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Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ______ No ___X___

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CIA. DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO - SABESP
Rui de Britto Álvares Affonso
Chief Financial Officer and Investor Relations Officer
Mario Azevedo de Arruda Sampaio
Head of Capital Markets and Investor Relations

 

 

SABESP announces 3Q16 results São Paulo, November 10, 2016 - Companhia de Saneamento Básico do Estado de São Paulo - SABESP (BM&FBovespa: SBSP3; NYSE: SBS), one of the largest water and sewage services providers in the world based on the number of costumers, announces today its 3Q16 results. The Company’s operating and financial information, except when indicated otherwise is presented in Brazilian Reais, in accordance with the Brazilian Corporate Law. All comparisons in this release, unless otherwise stated, refer to the same period of 2015.		SBSP3: R$ 30.25/share SBS: US$ 8.89 (ADR=1 share) Total shares: 683,509,869 Market value: R$ 20.7 billion Closing quote: 11/10/2016

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1. Financial highlights

 

Adjusted EBITDA Reconciliation (Non-accounting measures)

 

(*) Adjusted EBIT is net income before: (i) other operating revenues/expenses, net; (ii) financial result; and (iii) income tax and social contribution.

(**) Adjusted EBITDA is net income before: (i) depreciation and amortization expenses; (ii) income tax and social contribution; (iii) financial result; and (iv) other operating revenues/expenses, net.

In 3Q16, net operating revenue, including construction revenue, reached R$ 3.7 billion; a 17.2% increase compared to the same period of 2015.

Costs and expenses, including construction costs, totaled R$ 2.7 billion, 4.9% higher than 3Q15. Adjusted EBIT, in the amount of R$ 1,057.3 million, grew 67.3% from R$ 631.9 million recorded in 3Q15. Adjusted EBITDA, in the amount of R$ 1,337.5 million, increased 48.1% from R$ 903.2 million recorded in 3Q15 (R$ 4,319.6 million in the last 12 months).

The adjusted EBITDA margin was 28.3% in 3Q15 and 35.7% in 3Q16 (32.2% in the last 12 months). Excluding construction revenues and construction costs, the adjusted EBITDA margin was 49.6% in 3Q16 (40.4% in 3Q15 and 42.5% in the last 12 months).

In 3Q16 the Company recorded a net income of R$ 573.9 million, in comparison to a loss of R$ 580.1 million in 3Q15.

2. Gross operating revenue

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Gross operating revenue from water and sewage, not including construction revenue, totaled R$ 2.9 billion, an increase of R$ 526.9 million or 22.6%, when compared to the R$ 2.3 billion recorded in 3Q15.

The main factors that led to this variation were:

• Tariff increase of 8.4% since May 2016;
• Increase of 4.7% in the Company’s total billed volume (4.5% in water and 4.9% in sewage); and
• In 3Q15 there was the bonus granted within the Water Consumption Reduction Incentive Program, concluded in April 2016, in the amount of R$ 248.8 million.

The increase resulting from the above factors was partially offset by the suspension in April 2016 of the Contingency Tariff, in the amount of R$ 144.8 million in 3Q15.

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3. Construction revenue

Construction revenue increased R$ 82.6 million or 8.1%, when compared to the same period of the previous year. The variation was mainly due to higher investments in the municipalities served by the Company.

4. Billed volume

The following tables show the water and sewage billed volume, quarter-on-quarter and 9-month basis, per customer category and region.

WATER AND SEWAGE BILLED VOLUME ⁽¹⁾ PER REGION - million m³

	Water					Sewage					Water + Sewage
Region	3	Q16	3	Q15	%	3	Q16	3	Q15	%	3	Q16	3	Q15	%
Metropolitan	283.5		271.6		4.4	246.8		235.7		4.7	530.3		507.3		4.5
Regional (2)	152.6		148.7		2.6	131.2		126.2		4.0	283.8		274.9		3.2
Total retail	436.1		420.3		3.8	378.0		361.9		4.4	814.1		782.2		4.1
Wholesale (3)	58.4		52.8		10.6	7.9		5.8		36.2	66.3		58.6		13.1
Total	494.5		473.1		4.5	385.9		367.7		4.9	880.4		840.8		4.7
	9	M16	9	M15	%	9	M16	9	M15	%	9	M16	9	M15	%
Metropolitan	846.0		806.6		4.9	735.1		698.2		5.3	1,581.1		1,504.8		5.1
Regional (2)	465.5		458.3		1.6	397.6		385.2		3.2	863.1		843.5		2.3
Total retail	1,311.5		1,264.9		3.7	1,132.7		1,083.4		4.6	2,444.2		2,348.3		4.1
Wholesale (3)	167.1		164.9		1.3	21.1		18.3		15.3	188.2		183.2		2.7
Total	1,478.6		1,429.8		3.4	1,153.8		1,101.7		4.7	2,632.4		2,531.5		4.0
(1) Unaudited
(2) Including coastal and interior region
(3) Reused water volume and non-domestic sewage are included in

 

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5. Costs, administrative, selling and construction expenses

In 3Q16, costs, administrative, selling and construction expenses, grew 4.9% (R$ 125.2 million). Excluding construction costs, total costs and expenses increased by 2.8% (R$ 44.7 million).

As a percentage of net revenue, costs and expenses were 80.2% in 3Q15 and 71.8% in 3Q16.

 

5.1. Salaries and payroll charges and Pension plan obligations

 

There was a decrease of R$ 259.7 million in 3Q16, mainly due to:

 

·         Decrease of R$ 307.4 million due to the migration of 3,572 participants from the Defined Benefit Plan (G1) to the Defined Contribution Plan (Sabesprev Mais), generating an advance decrease of R$ 334.2 million in the actuarial deficit, offset by the extraordinary contribution and incentive of R$ 26.8 million;

 

The above decrease was partly compensated by the following factors:

 

·         Increase of R$ 24.1 million due to the application of a 10.03% salary adjustment in May 2016;

·         Increase of R$ 13.7 million in provision for severance pay (TAC); and

·         R$ 8.8 million rise in provisions for supplementary payments for retirement plans and pensions under the G0 Plan, due to changes in actuarial assumptions.

 

 5.2. Services

 

Services expenses, in the amount of R$ 347.1 million, grew R$ 50.5 million or 17.0%, in comparison to R$ 296.6 million in 3Q15. The main items that led to this increase were:

                          

·         Advertising campaigns amounting to R$ 14 million;

·         Maintenance of networks and sewage connections, amounting to R$ 11.7 million;

·         Cost of leasing power generator machines for transferring water from the Rio Grande to the Taiaçupeba reservoir, at a cost of R$ 6.7 million;

·         Reading water meters and delivering bills, R$ 4.5 million; and

·         Surveillance contract, R$ 3.4 million.

 

 

5.3. Electricity

 

Electricity expenses totaled R$ 224.7 million in 3Q16, an increase of R$ 4.7 million or 2.1% in comparison to the R$ 220.0 million in 3Q15. The main factors that contributed to this increase were:

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·         Average increase of 12.0% in the free market tariffs, with an 8.5% increase in consumption;

·         Average increase of 2.7% in the grid market tariff (TUSD), with a 7.4% decrease in consumption; and

·         Average fall of 8.6% in the regulated market tariffs, with consumption remaining stable.

 

In 3Q16, the regulated market accounted for 37.1% of the total electricity consumed by the Company, the free market accounted for 33.7% and the grid market accounted for 29.2% of total consumption.

 

5.4. General expenses

 

General expenses increased R$ 104.8 million, totaling R$ 249.3 million in 3Q16, versus the R$ 144.5 million recorded in 3Q15, mainly due to:

·         Provision of R$ 38.1 million concerning the agreement entered into with EMAE – Empresa Metropolitana de Águas e Energia;

·         R$ 21.1 million increase in provisioning for court proceedings;

·         Higher provision for the Municipal Fund for Environmental Sanitation and Infrastructure, in the amount of R$ 21.8 million, as a result of the increase in revenues with the municipality of São Paulo; and

·         Reversal of provision in 3Q15, amounting to R$ 17.9 million, due to the recovery of money from the São Paulo State Government (GESP), due to employees assignment.

 

5.5. Tax expenses

 

Increase of R$ 3.0 million, largely due to the increase in the Municipal Property Tax (IPTU) in 2016, related to the properties in São Paulo.

 

5.6. Depreciation and amortization

 

R$ 8.9 million increase or 3.3%, reaching R$ 280.2 million in 3Q16 in comparison to the R$ 271.3 million recorded in 3Q15, largely due to the beginning of operations of intangible assets, in the amount of R$ 2.2 billion.

 

5.7. Allowance for doubtful accounts

 

R$ 127.8 million increase, due mainly to:

 

·         Increase in the write-offs, net of recoveries, amounting to R$ 39.5 million;

·         Increase in delinquency, generating a supplement of 49.5 million; and

·         Reversal of R$ 70.5 million in the provision for losses with municipalities in 3Q15.

 

This increase was partially offset by the increased receipt of court-ordered debt payments, especially from the city of Guarulhos, amounting to R$ 31.6 million.

 

6. Other operating revenues (expenses), net

 

Other net operational revenues and expenses reported a negative variation of R$ 48.0 million, mainly due to the following non-recurring events in 3Q15:

 

·         Receipt of R$ 22.1 million from REAGUA - Programa Estadual de Apoio à Recuperação de Águas (State Program to Support Water Recovery);

·         Sale of properties for R$ 16.6 million; and

·         Sale of surplus electricity for R$ 4 million.

 

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7. Financial result

 

7.1. Financial income and expenses

 

Decrease of R$ 13.9 million, mainly because of lower costs for interest and charges on external loans and financing, which fell by R$ 10.7 million due to lower debt balances due to the devaluation of the dollar and the yen at the close of 3Q16, against 3Q15 (-18.3% and -3.3%, respectively).

7.2. Monetary and exchange rate variation on assets and liabilities

							R$ million
	3	Q16	3	Q15	Chg.		%
Monetary variation on loans and financing	(24.4	)	(25.9	)	1.5		(5.8	)
Currency exchange variation on loans and financing	(79.2	)	(1,448.9	)	1,369.7		(94.5	)
Other monetary variations	(9.1	)	(18.6	)	9.5		(51.1	)
Monetary/exchange rate variation on liabilities	(112.7	)	(1,493.4	)	1,380.7		(92.5	)
Monetary/exchange rate variation on assets	27.6		59.6		(32.0	)	(53.7	)
Monetary/exchange rate variation, net	(85.1	)	(1,433.8	)	1,348.7		(94.1	)

 

7.2.1 Monetary and exchange rate variation on liabilities

 

The effect of unfavorable monetary and currency variations in 3Q16 was R$ 1,380.7 million less than in 3Q15, in particular:

 

·         A positive variation of R$ 1,369.7 million in the cost of currency variations on loans and financing, due to the lower appreciation of the dollar and the yen against the Real in 3Q16 (1.1% and 2.7%, respectively), compared with their appreciation in 3Q15 (28.1% and 30.5%, respectively); and

·         Decrease in the cost of other monetary variations by R$ 9.5 million, principally due to lower provisioning for court proceedings in 3Q16.

 

 

7.2.2 Monetary and exchange rate variation on assets

 

A decrease of R$ 32 million, mainly due to the non-recurring monetary adjustment of the agreement with the municipality of Santos in 3Q15.

 

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8. Income tax and social contribution

Grew R$ 586.0 million, due to the increase in taxable income in 3Q16, when compared to 3Q15.

9. Indicators

9.1. Operating

The volume of water produced remained with an upward trend in the quarter and had an increase of 9.1%. In the year, the increase was of 9.4%.

Concerning the water losses, it's possible to observe that the loss regarding the micro-measurement (IPM) increased from 28.3% in 3Q15 to 31.4% in 3Q16. The figure of the 3Q15 was influenced not only by loss control initiatives, but also by the demand management, resulting from the water crisis and the consequent need to reduce the pressure on the network. It is worth remembering that this measurement considers the average of the last 12 months.

 

9.2. Financial

 

10. Loans and financing

In October 2016, the Company raised a foreign loan of US$ 150 million, for a term of 3 years, with interest at a margin of 4.5% p.a. over the 3-month LIBOR rate. Interest on the loan will be payable quarterly, and capital repayments will be six-monthly after an 18-month grace period. The proceeds of the loan were used to settle the Eurobond 2016 issue, for a total of US$ 140 million, and other debts maturing in 2016.

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11. Capex

In the third quarter of 2016, the Company invested R$ 1.1 billion, totaling R$ 2.7 billion in the first nine months of 2016.

12. Conference calls

 

For more information, please contact:

Mario Arruda Sampaio
Head of Capital Markets and Investor Relations
Phone.(55 11) 3388-8664
E-mail: maasampaio@sabesp.com.br

Angela Beatriz Airoldi
Investor Relations Manager
Phone.(55 11) 3388-8793
E-mail: abairoldi@sabesp.com.br

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Statements contained in this press release may contain information that is forward-looking and reflects management's current view and estimates of future economic circumstances, industry conditions, SABESP performance, and financial results. Any statements, expectations, capabilities, plans and assumptions contained in this press release that do not describe historical facts, such as statements regarding the declaration or payment of dividends, the direction of future operations, the implementation of principal operating and financing strategies and capital expenditure plans, the factors or trends affecting financial condition, liquidity or results of operations are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. There is no guarantee that these results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.

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Income Statement

 

 

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Balance Sheet

Brazilian Corporate Law			R$ ' 000
ASSETS	09/30/2016			12/31/2015
Current assets
Cash and cash equivalents	1,415,465			1,639,214
Trade receivables	1,465,317			1,326,972
Related parties and transactions	157,091			156,155
Inventories	51,886			64,066
Restricted cash	18,429			29,156
Currrent recoverable taxes	12,584			77,828
Other receivables	97,959			156,942
Total current assets	3,218,731			3,450,333
Noncurrent assets
Trade receivables	163,857			182,616
Related parties and transactions	714,210			715,952
Escrow deposits	75,366			76,663
Deferred income tax and social contribution	149,023			128,242
Water National Agency – ANA	82,895			88,368
Other receivables	123,215			140,676
Equity investments	29,370			28,105
Investment properties	58,534			56,957
Intangible assets	30,366,200			28,513,626
Property, plant and equipment	309,111			325,076
Total noncurrent assets	32,071,781			30,256,281
Total assets	35,290,512			33,706,614
LIABILITIES AND EQUITY	09/30/2016			12/31/2015
Current liabilities
Trade payables	257,166			248,158
Borrowings and financing	1,714,327			1,526,262
Accrued payroll and related charges	420,020			347,976
Taxes and contributions	169,604			107,295
Dividends and interest on capital payable	99			127,441
Provisions	721,229			631,890
Services payable	378,831			387,279
Public-Private Partnership – PPP	34,939			33,255
Program Contract Commitments	107,180			228,659
Other liabilities	83,938			102,101
Total current liabilities	3,887,333			3,740,316
Noncurrent liabilities
Borrowings and financing	10,274,629			11,595,338
Deferred Cofins and Pasep	137,041			132,921
Provisions	436,587			450,324
Pension obligations	2,926,494			2,832,216
Public-Private Partnership – PPP	1,872,794			1,001,778
Program Contract Commitments	67,663			92,055
Other liabilities	163,684			145,060
Total noncurrent liabilities	15,878,892			16,249,692
Total liabilities	19,766,225			19,990,008
Equity
Paid-up capital	10,000,000			10,000,000
Profit reserve	4,058,535			4,069,988
Other comprehensive income	(534,455)			(353,382
Retained earnings	2,000,207			-
Total equity	15,524,287			13,716,606
Total equity and liabilities	35,290,512			33,706,614

 

 

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