683.5 683.5 683.5 683.5 683.5 683.5
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 – Oct/18 to Sep/19
RAINFALL IN THE MAIN WATER PRODUCTION SYSTEMS (mm)
24
AVERAGE PRODUCTION (m³/s)VOLUME STORAGE (%)
Until November, 13, 2019
SPMR – WATER SITUATION
WATER SUPPLY SYSTEM STRONGER THAN BEFORE THE WATER CRISIS OF 2014/2015
RESERVOIRS 2013 2019 Var. %
Reservoirs (water right) (m³/s) 70.4 80.3 14%
Maximum storage capacity (hm³)(without the technical reserve)
1,816 1,945 7%
Transfers between reservoirs (m³/s) 13.2 35.4 168%
PRODUCTION AND DISTRIBUTION 2013 2019 Var. %
Urban population in the area served (source: SEADE) 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 62.3 (10%)
Average residential consumption (m³/month) 13.0 10.6 (18%)
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 434 319 (27%)
25
WATER PLAN FOR SPMR – FROM 2015 TO 2019 (MAIN ACTIONS)
26
DESCRIPTION FLOW (m³/s)
PURPOSEAVAILABILITY/ SECURITY
INITIATIVES ACCOMPLISHED IN 2015Reversal increase from Guaratuba River to the Ponte Nova reservoir by 0.5 m³/s
0.5Recover the storage volume and ensure Alto Tietê's water source
Reversal from the Guaió River to the Taiaçupeba reservoir: 1 m³/s 1
Increase of the ABV Water Treatment Station production from 15 to 16 m³/s Transfer water from Guarapiranga to the Cantareira area via the aqueduct system
Interconnection between: Pequeno River → Grande River (Billings) → Taiaçupeba (Alto Tietê) 4 m³/s
4Recover the storage volume and ensure the Alto Tietê reservoirTransfer water to Cantareira’s area
1 m³/s transfer increase from Taquacetuba to Guarapiranga (from 4 to 5 m³/s)
1Ensure Guarapiranga's water sourceTransfer water to Cantareira’s area
TOTAL 2015 6.5
INITIATIVES ACCOMPLISHED IN 2018Jaguari → Atibainha Interconnection: 5.13 m³/s to the Cantareira system (security increase)
5.13Recover storage volume and ensure the Cantareira System's water source
São Lourenço Production System: 6.4 m³/s 6.4 Produce 6.4 m³/s for the Greater São Paulo's western region
TOTAL 2018 11.53
INITIATIVE PLANNED FOR 2019
Reversal from Itapanhaú River (Ribeirão Sertãozinho) to the Biritiba reservoir 2 Recover the storage volume and assure Alto Tietê's water source
TOTAL 2019 2
TOTAL 2015 – 2019 20.03
SPMR – WATER SITUATION
November 14, 2019
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