sbsitr1q18_6k.htm - Generated by SEC Publisher for SEC Filing
 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 

 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For May, 2018
(Commission File No. 1-31317)
 

 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
(Exact name of registrant as specified in its charter)
 
Basic Sanitation Company of the State of Sao Paulo - SABESP
(Translation of Registrant's name into English)
 


Rua Costa Carvalho, 300
São Paulo, S.P., 05429-900
Federative Republic of Brazil
(Address of Registrant's principal executive offices)



Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.

Form 20-F ___X___ Form 40-F ______
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1)__.
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7)__.

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___

If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):

 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Table of Contents

 

Company Information   
Capital Breakdown  1 
Cash Proceeds  2 
Parent Companys Financial Statements   
Statement of Financial Position - Assets  3 
Statement of Financial Position - Liabilities  4 
Income Statement  6 
Statement of Comprehensive Income  7 
Statement of Cash Flows  8 
Statement of Changes in Equity   

1/01/2018 to 3/31/2018 

10 

1/01/2017 to 3/31/2017

11 
Statement of Value Added  12 
Comments on the Companys Performance  13 
Notes to the Interim Financial Information  19 
Comments on the Companys Projections  77 
Other Information Deemed as Relevant by the Company  78 
Reports and Statements   
Unqualified Reports on Special Review  80 
Executive Officers' Statement on the Financial Statements  81 
Executive Officers' Statement on the Report of Independent Registered Public Accounting Firm  82 

 


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Company Information / Capital Breakdown

 

 

Number of Shares

Current Quarter

(Units)

3/31/2018

Paid-in Capital

 

Common

683,509,869

Preferred

0

Total

683,509,869

Treasury Shares

 

Common

0

Preferred

0

Total

0

 

 

 

 

 

PAGE: 1 of 82

 


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO                                                                                                                                                                                         Version: 1

 

 

Company Information / Cash Proceeds

 

Event  Approval  Proceeds  Date of Payment  Type of Share  Class of Share  Earnings per share 
            (Reais / share) 
Board of Directors’  3/27/2018  Interest on Capital    Common   

1.02980

Meeting             

 

 

PAGE: 2 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Financial Position – Assets

(R$ thousand)

Code  Description  Current Quarter  Previous Year 
    3/31/2018  12/31/2017 
1  Total Assets  40,685,614  39,546,444 
1.01  Current Assets  5,340,677  4,574,085 
1.01.01  Cash and Cash Equivalents  2,963,862  2,283,047 
1.01.03  Accounts Receivable  1,928,846  1,853,368 
1.01.03.01  Trade Receivables  1,762,793  1,672,595 
1.01.03.02  Other Receivables  166,053  180,773 
1.01.03.02.01 Related-Party Balances 166,053  180,773 
1.01.04  Inventories  75,492  85,671 
1.01.06  Recoverable Taxes  190,516  276,585 
1.01.06.01  Current Recoverable Taxes  190,516  276,585 
1.01.08  Other Current Assets  181,961  75,414 
1.01.08.03  Other  181,961  75,414 
1.01.08.03.01 Restricted Cash 14,064  18,822 
1.01.08.03.20 Other Receivables 167,897  56,592 
1.02  Noncurrent Assets  35,344,937  34,972,359 
1.02.01  Long-Term Assets  1,168,708  1,156,593 
1.02.01.03  Accounts Receivable  217,271  215,910 
1.02.01.03.01 Trade Receivables 217,271  215,910 
1.02.01.08  Receivables from Related Parties  619,465  634,387 
1.02.01.08.03 Receivables from Controlling Shareholders 619,465  634,387 
1.02.01.09  Other Noncurrent Assets  331,972  306,296 
1.02.01.09.04 Escrow Deposits 147,646  122,686 
1.02.01.09.05 ANA Water National Agency 71,552  70,487 
1.02.01.09.20 Other Receivables 112,774  113,123 
1.02.02  Investments  98,044  94,584 
1.02.02.01  Equity Investments  40,404  36,932 
1.02.02.01.04 Other Equity Investments 40,404  36,932 
1.02.02.02  Investment Properties  57,640  57,652 
1.02.03  Property, Plant and Equipment  247,472  255,050 
1.02.04  Intangible Assets  33,830,713  33,466,132 
1.02.04.01  Intangible Assets  33,830,713  33,466,132 
1.02.04.01.01 Concession Contracts 8,461,497  8,575,551 
1.02.04.01.02 Program Contracts 8,632,086  8,505,442 
1.02.04.01.03 Services Contracts 16,275,618  15,917,014 
1.02.04.01.04 Software License 461,512  468,125 

 

PAGE: 3 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Financial Position – Liabilities

(R$ thousand)

Code  Description  Current Quarter  Previous Year 
    3/31/2018  12/31/2017 
2  Total Liabilities  40,685,614  39,546,444 
2.01  Current Liabilities  4,968,725  4,771,880 
2.01.01  Labor and Pension Plan Liabilities  633,146  588,073 
2.01.01.01  Social Security Liabilities  23,657  40,631 
2.01.01.02  Labor Liabilities  609,489  547,442 
2.01.02  Trade Payable  310,685  344,947 
2.01.02.01  Domestic Suppliers  310,675  344,947 
2.01.02.02  Foreign Suppliers  10  0 
2.01.03  Tax Liabilities  126,977  183,965 
2.01.03.01  Federal Tax Liabilities  122,432  176,202 
2.01.03.01.02 PIS-Pasep and Cofins Payable 80,044  74,034 
2.01.03.01.03 INSS (social security contribution) Payable 35,251  35,365 
2.01.03.01.20 Other Federal Taxes 7,137  66,803 
2.01.03.03  Municipal Tax Liabilities  4,545  7,763 
2.01.04  Borrowings and Financing  1,876,775  1,746,755 
2.01.04.01  Borrowings and Financing  826,555  827,702 
2.01.04.01.01 In Domestic Currency 239,298  280,331 
2.01.04.01.02 In Foreign Currency 587,257  547,371 
2.01.04.02  Debentures  1,032,682  901,480 
2.01.04.03  Financing through Finance Lease  17,538  17,573 
2.01.05  Other Liabilities  1,436,194  1,300,181 
2.01.05.01  Payables to Related Parties  1,402  1,367 
2.01.05.01.03 Payables to Controlling Shareholders 1,402  1,367 
2.01.05.02  Other  1,434,792  1,298,814 
2.01.05.02.01 Dividends and Interest on Equity Payable 598,612  598,612 
2.01.05.02.04 Services Payable 515,852  408,275 
2.01.05.02.05 Refundable Amounts 12,160  11,598 
2.01.05.02.06 Program Contract Commitments 138,591  128,802 
2.01.05.02.07 Public-Private Partnership - PPP 76,151  60,007 
2.01.05.02.09 Indemnities 11,220  10,368 
2.01.05.02.20 Other Liabilities 82,206  81,152 
2.01.06  Provisions  584,948  607,959 
2.01.06.01  Tax, Social Security, Labor and Civil Provisions  169,403  170,012 
2.01.06.01.01 Tax Provisions 33,104  32,712 
2.01.06.01.02 Social Security and Labor Provisions 46,990  45,881 
2.01.06.01.04 Civil Provisions 89,309  91,419 
2.01.06.02  Other Provisions  415,545  437,947 
2.01.06.02.03 Provisions for Environmental Liabilities and Decommissioning 17,524  16,472 
2.01.06.02.04 Provisions for Customers 352,723  373,747 
2.01.06.02.05 Provisions for Suppliers 45,298  47,728 
2.02  Noncurrent Liabilities  17,623,449  17,261,555 
2.02.01  Borrowings and Financing  10,605,701  10,354,211 
2.02.01.01  Borrowings and Financing  7,372,802  7,224,061 
2.02.01.01.01 In Domestic Currency 2,186,421  2,098,611 
2.02.01.01.02 In Foreign Currency 5,186,381  5,125,450 
2.02.01.02  Debentures  2,684,283  2,586,106 

 

PAGE: 4 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Financial Position – Liabilities

(R$ thousand)

Code  Description  Current Quarter  Previous Year 
    3/31/2018  12/31/2017 
2.02.01.03  Financing through Finance Lease  548,616  544,044 
2.02.02  Other Liabilities  6,549,451  6,400,345 
2.02.02.02  Other  6,549,451  6,400,345 
2.02.02.02.04 Pension Plan Liabilities  2,939,958  2,932,338 
2.02.02.02.05 Program Contract Commitments  105,201  110,698 
2.02.02.02.06 Public-Private Partnership - PPP  3,155,812  3,011,409 
2.02.02.02.07 Indemnities  31,146  30,179 
2.02.02.02.08   Labor Liabilities  6,715  6,494 
2.02.02.02.09 Deferred Cofins/Pasep  128,769  130,182 
2.02.02.02.20 Other Liabilities  181,850  179,045 
2.02.03  Deferred Taxes  19,125  36,754 
2.02.03.01  Deferred Income Tax and Social Contribution  19,125  36,754 
2.02.03.01.01 Deferred Income Tax and Social Contribution  19,125  36,754 
2.02.04  Provisions  449,172  470,245 
2.02.04.01  Tax, Social Security, Labor and Civil Provisions  289,543  292,999 
2.02.04.01.01 Tax Provisions  34,292  38,881 
2.02.04.01.02 Social Security and Labor Provisions  250,300  247,220 
2.02.04.01.04   Civil Provisions  4,951  6,898 
2.02.04.02  Other Provisions  159,629  177,246 
2.02.04.02.03 Provisions for Environmental Liabilities and Decommissioning  152,501  143,974 
2.02.04.02.04 Provisions for Customers  5,587  8,571 
2.02.04.02.05 Provisions for Suppliers  1,541  24,701 
2.03  Equity  18,093,440  17,513,009 
2.03.01  Paid-Up Capital  10,000,000  10,000,000 
2.03.04  Profit Reserve  8,051,110  8,051,110 
2.03.04.01  Legal Reserve  1,058,275  1,058,275 
2.03.04.08  Additional Dividend Proposed  53,539  53,539 
2.03.04.10  Reserve for Investments  6,939,296  6,939,296 
2.03.05  Retained Earnings/Accumulated Losses  580,431  0 
2.03.06  Equity Valuation Adjustments  -538,101  -538,101 

 

PAGE: 5 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Income Statement

(R$ thousands)

Code  Description  YTD Current Year  YTD Previous Year 
    1/01/2018 to 3/31/2018  1/01/2017 to 3/31/2017 
3.01  Revenue from Sales and/or Services  3,699,668  3,558,825 
3.02  Cost of Sales and/or Services  -2,139,237  -2,061,416 
3.02.01  Cost of Sales and/or Services  -1,506,585  -1,354,187 
3.02.02  Construction Cost  -632,652  -707,229 
3.03  Gross Profit  1,560,431  1,497,409 
3.04  Operating Income/Expenses  -477,826  -465,380 
3.04.01  Selling Expenses  -224,155  -238,680 
3.04.02  General and Administrative Expenses  -267,980  -239,134 
3.04.04  Other Operating Income  17,425  8,697 
3.04.04.01  Other Operating Income  19,460  11,568 
3.04.04.02  Cofins and Pasep  -2,035  -2,871 
3.04.05  Other Operating Expenses  -5,933  1,867 
3.04.05.01  Loss on Write-off of Property, Plant and Equipment Items  -5,384  2,066 
3.04.05.04  Surplus Cost of Electricity Sold  -365  0 
3.04.05.05  Provision for Inventory Losses  -106  0 
3.04.05.20  Other  -78  -199 
3.04.06  Equity Results  2,817  1,870 
3.05  Income before Financial Result and Taxes  1,082,605  1,032,029 
3.06  Financial Result  -193,933  3,798 
3.06.01  Financial Income  77,099  80,898 
3.06.01.01  Financial Income  80,999  84,551 
3.06.01.02  Exchange Gains  -134  279 
3.06.01.03  Cofins and Pasep  -3,766  -3,932 
3.06.02  Financial Expenses  -271,032  -77,100 
3.06.02.01  Financial Expenses  -159,017  -166,488 
3.06.02.02  Exchange Losses  -112,015  89,388 
3.07  Earnings before Income Tax  888,672  1,035,827 
3.08  Income Tax and Social Contribution  -308,241  -361,465 
3.08.01  Current  -325,870  -350,440 
3.08.02  Deferred  17,629  -11,025 
3.09  Net Result from Continued Operations  580,431  674,362 
3.11  Profit/Loss for the Period  580,431  674,362 
3.99  Earnings per Share - (Reais/Share)     
3.99.01  Basic Earnings per Share     
3.99.01.01  Common Share  0.84919  0.98662 
3.99.02  Diluted Earnings per Share     
3.99.02.01  Common Share  0.84919  0.98662 

 

PAGE: 6 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Comprehensive Income

 

(R$ thousand)

Code  Description  YTD Current  YTD Previous 
    Year  Year 
    1/01/2018 to 3/31/2018  1/01/2017 to 3/31/2017 
4.01  Net Income for the Period  580,431  674,362 
4.03  Comprehensive Income for the Period  580,431  674,362 

 

PAGE: 7 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Cash Flows – Indirect Method

(R$ thousand)

Code  Description  YTD Current Year  YTD Previous Year 
    1/01/2018 to 3/31/2018  1/01/2017 to 3/31/2017 
6.01  Net Cash from Operating Activities  662,016  763,612 
6.01.01  Cash from Operations  1,557,019  1,636,617 
6.01.01.01  Profit before Income Tax and Social Contribution  888,672  1,035,827 
6.01.01.02  Provision and Inflation Adjustments on Provisions  36,513  62,657 
6.01.01.04  Finance Charges from Customers  -60,324  -60,716 
6.01.01.05  Residual Value of Property, Plant and Equipment,  4,282  11,314 
  Intangible Assets and Investment Properties Written-off     
6.01.01.06  Depreciation and Amortization  327,899  331,948 
6.01.01.07  Interest on Borrowings and Financing Payable  119,242  90,640 
6.01.01.08  Monetary and Exchange Change on Borrowings and  131,664  -67,648 
  Financing     
6.01.01.09  Interest and Monetary Changes on Liabilities  8,099  2,950 
6.01.01.10  Interest and Monetary Changes on Assets  -3,929  -10,569 
6.01.01.11  Allowance for Doubtful Accounts  48,631  86,136 
6.01.01.12  Provision for Consent Decree (TAC)  7,387  2,314 
6.01.01.13  Equity Results  -2,817  -1,870 
6.01.01.15  Other Adjustments  6,303  -12,295 
6.01.01.16  Transfer of Funds to São Paulo Municipal Government  0  104,360 
6.01.01.17  Construction Margin over Intangible Assets Resulting from  -14,551  -15,699 
  Concession Contracts     
6.01.01.18  Pension Plan Liabilities  59,948  77,268 
6.01.02  Changes in Assets and Liabilities  -477,063  -387,509 
6.01.02.01  Trade Receivables  -77,646  -49,660 
6.01.02.02  Related-Party Balances and Transactions  28,282  16,050 
6.01.02.03  Inventories  10,179  -6,047 
6.01.02.04  Recoverable Taxes  86,069  28,438 
6.01.02.05  Other Receivables  -112,021  -71,154 
6.01.02.06  Escrow Deposits  -21,891  16,047 
6.01.02.08  Contractors and Suppliers  -244,286  -29,084 
6.01.02.09  Payroll, Provisions and Social Contribution  37,686  -5,959 
6.01.02.10  Pension Plan Liabilities  -52,328  -54,489 
6.01.02.11  Taxes and Contributions Payable  -160,978  -78,771 
6.01.02.12  Services Payable  107,577  -127,199 
6.01.02.13  Other Liabilities  4,304  24,542 
6.01.02.14  Provisions  -80,597  -49,923 
6.01.02.15  Deferred Cofins/Pasep  -1,413  -300 
6.01.03  Other  -417,940  -485,496 
6.01.03.01  Interest Paid  -196,060  -213,824 
6.01.03.02  Income Tax and Social Contribution Paid  -221,880  -271,672 
6.02  Net Cash from Investing Activities  -228,659  -529,408 
6.02.01  Acquisition of Intangible Assets  -229,976  -520,886 
6.02.02  Acquisition of Property, Plant and Equipment  -2,786  -10,601 
6.02.03  Increase in Investments  -655  0 
6.02.04  Restricted Cash  4,758  2,079 
6.03  Net Cash from Financing Activities  247,458  -136,603 

 

PAGE: 8 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Cash Flows – Indirect Method

(R$ thousand)

Code  Description  YTD Current Year  YTD Previous Year 
    1/01/2018 to 3/31/2018  1/01/2017 to 3/31/2017 
6.03.01  Funding  943,048  275,208 
6.03.02  Amortization  -681,698  -403,698 
6.03.04  Public-Private Partnership - PPP  -13,892  -7,741 
6.03.05  Program Contract Commitments  0  -372 
6.05  Increase (Decrease) in Cash and Cash Equivalents  680,815  97,601 
6.05.01  Opening Cash and Cash Equivalents  2,283,047  1,886,221 
6.05.02  Closing Cash and Cash Equivalents  2,963,862  1,983,822 

 

PAGE: 9 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Changes in Equity / 1/01/2018 to 3/31/2018

(R$ thousand)

Code  Description  Paid-up  Capital Reserves,  Profit Reserves  Retained  Other Comprehensive  Equity 
    Capital  Options Granted and    Earnings/Accumulated  Income   
      Treasury Shares    Losses     
5.01  Opening Balances  10,000,000  0  8,051,110  0  -538,101  17,513,009 
5.03  Restated Opening Balances  10,000,000  0  8,051,110  0  -538,101  17,513,009 
5.05  Total Comprehensive Income  0  0  0  580,431  0  580,431 
5.05.01  Net Income for the Period  0  0  0  580,431  0  580,431 
5.07  Closing Balances  10,000,000  0  8,051,110  580,431  -538,101  18,093,440 

 

PAGE: 10 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Changes in Equity / 1/01/2017 to 3/31/2017

(R$ thousand)

Code  Description  Paid-up  Capital Reserves,  Profit Reserves  Retained  Other Comprehensive  Equity 
    Capital  Options Granted and    Earnings/Accumulated  Income   
      Treasury Shares    Losses     
5.01  Opening Balances  10,000,000  0  6,244,859  0  -825,648  15,419,211 
5.03  Restated Opening Balances  10,000,000  0  6,244,859  0  -825,648  15,419,211 
5.05  Total Comprehensive Income  0  0  0  674,362  0  674,362 
5.05.01  Net Income for the Period  0  0  0  674,362  0  674,362 
5.07  Closing Balances  10,000,000  0  6,244,859  674,362  -825,648  16,093,573 

 

PAGE: 11 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Parent Company’s Financial Statements / Statement of Value Added

(R$ thousand)

Cod  Description  YTD Current Year  YTD Previous Year 
    1/01/2018 to 3/31/2018  1/01/2017 to 3/31/2017 
7.01  Revenue  3,898,878  3,677,651 
7.01.01  Goods, Products and Services Sold  3,280,846  3,029,291 
7.01.02  Other Revenue  19,460  11,568 
7.01.03  Revenue from Construction of own Assets  647,203  722,928 
7.01.04  Allowance for/Reversal of Doubtful Accounts  -48,631  -86,136 
7.02  Inputs Acquired from Third Parties  -1,390,017  -1,257,582 
7.02.01  Costs of Sales and Services  -1,124,975  -1,055,933 
7.02.02  Materials, Electricity, Outside Services and Others  -259,109  -203,516 
7.02.04  Other  -5,933  1,867 
7.03  Gross Value Added  2,508,861  2,420,069 
7.04  Retentions  -327,899  -331,948 
7.04.01  Depreciation, Amortization and Depletion  -327,899  -331,948 
7.05  Net Value Added Produced  2,180,962  2,088,121 
7.06  Wealth Received in Transfer  83,682  86,700 
7.06.01  Equity Results  2,817  1,870 
7.06.02  Financial Income  80,865  84,830 
7.07  Total Value Added to Distribute  2,264,644  2,174,821 
7.08  Value Added Distribution  2,264,644  2,174,821 
7.08.01  Personnel  570,360  541,307 
7.08.01.01  Salaries and Wages  389,100  363,315 
7.08.01.02  Benefits  139,950  146,150 
7.08.01.03  Government Severance Indemnity Fund for Employees  41,310  31,842 
  (FGTS)     
7.08.02  Taxes and Contributions  679,408  698,920 
7.08.02.01  Federal  636,987  666,858 
7.08.02.02  State  30,019  21,586 
7.08.02.03  Municipal  12,402  10,476 
7.08.03  Value Distributed to Providers of Capital  434,445  260,232 
7.08.03.01  Interest  414,156  243,323 
7.08.03.02  Rental  20,289  16,909 
7.08.04  Value Distributed to Shareholders  580,431  674,362 
7.08.04.03  Retained Earnings/Accumulated Loss for the Period  580,431  674,362 

 

PAGE: 12 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Comments on the Company’s Performance

 

1.     Financial highlights

 

R$ million

 

Chg.

 

1Q18

1Q17

R$

%

Gross operating revenue (1)

3,280.8

3,029.3

251.5

8.3

Construction revenue

647.2

722.9

(75.7)

(10.5)

Cofins, Pasep and TRCF taxes (2)

(228.4)

(193.4)

(35.0)

18.1

(=) Net operating revenue

3,699.6

3,558.8

140.8

4.0

Costs and expenses

(1,998.7)

(1,832.0)

(166.7)

9.1

Construction costs

(632.7)

(707.2)

74.5

(10.5)

Equity result

2.8

1.8

1.0

55.6

Other operating revenue (expenses), net

11.5

10.6

0.9

8.5

(=) Earnings before financial result, income tax and social contribution

1,082.5

1,032.0

50.5

4.9

Financial result

(193.9)

3.8

(197.7)

(5,202.6)

(=) Earnings before income tax and social contribution

888.6

1,035.8

(147.2)

(14.2)

Income tax and social contribution

(308.2)

(361.4)

53.2

(14.7)

(=) Net income

580.4

674.4

(94.0)

(13.9)

Earnings per share (R$)*

0.85

0.99

 

 

 

(1)     Includes revenue from Regulatory, Control and Inspection Fee (TRCF - Taxa de Regulação, Controle e Fiscalização), in the amount of R$ 15.5 million.

(2)     Includes TRCF transfers in the amount of R$ 13.5 million. (*)    Total shares = 683,509,869

 

Adjusted EBITDA Reconciliation (Non-accounting measures)


 

R$ million

 

Chg.

 

1Q18

1Q17

R$

%

Net income

580.4

674.4

(94.0)

(13.9)

Income tax and social contribution

308.2

361.4

(53.2)

(14.7)

Financial result

193.9

(3.8)

197.7

(5,202.6)

Other operating revenue (expenses), net

(11.5)

(10.6)

(0.9)

8.5

(=) Adjusted EBIT*

1,071.0

1,021.4

49.6

4.9

Depreciation and amortization

328.0

332.0

(4.0)

(1.2)

(=) Adjusted EBITDA **

1,399.0

1,353.4

45.6

3.4

(%) Adjusted EBITDA margin

37.8

38.0

 

 

(*) 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 1Q18, net operating revenue, which considers construction revenue, totaled R$ 3,699.6 million, a growth of 4% over the same period of last year.

Costs and expenses, which include construction costs, totaled R$ 2,631.4 million, 3.6% up on 1Q17.

Adjusted EBIT, in the amount of R$ 1,071.0 million, increased 4.9% when compared to the R$ 1,021.4 million reported in 1Q17.

Adjusted EBITDA, in the amount of R$ 1,399.0 million, increased 3.4% when compared to the R$ 1,353.4 million reported in 1Q17 (R$ 5,314.8 million in the last 12 months).

Adjusted EBITDA margin in 1Q18 was 37.8%, against 38.0% in 1Q17 (36.0% in the last 12 months).

Excluding the effects of revenue and construction costs, adjusted EBITDA margin resulted in 45.4% in 1Q18 (47.2% in 1Q17 and 44.9% in the last 12 months).

In 1Q18 the company recorded a net income of R$ 580.4 million, compared to a net income of R$ 674.4   million in 1Q17.

 

PAGE: 13 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Comments on the Company’s Performance

 

2.     Gross operating revenue

The gross operating revenue related to the sanitation services, in the amount of R$ 3,280.8 million, which does not consider construction revenue, increased by R$ 251.5 million or 8.3%, when compared to R$ 3,029.3 million in 1Q17.

The main factors that led to this variation were:

 

·         Tariff repositioning index of 7.9% since November 2017; and

·         2.1% increase in total billed volume, 2.1% in water and 2.0% in sewage

The increase caused by the above-mentioned facts was offset by the recognition of higher estimated losses on wholesale revenue in 1Q18, in the amount of R$ 36.1 million, due to lower payment received in the period, mainly from the municipality of Guarulhos.

 

3.    Construction revenue

Construction revenue decreased by R$ 75.7 million or 10.5%, when compared to the previous year. The variation is mainly due to the lower investments in the municipalities served by the Company.

 

4.    Billed volume

 

The tables below show the water and sewage billed volume in quarterly terms, per customer category and region.

 

 

QUARTER

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

 

Water

Sewage

Water + Sewage

Category

1Q18

1Q17

Chg. %

1Q18

1Q17

Chg. %

1Q18

1Q17

Chg. %

Residential

406.8

398.9

2.0

346.5

338.1

2.5

753.3

737.0

2.2

Commercial

42.0

41.5

1.2

40.0

39.5

1.3

82.0

81.0

1.2

Industrial

7.8

7.8

-

9.7

9.3

4.3

17.5

17.1

2.3

Public

9.7

9.9

(2.0)

8.7

8.7

-

18.4

18.6

(1.1)

Total retail

466.3

458.1

1.8

404.9

395.6

2.4

871.2

853.7

2.0

Wholesale (3)

64.7

61.9

4.5

7.7

9.0

(14.4)

72.4

70.9

2.1

Overall Total

531.0

520.0

2.1

412.6

404.6

2.0

943.6

924.6

2.1

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

 

Water

Sewage

Water + Sewage

Region

1Q18

1Q17

Chg. %

1Q18

1Q17

Chg. %

1Q18

1Q17

Chg. %

Metropolitan

299.7

292.9

2.3

260.7

254.0

2.6

560.4

546.9

2.5

Regional (2)

166.6

165.2

0.8

144.2

141.6

1.8

310.8

306.8

1.3

Total retail

466.3

458.1

1.8

404.9

395.6

2.4

871.2

853.7

2.0

Wholesale (3)

64.7

61.9

4.5

7.7

9.0

(14.4)

72.4

70.9

2.1

Overall Total

531.0

520.0

2.1

412.6

404.6

2.0

943.6

924.6

2.1

 

(1) Unaudited

(2) Including coastal and interior region

(3) Reused water volume and non-domestic sewage are included in

 

PAGE: 14 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Comments on the Company’s Performance

 

5.    Costs, administrative & selling expenses and construction costs

Costs, administrative and selling expenses and construction costs increased by R$ 92.2 million in 1Q18 (3.6%). Excluding construction costs, there was an increase of R$ 166.7 million (9.1%).

As a percentage of net revenue, costs, administrative and selling expenses and construction costs represented 71.1% in 1Q18, against 71.3% in 1Q17.

 

R$ million

 

Chg.

 

1Q18

1Q17

R$

%

Salaries and payroll charges and Pension plan obligations

630.0

588.4

41.6

7.1

General supplies

55.0

36.0

19.0

52.8

Treatment supplies

75.9

71.3

4.6

6.5

Services

377.1

282.8

94.3

33.3

Electricity

221.9

199.7

22.2

11.1

General expenses

246.2

209.9

36.3

17.3

Tax expenses

16.0

25.8

(9.8)

(38.0)

Sub-total

1,622.1

1,413.9

208.2

14.7

Depreciation and amortization

328.0

332.0

(4.0)

(1.2)

Allowance for doubtful accounts

48.6

86.1

(37.5)

(43.6)

Sub-total

376.6

418.1

(41.5)

(9.9)

Costs, administrative and selling expenses

1,998.7

1,832.0

166.7

9.1

Construction costs

632.7

707.2

(74.5)

(10.5)

Costs, adm. & selling expenses and construction costs

2,631.4

2,539.2

92.2

3.6

% of net revenue

71.1

71.3

 

 

 

5.1.  Salaries and payroll charges and Pension plan obligations

 

In 1Q18, there was an increase of R$ 41.6 million or 7.1%, chiefly due to the following factors:

 

·         Increase of R$ 22.2 million, mainly due to the salary increase of 3.71%, in May 2017 and the application of 1.7% referring to the Carrier and Salary Plan, in February 2018;

·         Increase of R$ 7.4 million in provision referring to TAC (Conduct Adjustment Term) of retirees;

·         Increase of R$ 5.7 million in overtime expenses; and

·         Increase of R$ 4.7 million in health care.

 

5.2.  General supplies

 

Increase of R$ 19.0 million or 52.8%, due to the following factors:

 

·         Increase of R$ 8.1 million, resulting from the greater application of materials for maintenance in networks and connections of water and sewage; and

·         Greater application of materials for conservation of properties, furniture and equipment, in the amount of R$ 6.7 million.

 

5.3.  Services

 

Growth of R$ 94.3 million or 33.3%, due to the following factors:

 

·         Higher estimate of expenses, in the amount of R$ 47.5 million, due to an increase in several services contracted in 1Q18, mainly in water and sewage connections and network maintenance;

·         Increase of R$ 15.8 million in advertising campaigns; and

·         Increase in expenses with credit recovery, in the amount of R$ 7.3 million.

 

PAGE: 15 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Comments on the Company’s Performance

 

 

5.4.  Electricity

 

Electricity expenses totaled R$ 221.9 million in 1Q18, an increase of R$ 22.2 million or 11.1% compared to R$ 199.7 million in 1Q17. The main factors that contributed to this decrease were:

·         Average increase of 0.8% in the free market tariffs (ACL - Ambiente de Contratação Livre), with an increase of 13.4% in consumption;

·         Average reduction of 9.9% in the grid market tariff (TUSD), with a 12.3% rise in consumption; and

·         Average increase of 1.7% in the regulated market tariffs (ACR - Ambiente de Contratação Regulada), with a decrease of 6.9% in consumption.

In 1Q18, the ACL accounted for 36.2% of the total electricity consumed by the Company, TUSD accounted for 35.9% and ACR represented 27.9% of that amount.

 

5.5.  General expenses

 

Increase of R$ 36.3 million or 17.3%, totaling R$ 246.2 million in 1Q18, against R$ 209.9 million in 1Q17, due to the following factors:

 

·         Higher provision for transfer to the Municipal Fund of Environmental Sanitation and Infrastructure, in the amount of R$ 17.2 million, due to the increase in revenue obtained with the municipality of São Paulo;

·         Increase in expenses related to water use, in the amount of R$ 4.9 million; and

·         Greater provisioning for lawsuits in 1Q18, in the amount of R$ 4.1 million.

 

5.6.  Allowance for doubtful accounts

 

Decrease of R$ 37.5 million, mainly due to higher recovery of unpaid amounts in 1Q18.

 

 

 

6. Financial result

 

 

 

 

 

 R$ million

 

 

 

Chg.

 

1Q18

1Q17

R$

%

Financial expenses, net of income

(67.2)

(68.9)

1.7

(2.5)

Net monetary and exchange variation

(126.7)

72.7

(199.4)

(274.3)

Financial Result

(193.9)

3.8

(197.7)

(5,202.6)

 

6.1. Financial expenses, net of income

 

 

 

 

 

 

 

 

R$ million

 

 

 

Chg.

 

1Q18

1Q17

R$

%

Financial expenses

Interest and charges on domestic loans and financing

 

(78.2)

 

(64.8)

 

(13.4)

 

20.7

Interest and charges on international loans and financing

(36.6)

(22.2)

(14.4)

64.9

Other financial expenses

(14.9)

(42.1)

27.2

(64.6)

Total financial expenses

(129.7)

(129.1)

(0.6)

0.5

Financial income

62.5

60.2

2.3

3.8

Financial expenses, net of income

(67.2)

(68.9)

1.7

(2.5)

PAGE: 16 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Comments on the Company’s Performance

 

 

Decrease of R$ 1.7 million, mainly due to the following factors:

 

·         Increase of R$ 13.4 million in interest and charges on domestic loans and financing, mainly due to the lower capitalization of interest in works in progress in 1Q18, when compared to the capitalization recorded in 1Q17;

·         Increase of R$ 14.4 million in interest and charges on international loans and financing, mainly due to the appreciation of the US dollar against the real in 1Q18, compared to the devaluation in 1Q17 (0.5% and -2.8% respectively), and higher appreciation of the yen against the real in 1Q18, when compared to the appreciation in 1Q17 (6.3% and 1.9%, respectively); and

·         Decrease of R$ 27.2 million in other financial expenses, largely due to the lower provisioning of interest on lawsuits in 1Q18.

 

 

6.2. Net monetary and exchange variation

 

 

 

 

R$ million

 

 

 

Chg

.

 

1Q18

1Q17

R$

%

Monetary variation on loans and financing

(19.6)

(21.8)

2.2

(10.1)

Currency exchange variation on loans and financing

(112.0)

89.3

(201.3)

(225.4)

Other monetary variations

(9.7)

(15.5)

5.8

(37.4)

Monetary/exchange rate variation on liabilities

(141.3)

52.0

(193.3)

(371.7)

Monetary/exchange rate variation on assets

14.6

20.7

(6.1)

(29.5)

Monetary/exchange rate variation, net

(126.7)

72.7

(199.4)

(274.3)

 

 

The effect on the net monetary/exchange rate variation 1Q18 was R$ 199.4 million higher than in 1Q17, with highlight to the R$ 201.3 million increase in the exchange rate variation on loans and financing, due to the appreciation of the dollar against the real in 1Q18, compared to the devaluation in 1Q17 (0.5% and -2.8%, respectively), and higher appreciation of the yen against the real in 1Q18, when compared to the appreciation registered in 1Q17 (6.3% and 1.9%, respectively).

 

 

7.    Income tax and social contribution

The Company recorded a decrease of R$ 53.2 million, due to the lower taxable result presented in 1Q18, mainly resulting from the appreciation of the US dollar against the real, compared to the devaluation in 1Q17 and the higher appreciation of the yen against the real, when compared to the appreciation registered in 1Q17.

 

8.    Indicators

8.1.  Indicators

 

Operating indicators(*)

1Q18

1Q17

%

Water connections(1)

8,908

8,703

2.4

Sewage connections (1)

7,345

7,140

2.9

Population directly served - water (2)

24.9

24.8

0.4

Population directly served - sewage (2)

21.6

21.3

1.4

Number of employees

13,610

14,086

(3.4)

Water volume produced - quarter (3)

702

700

0.3

IPM - Measured water loss (%)

30.4

31.5

(3.5)

IPDt (liters/connection x day)

298

308

(3.2)

 

(1) Total connections, active and inactive, in thousand units at the end of the period

(2) In million inhabitants, at the end of the period. Not including wholesale

(3) In millions of cubic meters

(*) Unaudited

 

PAGE: 17 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Comments on the Company’s Performance

 

 

8.2.  Financial

 

Economic Variables at the close of the quarter(*)

1Q18

1Q17

Amplified Consumer Price Index (%)(1)

0.70

0.96

National Consumer Price Index (%)(1)

0.48

0.98

IPC (1)

0.04

0.38

Reference Rate (%)(1)

0.0000

0.3525

Interbank Deposit Certificate (%)(2)

6.39

12.13

US DOLLAR (3)

3.3238

3.1684

YEN (3)

0.03126

0.02844

 

(1) Quarterly rate

(2) Last day average

(3) R$/sell rate previous day price

(*) Unaudited

 

 

 

9.    Loans and financing

 

(R$ million)

DEBT PROFILE

INSTITUTION

2018

2019

2020

2021

2022

2023

2024
onwards

TOTAL

Local Currency

 

 

 

 

 

 

 

 

Brazilian Federal Savings Bank

52,063

71,159

73,743

77,573

81,709

73,856

832,949

1,263,052

Debentures

366,754

1,029,909

579,963

476,635

556,106

359,749

347,850

3,716,966

BNDES

78,478

117,441

99,282

98,833

98,833

93,145

505,791

1,091,803

Leases

13,013

32,900

34,553

36,350

38,304

41,035

369,999

566,154

Other

1,266

1,373

1,373

1,373

1,373

1,373

2,628

10,759

Interest and other charges

48,227

11,878

-

-

-

-

-

60,105

Total Local Currency

559,801

1,264,660

788,914

690,764

776,325

569,158

2,059,217

6,708,839

 

Foreign Currency

 

 

 

 

 

 

 

 

IADB

59,111

118,223

118,223

118,223

118,223

118,224

1,061,600

1,711,827

BIRD

-

10,104

20,208

20,208

20,208

20,209

212,175

303,112

Deutsche Bank 350

249,285

244,432

-

-

-

-

-

493,717

Eurobond

-

-

1,161,066

-

-

-

-

1,161,066

JICA

36,970

122,884

122,884

122,884

122,884

122,884

1,138,558

1,789,948

BID 1983AB

79,504

58,806

57,632

25,568

25,568

23,750

-

270,828

Interest and other charges

43,139

-

-

-

-

-

-

43,139

Total in foreign currency

468,009

554,449

1,480,013

286,883

286,883

285,067

2,412,333

5,773,637

Overall Total

1,027,810

1,819,109

2,268,927

977,647

1,063,208

854,225

4,471,550

12,482,476

 

 

10.    Capex

 

1Q18 investments totaled R$ 689.2 million, including R$ 172.9 million related to the São Lourenço PPP.

 

PAGE: 18 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

1                    Operations

 

Companhia de Saneamento Básico do Estado de São Paulo ("SABESP" or the "Company") is a mixed-capital company headquartered in São Paulo, at Rua Costa Carvalho, 300, CEP 05429-900, controlled by the São Paulo State Government. The Company is engaged in the provision of basic and environmental sanitation services in the State of São Paulo, as well as it supplies treated water and sewage services on a wholesale basis.

 

In addition to providing basic sanitation services in the State of São Paulo, SABESP may perform these activities in other states and countries, and can operate in drainage, urban cleaning, solid waste handling and energy markets. SABESP aims to be a world reference in the provision of sanitation services, in a sustainable, competitive and innovative manner, with a focus on customers.

 

As of March 31, 2018, the Company operated water and sewage services in 368 municipalities of the State of São Paulo. Most of these municipalities operations are based on 30-year concession, program and services contracts. The Company has two partial contracts with the municipality of Mogi das Cruzes, however, since most of municipality is serviced by wholesale, it was not included in the 368 municipalities. As of March 31, 2018, the Company had 370 contracts.

 

SABESP is not temporarily operating in the municipalities of Macatuba and Cajobi due to judicial orders. The lawsuits are in progress and the carrying amount of these municipalities’ intangible assets was R$ 4,345 as of March 31, 2018 (R$ 4,345 as of December 31, 2017).

 

As of March 31, 2018, 50 concession agreements (51 as of December 31, 2017) had expired and are being negotiated. From March 31, 2018 to 2030, 31 concession agreements will expire. Management believes that concession agreements expired and not yet renewed will result in new contracts, disregarding the risk of discontinuity in the provision of municipal water supply and sewage services. By March 31, 2018, 289 program and services contracts were signed (287 contracts as of December 31, 2017).

 

As of March 31, 2018, the carrying amount of the underlying assets used in the 50 concessions of the municipalities under negotiation totaled R$6,416,264, accounting for 18.97% of the total, and the related gross revenue for the year ended March 31, 2018 totaled R$397,788, accounting for 10.13% of the total.

 

The Company’s operations are concentrated in the municipality of São Paulo, which represents 55.00% of the gross revenues on March 31, 2018 (52.86% on March 31, 2017) and 48.24% of intangible assets (46.92% on December 31, 2017).

 

As of June 23, 2010, the State of São Paulo, the Municipality of São Paulo, the Company and the regulatory agency “Sanitation and Energy Regulatory Agency – ARSESP” signed an agreement to share the responsibility for water supply and sewage services to the Municipality of São Paulo based on a 30-year concession agreement. This agreement is extendable for another 30 years, pursuant to the law. This agreement sets forth SABESP as the exclusive service provider and designates ARSESP as regulator, establishing prices, controlling and monitoring services. On the same date, the State of São Paulo, the Municipality of São Paulo and SABESP signed the “Public service provision agreement of water supply and sewage services”,  a 30-year concession agreement which is extendable for another 30 years. This agreement involves the following activities:

 

i.  protection of the sources of water in collaboration with other agencies of the State and the City;

ii.  capture, transport and treatment of water;

iii. collect, transport, treatment and final dispose of  sanitary sewage; and

iv. adoption of other actions of basic and environmental sanitation.

 

PAGE: 19 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

The Company operates under an authorization by public deed in some municipalities in the Santos coast region and in the Ribeira Valley, where the Company started to operate after the merger of the companies that formed it. In September 2015, the Company entered into a water supply and sewage public utility services agreement with the municipality of Santos; the gross revenue calculated in the three-month period ended March 31, 2018 totaled
R$ 98,042 (R$ 76,086 in the three-month period ended March 31, 2017) and the intangible asset was R$ 313,006 on March 31, 2018 (R$ 310,577 on December 31, 2017).

 

Article 58 of Law 11,445/07 determines that precarious and overdue concessions, as well as those effective for an undetermined period of time, including those that do not have an instrument formalizing them, will be valid until December 31, 2010. However, Article 2 of Law 12,693 of July 24, 2012, which amended Article 7-A of Law 11,578, of November 26, 2007, allowed the provision of public basic sanitation services to be executed until December 31, 2016. The Company’s Management understands that in the municipalities where the concession agreements were not yet renewed, the operation is governed by Laws 8,987/95 and 11,445/07, including those municipalities served without an agreement.

 

Public deeds are valid and governed by the Brazilian Civil Code.

 

 

The Company's shares have been listed in the Novo Mercado segment of B3 under the ticker symbol SBSP3 since April 2002 and on the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) Level III, under the SBS code, since May 2002.

 

Since 2008, the Company has been setting up partnerships with other companies, which resulted in the following companies: Sesamm, Águas de Andradina, Saneaqua Mairinque, Aquapolo Ambiental, Águas de Castilho, Attend Ambiental and Paulista Geradora de Energia. Although SABESP has no majority interest in the capital stock of these companies, the shareholders’ agreements provide for the power of veto and casting vote in certain issues jointly with associates, indicating the shared control in the management of investees.

 

On March 3, 2018, the Jaguari-Atibainha interconnection was inaugurated; this interconnection will allow the transfer of an average annual outflow of 5.13 cubic meters per second (m³/s) and a maximum outflow of 8.5 m³/s from the Paraíba do Sul Basin to the Cantareira System. On April 3, 2018, the São Lourenço Production System was inaugurated and will expand water production and capacity by 6.4 m³/s. After construction is completed, the Company will have nine large production systems available to supply the São Paulo Metropolitan Region. These two important works aim at expanding water security in the São Paulo Metropolitan Region.

 

Management expects that with improved water security, due to the works carried out, the generation of operating cash and the credit lines available for investment, the Company will have sufficient funds to meet its commitments and not compromise its necessary investments.

 

 

Corporate reorganization

 

On May 12, 2017, the Board of the State Privatization Program approved:

 

(i)  the conducting of studies for SABESP’s Capitalization (as defined below);

 

(ii) the hiring, by SABESP, of the International Finance Corporation, which is associated with the World Bank;

 

PAGE: 20 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(iii)   the execution of an agreement between SABESP and the State Government through the Water Resources and Sanitation Department and the Treasury Department, in order to define the scope of the contract and control the relationship between the parties, including a proportional expense reimbursement.

 

The proposed Capitalization provides for the creation of a corporation to directly control SABESP through the transfer of the shares held by the São Paulo State to the capital stock of the new corporation. The São Paulo State will continue holding a sufficient number of shares to ensure SABESP’s control, as provided for in law. The objective of the Capitalization is to overcome a situation that restricts investments designed to preserve the expansion of activities to ensure the universalization of basic sanitation services offered by the Company.

 

The Capitalization may provide for the admission of institutional investors to contribute financial resources to the capital stock of the new company, strengthening SABESP’s corporate governance and business efficiency in order to promote and accelerate the universalization of sanitation services in the State of São Paulo.

 

On September 15, 2017, Law 16,525 was sanctioned, enacted and published; it provides for the corporate reorganization of Companhia de Saneamento Básico de São Paulo - SABESP and sets forth other provisions.

 

The interim financial information was approved by the Board of Directors on May 10, 2018.

 

 

2                   Basis of preparation and presentation of the financial statements

 

Presentation of the interim financial information

 

The interim financial information as of March 31, 2018, was prepared based on the provisions of CPC 21 (R1) – Interim Financial Information and the international standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), applicable to the preparation of Quarterly Information Form– ITR and they are fairly presented consistent with the rules issued by the Brazilian Securities and Exchange Commission (CVM). Therefore, this interim financial information takes into consideration the official letter CVM/SNC/SEP 003 of April 28, 2011, which allows the entities to present selected notes to the financial statements, in cases of redundant information already disclosed in the Annual Financial Statements. The interim financial information for March 31, 2018, therefore, does not include all the notes and reporting required by the annual financial statements, and accordingly, shall be read jointly with the Annual Financial Statements as of December 31, 2017, prepared pursuant to the International Financial Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB and pursuant to the accounting practices adopted in Brazil which observe the pronouncements issued by the Brazilian Accounting Pronouncements Committee - CPC. Therefore, the interim financial information as of March 31, 2018 was not fully completed due to redundancies with the information presented in the annual financial statements of December 31, 2017 and, as provided for in Official Letter/CVM/SNC/SEP 003/2011. In this interim financial information, the notes below were either not presented or are not as detailed as those in the annual financial statements:

 

i.            Summary of significant accounting policies (Note 3);

ii.            Changes in accounting practices and disclosures (Note 4);

iii.           Risk Management – Financial Instruments (Note 5.4);

iv.           Key Accounting Estimates and Judgments (Note 6);

v.           Related-Party Balances and Transactions (Note 10);

 

PAGE: 21 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

vi.           Investments (Note 12);

vii.           Intangible Assets (Note 14);

viii.           Borrowings and Financing (Note 16);

ix.           Deferred Taxes and Contributions (Note 18);

x.           Provisions (Note 19);

xi.           Employees Benefits (Note 20);

xii.           Equity (Note 22);

xiii.           Insurance (Note 25);

xiv.          Financial Income (Expenses) (Note 28).

 

All material information related to the financial statements, and this information alone, is being disclosed and corresponds to the information used by the Company’s Management in its administration.

 

 

3                   Summary of significant accounting policies

 

Except for the amendments introduced by CPC 47/IFRS 15 (Revenue from Contracts with Customers) and CPC 48/IFRS 9 (Financial Instruments) pursuant to the accounting policies described below, the other policies used in the preparation of the interim financial information for the quarter ended March 31, 2018 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2017:

 

3.1Operating income

 

(a)  Revenue from sanitation services

 

Revenue from water supply and sanitation services are recognized as the water is consumed and services are provided. Revenues, including the revenues unbilled, are recognized at the fair value of the consideration received or receivable for the sale of those services. Revenue is shown net of value-added tax, rebates and discounts. Unbilled revenues represent incurred revenues in which the services were provided, but not yet billed until the end of the each period and are recorded as trade receivables based on monthly estimates of the completed services. Concerning revenues of wholesale municipal governments, which do not pay the full invoice, the Company records allowance for doubtful accounts upon invoicing in revenue reduction account.

 

The Company recognizes revenue when: i) it identifies the contracts with customers; ii) it identifies the different obligations in the contract; iii) it determines the transaction price; iv) it allocates the transaction price to the performance obligations in the contracts; and (v) it satisfies all performance obligations. Amounts in dispute are recognized as revenue when collected.

 

PAGE: 22 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(b) Construction revenue

 

Revenue from concession construction contracts is recognized in accordance with ICPC 01 (R1)/IFRIC 12 (Service Concession Arrangements) and CPC 47 (R1)/IFRS 15 (Revenue from Contracts with Customers), as all performance obligations are satisfied over time. During the construction of the contract, an asset is classified as intangible, as the Company estimates that the fair value of its consideration is equivalent to expected construction costs plus margin. The fee represents the additional margin related to the work performed by the Company in relation to such construction contracts and it is added construction costs, resulting in the construction revenue.

 

3.2 Financial assets and liabilities Financial Asset - Classification

The Company classifies its financial assets according to the following categories: measured at amortized cost, measured at fair value through other comprehensive income and measured at fair value through profit or loss. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of the financial assets at inception. As of March 31, 2018, the Company did not have financial assets classified as fair value through other comprehensive income and fair value through profit or loss.

 

·         Amortized cost

 

This comprises financial assets that meet the following conditions: (i) it is held within the business model whose objective is to hold financial assets to collect contractual cash flows; and (ii) the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

 

Are presented as current assets, except for those with maturity of more than 12 months after the reporting date (these are classified as noncurrent assets). The Company's financial assets measured at amortized cost include cash and cash equivalents, restrict cash, balances of trade receivables, accounts receivable from related parties, other receivables, receivables from the Water National Agency – ANA. Financial assets measured at amortized cost are recorded at fair value and subsequently at amortized cost, under the effective interest rate method.

 

Financial Liabilities - Classification

 

The Company classifies its financial liabilities measured at amortized cost. Classification depends on the purpose to which the financial liabilities were assumed. This category comprises balances payable to contractors and suppliers, borrowings and financing, services payable, balances payable from public-private partnership (PPP), and program contract commitments.

 

The effective interest rate method is adopted to calculate the amortized cost of a financial liability and allocate its interest expense under the respective period. The effective interest rate exactly deducts the estimated future cash flows (including fees, transaction costs and other issue costs) throughout the financial liability’s estimated life or, when appropriate, during a shorter period, for initial recognition of the net carrying amount.

 

PAGE: 23 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

3.3 Trade receivables and allowance for doubtful accounts

 

Trade receivables are amounts due from customers for services performed in the ordinary course of business. These are classified as current assets, except when maturity exceeds 12 months after the end of the reporting period. In these cases, they are presented as noncurrent assets.

 

The Company records allowance for doubtful accounts for receivable balances at an amount that Management considers to be sufficient to cover eventual losses. The analysis is carried out based on objective “accounts receivable” data, past receipts, existing guarantees and expected future losses.

 

 

4                   Risk management

 

4.1  Financial Risk Management

Financial risk factors

The Company's activities are affected by Brazilian economic scenario, making it exposed to market risk (exchange rate and interest rate), credit risk and liquidity risk. The Company’s financial risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

 

The Company has not utilized derivative instruments in any of the reported periods.

 

(a)          Market risk Foreign currency risk

SABESP’s foreign exchange exposure implies market risks associated with currency fluctuations, since the Company has foreign currency-denominated liabilities, mainly US dollar and yen-denominated short and long-term borrowings.

 

The management of SABESP’s foreign currency exposure considers several current and projected economic factors, besides market conditions.

 

This risk arises from the possibility that the Company may incur in losses due to exchange rate fluctuations that would impact liability balances of foreign currency-denominated borrowings and financing raised in the market and related financial expenses. The Company does not maintain hedge or swap contracts or any derivative financial instrument to hedge against this risk.

 

PAGE: 24 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

A significant amount of the Company’s financial debt is indexed to the U.S. dollar and Yen, in the total amount of
R$ 5,802,695 as of March 31, 2018 (R$ 5,702,375 as of December 31, 2017). Below, the Company’s exposure to exchange risk:

 

 

March 31, 2018

December 31, 2017

 

Foreign currency

R$

Foreign currency

R$

 

 

 

 

 

Borrowings and financing – US$

1,193,360

3,966,490

1,200,786

3,972,200

Borrowings and financing – Yen

57,359,762

1,793,066

57,575,271

1,692,713

Interest and charges from borrowings and financing – US$

 

39,670

 

26,628

Interest and charges from borrowings and financing – Yen

 

3,469

 

10,834

Total exposure

 

5,802,695

 

5,702,375

Borrowing cost – US$

 

(25,940)

 

(26,454)

Borrowing cost – Yen

 

(3,118)

 

(3,100)

Total foreign currency-denominated borrowings (Note 15)

 

5,773,637

 

5,672,821

 

Total foreign currency-denominated borrowings (Note 15)                       

 

1)         The 1.8% increase in foreign-currency denominated debt from December 31, 2017 to March 31, 2018, was mainly due to exchange rate changes, as a result of the 6.3% increase in the Yen-denominated debt, from R$ 0.02940 on December 31, 2017, to R$ 0.03126 on March 31, 2018. The U.S. dollar increased from R$ 3.3080 on December 31, 2017, to R$ 3.3238 on March 31, 2018, not causing a significant impact.

 

As of March 31, 2018, if the Brazilian real had depreciated or appreciated by 10 percentage points, in addition to the impacts mentioned above, against the U.S. dollar and Yen with all other variables held constant, the effects on results before taxes on the three-month period ended March 31, 2018 would have been R$ 580,270 (R$ 570,238 for the year ended December 31, 2017), lower or higher, mainly as a result of exchange losses or gains on the translation of foreign currency-denominated loans.

 

Scenario I below presents the effect in income statements for the next 12 months, considering the projected rates of the U.S. dollar and the Yen. Considering the other variables as remaining constant, the impacts for the next 12 months are shown in scenarios II and III with possible depreciations of 25% and 50%, respectively, in the Brazilian real.

 

PAGE: 25 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

Scenario I

(Probable)

 

Scenario II

(+25%)

 

Scenario III

(+50%)

(*)

 

 

 

 

Net currency exposure as of March 31, 2018 (Liabilities) in US$

1,193,360

 

1,193,360

 

1,193,360

US$ rate as of March 31, 2018

3.3238

 

3.3238

 

3.3238

Exchange rate estimated according to the scenario

3.4000

 

4.2500

 

5.1000

Differences between the rates

(0.0762)

 

(0.9262)

 

(1.7762)

Effect on net financial result R$ - (loss)

(90,934)

 

(1,105,290)

 

(2,119,646)

Net currency exposure as of March 31, 2018 (Liabilities) in Yen

57,359,762

 

57,359,762

 

57,359,762

Yen rate as of March 31, 2018

0.03126

 

0.03126

 

0.03126

Exchange rate estimated according to the scenario

0.03172

 

0.03965

 

0.04758

Differences between the rates

(0.00046)

 

(0.00839)

 

(0.01632)

Effect on net financial result R$ - (loss)

(26,385)

 

(481,248)

 

(936,111)

Total effect on net financial result in R$ - (loss)

(117,319)

 

(1,586,538)

 

(3,055,757)

 

(*) For the probable scenario in U.S. dollar, the exchange rate estimated for March 31, 2019 was used, pursuant to the Focus Report-BACEN of March 31, 2018, while for the Yen, the average exchange rate was considered for the 12-month period after March 31, 2018, according to B3’s Reference Rates report of March 31, 2018.

 

Interest rate risk

 

This risk arises from the possibility that the Company could incur losses due to fluctuations in interest rates, increasing the financial expenses related to borrowings and financing.

 

The Company has not entered into any derivative contract to hedge against this risk; however it continually monitors market interest rates, in order to evaluate the possible need to replace its debt.

 

PAGE: 26 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

The table below provides the Company's borrowings and financing subject to variable interest rate:

 

 

March 31, 2018

 

December 31, 2017

CDI(i)

1,500,000

 

1,144,391

TR(ii)

1,592,966

 

1,574,564

IPCA(iii)

1,603,132

 

1,699,747

TJLP(iv)

1,396,947

 

1,354,987

LIBOR(v)

2,803,160

 

2,814,399

Interest and charges

75,064

 

125,172

Total

8,971,269

 

8,713,260

 

(i)  CDI - (Certificado de Depósito Interbancário), an interbank deposit certificate

(ii)  TR – Interest Benchmark Rate

(iii) IPCA – (Índice Nacional de Preços ao Consumidor Amplo), a consumer price index

(iv) TJLP – (Taxa de Juros a Longo Prazo), a long-term interest rate index

(v) LIBOR – London Interbank Offered Rate

 

Another risk to which the Company is exposed, is the mismatch of the monetary restatement indices of its debts with those of its service revenues. Tariff adjustments of services provided by the Company do not necessarily follow the increases in the inflation indexes to adjust loans, financing and interest rates affecting indebtedness.

 

As of March 31, 2018, if interest rates on borrowings and financing had been 1 percentage point higher or lower with all other variables held constant, the effects on profit before taxes for the three-month period ended March 31, 2018 would have been R$ 89,713 (R$ 87,133 as of December 31, 2017), lower or higher, mainly as a result of lower or higher interest expense on floating rate borrowings and financing.

 

(b)        Credit risk

 

Credit risk arises from cash and cash equivalents, deposits in banks and financial institutions, as well as credit exposures to wholesale basis and retail customers, including outstanding accounts receivable, restricted cash and accounts receivable from related parties. Credit risk exposure to customers is mitigated by sales to a dispersed base.

 

The maximum exposures to credit risk as of March 31, 2018 are the carrying amounts of instruments classified as cash equivalents, deposits in banks and financial institutions, restricted cash, trade receivables and accounts receivable from related parties at the end of reporting period. See additional information in Notes 6, 7, 8 and 9.

 

Regarding the financial assets held with financial institutions, the credit quality that is not past due or subject to impairment can be assessed by reference to external credit ratings (if available) or to historical information about the bank’s default rates. The credit quality of the banks, such as deposits and financial investments, the Company considers the lower rating published by three main international rating agencies (Fitch, Moody's and S&P), according to internal policy of market risk management:

 

PAGE: 27 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

March 31, 2018

 

December 31, 2017

Cash at bank and short-term bank deposits

 

 

 

AA+(bra)

2,907,162

 

2,222,001

AAA(bra)

46,258

 

43,978

Other (*)

10,442

 

17,068

 

2,963,862

 

2,283,047

 

(*) This category includes current accounts and investment funds in banks whose balances were not significant.

 

The available credit rating information of the banks, as of March 31, 2018, in which the Company made deposit transactions and financial investments in domestic currency (R$ - domestic rating) during the period is as follows:

 

Banks  Fitch  Moody's  Standard Poor's 
Banco do Brasil S/A  AA+(bra)  Aa1.br  - 
Banco Santander Brasil S/A  -  Aaa.br  brAA- 
Brazilian Federal Savings Bank  AA+(bra)  Aa1.br  brAA- 
Banco Bradesco S/A  AAA(bra)  Aa1.br  brAA- 
Itaú Unibanco Holding S/A  AAA(bra)  Aa1.br  brAA- 

 

 

(c) Liquidity risk

 

The Company's liquidity is primarily reliant upon cash provided by operating activities, loans from Brazilian Federal and State governmental financial institutions, and financing in the domestic and international capital markets. The liquidity risk management considers the assessment of its liquidity requirements to ensure it has sufficient cash to meet its operating and capital expenditures needs, as well as the payment of debts.

 

The funds held by the Company are invested in interest-bearing current accounts, time deposits and securities, selecting instruments with appropriate maturity or liquidity sufficient to provide margin as determined by projections mentioned above.

 

The table below shows the financial liabilities of the Company, into relevant maturities, including the installment of principal and future interest to be paid according to the agreement.

 

PAGE: 28 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

April to

December

 

 

 

 

 

2023

 

2018

2019

2020

2021

2022

onwards

Total

As of March 31, 2018

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Borrowings and financing

1,434,038

2,434,477

2,749,426

1,314,718

1,357,778

6,387,191

15,677,628

Accounts payables to suppliers and contractors

310,685

-

-

-

-

-

310,685

Services payable

515,852

-

-

-

-

-

515,852

Public-Private Partnership – PPP (*)

171,985

368,305

368,305

368,305

368,305

5,151,367

6,796,572

Program contract commitments

129,134

92,787

15,645

15,787

1,037

16,101

270,491

 

(*) The Company also considered future commitments (construction not yet performed) still not recognized in the financial statements related to São Lourenço PPP, due to the relevance of future cash flows, the impacts on its operations and the fact the Company already has formalized this commitment through an agreement signed by the parties.

 

Future interest

 

Future interest was calculated based on the contractual clauses for all agreements. For agreements with floating interest rate, the interest rates used correspond to the base dates above.

 

Cross default

 

The Company has borrowings and financing agreements including cross default clauses, i.e., the early maturity of any debt, may imply the early maturity of these agreements. The indicators are continuously monitored in order to avoid the execution of these clauses.

 

(d) Sensitivity analysis on interest rate risk

 

The table below shows the sensitivity analysis of the financial instruments, prepared in accordance with CVM Rule 475/2008 in order to evidence the balances of main financial assets and liabilities, calculated at a rate projected for the twelve-month period after March 31, 2018, or until the final settlement of each contract, whichever is shorter, considering a probable scenario (scenario I), appreciation of 25% (scenario II) and 50% (scenario III).

 

The purpose of the sensitivity analysis is to measure the impact of changes in the market over the financial instruments of the Company, considering constant all other variables. In the time of settlement the amounts can be different from those presented, due to the estimates used in the measurement.

 

PAGE: 29 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

March 31, 2018

Indicators

Exposure

Scenario I

(Probable) (i)

Scenario II

 25%

Scenario III

50%

 

 

 

 

 

Assets

 

 

 

 

CDI

2,842,263

7.2700% (*)

5.4525%

3.6350%

Financial income

 

206,633

154,974

103,316

 

 

 

 

 

Liabilities

 

 

 

 

CDI

(1,500,000)

7.2700% (*)

5.4525%

3.6350%

Interest to be incurred

 

(109,050)

(81,788)

(54,525)

 

 

 

 

 

CDI net exposure

1,342,263

97,583

73,186

48,791

 

 

 

 

 

Liabilities

 

 

 

 

TR

(1,592,966)

0.0001% (***)

0.0001%

0.0002%

Expenses to be incurred

 

(2)

(2)

(3)

 

 

 

 

 

IPCA

(1,603,132)

4.0800% (*)

5.1000%

6.1200%

Expenses to be incurred

 

(65,408)

(81,760)

(98,112)

 

 

 

 

 

TJLP

(1,396,947)

6.7500% (*)

8.4375%

10.1250%

Interest to be incurred

 

(94,294)

(117,867)

(141,441)

 

 

 

 

 

LIBOR

(2,803,160)

2.4065% (**)

3.0082%

3.6098%

Interest to be incurred

 

(67,458)

(84,325)

(101,188)

 

 

 

 

 

Total net expenses to be incurred

 

(129,579)

(210,768)

(291,953)

 

 

 

 

 

(*)     Source: CDI and IPCA rates (Focus Report – BACEN, March 31, 2018) and long-term interest rate at March 31, 2018 (BACEN).

(**)   Source: Bloomberg

(***)Source: B3 (previously BM&FBovespa)

 

(i)     Refers to the scenario of interest to be incurred for the 12 months as of March 31, 2018 or until the maturity of the agreements, whichever is shorter.

 

 

4.2 Capital management

 

The Company’s objectives when managing capital are ensure its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

 

The Company monitors capital based on the leverage ratio. This ratio corresponds to net debt divided by total capital. Net debt corresponds to total borrowings and financing less cash and cash equivalents. Total capital is calculated as total equity as shown in the balance sheet plus net debt.

 

PAGE: 30 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

  March 31, 2018  December 31, 2017 
Total borrowings and financing (Note 15)  12,482,476  12,100,966 
(-) Cash and cash equivalents (Note 6)  (2,963,862)  (2,283,047) 
Net debt  9,518,614  9,817,919 
Total equity  18,093,440  17,513,009 
Total capital  27,612,054  27,330,928 
Leverage ratio  34%  36% 
 

 

As of March 31, 2018, the leverage ratio decreased to 34% from the 36% as of December 31, 2017, mainly due to the increase in cash, generated in operating activities, and the increase in equity from the profit recorded in the three-month period ended March 31, 2018.

 

4.3 Fair value estimates

 

It is assumed that balances from trade receivables (current) and accounts payable to suppliers by carrying amount, less impairment approximate their fair values, considering the short maturity. Long-term trade receivables also approximate their fair values, as they will be adjusted by inflation and/or will bear contractual interest rates over time.

 

4.4 Financial instruments

 

With the changes introduced by CPC 48/IFRS 9 (Financial Instruments), as of March 31, 2018, the Company did not have financial assets classified as fair value through other comprehensive income and fair value through profit or loss. The Company’s financial instruments included in the amortized cost category comprise cash and cash equivalents, restricted cash, trade receivables, balances with related parties, other receivables, and balances receivable from the Water National Agency – ANA, accounts payable to contractors and suppliers, borrowings and financing, services payable, balances payable deriving from the Public Private Partnership-PPP and program contract commitments, which are non-derivative financial assets and liabilities with fixed or determinable payments, not quoted in an active market.

 

The estimated fair values of financial instruments are as follows:

 

PAGE: 31 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

Financial Assets

 

 

March 31, 2018

December 31, 2017

 

Carrying amount

Fair value

Carrying amount

Fair value

  Cash and cash equivalents

2,963,862

2,963,862

2,283,047

2,283,047

  Restricted cash

14,064

14,064

18,822

18,822

  Trade receivables

1,980,064

1,980,064

1,888,505

1,888,505

  Water National Agency – ANA

71,552

71,552

70,487

70,487

  Other receivables

280,671

280,671

169,715

169,715

 

 

Additionally, SABESP has financial instrument assets receivable from related parties, in the amount of R$ 785,518 as of March 31, 2018 (R$ 815,160 as of December 31, 2017), which were calculated in accordance with the conditions negotiated between related parties. Part of this balance, totaling R$ 680,321 (R$ 709,208 as of December 31, 2017), refers to reimbursement of additional retirement and pension plan - G0 and is indexed by IPCA plus simple interest of 0.5% p.m. This interest rate approximates that one practiced by federal government bonds (NTN-b) with terms similar to those of related-party transactions.

 

Financial liabilities

 

 

March 31, 2018

December 31, 2017

 

Carrying amount

Fair value

Carrying amount

Fair value

  Borrowings and financing

12,482,476

12,426,320

12,100,966

11,967,909

  Accounts payables to suppliers and contractors

310,685

310,685

344,947

344,947

  Services payable

515,852

515,852

408,275

408,275

  Program contract commitments

243,792

243,792

239,500

239,500

  Public-Private Partnership - PPP

3,231,963

3,231,963

3,071,416

3,071,416

 

 

The criteria adopted to obtain the fair values of borrowings and financing, in preparing the interim financial information as of March 31, 2018, are consistent with those adopted in the Annual Financial Statements for the fiscal year ended December 31, 2017.

 

Considering the nature of other financial instruments, assets and liabilities of the Company, the balances recognized in the balance sheet approximate the fair values, taking into account the maturities close to the end of the reporting period, comparison of contractual interest rates with market rates in similar operations at the end of the reporting period, their nature and maturity terms.

 

PAGE: 32 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

5                   Key accounting estimates and judgments

 

Estimates and judgments are continually evaluated and are based on historical experience and on other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

The key accounting estimates and judgments are: (i) allowance for doubtful accounts, (ii) intangible assets resulting from concession agreements and program contracts, (iii) pension benefits, (iv) deferred income tax and social contribution, and (v) provisions.

 

 

6                   Cash and cash equivalents

           

           

March 31, 2018

December 31, 2017

 

 

 

Cash and banks

121,598

171,951

Cash equivalents

2,842,264

2,111,096

 

2,963,862

2,283,047

 

 

Cash and cash equivalents include cash, bank deposits and high-liquidity short-term financial investments, mainly represented by repurchase agreements (remunerated based on the variation of the Interbank Deposit Certificates (CDI) rates), entered into with Banco do Brasil, whose original maturities are lower than three months, which are convertible into a cash amount and subject to an insignificant risk of change in value.

 

As of March 31, 2018, the average yield of financial investments corresponds to 98.53% of CDI (98.88% as of December 31, 2017).

 

 

7                   Restricted cash

 

 

March 31, 2018

December 31, 2017

Current

 

 

Agreement with the São Paulo municipal government (i)

6,021

12,055

Brazilian Federal Savings Bank – escrow deposits (ii)

2,202

1,209

Other

5,841

5,558

 

14,064

18,822

 

 

 

(i)      Refers to the amount deducted from the 7.5% of Municipal revenue transferred to the Municipal Fund, corresponding to eventual amounts unpaid by direct management bodies, foundations and government agencies, as established in the agreement entered into with the municipal government of São Paulo; and

(ii)    Refers to savings account for receiving escrow deposits regarding lawsuits with final and unappealable decisions in favor of the Company, which are blocked as per contractual clause.

 

PAGE: 33 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

8                   Trade receivables

 

(a)     Statement of financial position details

 

 

March 31, 2018

December 31, 2017

Private sector:

 

 

General and special customers (i) (ii)

1,295,502

1,248,979

Agreements (iii)

319,371

320,032

 

 

 

 

1,614,873

1,569,011

Government entities:

 

 

Municipal

535,060

532,320

Federal

4,368

3,547

Agreements (iii)

295,492

285,614

 

 

 

 

834,920

821,481

Wholesale customers – Municipal governments: (iv)

 

 

Guarulhos

814,372

760,598

Mauá

554,161

530,830

Mogi das Cruzes

5,839

2,670

Santo André

1,089,852

1,048,832

São Caetano do Sul

8,045

2,604

Diadema

222,671

222,671

 

 

 

Total wholesale customers – Municipal governments

2,694,940

2,568,205

 

 

 

Unbilled supply

578,411

580,006

 

 

 

Subtotal

5,723,144

5,538,703

Allowance for doubtful accounts

(3,743,080)

(3,650,198)

 

 

 

Total

1,980,064

1,888,505

 

 

 

Current

1,762,793

1,672,595

Noncurrent

217,271

215,910

 

 

 

 

1,980,064

1,888,505

 

(i)     General customers - residential and small and mid-sized companies

 

(ii)   Special customers – large consumers, commercial industries, condominiums and special billing consumers (fixed demand agreements, industrial waste, wells, etc.);

 

(iii) Agreements - installment payments of past-due receivables, plus monetary restatement and interest, as provided for in the agreements; and

 

PAGE: 34 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(iv) Wholesale basis customers - municipal governments - This balance refers to the sale of treated water to municipalities, which are responsible for distributing to, billing and charging final customers. Some of these municipalities are questioning in court the tariffs charged by SABESP, which have full allowance for doubtful accounts. Additionally, the overdue amounts are included in the allowance for doubtful accounts.

 

(b)        The aging of trade receivables is as follows:

 

 

March 31, 2018

December 31, 2017

 

Current

 

1,498,217

 

1,471,668

Past-due:

 

 

Up to 30 days

302,413

287,173

From 31 to 60 days

193,040

118,179

From 61 to 90 days

90,746

73,989

From 91 to 120 days

48,167

52,477

From 121 to 180 days

116,857

105,952

From 181 to 360 days

138,570

147,699

Over 360 days

3,335,134

3,281,566

 

Total past-due

 

4,224,927

 

4,067,035

 

Total

 

5,723,144

 

5,538,703

 

 

The increase in the overdue balance was mainly due to wholesale receivables, where the municipalities challenge the tariffs charged by SABESP in court, and the increase in default of amounts overdue, related to private customers.

 

(c)         Allowance for doubtful accounts

 

 

January to March 2018

January to March 2017

 

Balance at beginning of the period

 

3,650,198

 

3,514,240

Private sector /government entities

6,639

30,546

Recoveries

(19,079)

(3,485)

Wholesale customers

105,322

38,278

 

Net additions for the period

 

92,882

 

65,339

 

Write-offs in the period referring to accounts receivable

-

(9,523)

 

Balance at the end of the period

 

3,743,080

 

3,570,056

PAGE: 35 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

Reconciliation of estimated losses in profit or loss

January to March 2018

January to March 2017

 

Write-offs

 

(27,567)

 

(58,136)

Losses/(reversal) with state entities - related parties

(1,360)

288

(Losses) with private sector / government entities

(6,639)

(30,546)

(Losses) with wholesale customers

(32,144)

(1,227)

Recoveries

19,079

3,485

 

Amount recorded as selling expenses

 

(48,631)

 

(86,136)

 

 

Wholesale sales losses, amounting to R$ 73,178 from January to March 2018 and R$ 37,051 from January to March 2017, were also recorded as revenue reduction.

 

The Company does not have customers representing 10% or more of its total revenues.

 

PAGE: 36 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

9                   Related-Party Balances and Transactions

 

The Company is a party to transactions with its controlling shareholder, the State Government, and companies related to it.

 

(a)         Accounts receivable, interest on capital payable, revenue and expenses with the São Paulo State Government

 

March 31, 2018

December 31, 2017

Accounts receivable

 

 

Current:

 

 

   Sanitation services

120,379

118,441

  Allowance for losses

(36,474)

(35,114)

  Reimbursement for retirement and pension benefits paid (G0)

 

 

      - monthly flow (payments)

22,745

22,968

     - GESP Agreement – 2008

5,024

20,099

      - GESP Agreement – 2015

54,379

54,379

 

 

 

Total current

166,053

180,773

 

 

 

Noncurrent:

 

 

   Agreement for the installment payment of sanitation services

21,292

22,625

   Reimbursement for retirement and pension benefits paid (G0)

 

 

      - GESP Agreement – 2015

598,173

611,762

 

 

 

Total noncurrent

619,465

634,387

 

 

 

Total receivables from shareholders

785,518

815,160

 

 

 

Assets:

 

 

Sanitation services

105,197

105,952

Reimbursement of additional retirement and pension benefits (G0)

680,321

709,208

 

 

 

Total

785,518

815,160

 

 

 

Liabilities:

 

 

Interest on capital payable to related parties

300,717

300,717

Other (f)

1,402

1,367

 

 

PAGE: 37 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

January to March 2018

January to March 2017

 

 

 

Revenue from sanitation services

117,353

109,926

Payments received from related parties

(118,721)

(119,586)

 

 

 

Receipt of GESP reimbursement referring to Law 4,819/58

(50,709)

(36,552)

 

 

(b)     Use of reservoirs – EMAE

Empresa Metropolitana de Águas e Energia S.A. - EMAE planned to receive for the credit and obtain financial compensation for alleged past and future losses in electricity generation, due to water collection, and compensation for costs already incurred and to be incurred with the operation, maintenance and inspection of the Guarapiranga and Billings reservoirs used by SABESP in its operations.

 

Several lawsuits were filed by EMAE, an arbitration proceeding was in progress related to the Guarapiranga reservoir and a lawsuit related to the Billings reservoir, both pleading for financial compensation due to SABESP’s water collect for public supply, alleging that this conduct has been causing permanent and growing loss in the capacity of generating electricity of Henry Borden hydroelectric power plant with financial losses.

 

As of October 28, 2016, the Company entered into an agreement based on a Private Transaction Agreement and Other Adjustments aimed to fully and completely settle the disputes involving the two companies, and involves the payment by SABESP to EMAE of the following amounts:

 

-  R$ 6,610 annually, adjusted for inflation, as of the execution date of this instrument, by the IPCA or any other index that may replace it, by the last business day of October of each fiscal year,  with (i) the first of  such annual payments due up to the last business day of October 2017 and (ii) the last payment due up to the last business day of October 2042; and

 

-  R$ 46,270, in five annual and successive installments, adjusted for inflation by the IPCA or any other index that may replace it, with the first installment of R$ 9,254 due on April 30, 2017 and the subsequent ones in 04 (four) installments of same amount, due on every April 30 of the subsequent years, or on the first subsequent business day.

 

On October 19, 2017, the contractual conditions precedent were complied with and the agreement came into effect.

 

As of March 31, 2018, the balance of the agreement totaled R$ 16,039 and R$ 96,330 (R$ 15,668 and R$ 92,894 on December 31, 2017), recorded under other liabilities, in current and noncurrent liabilities, respectively.

 

(c)         Agreements with reduced tariffs with State and Municipal Government Entities that joined the Rational Water Use Program (PURA)

 

The Company has signed agreements with government entities related to the State Government and municipalities where it operates that benefit from a reduction of 25% in the tariff of water supply and sewage services when they are not in default. These agreements provide for the implementation of the rational water use program, which takes into consideration the reduction in water consumption.

 

PAGE: 38 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(d)        Guarantees

 

The State Government provides guarantees for some borrowings and financing of the Company and does not charge any fee with respect to such guarantees.

 

(e)         Personnel assignment agreement among entities related to the State Government

 

The Company has personnel assignment agreements with entities related to the State Government, whose expenses are fully passed on and monetarily reimbursed. From January to March 2018 and in the same period in 2017, the expenses related to personnel assigned by SABESP to other state government entities amounted to R$ 2,131 and
R$ 2,523, respectively.

 

From January to March 2018 and 2017, there were no expenses related to personnel assigned by other entities to the Company.

 

(f)          Services obtained from state government entities

 

As of March 31, 2018 and December 31, 2017, SABESP had an outstanding amount payable of R$ 1,402 and R$ 1,367, respectively, for services rendered by São Paulo State Government entities.

 

(g)         Non-operating assets

 

As of March 31, 2018 and December 31, 2017, the Company had an amount of R$ 969 related to a free land lent to DAEE (Department of Water and Electricity).

 

(h)        Sabesprev

 

The Company sponsors a private defined benefit pension plan, which is operated and administered by Sabesprev. The net actuarial liability recognized as of March 31, 2018 amounted to R$ 379,373 (R$ 388,461 as of December 31, 2017), according to Note 19 (b).

 

(i)          Compensation of Management Key Personnel

 

Expenses related to the compensation to the members of its Board of Directors, Fiscal Council and Board of Executive Officers amounted to R$ 923 and R$ 926 from January to March 2018 and the same period in 2017, respectively. An additional amount of R$ 185 and R$ 124, related to the Officers’ bonus program, was recorded from January to March 2018 and 2017, respectively.

 

(j)          Loan agreement through credit facility

 

The Company holds interest in certain Special Purpose Entities (SPEs), not holding the majority interest but with cast vote and power of veto in some issues, with no ability to use such power of veto in a way to affect returns over investments. Therefore, these SPEs are considered for accounting purposes as jointly-owned subsidiaries.

 

The Company entered into a loan agreement through credit facility with the SPEs Aquapolo Ambiental S.A. on March 30, 2012, and with Attend Ambiental S.A. on May 9, 2014, to finance the operations of these companies, until the borrowings and financing requested with financial institutions is cleared. These agreements remain with the same characteristics, according to the table below:

 

 

SPE

Principal disbursed amount

Interest balance

Total

Interest rate

Maturity

Aquapolo Ambiental

5,629

4,507

10,136

CDI + 1.2% p.a.

 (i)

Aquapolo Ambiental

19,000

12,081

31,081

CDI + 1.2% p.a.

(ii)

Total

24,629

16,588

41,217

 

 

 

PAGE: 39 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

(i)      The R$ 5,629 loan agreement originally expired on April 30, 2016; however, on February 10, 2016, an amendment to the agreement changed the payment schedule for four annual installments, the first of which maturing on December 30, 2018 and the last on December 30, 2021; and

(ii)    The loan agreement totaling R$ 19,000 originally expired on April 30, 2015, but was extended to October 30, 2015. On November 25, 2015 a new amendment changed the payment schedule for three annual installments, the first of which maturing on December 30, 2021 and the last on December 30, 2023.

 

As of March 31, 2018, the Company created allowance for doubtful accounts in the amount of R$ 9,596 related to the loan agreement with SPE Attend Ambiental S/A, as a renegotiation agreement was not reached. The original value of the agreement was R$ 5,400, and it was overdue since June 2015.

 

The amount disbursed referring to the agreements entered into with Aquapolo Ambiental S/A is recognized under “Other Receivables”, of which R$ 2,321 was classified in Current Assets and R$ 38,896 in Noncurrent Assets. As of March 31, 2018, the balance of principal and interest rates of these agreements was R$ 41,217 (R$ 50,617 as of December 31, 2017). From January to March 2018, the financial income recognized was R$ 740 (R$ 4,560 from January to March 2017).

 

(k)        “Se Liga na Rede” (Connect to the Network Program)

 

The State Government enacted the State Law 14,687/12, creating the pro-connection program, destined to financially subsidize the execution of household branches necessary to connect to the sewage collecting networks, in low income households which agreed to adhere to the program. The program expenditures, except for indirect costs, construction margin and borrowing costs are financed with 80% of funds deriving from the State Government and the remaining 20% invested by SABESP, which is also liable for the execution of works. Until March 31, 2018, the program total amount was R$ 91,320 (R$ 82,697 as of December 31, 2017); as of March 31, 2018 and December 31, 2017, there was no balance receivable from related parties. As of March 31, 2018, R$ 43,691 (R$ 35,068 as of December 31, 2017) was recorded under intangible assets. R$ 47,629 was reimbursed by GESP (R$ 47,629 as of December 31, 2017) from the beginning of the program until March 31, 2018.

 

PAGE: 40 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

10               Water National Agency – ANA

 

The Company has agreements executed within the scope of the Hydrographic Basin Depollution Program (PRODES), also known as "Treated Sewage Purchase Program".

 

This program does not finance works or equipment, remunerates by results achieved, i.e., by effectively treated sewage. In this program, the Water National Agency (ANA) makes available funds, which are restricted to a specific current account and applied in investment funds at the Brazilian Federal Savings Banks (CEF), until the fulfillment of treated sewage volume is evidenced, as well as the reduction of polluting cargoes of each agreement.

 

When resources are made available, liabilities are recorded until funds are released by ANA. After the evidence of targets stipulated in each contract, the revenue deriving from these funds is recognized, but if these targets are not met, funds will return to the National Treasury with the appropriate funds earnings. As of March 31, 2018, the balances of assets and liabilities were R$ 71,552 (R$ 70,487 as of December 31, 2017), and the liabilities are recorded under "other liabilities" of noncurrent liabilities.

 

 

11                 Investments

 

The Company holds interest in certain Special Purpose Entities (SPE). Although SABESP has no majority shares of its investees, the shareholders’ agreement provides for the power of veto in certain management issues, however, with no ability to use such power of veto in a way to affect returns over investments, indicating participating shared control (joint venture – CPC 19(R2)).

 

The Company holds interest valued by the equity accounting.

 

Below is a summary of the investees’ financial statements and SABESP’s equity interest:

 

 

Equity

Capital increase

Profit (loss) for the period

 

March 31,

2018

December 31,

2017

March 31,

2018

January to March 

2018

January to March

2017

     

 

   

Sesamm

40,754

39,262

-

1,492

1,689

Águas de Andradina

20,051

19,392

-

659

902

Águas de Castilho

5,172

4,880

-

292

259

Saneaqua Mairinque

6,417

4,327

2,183

(93)

108

Attend Ambiental

5,948

5,169

-

779

1,029

Aquapolo Ambiental

22,174

18,757

-

3,417

854

Paulista Geradora de Energia

8,439

8,447

-

(8)

(1)

 

 

 

 

PAGE: 41 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

Investments

Capital increase

Equity in the earnings (losses) of subsidiaries

Interest percentage

 

March 31,

2018

December 31,

2017

March  31,

2018

January to March

2018

January to March

2017

March 31,

2018

December 31,

2017

     

 

       

Sesamm

14,672

14,135

-

537

608

36%

36%

Águas de Andradina

6,016

5,818

-

198

271

30%

30%

Águas de Castilho

1,553

1,465

-

88

78

30%

30%

Saneaqua Mairinque

1,925

1,298

655

(28)

32

30%

30%

Attend Ambiental

2,676

2,326

-

350

463

45%

45%

Aquapolo Ambiental

10,865

9,191

-

1,674

418

49%

49%

Paulista Geradora de Energia

2,109

2,111

-

(2)

-

25%

25%

Total

39,816

36,344

655

2,817

1,870

 

 

 

Other investments

588

588

 

 

 

 

 

 

Overall total

40,404

36,932

 

 

 

 

 

 

 

 

12                Investment properties

 

As of March 31, 2018, the balance of “Investment properties” was R$ 57,640 (R$ 57,652 as of December 31, 2017). As of March 31, 2018 and December 31, 2017, the market value of these properties was approximately R$ 402,000.

 

 

December 31,

 2017

Depreciation

March 31,

 2018

 

 

 

 

 

 

Investment properties

57,652

(12)

57,640

 

Total

57,652

(12)

57,640

 

 

       

 

December 31,

 2016

Write-offs and disposals

Depreciation

March 31,

 2017

 

 

 

 

 

Investment properties

57,968

(7)

(23)

57,938

Total

57,968

(7)

(23)

57,938

 

 

 

PAGE: 42 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

13                Intangible assets

 

(a)         Statement of financial position details

 

 

March 31, 2018

December 31, 2017

 

Cost

Accumulated amortization

Net

Cost

Accumulated amortization

Net

Intangible right arising from:

 

 

 

 

 

 

Agreements – equity value

8,806,993

(1,775,896)

7,031,097

8,893,296

(1,751,682)

7,141,614

Agreements – economic value

2,088,095

(657,695)

1,430,400

2,068,402

(634,465)

1,433,937

Program contracts

10,881,491

(3,150,500)

7,730,991

10,653,292

(3,058,226)

7,595,066

Program contracts – commitments

1,113,160

(212,065)

901,095

1,113,160

(202,785)

910,375

Services contracts – São Paulo

19,890,710

(3,615,092)

16,275,618

19,388,751

(3,471,736)

15,917,015

Software license

699,922

(238,410)

461,512

688,712

(220,587)

468,125

Total

43,480,371

(9,649,658)

33,830,713

42,805,613

(9,339,481)

33,466,132

 

 

(b)     Changes

 

 

December 31,

 2017

Additions

Contract renewal

Transfers

Write-offs and disposals

Amortization

March 

31,

2018

Intangible right arising from:

 

 

 

 

 

 

 

Agreements – equity value 

7,141,614

41,124

(104,721)

(942)

(853)

(45,125)

7,031,097

Agreements – economic value 

1,433,937

45,883

-

(26,028)

(5)

(23,387)

1,430,400

Program contracts

7,595,066

95,709

104,721

11,742

(759)

(75,488)

7,730,991

Program contracts – commitments 

910,375

-

-

-

-

(9,280)

901,095

Services contracts – São Paulo

15,917,015

492,459

-

16,006

(2,644)

(147,218)

16,275,618

Software license

468,125

11,211

-

-

-

(17,824)

461,512

Total

33,466,132

686,386

-

778

(4,261)

(318,322)

33,830,713

 

 

 

 

December

 31,

 2016

Additions

Allowance for estimated losses

Transfers

Write-offs and disposals

Amortization

March

 31,

 2017

Intangible right arising from:

 

 

 

 

 

 

 

Agreements – equity value 

7,482,955

81,886

2,078

312

(1,805)

(46,721)

7,518,705

Agreements – economic value 

1,381,652

67,641

8

(23)

(1,007)

(26,585)

1,421,686

Program contracts

6,576,021

121,742

4,833

513

(3,688)

(74,955)

6,624,466

Program contracts – commitments 

823,216

-

-

-

-

(9,069)

814,147

Services contracts – São Paulo

14,552,707

441,546

6,460

2,148

(4,738)

(143,650)

14,854,473

Software license

430,237

22,013

-

6,489

-

(11,649)

447,090

Total

31,246,788

734,828

13,379

9,439

(11,238)

(312,629)

31,680,567

PAGE: 43 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(i)   As of December 31, 2017, the Company reclassified R$ 24,071 corresponding to the intangible assets of Álvares Florence, Embaúba, Araçoiaba da Serra, Itapira and Tuiuti to indemnities receivable, in noncurrent assets, less estimated losses.

 

In the first quarter of 2018, the Company renewed a program contract with the municipalities of Itirapuã and Monte Mor for 30 years.

 

(c)         Intangible arising from concession agreements

 

During the period ended March 31, 2018 there were no relevant changes in the criteria to account for intangible assets and types of contracts.

 

The Company has obligations recorded in “Program Contract– Commitments” in current liabilities in the amount of R$ 138,591 and R$ 128,802 as of March 31, 2018 and December 31, 2017, respectively, and noncurrent liabilities in the amount of R$ 105,201 and R$ 110,698 as of March 31, 2018 and December 31, 2017, respectively.

 

(d)        Capitalization of interest and other finance charges

 

From January to March 2018, the Company capitalized interest and inflation adjustment, including related foreign currency exchange in concession intangible assets, totaling R$ 143,041, including the São Lourenço Production System and Leases (R$ 166,223 from January to March 2017), during the construction period.

 

(e)         Construction margin

 

The Company acts as a primary responsible to construct and install the infrastructure related to the concession, using own efforts or hiring outsourcing services, receiving the risks and benefits.

 

PAGE: 44 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

As a consequence, the Company recognizes revenue from construction service corresponding to the cost of construction increased by a gross margin. Generally, the constructions related to the concessions are performed by third parties, in such case, the margin of the Company  is lower, normally, to cover eventual administration costs, and the responsibility of the primary risk. As of March 31, 2018 and 2017, the margin was 2.3%.

 

Construction margin from January to March 2018 and 2017 was R$ 14,551 and R$ 15,699, respectively.

 

(f)          Expropriations

 

As a result of the construction of priority projects related to water and sewage systems, the Company was required to expropriate third-parties' properties, and the owners of these properties will be compensated either amicably or through courts.

 

The costs of these expropriations are recorded as concession intangible assets after the transaction is concluded. From January to March 2018, the total amount related to expropriations was R$ 9,695 (R$ 2,901 from January to March 2017).

 

(g)         Public-Private Partnership - PPP

 

SABESP carries out operations related to the PPPs mentioned below. These operations and their respective obligations and guarantees are supported by agreements executed according to Law 11,079/04.

 

Alto Tietê Production System

 

As of March 31, 2018 and December 31, 2017, the amounts recognized as intangible asset related to this PPP were
R$ 368,138 and R$ 371,862, respectively.

 

From January to March 2018, a discount rate of 8.20% p.a. was used to calculate the adjustment to present value of the agreement. The obligations assumed by the Company as of March 31, 2018 and December 31, 2017 are shown in the next table.

 

On a monthly basis, SABESP assigns funds from tariffs to the SPE CAB Sistema Produtor Alto Tietê S/A, in the amount of R$ 10,012, corresponding to the monthly remuneration. This amount is annually adjusted by the IPC – FIPE and is recorded in a restricted account, pursuant to the contractual operating proceeding. Should SABESP comply with its monthly obligations with the SPE, the funds from the restricted account will be released.

 

The guarantee is effective since the beginning of the operation and will be valid until the conclusion, termination, intervention, annulment or caducity of the Administrative Concession, or other extinction events provided for in the Concession Agreement or in the law applicable to administrative concessions, including in the event of bankruptcy or extinction of the SPE.

 

PAGE: 45 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

São Lourenço Production System

 

As of March 31, 2018 and December 31, 2017, the carrying amount recorded in the Company’s intangible assets, related to this PPP, totaled R$ 2,991,752 and R$ 2,818,805, respectively. Intangible assets are accounted for based on the physical evolution of the works which, as of March 31, 2018, was approximately 93%, with a counter-entry in the Private Public Partnership (PPP) liabilities account. As of March 31, 2018, a discount rate of 7.80% p.a. was used to calculate the adjustment to present value of the agreement.

 

The obligations assumed by the Company as of March 31, 2018 and December 31, 2017 are shown in the table below, and the increase in intangible assets and liabilities was due to the progress of works in 2018.

 

 

March 31, 2018

December 31, 2017

 

Current liabilities

Noncurrent liabilities

Total liabilities

Current liabilities

Noncurrent liabilities

Total liabilities

 

 

 

 

 

 

 

Alto Tietê

35,780

273,291

309,071

35,083

282,501

317,584

São Lourenço

40,371

2,882,521

2,922,892

24,924

2,728,908

2,753,832

Total

76,151

3,155,812

3,231,963

60,007

3,011,409

3,071,416

 

 

(h)        Works in progress

 

The amount of R$ 10,701 million is recorded under intangible assets as works in progress as of March 31, 2018
(R$ 10,387 million as of December 31, 2017), and, in the period ended March 31, 2018, the major projects are located in the municipalities of São Paulo, Franca and Itanhaém, totaling R$ 6,953 million (including R$ 2,991 million from PPP São Lourenço), R$ 217 million and R$ 187 million, respectively.

 

(i)          Amortization of intangible assets

 

The amortization average rate totaled 4.1% and 3.9% as of March 31, 2018 and 2017, respectively.

 

(j)          Software license of use

 

The software license of use is capitalized based on the costs incurred to acquire software and make them ready for use. On April 10, 2017, the Company implemented the Integrated Business Management System (Enterprise Resource Planning – SAP ERP), which includes the administrative/financial module. The implementation of the commercial module is in progress.

 

PAGE: 46 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

14                Property, plant and equipment

 

(a)         Statement of financial position details

 

 

March 31, 2018

December 31, 2017

 

Cost

Accumulated depreciation

Net

Cost

Accumulated depreciation

Net

Land

92,507

-

92,507

92,507

-

92,507

Buildings

79,014

(37,233)

41,781

79,013

(36,653)

42,360

Equipment

332,772

(235,449)

97,323

330,753

(226,950)

103,803

Transportation equipment

10,862

(7,381)

3,481

10,862

(7,182)

3,680

Furniture and fixtures

24,397

(12,888)

11,509

24,430

(12,614)

11,816

Other

1,122

(251)

871

1,122

(238)

884

Total

540,674

(293,202)

247,472

538,687

(283,637)

255,050

 

 

(b)   Changes

 

 

December 31, 2017

Additions

Transfers

Write-offs and disposals

Depreciation

March 31,

 2018

Land

92,507

-

-

-

-

92,507

Buildings

42,360

-

-

-

(579)

41,781

Equipment

103,803

2,767

(733)

(14)

(8,500)

97,323

Transportation equipment

3,680

-

-

-

(199)

3,481

Furniture and fixtures

11,816

19

(45)

(7)

(274)

11,509

Other

884

-

-

-

(13)

871

Total

255,050

2,786

(778)

(21)

(9,565)

247,472

 

 

 

December 31, 2016

Additions

Transfers

Write-offs and disposals

Depreciation

March 31,

 2017

Land

92,494

-

-

-

-

92,494

Buildings

43,262

-

11

-

(426)

42,847

Equipment

149,140

10,426

(9,340)

(30)

(18,350)

131,846

Transportation equipment

4,531

-

(25)

(10)

(200)

4,296

Furniture and fixtures

11,986

175

(85)

(29)

(307)

11,740

Other

970

-

-

-

(13)

957

Total

302,383

10,601

(9,439)

(69)

(19,296)

284,180

 

 

 

PAGE: 47 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(c)         Depreciation

 

The Company annually revises the depreciation rates of: buildings - 3.0%; equipment- 16.8%; transportation equipment - 10% and furniture, fixture and equipment - 6.9%. Lands are not depreciated.

 

The depreciation average rate was 12.7% and 12.0%, as of March 31, 2018 and 2017, respectively.

 

PAGE: 48 of 82


 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 


15                Borrowings and Financing

 

Borrowings and financing outstanding balance

March 31, 2018

December 31, 2017

Financial institution

Current

 

Noncurrent

 

Total

 

Current

 

Noncurrent

 

Total

Local currency

 

 

 

 

 

 

 

 

 

 

 

10th issue debentures

41,927

 

75,224

 

117,151

 

41,702

 

80,953

 

122,655

12th issue debentures

45,450

 

283,332

 

328,782

 

45,450

 

294,702

 

340,152

14th issue debentures

40,689

 

120,105

 

160,794

 

40,503

 

141,351

 

181,854

15th issue debentures

349,599

 

-

 

349,599

 

346,414

 

345,788

 

692,202

17th issue debentures

271,818

 

518,598

 

790,416

 

144,391

 

781,922

 

926,313

18th issue debentures

33,200

 

191,068

 

224,268

 

33,020

 

194,872

 

227,892

20th issue debentures

250,000

 

247,246

 

497,246

 

250,000

 

246,890

 

496,890

21st issue debentures

-

 

499,608

 

499,608

 

-

 

499,628

 

499,628

22nd issue debentures

-

 

749,102

 

749,102

 

-

 

-

 

-

Brazilian Federal Savings Bank

69,746

 

1,193,306

 

1,263,052

 

78,487

 

1,154,599

 

1,233,086

Brazilian Development Bank - BNDES BAIXADA SANTISTA

16,812

 

12,609

 

29,421

 

16,782

 

16,782

 

33,564

Brazilian Development Bank - BNDES PAC

11,163

 

47,332

 

58,495

 

11,143

 

50,028

 

61,171

Brazilian Development Bank - BNDES PAC II 9751

4,342

 

21,953

 

26,295

 

4,334

 

22,991

 

27,325

Brazilian Development Bank - BNDES PAC II 9752

2,371

 

18,968

 

21,339

 

2,367

 

19,526

 

21,893

Brazilian Development Bank - BNDES ONDA LIMPA

23,511

 

140,852

 

164,363

 

23,469

 

146,461

 

169,930

Brazilian Development Bank - BNDES TIETÊ III

30,433

 

273,721

 

304,154

 

30,378

 

280,825

 

311,203

Brazilian Development Bank - BNDES 2015

19,206

 

468,530

 

487,736

 

10,050

 

397,922

 

407,972

Leases

17,538

 

548,616

 

566,154

 

17,573

 

544,044

 

561,617

Other

1,609

 

9,150

 

10,759

 

1,466

 

9,477

 

10,943

Interest and charges

60,105

 

-

 

60,105

 

101,855

 

-

 

101,855

Total in local currency

1,289,519

 

5,419,320

 

6,708,839

 

1,199,384

 

5,228,761

 

6,428,145

 

 

PAGE: 49 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information


 

Borrowings and financing outstanding balance

March 31, 2018

December 31, 2017

Financial institution

Current

 

Noncurrent

 

Total

 

Current

 

Noncurrent

 

Total

Foreign currency

 

 

 

 

 

 

 

 

 

 

 

Inter-American Development Bank - BID 1212  – US$ 77,086 thousand (US$ 82,225 thousand in December 2017)

34,162

 

222,055

 

256,217

 

34,000

 

238,000

 

272,000

Inter-American Development Bank - BID 2202  – US$ 442,584 thousand (US$ 444,871 thousand in December 2017)

84,061

 

1,371,549

 

1,455,610

 

81,757

 

1,375,358

 

1,457,115

International Bank of Reconstruction and Development - BIRD – US$ 91,286 thousand
(US$ 91,286 thousand in December 2016)

 

-

 

 

303,112

 

 

303,112

 

 

-

 

 

301,665

 

 

301,665

Deutsche Bank – US$ 150,000 thousand (US$ 150,000 thousand in December 2017)

249,285

 

244,432

 

493,717

 

248,100

 

242,343

 

490,443

Eurobonds– US$ 350,000 thousand (US$ 350,000 thousand in December 2017)

-

 

1,161,066

 

1,161,066

 

-

 

1,155,331

 

1,155,331

JICA 15 – ¥ 13,252,945 thousand (¥ 13,829,160 thousand in December 2017)

36,025

 

378,262

 

414,287

 

33,881

 

372,696

 

406,577

JICA 18 – ¥ 11,915,840 thousand (¥ 12,433,920 thousand in December 2017)

32,390

 

339,859

 

372,249

 

30,463

 

334,849

 

365,312

JICA 17 – ¥ 1,590,429 thousand (¥ 1,534,959 thousand in December 2017)

2,762

 

46,180

 

48,942

 

2,507

 

41,835

 

44,342

JICA 19 – ¥ 30,600,548 thousand (¥ 29,777,232 thousand in December 2017)

25,853

 

928,617

 

954,470

 

-

 

873,383

 

873,383

BID 1983AB – US$ 82,404 (US$ 82,404 thousand in December 2017)

79,579

 

191,249

 

270,828

 

79,201

 

189,990

 

269,191

Interest and charges

43,139

 

-

 

43,139

 

37,462

 

-

 

37,462

Total in foreign currency

587,256

 

5,186,381

 

5,773,637

 

547,371

 

5,125,450

 

5,672,821

 

Total borrowings and financing

 

1,876,775

 

 

10,605,701

 

 

12,482,476

 

 

1,746,755

 

 

10,354,211

 

 

12,100,966

 

Exchange rate as of March 31, 2018: US$ 3.3238; ¥ 0.03126 (as of December 31, 2017: US$ 3.3080; ¥ 0.02940).

As of March 31, 2018, the Company did not record balances of borrowings and financing raised during the year to mature within 12 months.

 

PAGE: 50 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 


Domestic currency

Guarantees

Maturity

Annual interest rates

Inflation adjustment

 

 

 

 

 

10th issue debentures

Own funds

2020

TJLP +1.92% (Series 1 and 3) and 9.53% (Series 2)

IPCA (series 2)

12th issue debentures

Own funds

2025

 TR + 9.5%

 

14th issue debentures

Own funds

2022

TJLP +1.92% (Series 1 and 3) and 9.19% (Series 2)

IPCA (series 2)

15th issue debentures

Own funds

2019

CDI + 0.99% (Series 1) and 6.2% (Series 2)

IPCA (series 2)

17th issue debentures

Own funds

2023

CDI +0.75 (Series 1) and 4.5% (Series 2) and 4.75% (Series 3)

IPCA (series 2 and 3)

18th issue debentures

Own funds

2024

TJLP + 1.92 % (series 1 and 3) and 8.25% (series 2)

IPCA (series 2)

20th issue debentures

Own funds

2019

CDI + 3.80%

 

21st issue debentures

Own funds

2022

CDI + 0.60% and CDI + 0.90%

 

22nd issue debentures

Own funds

2025

CDI + 0.58%, CDI + 0.90%

IPCA + 6%

Brazilian Federal Savings Bank

Own funds

2018/2038

5% to 9.5%

TR

Brazilian Development Bank - BNDES BAIXADA SANTISTA

Own funds

2019

2.5%+TJLP

 

Brazilian Development Bank - BNDES PAC

Own funds

2023

2.15%+TJLP

 

Brazilian Development Bank - BNDES PAC II 9751

Own funds

2027

1.72%+TJLP

 

Brazilian Development Bank - BNDES PAC II 9752

Own funds

2027

1.72%+TJLP

 

Brazilian Development Bank - BNDES ONDA LIMPA

Own funds

2025

1.92%+TJLP

 

Brazilian Development Bank - BNDES TIETÊ III

Own funds

2028

1.66%+TJLP

 

Brazilian Development Bank - BNDES 2015

Own funds

2035

2.5%+TJLP

 

Leases

 

2035

7.73% to 10.12%

IPC

Other

Own funds

2018/2025

12% (Presidente Prudente) and TJLP + 1.66% (FINEP)

TR

 

 

 

PAGE: 51 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 


Foreign currency

Guarantees

Maturity

Annual interest rates

Exchange rate changes

 

 

 

 

 

Inter-American Development Bank - BID 1212  – US$ 77,086 thousand

Government

2025

2.74% (*)

US$

Inter-American Development Bank - BID 2202  – US$ 442,584 thousand

Government

2035

2.33% (*) 

US$

International Bank for Reconstruction and Development - BIRD – US$ 91,286 thousand

Government

2034

1.71% (*)

US$

Deutsche Bank US$ 150,000 thousand

2019

Libor+4.50%(*)

US$

Eurobonds US$ 350,000 thousand

2020

6.25%

US$

JICA 15 – ¥ 13,252,945 thousand

Government

2029

1.8% and 2.5%

Yen

JICA 18 – ¥ 11,915,840 thousand

Government

2029

1.8% and 2.5%

Yen

JICA 17 – ¥ 1,590,429 thousand

Government

2035

1.2% and 0.01%

Yen

JICA 19 – ¥ 30,600,548 thousand

Government

2037

1.7% and 0.01%

Yen

BID 1983AB – US$ 82,404 thousand

2023

Libor + 1.88% to 2.38% (*)

US$

 

(*) Rates comprising LIBOR + contractually defined spread.

 

 

PAGE: 52 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 


(i)       Payment schedule – accounting balances as of March 31, 2018

 

 

 

2018

 

2019

 

2020

 

2021

 

2022

 

2023

 

2024 to 2038

 

TOTAL

 

LOCAL CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

366,754

 

1,029,909

 

579,963

 

476,635

 

556,106

 

359,749

 

347,850

 

3,716,966

Brazilian Federal Savings Bank

52,063

 

71,159

 

73,743

 

77,573

 

81,709

 

73,856

 

832,949

 

1,263,052

BNDES

78,478

 

117,441

 

99,282

 

98,833

 

98,833

 

93,145

 

505,791

 

1,091,803

Leases

13,013

 

32,900

 

34,553

 

36,350

 

38,304

 

41,035

 

369,999

 

566,154

Other

1,266

 

1,373

 

1,373

 

1,373

 

1,373

 

1,373

 

2,628

 

10,759

Interest and charges

48,227

 

11,878

 

-

 

-

 

-

 

-

 

-

 

60,105

TOTAL IN LOCAL CURRENCY

559,801

 

1,264,660

 

788,914

 

690,764

 

776,325

 

569,158

 

2,059,217

 

6,708,839

 

FOREIGN CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BID

59,111

 

118,223

 

118,223

 

118,223

 

118,223

 

118,224

 

1,061,600

 

1,711,827

BIRD

-

 

10,104

 

20,208

 

20,208

 

20,208

 

20,209

 

212,175

 

303,112

Deutsche Bank

249,285

 

244,432

 

-

 

-

 

-

 

-

 

-

 

493,717

Eurobonds

-

 

-

 

1,161,066

 

-

 

-

 

-

 

-

 

1,161,066

JICA

36,970

 

122,884

 

122,884

 

122,884

 

122,884

 

122,884

 

1,138,558

 

1,789,948

BID 1983AB

79,504

 

58,806

 

57,632

 

25,568

 

25,568

 

23,750

 

-

 

270,828

Interest and charges

43,139

 

-

 

-

 

-

 

-

 

-

 

-

 

43,139

TOTAL IN FOREIGN CURRENCY

468,009

 

554,449

 

1,480,013

 

286,883

 

286,883

 

285,067

 

2,412,333

 

5,773,637

Overall Total

1,027,810

 

1,819,109

 

2,268,927

 

977,647

 

1,063,208

 

854,225

 

4,471,550

 

12,482,476

 

PAGE: 53 of 82

 


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 


(ii)     Changes

 

 

December 31, 2017

Funding

Borrowings costs

Lease

Monetary variation and exchange rate changes

Inflation adjustment / update and incorporated interest - Capitalized

Interest paid

Amortization

Accrued interest

Provision for interest and fees - Capitalized

Borrowings costs expenses

March 31,

 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

LOCAL CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

3,576,842

750,000

(2,294)

-

18,204

-

(104,183)

(537,322)

51,440

11,043

792

3,764,522

Brazilian Federal Savings Bank

1,236,674

57,531

-

-

-

-

(24,588)

(27,565)

19,709

4,924

-

1,266,685

BNDES

1,042,036

79,000

-

-

1,426

761

(19,936)

(22,138)

6,823

12,662

52

1,100,686

Leases

561,616

-

-

8,695

-

-

-

(4,157)

-

-

-

566,154

Other

10,977

-

-

-

18

-

(204)

(202)

200

3

-

10,792

TOTAL IN DOMESTIC CURRENCY

6,428,145

886,531

(2,294)

8,695

19,648

761

(148,911)

(591,384)

78,172

28,632

844

6,708,839

 

 

 

 

 

 

 

 

 

 

 

 

 

LOCAL CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

BID

1,743,257

32,772

(1,139)

-

(3,490)

11,336

(20,457)

(56,971)

5,723

5,006

204

1,716,241

BIRD

303,278

-

-

-

598

845

(2,634)

-

1,010

240

5

303,342

Deutsche Bank

496,726

-

-

-

2,370

-

(8,449)

-

7,156

1,531

902

500,236

Eurobonds

1,158,642

-

-

-

5,530

-

-

-

17,025

4,375

205

1,185,777

JICA

1,700,448

27,241

(63)

-

105,706

750

(15,609)

(33,343)

8,102

142

43

1,793,417

BID 1983AB

270,470

-

-

-

1,302

-

-

-

2,054

463

335

274,624

TOTAL IN FOREIGN CURRENCY

5,672,821

60,013

(1,202)

-

112,016

12,931

(47,149)

(90,314)

41,070

11,757

1,694

5,773,637

Overall Total

12,100,966

946,544

(3,496)

8,695

131,664

13,692

(196,060)

(681,698)

119,242

40,389

2,538

12,482,476

 

PAGE: 54 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

 

December 31, 2016

Funding

Borrowings costs

Lease

Monetary variation and exchange rate changes

Inflation adjustment / update and incorporated interest - Capitalized

Interest paid

Amortization

Accrued interest

Provision for interest and fees - Capitalized

Borrowings costs expenses

March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

LOCAL CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

Debentures

3,641,912

-

(191)

-

18,574

-

(130,670)

(281,725)

34,838

42,554

1,059

3,326,351

Brazilian Federal Savings Bank

1,150,691

30,435

-

-

3,217

848

(23,381)

(14,417)

18,448

4,968

-

1,170,809

BNDES

946,984

171,153

-

-

-

-

(17,937)

(21,875)

11,356

12,620

52

1,102,353

Leases

552,516

-

-

5,302

-

-

-

(3,637)

-

-

-

554,181

Other

11,677

-

-

-

4

-

(224)

(179)

209

20

-

11,507

TOTAL IN LOCAL CURRENCY

6,303,780

201,588

(191)

5,302

21,795

848

(172,212)

(321,833)

64,851

60,162

1,111

6,165,201

 

 

 

 

 

 

 

 

 

 

 

 

 

FOREIGN CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

BID

1,811,664

22,463

(1,295)

-

(55.530)

5,038

(18,200)

(52,374)

5,667

3,603

170

1,721,206

BIRD

261,337

5,005

-

-

(7.648)

466

(1,874)

-

724

217

5

258,232

Deutsche Bank

485,090

-

(463)

-

(13.605)

-

(7,698)

-

2,955

4,609

879

471,767

Eurobonds

1,141,469

-

-

-

(31.745)

-

-

-

8,827

10,863

205

1,129,619

JICA

1,617,215

48,101

-

-

28.731

1,058

(13,840)

(29,491)

6,607

486

37

1,658,904

BID 1983AB

343,588

-

-

-

(9,646)

-

-

-

1,009

1,263

326

336,540

TOTAL IN FOREIGN CURRENCY

5,660,363

75,569

(1,758)

-

(89,443)

6,562

(41,612)

(81,865)

25,789

21,041

1,622

5,576,268

Overall Total

11,964,143

277,157

(1,949)

5,302

(67,648)

7,410

(213,824)

(403,698)

90,640

81,203

2,733

11,741,469

 

 

PAGE: 55 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(i)   Main events in the three-month period ended March 31, 2018

 

(a)         Debentures

 

As of January 15, 2018, the Company amortized series 1 of the 17th issue, totaling R$ 144,391.

 

As of February 15, 2018, the Company amortized the first installment of series 2 of the 15th issue, totaling
R$ 348,434.

 

As of February 19, 2018, the Company held the 22nd issue of unsecured debentures, not convertible into shares, in up to three series, for public distribution, with restricted placement efforts, pursuant to CVM Instruction 476/2009, totaling R$ 750 million. The first series, totaling R$ 100,000, is due in three years and is remunerated at the CDI + 0.58% p.a., the second series, totaling R$ 400,000, is due in five years and is remunerated at the CDI + 0.90% p.a., and the third series, totaling R$ 250,000, is due in seven years and is remunerated at the IPCA + 6.00% p.a. The proceeds from the debenture issue will be allocated to refinance financial commitments and recompose the Company’s cash.

 

The covenants agreed for the 22nd issue debentures are:

Calculated every quarter upon the disclosure of interim financial information or annual financial statements:

- Net debt/adjusted EBITDA: lower than or equal to 3.50;

- Adjusted EBITDA/paid financial expenses equal to or higher than 1.5;

-   Disposal of operating assets, extinguishment of license, loss of concession or loss of Issuer’s capacity to execute and operate the basic sanitation public utilities in areas of the State of São Paulo territory, which considered individually or jointly during the contract’s effectiveness, result in a reduction of net sales revenue and/or services revenue of the Issuer exceeding twenty-five percent (25%). The limit established above will be calculated quarterly, taking into account the Issuer’s operating income for the twelve (12) months preceding the end of each quarter and applying the financial information disclosed by the Issuer.

Non-compliance with the covenant clauses, during, at least, two consecutive quarters, or also two nonconsecutive quarters within a twelve-month period shall result in the early maturity of the agreement.

The contract has a cross acceleration clause, i.e., the early maturity of any of the Company’s debts, in and individual or aggregate amount equal to or higher than R$ 145 million, adjusted by the IPCA inflation index as of the issue date, constitutes a default event and may result in the early maturity of the obligations arising from the Debentures.

 

(b)        BNDES

 

As of March 15, 2018, the Company raised R$ 79,000, corresponding to agreement 15.2.0313.1 - BNDES 2015.

 

(c)         JICA

 

In 2018, funding totaled R$ 20,243, referring to agreement BZ-P19 (JICA 19).

 

PAGE: 56 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(d)        BID

 

In 2018, funding totaled R$ 32,771, referring to agreement BID 2202.

 

(e)         Exchange rate changes

 

The Yen increased 6.3%, from R$ 0.02940 on December 31, 2017 to R$ 0.03126 on March 31, 2018, increasing the Yen-pegged debt by R$ 106,689.

 

(ii)       Covenants

 

As of March 31, 2018, the Company had met the requirements set forth by its borrowings and financing agreements.

 

(iii)     Borrowings and financing – Credit Limited

 

 

Agent

 

March 31, 2018

 

 

(in millions of reais (*))

Brazilian Federal Savings Bank

 

1,429

Brazilian Development Bank - BNDES

 

1,502

Inter-American Development Bank – BID

 

405

Japan International Cooperation Agency – JICA

 

232

Other

 

38

TOTAL

 

3,606

 

(*) Brazilian Central Bank’s exchange rate as of March 31, 2018 (US$1.00 = R$3.3238;  ¥1.00 = R$0.03126).

 

SABESP in order to comply with its Capex plan relies on a fund-raising plan.

 

Financing resources contracted have specific purposes, which have been released for the execution of their respective investments, according to the progress of the works.

 

PAGE: 57 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

16                Taxes recoverable/payable

 

(a)        Current assets

 

 

March 31, 2018

December 31, 2017

Recoverable taxes

 

 

Income tax and social contribution

171,809

270,614

Withheld income tax (IRRF) on financial investments

8,039

2,606

Other federal taxes

10,668

3,365

Total

190,516

276,585

 

 

The decrease in recoverable taxes was mainly due to a decrease in “income tax and social contribution”, due to offsets with taxes payable in the first quarter of 2018.

 

(b)        Current liabilities

 

 

March 31, 2018

December 31, 2017

Taxes and contributions payable

 

 

Cofins and Pasep

80,044

74,034

INSS (Social Security contribution)

35,251

35,365

IRRF (withholding income tax)

4,435

58,204

Other

7,247

16,362

Total

126,977

183,965

 

The decrease in taxes and contribution payable was mainly due to the payment of withholding income tax based on the amount of interest on equity declared in 2017.

 

PAGE: 58 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

17           Deferred taxes and contributions

 

(a)     Statement of financial position details

 

 

March 31, 2018

December 31, 2017

Deferred income tax assets

 

 

Provisions

475,848

482,863

Pension obligations - G1

162,413

165,503

Donations of underlying asset on concession agreements

54,444

55,112

Allowance for doubtful accounts

206,993

199,063

Other

175,217

151,562

Total deferred tax assets

1,074,915

1,054,103

 

 

 

Deferred income tax liabilities

 

 

Temporary difference on concession of intangible asset

(452,678)

(460,177)

Capitalization of borrowing costs

(417,621)

(415,379)

Profit on supply to governmental entities

(85,921)

(76,705)

Actuarial gain/loss – G1 Plan

(36,538)

(36,538)

Construction margin

(88,255)

(88,947)

Borrowing costs

(13,027)

(13,111)

Total deferred tax liabilities

(1,094,040)

(1,090,857)

 

 

 

Deferred tax liability, net

(19,125)

(36,754)

 

 

 

 

PAGE: 59 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(b)    Changes

 

Deferred income tax assets

December 31,

2017

Net

change

March 31,

2018

Provisions

482,863

(7,015)

475,848

Pension obligations - G1

165,503

(3,090)

162,413

Donations of underlying assets on concession agreements

55,112

(668)

54,444

Allowance for doubtful accounts

199,063

7,930

206,993

Other

151,562

23,655

175,217

Total

1,054,103

20,812

1,074,915

 

 

 

 

Deferred income tax liabilities

 

 

 

Temporary difference on concession of intangible asset

(460,177)

7,499

(452,678)

Capitalization of borrowing costs

(415,379)

(2,242)

(417,621)

Profit on supply to governmental entities

(76,705)

(9,216)

(85,921)

Actuarial gain/loss – G1

(36,538)

-

(36,538)

Construction margin

(88,947)

692

(88,255)

Borrowing costs

(13,111)

84

(13,027)

Total

(1,090,857)

(3,183)

(1,094,040)

 

 

 

 

Deferred tax liability, net

(36,754)

17,629

(19,125)

 

 

PAGE: 60 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

Deferred income tax assets

December 31,

2016

Net

change

March 31,

2017

Provisions

524,129

3,890

528,019

Actuarial loss – G1

85,044

-

85,044

Pension obligations - G1

167,922

(979)

166,943

Donations of underlying asset on concession agreements

57,317

(187)

57,130

Allowance for doubtful accounts

266,757

(8,858)

257,899

Other

151,247

937

152,184

Total

1,252,416

(5,197)

1,247,219

 

 

 

 

Deferred income tax liabilities

 

 

 

Temporary difference on concession of intangible asset

(492,341)

8,832

(483,509)

Capitalization of borrowing costs

(374,512)

(18,071)

(392,583)

Profit on supply to governmental entities

(92,365)

2,406

(89,959)

Construction margin

(91,790)

738

(91,052)

Borrowing costs

(15,063)

267

(14,796)

Total

(1,066,071)

(5,828)

(1,071,899)

 

 

 

 

Deferred tax asset, net

186,345

(11,025)

175,320

 

 

 

March 31, 2018

March 31, 2017

 

 

 

Opening balance

(36,754)

186,345

Net change in the year:

 

 

 - corresponding entry to the income statement

17,629

(11,025)

 

 

 

Total change, net

17,629

(11,025)

Closing balance

(19,125)

175,320

 

 

 

 

 

PAGE: 61 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(c)        Reconciliation of the effective tax rate

 

The amounts recorded as income tax and social contribution expenses in the financial statements are reconciled to the statutory rates, as shown below:

 

 

 

March 31, 2018

 

March 31, 2017

 

 

Profit before income taxes

 

 

888,672

 

 

 

1,035,827

Statutory rate

34%

 

34%

 

 

Estimated expense at statutory rate

 

 

(302,148)

 

 

 

(352,181)

Permanent differences

 

 

 

Provision - Law 4,819/58 – G0 (i)

(12,323)

 

(14,945)

Donations

(657)

 

(222)

Other differences

6,887

 

5,883

 

 

Income tax and social contribution

 

(308,241)

 

 

(361,465)

 

 

Current income tax and social contribution

 

 

(325,870)

 

 

 

(350,440)

Deferred income tax and social contribution

17,629

 

(11,025)

Effective rate

35%

 

35%

 

(i)       Permanent difference related to the provision for actuarial liability (Note 19 (b) (iii)).

 

 

18                Provisions

 

(a)    Lawsuits and proceedings that resulted in provisions

 

(I) Statement of financial position details

 

The Company is party to a number of claims and legal and administrative proceedings arising in the normal course of business, including civil, tax, labor and environmental matters. Management recognizes provisions consistently with the recognition and measurement criteria established in Note 3.15 to the Annual Financial Statements as of December 31, 2017. The ultimate timing and amounts of the payments depend on the outcome of the court cases. The provisions, net of escrow deposits are as follows:

 

PAGE: 62 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

 

Provisions

Escrow deposits

March 31,

2018

 

Provisions

Escrow deposits

December 31,

2017

Customer claims (i)

414,972

(56,662)

358,310

 

438,619

(56,301)

382,318

Supplier claims  (ii)

326,638

(279,799)

46,839

 

332,037

(259,608)

72,429

Other civil claims (iii)

108,386

(14,126)

94,260

 

114,544

(16,227)

98,317

Tax claims (iv)

75,235

(7,839)

67,396

 

77,100

(5,507)

71,593

Labor claims (v)

306,587

(9,297)

297,290

 

299,842

(6,741)

293,101

Environmental claims (vi)

170,139

(114)

170,025

 

160,446

-

160,446

Total

1,401,957

(367,837)

1,034,120

 

1,422,588

(344,384)

1,078,204

 

 

 

 

 

 

 

 

Current

584,948

-

584,948

 

607,959

-

607,959

Noncurrent

817,009

(367,837)

449,172

 

814,629

(344,384)

470,245

 

 

(II) Changes

 

 

December 31, 2017

Additional provisions

Interest and inflation adjustment

Use of the accrual

Amounts not used

(reversal)

March 31,

2018

Customer claims (i)

438,619

1,281

8,159

(19,285)

(13,802)

414,972

Supplier claims  (ii)

332,037

20,049

2,345

(26,287)

(1,506)

326,638

Other civil claims (iii)

114,544

2,584

2,826

(3,725)

(7,843)

108,386

Tax claims (iv)

77,100

4,583

1,223

(2,431)

(5,240)

75,235

Labor claims (v)

299,842

17,583

7,740

(5,131)

(13,447)

306,587

Environmental claims (vi)

160,446

10,205

5,027

-

(5,539)

170,139

Subtotal

1,422,588

56,285

27,320

(56,859)

(47,377)

1,401,957

Escrow deposits

(344,384)

(27,680)

(2,823)

3,942

3,108

(367,837)

Total

1,078,204

28,605

24,497

(52,917)

(44,269)

1,034,120

 

 

 

PAGE: 63 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

December 31, 2016

Additional provisions

Interest and inflation adjustment

Use of the accrual

Amounts not used

(reversal)

March 31,

2017

Customer claims (i)

572,210

7,188

10,842

(28,459)

(3,902)

557,879

Supplier claims  (ii)

332,667

5,891

13,035

(9,878)

(143)

341,572

Other civil claims (iii)

131,286

3,167

3,721

(3,428)

(7,839)

126,907

Tax claims (iv)

69,898

2,392

3,473

(192)

(28)

75,543

Labor claims (v)

285,413

11,950

10,176

(8,628)

(8,742)

290,169

Environmental claims (vi)

150,084

7,518

4,592

(970)

(297)

160,927

Subtotal

1,541,558

38,106

45,839

(51,555)

(20,951)

1,552,997

Escrow deposits

(368,483)

(6,627)

(3,050)

8,274

2,698

(367,188)

Total

1,173,075

31,479

42,789

(43,281)

(18,253)

1,185,809

 

 

(b)        Lawsuits deemed as contingent liabilities

 

The Company is party to lawsuits and administrative proceedings relating to environmental, tax, civil and labor claims, which are assessed as contingent liabilities in the financial statements, since it either does not expect outflows to be required or the amount of the obligation cannot be reliably measured. Contingent liabilities are represented as follows:

 

 

March 31, 2018

December 31, 2017

Customer claims (i)

236,800

219,900

Supplier claims  (ii)

1,515,000

1,430,600

Other civil claims (iii)

685,500

733,100

Tax claims (iv)

1,284,000

1,291,000

Labor claims (v)

687,600

677,400

Environmental claims (vi)

4,004,200

3,879,000

Total

8,413,100

8,231,000

 

 

(c)        Explanation on the nature of main classes of lawsuits

 

(i)                       Customer claims

 

Approximately 1,020 lawsuits (1,070 as of December 31, 2017) were filed by commercial customers, which claim that their tariffs should correspond to other consumer categories, and 660 lawsuits (680 as of December 31, 2017) in which customers claim a reduction in the sewage tariff due to losses in the system, consequently requesting the refund of amounts charged by the Company and 50 lawsuits (50 as of December 31, 2017) in which customers plead the reduction in tariff under the category “Social Welfare Entity”. The Company was granted both favorable and unfavorable final decisions at several court levels.

 

PAGE: 64 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(ii)             Supplier claims

 

These include lawsuits filed by some suppliers alleging underpayment of monetary restatements, withholding of amounts related to the understated inflation rates deriving from Real economic plan, and the economic and financial imbalance of the agreements, and are in progress at different courts.

 

(iii)          Other civil claims

 

These mainly refer to indemnities for property damage, pain and suffering, and loss of profits allegedly caused to third parties, filed at different court levels.

 

(iv)           Tax claims

 

Tax claims refer mainly to issues related to tax collections and fines in general challenged due to disagreements regarding notification or differences in the interpretation of legislation by the Company's management.

 

(v)             Labor claims

 

The Company is a party to labor lawsuits, involving issues such as overtime, shift schedule, health hazard premium and hazardous duty premium, prior notice, change of function, salary equalization, service outsourcing and other. Part of the amount involved is in provisional or final execution at various court levels.

 

(vi)           Environmental claims

 

These refer to several administrative proceedings and lawsuits filed by government entities, including Companhia de Tecnologia de Saneamento Ambiental – Cetesb and the Public Prosecution Office of the State of São Paulo, that aim affirmative and negative covenants and penalty is estimated due to failure to comply in addition to the imposition of indemnity due to environmental damages allegedly caused by the Company. The amounts accrued represent the best estimate of the Company at this moment, however, may differ from the amount to be disbursed as indemnity to alleged damages, in view of the current stage of referred proceedings.

 

(d)                 Guarantee insurance for escrow deposit

 

The Company contracts guarantee insurance for the issue of policy, which was renewed on May 25, 2017, in the amount of R$ 500 million. Such insurance will be used in legal claims where instead of making immediate cash disbursement by the Company, such insurance is used until the conclusion of these proceedings limited to up to five years.

 

From January to March 2018, the Company did not use the guarantee insurance (R$ 524 from January to March 2017).

 

PAGE: 65 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

19                Employees benefits

 

(a)        Health benefit plan

 

The health benefit plan is managed by Sabesprev and consists of optional, free choice, health plans sponsored by contributions of SABESP and the active participants, as follows:

 

.     Company: 8.0% on average, of gross payroll;

 

.     Participating employees: 3.21% of base salary and premiums, equivalent to 2.7% of payroll, on average.

 

 

(b)     Pension plan benefits

 

Funded plan – G1

 

 

Pension plan liabilities as of December 31, 2017

 

388,461

Expenses recognized in 2018

 

1,886

Payments made in 2018

 

(10,974)

Pension plan liabilities as of March 31, 2018 (i)

 

379,373

 

 

 

Unfunded plan – G0

 

 

Pension plan liabilities as of December 31, 2017

 

2,543,877

Expenses recognized in 2018

 

58,062

Payments made in 2018

 

(41,354)

Pension plan liabilities as of March 31, 2018 (iii)

 

2,560,585

 

 

 

Total

 

2,939,958

 

(i)          G1 Plan

 

The Company sponsors a defined benefit pension plan for its employees (“G1 Plan”), which is managed by Sabesprev, receives similar contributions established in a plan of subsidy of actuarial study of SABESPREV, as follows:

 

·         0.99% of the portion of the salary of participation up to 20 salaries; and

·         8.39% of the surplus, if any, of the portion of the salary of participation over 20 salaries.

 

As of March 31, 2018, SABESP had a net actuarial liability of R$ 379,373 (R$ 388,461 as of December 31, 2017) representing the difference between the present value of the Company's defined benefit obligations to the participating employees, retired employees, and pensioners; the fair value of the plan’s assets.

 

(ii)            Private pension plan benefits – Defined contribution

 

As of March 31, 2018, Sabesprev Mais plan, based on defined contribution, had 9,300 active and assisted participants (9,328 as of December 31, 2017).

 

PAGE: 66 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

With respect to the Sabesprev Mais plan, the contributions from the sponsor represent 100% over the total basic contribution from the participants. In 2018, expenses related to the obligation of defined contribution, totaling
R$ 3,195, R$ 459 and R$ 884, were allocated to operating costs, selling expenses and administrative expenses. The amount of R$ 451 was capitalized in assets.

 

From January to March 2018, the Company has made contributions in the amount of R$ 4,989 (R$ 4,310 from January to March 2017).

 

 

(iii)     Plan Go

 

Pursuant to Law 4,819/58, employees who started providing services prior to May 1974 and retired as an employee of the Company acquired a legal right to receive supplemental pension payments, which rights are referred as "Plan G0". The Company pays these supplemental benefits on behalf of the State Government and makes claims for reimbursements from the State Government, which are recorded as accounts receivable from related parties, limited to the amounts considered virtually certain that will be reimbursed by the State Government. As of March 31, 2018, the Company recorded a defined benefit obligation for Plan G0 of R$ 2,560,585 (R$ 2,543,877 as of December 31, 2017).

 

(c) Profit sharing

 

The Company has a profit sharing program in accordance with an agreement with labor union and SABESP. The period covered represents the Company fiscal year, commence in January to December 2018. The limit of the profit sharing is one month salary for each employee, depending on performance goals reached.

 

From January to March 2018 and 2017, R$ 24,619 and R$ 21,077, respectively, were accrued.

 

 

20              Services payable

 

The services account records the balances payable, mainly from services received from third parties, such as supply of electric power, reading of hydrometers and delivery of water and sewage bills, cleaning, surveillance and security services, collection, legal counsel services, audit, marketing and advertising and consulting services, among others. This account also includes the amounts payable related to transfer of 7.5% of revenue from the São Paulo local government to the Municipal Fund (Note 14 (c) (v) of the Annual Financial Statements of December 31, 2017). The balances as of March 31, 2018 and December 31, 2017 were R$ 515,852 and R$ 408,275, respectively.

 

 

21                Equity

 

(a)        Authorized capital

 

The Company is authorized to increase capital by up to R$ 15,000,000, based on a Board of Directors' resolution, after submission to the Fiscal Council.

 

In the event of capital increase, issue of convertible debentures and/or warrants by means of private subscription, shareholders will have preemptive right in the proportion of the number of shares held, pursuant to Article 171 of Law 6,404/76.

 

PAGE: 67 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

(b)        Subscribed and paid-in capital

 

As of March 31, 2018 and December 31, 2017, subscribed and paid-in capital is represented by 683,509,869 registered, book-entry common shares with no par value, held as follows:

 

 

March 31, 2018

December 31, 2017

 

Number of shares

Number of shares

State Department of Finance

343,524,285

50.26%

343,524,285

50.26%

Companhia Brasileira de Liquidação e Custódia

205,319,606

30.04%

201,026,895

29.41%

The Bank Of New York ADR Department  (equivalent in shares) (*) (**)

132,497,792

19.38%

136,790,413

20.01%

Other

2,168,186

0.32%

2,168,276

0.32%

 

 

 

 

 

 

683,509,869

100.00%

683,509,869

100.00%

 

(*)   each ADR corresponds to 1 share.

(**)  custodians.

 

 

 

22      Earnings per share

 

Basic and diluted

 

Basic earnings per share is calculated by dividing the equity attributable to Company’s owners by the weighted average number of outstanding common shares during the year. The Company does not have potentially dilutive common shares outstanding or debts convertible into common shares. Accordingly, basic and diluted earnings per share are equal.

 

 

January to

January to

March 2018

March 2017

 

 

Equity attributable to Company’s owners

 

 

580,431

 

 

674,362

Weighted average number of common shares issued

683,509,869

683,509,869

 

 

Basic and diluted earnings per share (reais per share)

 

0.84919

 

0.98662

 

 

PAGE: 68 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

23         Operating segment information

 

Management, comprised by the Board of Directors and Board of Executive Officers, has determined the operating segment used to make strategic decisions, as sanitation services.

 

Result

 

 

January to March 2018

 

Sanitation (i)

Reconciliation to the statement of income (ii)

Balance as per financial statements

Gross operating revenue

3,280,846

647,203

3,928,049

Gross sales deductions

(228,381)

-

(228,381)

Net operating revenue

3,052,465

647,203

3,699,668

Costs, selling and administrative expenses

(1,998,720)

(632,652)

(2,631,372)

Income from operations before other operating expenses, net and equity accounting

1,053,745

14,551

1,068,296

Other operating income / (expenses), net

 

 

11,492

Equity accounting

 

 

2,817

Financial result, net

 

 

(193,933)

Income from operations before taxes

 

 

888,672

Depreciation and amortization

(327,899)

-

(327,899)

 

 

(i)        See note 29 for further information about non-monetary items, other than depreciation and amortization that impact segment results, and additionals to long-lived asset information.

 

(ii)      Construction revenue and related costs not reported to the CODM (“Chief Operating Decision Maker”).

 

PAGE: 69 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

 

January to March 2017

 

Sanitation (i)

Reconciliation to the statement of income (ii)

Balance as per financial statements

Gross operating revenue

3,029,291

722,928

3,752,219

Gross sales deductions

(193,394)

-

(193,394)

Net operating revenue

2,835,897

722,928

3,558,825

Costs, selling and administrative expenses

(1,832,001)

(707,229)

(2,539,230)

Income from operations before other operating expenses, net and equity accounting

1,003,896

15,699

1,019,595

Other operating income / (expenses), net

 

 

10,564

Equity accounting

 

 

1,870

Financial result, net

 

 

3,798

Income from operations before taxes

 

 

1,035,827

Depreciation and amortization

(331,948)

-

(331,948)

 

(i)        See note 29 for further information about non-monetary items, other than depreciation and amortization that impact segment results, and additionals to long-lived asset information.

 

(ii)      Construction revenue and related costs not reported to the CODM (“Chief Operating Decision Maker”).

 

 

Explanation on the reconciliation items for the income statement.

 

The impacts on gross operating income and costs are as follows:

 

 

 

 

January to March

 

 

January to March

 

2018

2017

 

 

Gross revenue from construction recognized under ICPC 1 (R1)  (a)

 

 

647,203

 

 

722,928

Construction costs recognized under ICPC 1 (R1) (a)

(632,652)

(707,229)

 

 

Construction margin (Note 13 (e))

 

 

14,551

 

 

15,699

 

(a)   Revenue from construction is recognized as shown in Note 3.1 (b).

 

PAGE: 70 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

24       Operating revenue

 

(a)   Revenue from sanitation services:

 

 

January to March

2018

January to March

2017

 

 

 

São Paulo Metropolitan Region

2,280,557

2,108,248

Regional Systems 

1,000,289

921,043

Total

3,280,846

3,029,291

 

 

(b)      Reconciliation between gross operating income and net operating income:

 

 

January to March

January to March

2018

2017

 

 

Revenue from sanitation services (i)

 

 

3,280,846

 

 

3,029,291

Construction revenue

647,203

722,928

Sales tax

(214,910)

(193,394)

Regulation, Control and Oversight Fee (TRCF) (ii)

(13,471)

-

Net revenue

3,699,668

3,558,825

 

(i)      Includes the amount of R$ 15,509 corresponding to the TRCF charged from customers from the municipalities regulated by ARSESP.

(ii)   Refers to the performance of the regulation, control and oversight activity paid to ARSESP, pursuant to State Complementary Law 1,025/07.

 

PAGE: 71 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

25    Operating costs and expenses

 

 

January to March 2018

January to March 2017

Operating costs

 

 

    Salaries, payroll charges and benefits

(457,587)

(417,423)

    Pension obligations

(5,408)

(10,970)

    Construction costs (Note 23)

(632,652)

(707,229)

    General supplies

(52,148)

(34,520)

    Treatment supplies

(75,931)

(71,268)

     Outside services

(245,995)

(194,236)

    Electricity

(221,237)

(199,326)

    General expenses

(150,113)

(125,345)

    Depreciation and amortization

(298,166)

(301,099)

 

(2,139,237)

(2,061,416)

 

 

 

Selling expenses

 

 

    Salaries, payroll charges and benefits

(70,754)

(65,266)

    Pension obligations

(795)

(1,603)

    General supplies

(1,431)

(972)

     Outside services

(73,893)

(60,249)

    Electricity

(314)

(177)

    General expenses

(23,992)

(21,786)

    Depreciation and amortization

(4,345)

(2,491)

         Allowance for doubtful accounts          (Note 8 (c))

(48,631)

(86,136)

 

(224,155)

(238,680)

 

 

 

Administrative expenses

 

 

    Salaries, payroll charges and benefits

(58,095)

(47,506)

    Pension obligations

(37,313)

(45,659)

    General supplies

(1,377)

(499)

     Outside services

(57,302)

(28,269)

    Electricity

(321)

(205)

    General expenses

(72,144)

(62,801)

    Depreciation and amortization

(25,388)

(28,358)

    Tax expenses

(16,040)

(25,837)

 

(267,980)

(239,134)

 

PAGE: 72 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

 

 

 

Operating costs and expenses

 

 

    Salaries, payroll charges and benefits

(586,436)

(530,195)

    Pension obligations

(43,516)

(58,232)

    Construction costs (Note 23)

(632,652)

(707,229)

    General supplies

(54,956)

(35,991)

     Treatment supplies

(75,931)

(71,268)

     Outside services

(377,190)

(282,754)

    Electricity

(221,872)

(199,708)

    General expenses

(246,249)

(209,932)

    Depreciation and amortization

(327,899)

(331,948)

    Tax expenses

(16,040)

(25,837)

         Allowance for doubtful accounts (Note 8 (c))

(48,631)

(86,136)

 

(2,631,372)

(2,539,230)

 

 

 

 

 

 

 

 

PAGE: 73 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

26    Financial  income (expenses)

 

 

January to March 2018

January to March 2017

Financial expenses

 

 

Interest and charges on borrowings and financing – local currency

(78,169)

(64,850)

Interest and charges on borrowings and financing – foreign currency

(36,559)

(22,182)

Other financial expenses

(22,903)

(23,251)

Income tax over international remittance

(4,514)

(3,608)

Inflation adjustment on loans and financing

(19,649)

(21,794)

Other inflation adjustments

(9,764)

(6,933)

Interest and inflation adjustments on provisions

12,541

(23,870)

Total financial expenses

(159,017)

(166,488)

 

 

 

Financial income

 

 

Inflation adjustment gains

14,753

20,449

Income on short-term investments

37,578

55,414

Interest income

28,667

8,246

Cofins and Pasep

(3,766)

(3,932)

Other

1

442

Total financial income

77,233

80,619

 

 

 

Financial income (expenses), net before exchange rate changes

(81,784)

(85,869)

 

 

 

Net exchange gains (losses)

 

 

Exchange rate changes on borrowings and financing (i)

(112,015)

89,442

Exchange gains on assets

(134)

279

Other exchange rate changes

-

(54)

Exchange rate changes, net

(112,149)

89,667

 

 

 

Financial income (expenses), net

(193,933)

3,798

 

(i)        The change in expenses mainly reflects the 0.48% and 6.33% appreciation of the U.S. dollar and Yen, respectively, in the first quarter of 2018, compared to a 2.78% depreciation in the U.S. dollar and a 1.86% appreciation in the Yen, in the same period in 2017.

 

PAGE: 74 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

27              Other operating income (expenses), net

 

 

January to March 2018

January to March 2017

 

 

 

Other net operating income, net

17,425

8,697

Other operating expenses

(5,933)

1,867

 

 

 

Other operating revenue (expenses), net

11,492

10,564

 

 

 

Other operating income is comprised by sale of property, plant and equipment, sale of contracts awarded in public bids, right to sell electricity, indemnities and reimbursement of expenses, fines and collaterals, property leases, reuse water, PURA projects and services, net of Cofins and Pasep.

 

Other operating expenses consist mainly of derecognition of concessions due to obsolescence, discontinued construction works, unproductive wells, projects considered economically unfeasible, losses on property, plant and equipment and exceeding cost of electricity sold.

 

 

28              Commitments

 

The Company has agreements to manage and maintain its activities, as well as agreements to build new projects aiming at achieving the objectives proposed in its target plan. Below, the main committed amounts as of March 31, 2018:

 

 

April to

December

 

 

 

 

 

 

2023

 

2018

 

2019 to 2020

 

2021 to 2022

 

onwards

 

Total

Contractual obligations –

 

 

 

 

 

 

 

 

 

Expenses

1,405,261

 

1,163,536

 

382,178

 

1,217,375

 

4,168,350

Contractual obligations – Investments

 

1,718,447

 

 

2,128,542

 

 

1,031,857

 

 

6,005,402

 

 

10,884,248

Total

3,123,708

 

3,292,078

 

1,414,035

 

7,222,777

 

15,052,598

 

The main commitment refers to São Lourenço PPP. See Note 13 (g).

 

PAGE: 75 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Notes to the Interim Financial Information

 

 

29        Supplemental cash flow information

 

 

January to March 2018

January to March 2017

 

 

 

Total additions to intangible assets (Note 13 (b))

686,386

734,828

 

 

 

Items not affecting cash (see breakdown below)

(456,410)

(213,942)

 

 

 

Total additions to intangible assets as per statement of cash flows

229,976

520,886

 

 

 

Investments and financing operations affecting intangible assets but not cash:

 

 

Interest capitalized in the period (Note 13 (d))

143,041

166,223

Contractors payable

210,024

(81,182)

Public Private Partnership - São Lourenço PPP (Note 13 (g))

85,576

113,202

Leases

3,218

-

Construction margin (Note 23)

14,551

15,699

Total

456,410

213,942

 

 

30        Events after the reporting period

 

·            São Lourenço Production System

 

On April 3, 2018, SABESP inaugurated the São Lourenço Production System, which increases treated water production availability by up to 6.4 m³/s.

 

 

·            Annual and Extraordinary Shareholders’ Meeting of April 27, 2018

 

The Annual Shareholders’ Meeting of April 27, 2018 approved the Company’s financial statements for the fiscal year ended December 31, 2017 and the allocation of net income for 2017.

 

 

·            ARSESP – 2nd Tariff Revision

 

On May 9, 2018, the Sanitation and Energy Regulatory Agency of the State of São Paulo (ARSESP) published Resolution 794, which authorizes the Company to apply the tariff adjustment index of 3.507% to the effective tariffs. The new table of tariffs will be published in the São Paulo State Official Gazette and will be effective 30 days as of their publication.

 

PAGE: 76 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Comments on the Company’s projections

 

 

 

Comments on the Company’s projections

 

 

The projections presented in the Reference Form are annual and not on a quarterly basis. Therefore, the quarterly comparison between information disclosed in the Reference Form with quarterly results shall not apply.

 

The projections monitoring occurs on annual basis and are disclosed in the Reference Form.

 

PAGE: 77 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Other Information Deemed as Relevant by the Company

 

 

1.        CHANGES             IN          INTEREST                    HELD BY CONTROLLING SHAREHOLDER, BOARD MEMBERS AND EXECUTIVE OFFICERS

 

 

 

 

CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES

Position as of 3/31/2018

 

Shareholder

Number of Common Shares (units)

 

%

Total Number of Shares

(units)

 

%

Controlling Group

 

 

 

 

Treasury Department

343,524,285

50.3%

343,524,285

50.3%

Cesp - Companhia Energética De São Paulo

 

4,272

 

0.00%

 

4,272

 

0.00%

Companhia Paulista de

Parcerias - CPP

 

6

 

0.00%

 

6

 

0.00%

Management

 

 

 

 

Board of Directors

-

-

-

-

Board of Executive Officers

-

-

-

-

 

 

 

 

 

Fiscal Council

4

0.00%

4

0.00%

 

 

 

 

 

Treasury Shares

-

-

-

-

 

 

 

 

 

Other Shareholders

 

 

 

 

 

 

 

 

 

Total

343,528,567

50.3%

343,528,567

50.3%

 

 

 

 

 

 

 

 

 

 

Outstanding Shares

339,981,302

49.7%

339,981,302

49.7%

PAGE: 78 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Other Information Deemed as Relevant by the Company

 

 

CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES

Position as of 3/31/2017

 

Shareholder

Number of Common Shares (units)

 

%

Total Number of Shares

(units)

 

%

Controlling Group

 

 

 

 

Treasury Department

343,524,285

50.3%

343,524,285

50.3%

Cesp - Companhia Energética De São Paulo

 

4,272

 

0.00%

 

4,272

 

0.00%

Companhia Paulista de

Parcerias - CPP

 

6

 

0.00%

 

6

 

0.00%

Management

 

 

 

 

Board of Directors

-

-

-

-

Board of Executive Officers

-

-

-

-

 

 

 

 

 

Fiscal Council

0

0.0%

0

0.0%

 

 

 

 

 

Treasury Shares

-

-

-

-

 

 

 

 

 

Other Shareholders

 

 

 

 

 

 

 

 

 

Total

343,528,563

50.3%

343,528,563

50.3%

 

 

 

 

 

 

 

 

 

 

Outstanding Shares

339,981,306

49.7%

339,981,306

49.7%

 

 

 

2.        SHAREHOLDING POSITION

 

 

SHAREHOLDING POSITION OF HOLDERS OF MORE THAN 5% OF EACH TYPE AND CLASS OF COMPANY SHARES, UP TO THE INDIVIDUAL LEVEL

Company:

CIA SANEAMENTO BÁSICO ESTADO SÃO PAULO

Position as of 3/31/2018

Number of shares

 

Common shares

Total

Shareholder

Number of shares

%

Number of shares

%

 

Treasury Department

 

343,524,285

 

50.3

 

343,524,285

 

50.3

PAGE: 79 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Reports and Statements / Unqualified Report on Special Review

 

 

Review report on the interim financial statements – ITR

 

To the Board of Directors and Shareholders  

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

São Paulo - SP

 

Introduction

We have reviewed the interim financial information of Companhia de Saneamento Básico do Estado de São Paulo – SABESP (“The Company”), included in the Quarterly Financial Information – ITR referring to the quarter ended March 31, 2018, comprising the Financial position as of March 31, 2018 and the statement of income, comprehensive income, changes in equity and cash flows for the three-months period then ended, including the explanatory notes. 

 

Management is responsible for the preparation of the interim financial information in accordance with accounting standard CPC 21(R1) - Interim Financial Reporting and IAS 34 - Interim Financial Reporting, as issued by the International Accounting Standards Board - IASB, as well as for the presentation of this information in accordance with the standards issued by the Brazilian Securities and Exchange Commission - CVM, applicable to the preparation of Quarterly Financial Information - ITR. Our responsibility is to express a conclusion on this interim financial information based on our review.

 

Scope of Review

We conducted our review in accordance with the Brazilian and International standards on review engagements NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively. A review of interim financial information consists of making inquiries, primarily of persons responsible for the financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the auditing standards and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion on the interim financial information

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information included in the Quarterly Information Form - ITR referred to above is not prepared, in all material respects, in accordance with CPC 21(R1) and IAS 34, issued by the IASB applicable to the preparation of Quarterly Financial Information - ITR, and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission - CVM.

 

 

Other matters - Statement of value added

We have also reviewed the statements of value added (DVA) for the three-month period ended March 31, 2018, prepared under the responsibility of the Company’s management, whose presentation on the interim financial information is required in accordance with the standards issued by the Brazilian Securities and Exchange Commission – CVM applicable to the preparation of Quarterly Financial Information - ITR, and considered as supplementary information by IFRS, which does not require this disclosure. These statements were subject to the same review procedures described above, and based on our review, nothing has come to our attention that causes us to believe that it is not prepared, in all material respects, in accordance with the interim financial information taken as a whole.

 

 

São Paulo, May 10, 2018.

 

 

KPMG Auditores Independentes

CRC 2SP014428/O-6

 

 

(Original report in Portuguese signed by)                                  

Marcio Serpejante Peppe

Contador CRC 1SP233011/O-8

 

PAGE: 80 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Reports and Statements / Executive Officers’ Statement on the Financial Statements       

 

Executive Officers’ Statement on the Interim Financial Information STATEMENT

The Executive Officers of Companhia de Saneamento Básico do Estado de São Paulo - SABESP, with Corporate Taxpayer’s ID (CNPJ/MF) no. 43.776.517/0001-80, headquartered at Rua Costa Carvalho, nº 300, Pinheiros, São Paulo, declare that, pursuant to paragraph 1, article 29, item II, of CVM Instruction 480, of December 7, 2009, amended by CVM Instruction 586, of June 8, 2017, that:

They revised, discussed and agreed with the interim financial information for the period ended March 31, 2018.

 

São Paulo, May 10, 2018.

Companhia de Saneamento Básico do Estado de São Paulo – SABESP

Jerson Kelman

Chief Executive Officer

Rui de Britto Álvares Affonso

Chief Financial and Investor Relations Officer

Manuelito Pereira Magalhães Junior

Corporate Management Officer

Edison Airoldi

Technology, Project and Environment Officer

Paulo Massato Yoshimoto

Metropolitan Officer

Luiz Paulo de Almeida Neto

Regional Systems Officer

 

PAGE: 81 of 82


 
 

ITR - Quarterly Information Form - 3/31/2018 - CIA SANEAMENTO BASICO EST SAO PAULO PAULO

Version : 1

 

Reports and Statements / Executive Officers’ Statement on the Report of Independent Registered Public Accounting Firm

 

Executive Officers’ Statement on the Report of Independent Registered Public Accounting Firm STATEMENT

The Executive Officers of Companhia de Saneamento Básico do Estado de São Paulo - SABESP, with Corporate Taxpayer’s ID (CNPJ/MF) no. 43.776.517/0001-80, headquartered at Rua Costa Carvalho, nº 300, Pinheiros, São Paulo, declare that, pursuant to paragraph 1, article 29, item II, of CVM Instruction 480, of December 7, 2009, amended by CVM Instruction 586, of June 8, 2017, that:

They revised, discussed and agreed with the Report of Independent Registered Public Accounting Firm on the interim financial information for the period ended March 31, 2018.

São Paulo, May 10, 2018.

Companhia de Saneamento Básico do Estado de São Paulo – SABESP

Jerson Kelman

Chief Executive Officer

Rui de Britto Álvares Affonso

Chief Financial and Investor Relations Officer

Manuelito Pereira Magalhães Junior

Corporate Management Officer

Edison Airoldi

Technology, Project and Environment Officer

Paulo Massato Yoshimoto

Metropolitan Officer

Luiz Paulo de Almeida Neto

Regional Systems Officer

PAGE: 82 of 82

 

SIGNATURE  
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city São Paulo, Brazil.
Date: May 25, 2018
 
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
By: /s/  Rui de Britto Álvares Affonso    
 
Name: Rui de Britto Álvares Affonso
Title: Chief Financial Officer and Investor Relations Officer
 

 

 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or 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.