PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
São Paulo, S.P., 05429-900
Federative Republic of Brazil
annual reports under cover Form 20-F or Form 40-F.
Form 20-F ___X___ Form 40-F ______
in paper as permitted by Regulation S-T Rule 101(b)(1)__.
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___
registrant in connection with Rule 12g3-2(b):
Table of contents
Company Information |
|
Capital Breakdown | 1 |
Cash Proceeds | 2 |
Parent Company’s Financial Statements |
|
Statement of Financial Position - Assets | 3 |
Statement of Financial Position - Liabilities | 4 |
Income Statement | 6 |
Statement of Comprehensive Income | 8 |
Statement of Cash Flow | 9 |
Statement of Changes in Equity |
|
1/01/2019 to 9/30/2019 | 11 |
1/01/2018 to 9/30/2018 | 12 |
Statement of Value Added | 13 |
Comments on the Company’s Performance | 14 |
Notes to the Interim Financial Information | 25 |
Comments on the Company’s Projections | 87 |
Other Information Deemed as Relevant by the Company | 88 |
Reports and Statements |
|
Unqualified Reports on Special Review | 90 |
Executive Officers’ Statement on the Financial Statements | 91 |
Executive Officers’ Statement on the Report of Independent Public Accounting Firm | 92 |
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Company Information / Capital Breakdown
Number of Shares | Current Quarter |
(Units) | 9/30/2019 |
Paid-in Capital |
|
Common | 683,509,869 |
Preferred | 0 |
Total | 683,509,869 |
Treasury Shares |
|
Common | 0 |
Preferred | 0 |
Total | 0 |
Page 1 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Company Information / Cash Proceeds
Event | Approval | Proceeds | Date of Payment | Type of Share | Class of Share | Proceed per Share |
|
|
|
|
|
| (Reais / Share) |
Board of Directors’ Meeting | 3/28/2019 | Interest on Equity | 6/28/2019 | Common |
| 1.15900 |
Page 2 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Financial Position - Assets
(R$ thousand)
Code | Description | Current Quarter | Previous Year |
|
| 9/30/2019 | 12/31/2018 |
1 | Total Assets | 45,838,049 | 43,565,118 |
1.01 | Current Assets | 5,120,870 | 5,602,242 |
1.01.01 | Cash and Cash Equivalents | 2,633,406 | 3,029,191 |
1.01.03 | Accounts Receivable | 2,172,757 | 2,017,481 |
1.01.03.01 | Trade Receivables | 2,008,771 | 1,843,333 |
1.01.03.02 | Other Receivable | 163,986 | 174,148 |
1.01.03.02.01 | Related-Party Balances | 163,986 | 174,148 |
1.01.04 | Inventories | 95,189 | 65,596 |
1.01.06 | Recoverable Taxes | 129,336 | 380,703 |
1.01.06.01 | Current Recoverable Taxes | 129,336 | 380,703 |
1.01.08 | Other Current Assets | 90,182 | 109,271 |
1.01.08.03 | Other | 90,182 | 109,271 |
1.01.08.03.01 | Restricted Cash | 22,477 | 31,900 |
1.01.08.03.20 | Other Receivables | 67,705 | 77,371 |
1.02 | Noncurrent Assets | 40,717,179 | 37,962,876 |
1.02.01 | Long-Term Assets | 8,789,587 | 8,590,597 |
1.02.01.04 | Accounts Receivable | 218,555 | 209,083 |
1.02.01.04.01 | Trade Receivables | 218,555 | 209,083 |
1.02.01.09 | Receivables from Related Parties | 657,138 | 669,102 |
1.02.01.09.03 | Receivables from Controlling Shareholders | 657,138 | 669,102 |
1.02.01.10 | Other Noncurrent Assets | 7,913,894 | 7,712,412 |
1.02.01.10.04 | Escrow Deposits | 178,246 | 152,018 |
1.02.01.10.05 | Water National Agency (ANA) | 37,317 | 49,136 |
1.02.01.10.06 | Contract Asset | 7,579,485 | 7,407,948 |
1.02.01.10.20 | Other Receivables | 118,846 | 103,310 |
1.02.02 | Investments | 110,745 | 92,207 |
1.02.02.01 | Equity Investments | 63,171 | 44,587 |
1.02.02.01.03 | Equity Investments in Jointly-Owned Subsidiaries | 63,171 | 44,587 |
1.02.02.02 | Investment Properties | 47,574 | 47,620 |
1.02.03 | Property, Plant and Equipment | 299,955 | 267,612 |
1.02.04 | Intangible Assets | 31,516,892 | 29,012,460 |
1.02.04.01 | Intangible Assets | 31,516,892 | 29,012,460 |
1.02.04.01.01 | Concession Agreements | 2,208,793 | 5,305,353 |
1.02.04.01.02 | Program Contracts | 14,792,428 | 9,857,480 |
1.02.04.01.03 | Service Contracts | 13,955,931 | 13,391,452 |
1.02.04.01.04 | Software License of Use | 479,637 | 458,175 |
1.02.04.01.05 | Right of Use | 80,103 | 0 |
Page 3 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Financial Position - Liabilities
(R$ thousand)
Code | Description | Current Quarter | Previous Year |
|
| 9/30/2019 | 12/31/2018 |
2 | Total Liabilities | 45,838,049 | 43,565,118 |
2.01 | Current Liabilities | 4,355,080 | 5,398,632 |
2.01.01 | Labor and Pension Plan Liabilities | 461,940 | 564,830 |
2.01.01.01 | Social Security Liabilities | 24,985 | 48,539 |
2.01.01.02 | Tax Liabilities | 436,955 | 516,291 |
2.01.02 | Trade Payables | 325,896 | 465,993 |
2.01.02.01 | Domestic Suppliers | 325,896 | 465,993 |
2.01.03 | Tax Liabilities | 244,452 | 200,563 |
2.01.03.01 | Federal Tax Liabilities | 235,776 | 196,014 |
2.01.03.01.01 | Income Tax and Social Contribution Payable | 69,967 | 0 |
2.01.03.01.02 | Pis-Pasep and Cofins Payable | 94,113 | 82,381 |
2.01.03.01.03 | INSS (Social Security Contribution) Payable | 38,224 | 38,871 |
2.01.03.01.20 | Other Federal Taxes | 33,472 | 74,762 |
2.01.03.03 | Municipal Tax Liabilities | 8,676 | 4,549 |
2.01.04 | Borrowings and Financing | 1,714,302 | 2,103,612 |
2.01.04.01 | Borrowings and Financing | 936,421 | 1,035,025 |
2.01.04.01.01 | In Local Currency | 291,001 | 296,525 |
2.01.04.01.02 | In Foreign Currency | 645,420 | 738,500 |
2.01.04.02 | Debentures | 600,515 | 1,049,510 |
2.01.04.03 | Financing through Lease | 177,366 | 19,077 |
2.01.05 | Other Liabilities | 1,076,993 | 1,605,247 |
2.01.05.01 | Payables to Related Parties | 352 | 8,694 |
2.01.05.01.03 | Payables to Controlling Shareholders | 352 | 8,694 |
2.01.05.02 | Other | 1,076,641 | 1,596,553 |
2.01.05.02.01 | Dividends and Interest on Equity Payable | 573 | 673,765 |
2.01.05.02.04 | Services Payable | 480,730 | 454,022 |
2.01.05.02.05 | Refundable Amounts | 31,595 | 13,419 |
2.01.05.02.06 | Program Contract Commitments | 265,842 | 230,695 |
2.01.05.02.07 | Public-Private Partnership (PPP) | 98,350 | 137,827 |
2.01.05.02.09 | Indemnities | 11,246 | 11,257 |
2.01.05.02.20 | Other Liabilities | 188,305 | 75,568 |
2.01.06 | Provisions | 531,497 | 458,387 |
2.01.06.01 | Tax, Social Security, Labor and Civil Provisions | 238,301 | 169,060 |
2.01.06.01.01 | Tax Provisions | 34,904 | 33,434 |
2.01.06.01.02 | Social Security and Labor Provisions | 131,232 | 56,243 |
2.01.06.01.04 | Civil Provisions | 72,165 | 79,383 |
2.01.06.02 | Other Provisions | 293,196 | 289,327 |
2.01.06.02.03 | Provisions for Environmental Liabilities and Decommissioning | 23,679 | 14,175 |
2.01.06.02.04 | Provisions for Customers | 180,222 | 231,547 |
2.01.06.02.05 | Provisions for Suppliers | 89,295 | 43,605 |
2.02 | Noncurrent Liabilities | 19,681,086 | 18,614,798 |
2.02.01 | Borrowings and Financing | 11,952,681 | 11,049,184 |
2.02.01.01 | Borrowings and Financing | 8,389,096 | 8,153,545 |
2.02.01.01.01 | In Local Currency | 2,305,551 | 2,222,636 |
2.02.01.01.02 | In Foreign Currency | 6,083,545 | 5,930,909 |
2.02.01.02 | Debentures | 3,091,226 | 2,346,050 |
Page 4 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Financial Position - Liabilities
(R$ thousand)
Code | Description | Current Quarter | Previous Year |
|
| 9/30/2019 | 12/31/2018 |
2.02.01.03 | Financing through Lease | 472,359 | 549,589 |
2.02.02 | Other Liabilities | 6,809,657 | 6,869,897 |
2.02.02.02 | Other | 6,809,657 | 6,869,897 |
2.02.02.02.04 | Pension Plan Liabilities | 3,015,453 | 2,970,009 |
2.02.02.02.05 | Program Contract Commitments | 123,333 | 142,314 |
2.02.02.02.06 | Public-Private Partnership (PPP) | 3,221,879 | 3,275,297 |
2.02.02.02.07 | Indemnities | 31,146 | 31,146 |
2.02.02.02.08 | Labor Liabilities | 104,744 | 126,673 |
2.02.02.02.09 | Deferred Cofins / Pasep | 139,434 | 140,830 |
2.02.02.02.20 | Other Liabilities | 173,668 | 183,628 |
2.02.03 | Deferred Taxes | 438,586 | 261,242 |
2.02.03.01 | Deferred Income Tax and Social Contribution | 438,586 | 261,242 |
2.02.03.01.01 | Deferred Income Tax and Social Contribution | 438,586 | 261,242 |
2.02.04 | Provisions | 480,162 | 434,475 |
2.02.04.01 | Tax, Social Security, Labor and Civil Provisions | 309,397 | 262,970 |
2.02.04.01.01 | Tax Provisions | 27,910 | 21,810 |
2.02.04.01.02 | Social Security and Labor Provisions | 258,322 | 235,760 |
2.02.04.01.04 | Civil Provisions | 23,165 | 5,400 |
2.02.04.02 | Other Provisions | 170,765 | 171,505 |
2.02.04.02.03 | Provisions for Environmental Liabilities and Decommissioning | 165,638 | 156,244 |
2.02.04.02.04 | Provisions for Customers | 4,941 | 15,261 |
2.02.04.02.05 | Provisions for Suppliers | 186 | 0 |
2.03 | Equity | 21,801,883 | 19,551,688 |
2.03.01 | Paid-up Capital | 15,000,000 | 15,000,000 |
2.03.04 | Profit Reserve | 5,040,452 | 5,100,783 |
2.03.04.01 | Legal Reserve | 1,200,030 | 1,200,030 |
2.03.04.08 | Additional Dividend Proposed | 0 | 60,331 |
2.03.04.10 | Reserve for Investments | 3,840,422 | 3,840,422 |
2.03.05 | Retained Earnings/Accumulated Losses | 2,310,526 | 0 |
2.03.06 | Equity Valuation Adjustments | -549,095 | -549,095 |
Page 5 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Income Statement
(R$ thousand)
Code | Description | Current Quarter | YTD Current | Same Quarter | YTD Previous |
|
| 7/01/2019 to 9/30/2019 | Year | Previous Year | Year |
|
|
| 1/01/2019 to 9/30/2019 | 7/01/2018 to 9/30/2018 | 1/01/2018 to 9/30/2018 |
3.01 | Revenue from Sales and/or Services | 5,410,593 | 13,287,007 | 3,810,781 | 11,182,683 |
3.02 | Cost of Sales and/or Services | -2,379,712 | -7,280,794 | -2,313,289 | -6,604,890 |
3.02.01 | Cost of Sales and/or Services | -1,695,980 | -5,334,054 | -1,605,412 | -4,612,313 |
3.02.02 | Construction Cost | -683,732 | -1,946,740 | -707,877 | -1,992,577 |
3.03 | Gross Profit | 3,030,881 | 6,006,213 | 1,497,492 | 4,577,793 |
3.04 | Operating Income/Expenses | -472,325 | -1,501,631 | -371,211 | -1,296,981 |
3.04.01 | Selling Expenses | -158,268 | -641,207 | -189,329 | -638,890 |
3.04.01.01 | Selling Expenses | -195,945 | -590,309 | -170,022 | -512,885 |
3.04.01.02 | Allowance for Doubtful Accounts | 37,677 | -50,898 | -19,307 | -126,005 |
3.04.02 | General and Administrative Expenses | -329,607 | -887,085 | -216,543 | -724,258 |
3.04.04 | Other Operating Income | 14,477 | 48,693 | 44,424 | 98,845 |
3.04.04.01 | Other Operating Income | 15,972 | 53,919 | 48,760 | 108,177 |
3.04.04.02 | Cofins and Pasep | -1,495 | -5,226 | -4,336 | -9,332 |
3.04.05 | Other Operating Expenses | -1,279 | -30,369 | -10,265 | -36,874 |
3.04.06 | Equity Results | 2,352 | 8,337 | 502 | 4,196 |
3.05 | Income before Financial Result and Taxes | 2,558,556 | 4,504,582 | 1,126,281 | 3,280,812 |
3.06 | Financial Result | -719,928 | -1,025,961 | -262,770 | -1,293,937 |
3.06.01 | Financial Income | 94,762 | 290,837 | 123,237 | 344,536 |
3.06.01.01 | Financial Income | 100,585 | 305,643 | 117,519 | 348,235 |
3.06.01.02 | Exchange Gains | 451 | 1,042 | 11,183 | 13,245 |
3.06.01.03 | Cofins and Pasep | -6,274 | -15,848 | -5,465 | -16,944 |
3.06.02 | Financial Expenses | -814,690 | -1,316,798 | -386,007 | -1,638,473 |
3.06.02.01 | Financial Expenses | -292,613 | -853,348 | -195,195 | -538,307 |
3.06.02.02 | Exchange Losses | -522,077 | -463,450 | -190,812 | -1,100,166 |
3.07 | Earnings before Income Tax | 1,838,628 | 3,478,621 | 863,511 | 1,986,875 |
3.08 | Income Tax and Social Contribution | -629,768 | -1,168,095 | -298,347 | -659,394 |
3.08.01 | Current | -434,142 | -990,751 | -303,572 | -604,204 |
3.08.02 | Deferred | -195,626 | -177,344 | 5,225 | -55,190 |
Page 6 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Income Statement
(R$ thousand)
Code | Description | Current Quarter | YTD Current | Same Quarter | YTD Previous |
|
| 7/01/2019 to 9/30/2019 | Year | Previous Year | Year |
|
|
| 1/01/2019 to 9/30/2019 | 7/01/2018 to 9/30/2018 | 1/01/2018 to 9/30/2018 |
3.09 | Net Result from Continued Operations | 1,208,860 | 2,310,526 | 565,164 | 1,327,481 |
3.11 | Profit/Loss for the Period | 1,208,860 | 2,310,526 | 565,164 | 1,327,481 |
3.99 | Earnings per Share - (Reais / Share) |
|
|
|
|
3.99.01 | Basic Earnings per Share |
|
|
|
|
3.99.01.01 | Common | 1.76861 | 3.38039 | 0.82686 | 1.94216 |
3.99.02 | Diluted Earnings per Share |
|
|
|
|
3.99.02.01 | Common | 1.76861 | 3.38039 | 0.82686 | 1.94216 |
Page 7 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Comprehensive Income
(R$ thousand)
Code | Description | Current Quarter | YTD Current | Same Quarter | YTD Previous |
|
| 7/01/2019 to 9/30/2019 | Year | Previous Year | Year |
|
|
| 1/01/2019 to 9/30/2019 | 7/01/2018 to 9/30/2018 | 1/01/2018 to 9/30/2018 |
4.01 | Net Income for the Period | 1,208,860 | 2,310,526 | 565,164 | 1,327,481 |
4.03 | Comprehensive Income for the Period | 1,208,860 | 2,310,526 | 565,164 | 1,327,481 |
Page 8 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Cash Flows - Indirect Method
(R$ thousand)
Code | Description | YTD Current Year | YTD Previous Year |
|
| 1/01/2019 to 9/30/2019 | 1/01/2018 to 9/30/2018 |
6.01 | Net Cash from Operating Activities | 3,025,589 | 3,088,023 |
6.01.01 | Cash from Operations | 4,822,511 | 4,553,602 |
6.01.01.01 | Profit before Income Tax and Social Contribution | 3,478,621 | 1,986,875 |
6.01.01.02 | Provision and Inflation Adjustments on Provisions | 280,565 | 50,794 |
6.01.01.04 | Finance Charges from Customers | -282,958 | -219,514 |
6.01.01.05 | Residual Value of Property, Plant and Equipment, Intangible Assets and Investment Properties Written-off | 14,593 | 16,893 |
6.01.01.06 | Depreciation and Amortization | 1,299,363 | 997,406 |
6.01.01.07 | Interest on Borrowings and Financing Payable | 430,838 | 391,455 |
6.01.01.08 | Monetary and Exchange Rate Changes on Borrowings and Financing | 498,337 | 1,153,748 |
6.01.01.09 | Interest and Monetary Changes on Liabilities | 28,521 | 20,886 |
6.01.01.10 | Interest and Monetary Changes on Assets | -26,413 | -55,069 |
6.01.01.11 | Allowance for Doubtful Accounts | 50,898 | 126,005 |
6.01.01.12 | Provision for Consent Decree (TAC) | -127,793 | -75,450 |
6.01.01.13 | Equity Results | -8,337 | -4,196 |
6.01.01.14 | Interest and Monetary Restatement (Public-Private Partnership) | 293,299 | 15,629 |
6.01.01.15 | Other Adjustments | -7,257 | 4,373 |
6.01.01.16 | Transfer of Funds to the São Paulo Municipal Government | 4,186 | 7,601 |
6.01.01.17 | Construction Margin over Intangible Assets Resulting from Concession Contracts | -44,775 | -45,829 |
6.01.01.18 | Pension Plan Liabilities | 200,581 | 181,995 |
6.01.01.19 | Agreement with the Municipality of Santo André | -1,259,758 | 0 |
6.01.02 | Changes in Assets and Liabilities | -351,020 | -437,746 |
6.01.02.01 | TradeReceivables | -31,037 | 555 |
6.01.02.02 | Related-Party Balances and Transactions | 48,619 | 45,175 |
6.01.02.03 | Inventories | -29,593 | 18,725 |
6.01.02.04 | Recoverable Taxes | 251,367 | 37,872 |
6.01.02.05 | Other Receivables | 6,956 | -32,403 |
6.01.02.06 | Escrow Deposits | -15,271 | -22,960 |
6.01.02.08 | Accounts Payable to Suppliers and Contractors | -351,085 | -206,041 |
6.01.02.09 | Salaries, Payroll Charges and Social Contributions | 24,903 | 96,672 |
6.01.02.10 | Pension Plan Liabilities | -155,137 | -151,518 |
6.01.02.11 | Taxesand Contributions Payable | -47,595 | -162,720 |
6.01.02.12 | Services Payable | 22,522 | -16,286 |
6.01.02.13 | Other Liabilities | 87,495 | 142,676 |
6.01.02.14 | Provisions | -161,768 | -193,804 |
6.01.02.15 | Deferred Cofins/Pasep | -1,396 | 6,311 |
6.01.03 | Other | -1,445,902 | -1,027,833 |
6.01.03.01 | Interest Paid | -553,102 | -513,176 |
6.01.03.02 | Income Tax and Social Contribution Paid | -892,800 | -514,657 |
6.02 | Net Cash from Investing Activities | -2,075,753 | -1,388,446 |
6.02.01 | Acquisition of Contract Assets and Intangible Assets | -2,029,213 | -1,366,684 |
6.02.02 | Acquisition of Property, Plant and Equipment | -56,186 | -23,043 |
6.02.03 | Increase in Investments | 223 | -655 |
|
|
|
|
Page 9 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Cash Flows – Indirect Method
(R$ thousand)
Code | Description | YTD Current Year | YTD Previous Year |
|
| 1/01/2019 to 9/30/2019 | 1/01/2018 to 9/30/2018 |
6.02.04 | Restricted Cash | 9,423 | -6,195 |
6.02.06 | Receipt from the Sale of Assets | 0 | 8,131 |
6.03 | Net Cash from Financing Activities | -1,345,621 | -363,371 |
6.03.01 | Funding | 1,603,795 | 1,555,670 |
6.03.02 | Amortization | -1,750,487 | -1,170,632 |
6.03.03 | Payment of Interest on Equity | -739,990 | -653,393 |
6.03.04 | Public-Private Partnership (PPP) | -417,550 | -63,469 |
6.03.05 | Program Contract Commitments | -41,389 | -31,547 |
6.05 | Increase (Decrease) in Cash and Cash Equivalents | -395,785 | 1,336,206 |
6.05.01 | Opening Balance of Cash and Cash Equivalents | 3,029,191 | 2,283,047 |
6.05.02 | Closing Balance of Cash and Cash Equivalents | 2,633,406 | 3,619,253 |
Page 10 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Changes in Equity - 1/01/2019 to 9/30/2019
(R$ thousand)
Code | Description | Paid-up Capital | Capital Reserves, Options Granted and Treasury Shares | Profit Reserves | Retained Earnings/Accumulated Losses | Other Comprehensive Income | Equity |
5.01 | Opening Balances | 15,000,000 | 0 | 5,100,783 | 0 | -549,095 | 19,551,688 |
5.03 | Restated Opening Balances | 15,000,000 | 0 | 5,100,783 | 0 | -549,095 | 19,551,688 |
5.04 | Capital Transactions with Partners | 0 | 0 | -60,331 | 0 | 0 | -60,331 |
5.04.08 | Approved Additional Dividends | 0 | 0 | -60,331 | 0 | 0 | -60,331 |
5.05 | Total Comprehensive Income | 0 | 0 | 0 | 2,310,526 | 0 | 2,310,526 |
5.05.01 | Net Income for the Period | 0 | 0 | 0 | 2,310,526 | 0 | 2,310,526 |
5.07 | Closing Balances | 15,000,000 | 0 | 5,040,452 | 2,310,526 | -549,095 | 21,801,883 |
Page 11 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / SStatement of Changes in Equity / 1/01/2018 to 9/30/2018
(R$ thousand)
Code | Description | Paid-up Capital | Capital Reserves, Options Granted and Treasury Shares | Profit Reserves | Retained Earnings/Accumulated Losses | Other Comprehensive Income | Equity |
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 |
5.04 | Capital Transactions with Parents | 0 | 0 | -53,539 | 0 | 0 | -53,539 |
5.04.08 | Approved Additional Dividends | 0 | 0 | -53,539 | 0 | 0 | -53,539 |
5.05 | Total Comprehensive Income | 0 | 0 | 0 | 1,327,481 | 0 | 1,327,481 |
5.05.01 | Net Income for the Period | 0 | 0 | 0 | 1,327,481 | 0 | 1,327,481 |
5.07 | Closing Balances | 10,000,000 | 0 | 7,997,571 | 1,327,481 | -538,101 | 18,786,951 |
Page 12 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Value Added
(R$ thousand)
Code | Description | YTD Current Year | YTD Previous Year |
|
| 1/01/2019 to 9/30/2019 | 1/01/2018 to 9/30/2018 |
7.01 | Revenue | 14,093,871 | 11,882,836 |
7.01.01 | Goods, Products and Services Sold | 12,099,335 | 9,862,258 |
7.01.02 | Other Revenue | 53,919 | 108,177 |
7.01.03 | Revenue from Construction of Own Assets | 1,991,515 | 2,038,406 |
7.01.04 | Allowance for/Reversal of Doubtful Accounts | -50,898 | -126,005 |
7.02 | Inputs Acquired from Third Parties | -5,020,419 | -4,162,975 |
7.02.01 | Costs of Sales and Services | -4,081,924 | -3,444,258 |
7.02.02 | Materials, Electricity, Outside Services and Others | -908,126 | -681,826 |
7.02.04 | Other | -30,369 | -36,891 |
7.03 | Gross Value Added | 9,073,452 | 7,719,861 |
7.04 | Retentions | -1,299,363 | -997,406 |
7.04.01 | Depreciation, Amortization and Depletion | -1,299,363 | -997,406 |
7.05 | Net Value Added Produced | 7,774,089 | 6,722,455 |
7.06 | Wealth Received in Transfer | 315,022 | 365,676 |
7.06.01 | Equity Results | 8,337 | 4,196 |
7.06.02 | Financial Income | 306,685 | 361,480 |
7.07 | Total Value Added to Distribute | 8,089,111 | 7,088,131 |
7.08 | Value Added Distribution | 8,089,111 | 7,088,131 |
7.08.01 | Personnel | 1,787,328 | 1,826,249 |
7.08.01.01 | Salaries and Wages | 1,259,040 | 1,339,636 |
7.08.01.02 | Benefits | 547,013 | 476,250 |
7.08.01.03 | Government Severance Indemnity Fund for Employees (FGTS) | -18,725 | 10,363 |
7.08.02 | Taxes and Contributions | 2,445,453 | 1,835,740 |
7.08.02.01 | Federal | 2,293,608 | 1,691,116 |
7.08.02.02 | State | 103,259 | 108,688 |
7.08.02.03 | Municipal | 48,586 | 35,936 |
7.08.03 | Value Distributed to Providers of Capital | 1,545,804 | 2,098,661 |
7.08.03.01 | Interest | 1,504,404 | 2,036,509 |
7.08.03.02 | Rental | 41,400 | 62,152 |
7.08.04 | Value Distributed to Shareholders | 2,310,526 | 1,327,481 |
7.08.04.03 | Retained Earnings / Accumulated Loss for the Period | 2,310,526 | 1,327,481 |
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Comments on the Company’s Performance |
1. Highlights for the Quarter
In 3Q19, the Company recorded net income of R$ 1,208,9 million, versus net income of R$ 565.2 million in 3Q18, representing an increase of R$ 643.7 million, or 113.9%.
Adjusted EBITDA totaled R$ 3,009.3 million, 109.8% higher than the R$ 1,434.6 million recorded in 3T18 (increasing by R$ 1,574.7 million).
3Q19 result was impacted by several events during the period, mainly:
(a) Start of Operation in the Municipality of Santo André
In July 2019, the Company entered into an agreement with the municipality of Santo André starting operations in August. The initial impact of this agreement resulted in R$ 1,275.5 million increase in revenues in 3Q19 and a reduction of R$ 41.7 million in expenses, as shown below:
Impacts of Santo André (R$ million) | Var. | ||
| 3Q19 | 3Q18 | R$ |
Revenue - Wholesale(1) | 1,261.7 | 16.2 | 1,245.5 |
Revenue - Retail(2) | 30.0 | - | 30.0 |
(=) Total da Revenue | 1,291.7 | 16.2 | 1,275.5 |
Costs and expenses(3) | (9.8) | - | (9.8) |
Allowance for doubtful accounts(4) | 51.5 | - | 51.5 |
(=) Total Expenses | 41.7 | - | 41.7 |
(=) Net effect, before income tax and social contribution | 1,333.4 | 16.2 | 1,317.2 |
(1) Non-recurring revenue in 3Q19 resulting from the agreement with the municipality.
(2) Revenue in 3Q19 referring to the start of operations in the municipality on August 11, 2019.
(3) Expenses with services and amortization in 3Q19 related to the start of operations in the municipality.
(4) Reversal of non-recurring allowance for doubtful accounts resulting from the agreement with the municipality.
(b) TAC -Retirees
On February 20, 2009, SABESP and the Public Prosecution Office of the State of São Paulo signed a Conduct Adjustment Term (TAC), in which the Company pledged to promote the gradual dismissal of retired employees. As a result of this TAC, the Company recorded a provision for the dismissal of these employees.
On October 11, 2019, the Public Prosecution Office closed the case regarding the TAC given its understanding that the legal requirements were achieved. Therefore, the Company reversed non-recurring provisions, in the amount of R$ 173.3 million in the Salaries and payroll charges and Pension plan obligations account.
(c) Operations in the Municipality of Guarulhos
The operations in the municipality of Guarulhos impacted positively the results in 3Q19 with a recognition of R$ 115.6 million in operating revenues and R$ 37.4 million in costs and expenses, excluding revenue and construction costs. Net income before income tax and social contribution was R$ 78.2 million in the period.
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(d) SãoLourenço Production System
The São Lourenço Production System began its operations in 3Q18. The costs and expenses resulting from the startup of operations increased by R$ 34.4 million, in the 3Q19 comparing to 3Q18, referring only to the month of September 2018.
(e) Signing of Program Contract with the Municipality of Guarujá
The Company was already providing sanitation services in the municipality of Guarujá under a lack of formal agreement. In order to properly adjust the contract with current legislation, the Company signed a program contract for the provision of water and sewage service for a 30-year term and, within this context, ended all pending court proceedings and recognized non-recurring expenses in the amount of R$ 46.4 million in 3Q19.
(f) Signing of a new Health Plan with Fundação CESP -FUNCESP
The health plan that was administered by SABESPREV was recording deficits and demanding sporadic contributions from SABESP in order to maintain the financial solvency margins required by the National Agency for Supplementary Health (Agência Nacional de Saúde Suplementar - ANS).
In August 2019, the new health plan administered by Fundação CESP became effective, replacing the previous health plan. With the adherence to the new plan, there was no need for additional contributions and resulted in savings of R$ 39.1 million in healthcare expenses in 3Q19, when compared to 3Q18.
2. Financial Highlights
R$ million
|
|
| Var. |
|
| Var. | ||
| 3Q19 | 3Q18 | R$ | % | 9M19 | 9M18 | R$ | % |
Gross operating revenue(1) | 4,984.1 | 3,331.6 | 1,652.5 | 49.6 | 12,099.3 | 9,862.3 | 2,237.0 | 22.7 |
Construction revenue | 699.5 | 724.1 | (24.6) | (3.4) | 1,991.5 | 2,038.4 | (46.9) | (2.3) |
COFINS and PASEP and TRCF taxes(2) | (273.0) | (244.9) | (28.1) | 11.5 | (803.8) | (718.0) | (85.8) | 11.9 |
(=) Net operating revenue | 5,410.6 | 3,810.8 | 1,599.8 | 42.0 | 13,287.0 | 11,182.7 | 2,104.3 | 18.8 |
Costs and expenses | (2,183.9) | (2,011.3) | (172.6) | 8.6 | (6,862.3) | (5,975.5) | (886.8) | 14.8 |
Construction costs | (683.7) | (707.9) | 24.2 | (3.4) | (1,946.7) | (1,992.6) | 45.9 | (2.3) |
Equity result | 2.4 | 0.5 | 1.9 | 380.0 | 8.3 | 4.2 | 4.1 | 97.6 |
Other operating revenue (expenses), net | 13.2 | 34.2 | (21.0) | (61.4) | 18.3 | 62.0 | (43.7) | (70.5) |
(=) Earnings before financial result, income tax and social contribution | 2,558.6 | 1,126.3 | 1,432.3 | 127.2 | 4,504.6 | 3,280.8 | 1,223.8 | 37.3 |
Financial result | (719.9) | (262.8) | (457.1) | 173.9 | (1,026.0) | (1,293.9) | 267.9 | (20.7) |
(=) Earnings before income tax and social contribution | 1,838.7 | 863.5 | 975.2 | 112.9 | 3,478.6 | 1,986.9 | 1,491.7 | 75.1 |
Income tax and social contribution | (629.8) | (298.3) | (331.5) | 111.1 | (1,168.1) | (659.4) | (508.7) | 77.1 |
(=) Net income | 1,208.9 | 565.2 | 643.7 | 113.9 | 2,310.5 | 1,327.5 | 983.0 | 74.0 |
Earnings per share (R$) * | 1.77 | 0.83 |
|
| 3.38 | 1.94 |
|
|
(1) Includes Regulation, Control and Inspection Fee (TRCF), totaling R$ 17.4 million in 3Q19 and R$ 15.8 million in 3Q18.
(2) Includes TRCF transfer, totaling R$ 15.1 million in 3Q19 and R$ 13.5 million in 3Q18.
(*) Total shares = 683,509,869
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Comments on the Company’s Performance |
Adjusted EBITDA Reconciliation (Non-accounting measures)
R$ million
|
|
| Var. |
|
| Var. | ||
| 3Q19 | 3Q18 | R$ | % | 9M19 | 9M18 | R$ | % |
Net income | 1,208.9 | 565.2 | 643.7 | 113.9 | 2,310.5 | 1,327.5 | 983.0 | 74.0 |
Income tax and social contribution | 629.8 | 298.3 | 331.5 | 111.1 | 1,168.1 | 659.4 | 508.7 | 77.1 |
Financial result | 719.9 | 262.8 | 457.1 | 173.9 | 1,026.0 | 1,293.9 | (267.9) | (20.7) |
Other operating revenue (expenses), net | (13.2) | (34.2) | 21.0 | (61.4) | (18.3) | (62.0) | 43.7 | (70.5) |
(=) Adjusted EBIT * | 2,545.4 | 1,092.1 | 1,453.3 | 133.1 | 4,486.3 | 3,218.8 | 1,267.5 | 39.4 |
Depreciation and amortization | 463.9 | 342.5 | 121.4 | 35.4 | 1,299.3 | 997.4 | 301.9 | 30.3 |
(=) Adjusted EBITDA ** | 3,009.3 | 1,434.6 | 1,574.7 | 109.8 | 5,785.6 | 4,216.2 | 1,569.4 | 37.2 |
(%) Adjusted EBITDA margin | 55.6 | 37.6 |
|
| 43.5 | 37.7 |
|
|
* Adjusted EBIT corresponds to net income before: (i) other operating revenues/expenses, net; (ii) financial result; and (iii) income tax and social contribution.
**Adjusted EBITDA corresponds to 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 3Q19, net operating revenue, which considers construction revenue, totaled R$ 5,410.6 million, 42.0% up from 3Q18.
Costs and expenses, which consider construction costs, totaled R$ 2,867.6 million, 5.5% up from 3Q18.
Adjusted EBIT totaled R$ 2.545.4 million, increasing by 133.1% from the R$ 1,092.1 million recorded in 3Q18.
Adjusted EBITDA totaled R$ 3,009.3 million, increasing by 109.8% from the R$ 1,434.6 million recorded in 3Q18 (R$ 8,110.0 million in the last 12 months e and R$ 5,610.3 million in the 12-months comparative period of 2018).
The adjusted EBITDA margin reached 55.6% in 3Q19, versus 37.6% in 3Q18 (44.6% in the last 12 months and R$ 36.9% in the 12-months comparative period of 2018).
Excluding the effects of revenue and construction costs, adjusted EBITDA margin reached 63.5% in 3Q19, compared to 46.0% in 3Q18 (52.2% in the last 12 months and 45.3% in the 12-months comparative period of 2018).
Net income totaled R$ 1,208.9 million in 3Q19 versus a net income of R$ 565.2 million in 3Q18.
3. Gross operating revenue
Gross operating revenue related to sanitation services, in the amount of R$ 4,984.1 million, which does not consider construction revenue, increased by R$ 1,652.5 million, or 49.6%, from the amount of R$ 3,331.6 million in 3Q18.
The main factors that led to the increase were:
· 3.5% tariff repositioning index since June 2018 and 4.7% tariff adjustment since May 2019 with approximately 4.9% impact on operating revenue;
· 2.8% increase in total billed volume, of which 2.4% came from water services and 3.4% came from sewage services, excluding the volumes of Guarulhos and Santo André;
· Beginning of operations in the municipality of Guarulhos in January 2019, generating an increase of R$ 115.6 million in operating revenue; and
· Agreement signed with the municipality of Santo André in July 2019, generating an increase of R$ 1,275.5 million in operating revenue.
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4. Construction revenue
Construction revenue fell by R$ 24.6 million, or 3.4% against the same period in 2018. The variation was mainly due to higher asset investments in 3Q18, mainly in São Lourenço Production System.
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Comments on the Company’s Performance |
5. Billed volume
The tables below show water and sewage billed volumes, quarter-over-quarter and YTD, according to the consumer category and region. The volumes from the municipalities of Guarulhos and Santo André are highlighted separately.
WATER AND SEWAGE BILLED VOLUME(1) PER CUSTOMER CATEGORY – million m3 | |||||||||
| Water | Sewage | Water + Sewage | ||||||
Category | 3Q19 | 3Q18 | Var. % | 3Q19 | 3Q18 | Var. % | 3Q19 | 3Q18 | Var. % |
Residential | 404.5 | 394.6 | 2.5 | 349.0 | 338.4 | 3.1 | 753.5 | 733.0 | 2.8 |
Commercial | 42.0 | 41.0 | 2.4 | 41.1 | 40.0 | 2.8 | 83.1 | 81.0 | 2.6 |
Industrial | 7.8 | 7.7 | 1.3 | 9.6 | 9.2 | 4.3 | 17.4 | 16.9 | 3.0 |
Public | 10.4 | 10.1 | 3.0 | 9.5 | 9.1 | 4.4 | 19.9 | 19.2 | 3.6 |
Total retail | 464.7 | 453.4 | 2.5 | 409.2 | 396.7 | 3.2 | 873.9 | 850.1 | 2.8 |
Wholesale(3) | 20.9 | 20.8 | 0.5 | 4.3 | 3.3 | 30.3 | 25.2 | 24.1 | 4.6 |
Subtotal | 485.6 | 474.2 | 2.4 | 413.5 | 400.0 | 3.4 | 899.1 | 874.2 | 2.8 |
Guarulhos(4) | 18.7 | 28.0 | (33.2) | 16.0 | - | - | 34.7 | 28.0 | 23.9 |
Santo André(4) | 18.1 | 17.7 | 2.3 | 7.1 | 3.8 | 86.8 | 25.2 | 21.5 | 17.2 |
Total | 522.4 | 519.9 | 0.5 | 436.6 | 403.8 | 8.1 | 959.0 | 923.7 | 3.8 |
| Water | Sewage | Water + Sewage | ||||||
Category | 9M19 | 9M18 | Var. % | 9M19 | 9M18 | Var. % | 9M19 | 9M18 | Var. % |
Residential | 1,226.7 | 1,199.5 | 2.3 | 1,054.7 | 1,025.7 | 2.8 | 2,281.4 | 2,225.2 | 2.5 |
Commercial | 126.7 | 124.8 | 1.5 | 123.6 | 120.5 | 2.6 | 250.3 | 245.3 | 2.0 |
Industrial | 23.4 | 23.3 | 0.4 | 28.8 | 28.2 | 2.1 | 52.2 | 51.5 | 1.4 |
Public | 31.3 | 30.3 | 3.3 | 28.5 | 27.2 | 4.8 | 59.8 | 57.5 | 4.0 |
Total retail | 1,408.1 | 1,377.9 | 2.2 | 1,235.6 | 1,201.6 | 2.8 | 2,643.7 | 2,579.5 | 2.5 |
Wholesale(3) | 61.9 | 60.7 | 2.0 | 12.5 | 9.9 | 26.3 | 74.4 | 70.6 | 5.4 |
Subtotal | 1,470.0 | 1,438.6 | 2.2 | 1,248.1 | 1,211.5 | 3.0 | 2,718.1 | 2,650.1 | 2.6 |
Guarulhos(4) | 53.2 | 82.3 | (35.4) | 45.9 | - | - | 99.1 | 82.3 | 20.4 |
Santo André(4) | 53.9 | 53.0 | 1.7 | 15.8 | 13.4 | 17.9 | 69.7 | 66.4 | 5.0 |
Total | 1,577.1 | 1,573.9 | 0.2 | 1,309.8 | 1,224.9 | 6.9 | 2,886.9 | 2,798.8 | 3.1 |
WATER AND SEWAGE BILLED VOLUME(1) PER REGION – million m3 | |||||||||
| Water | Sewage | Water + Sewage | ||||||
Region | 3Q19 | 3Q18 | Var. % | 3Q19 | 3Q18 | Var. % | 3Q19 | 3Q18 | Var. % |
Metropolitan | 302.1 | 295.2 | 2.3 | 266.0 | 258.6 | 2.9 | 568.1 | 552.7 | 2.8 |
Regional(2) | 162.6 | 158.2 | 2.8 | 143.2 | 138.1 | 3.7 | 305.8 | 296.1 | 3.3 |
Total retail | 464.7 | 453.4 | 2.5 | 409.2 | 396.7 | 3.2 | 873.9 | 850.1 | 2.8 |
Wholesale(3) | 20.9 | 20.8 | 0.5 | 4.3 | 3.3 | 30.3 | 25.2 | 24.1 | 4.6 |
Subtotal | 485.6 | 474.2 | 2.4 | 413.5 | 400.0 | 3.4 | 899.1 | 874.2 | 2.8 |
Guarulhos(4) | 18.7 | 28.0 | (33.2) | 16.0 | - | - | 34.7 | 28.0 | 23.9 |
Santo André(4) | 18.1 | 17.7 | 2.3 | 7.1 | 3.8 | 86.8 | 25.2 | 21.5 | 17.2 |
Total | 522.4 | 519.9 | 0.5 | 436.6 | 403.8 | 8.1 | 959.0 | 923.7 | 3.8 |
| Water | Sewage | Water + Sewage | ||||||
Region | 9M19 | 9M18 | Var. % | 9M19 | 9M18 | Var. % | 9M19 | 9M18 | Var. % |
Metropolitan | 911.8 | 893.3 | 2.1 | 800.5 | 780.2 | 2.6 | 1,712.3 | 1,673.5 | 2.3 |
Regional(2) | 496.3 | 484.6 | 2.4 | 435.1 | 421.4 | 3.3 | 931.4 | 906.0 | 2.8 |
Total retail | 1,408.1 | 1,377.9 | 2.2 | 1,235.6 | 1,201.6 | 2.8 | 2,643.7 | 2,579.5 | 2.5 |
Wholesale(3) | 61.9 | 60.7 | 2.0 | 12.5 | 9.9 | 26.3 | 74.4 | 70.6 | 5.4 |
Subtotal | 1,470.0 | 1,438.6 | 2.2 | 1,248.1 | 1,211.5 | 3.0 | 2,718.1 | 2,650.1 | 2.6 |
Guarulhos(4) | 53.2 | 82.3 | (35.4) | 45.9 | - | - | 99.1 | 82.3 | 20.4 |
Santo André(4) | 53.9 | 53.0 | 1.7 | 15.8 | 13.4 | 17.9 | 69.7 | 66.4 | 5.0 |
Total | 1,577.1 | 1,573.9 | 0.2 | 1,309.8 | 1,224.9 | 6.9 | 2,886.9 | 2,798.8 | 3.1 |
(1) Unaudited
(2) Including costal and interior regions
(3) Wholesale includes volumes of reuse water and non-domestic sewage
(4) Billed volume in the retail segment in 3Q19 and in the wholesale segment in 3Q18
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Comments on the Company’s Performance |
6. Costs, administrative & selling expenses and construction costs
Costs, administrative & selling expenses and construction costs increased by R$ 148.4 million in 3Q19 (5.5%). Excluding construction costs, the increase was R$ 172.6 million (8.6%).
Costs, administrative & selling expenses and construction costs as a percentage of net revenue was 53.0% in 3Q19, versus 71.4% in 3Q18. Excluding extraordinary revenues from Santo André, the percentage of net revenue would have been 69.6% in 3Q19.
R$ million
|
|
| Var. |
|
| Var. | ||
| 3Q19 | 3Q18 | R$ | % | 9M19 | 9M18 | R$ | % |
Salaries and payroll charges and pension plan obligations | 517.0 | 692.2 | (175.2) | (25.3) | 1,969.6 | 2,002.3 | (32.7) | (1.6) |
General supplies | 67.3 | 61.0 | 6.3 | 10.3 | 196.1 | 169.9 | 26.2 | 15.4 |
Treatment materials | 67.4 | 58.1 | 9.3 | 16.0 | 229.8 | 195.5 | 34.3 | 17.5 |
Services | 449.9 | 366.5 | 83.4 | 22.8 | 1,326.5 | 1,063.2 | 263.3 | 24.8 |
Electricity | 282.5 | 241.5 | 41.0 | 17.0 | 845.0 | 692.1 | 152.9 | 22.1 |
General expenses | 358.6 | 216.7 | 141.9 | 65.5 | 889.5 | 685.0 | 204.5 | 29.9 |
Tax expenses | 14.9 | 13.5 | 1.4 | 10.4 | 55.6 | 44.1 | 11.5 | 26.1 |
Sub-total | 1,757.6 | 1,649.5 | 108.1 | 6.6 | 5,512.1 | 4,852.1 | 660.0 | 13.6 |
Depreciation and amortization | 463.9 | 342.5 | 121.4 | 35.4 | 1,299.3 | 997.4 | 301.9 | 30.3 |
Allowance for doubtful accounts | (37.6) | 19.3 | (56.9) | (294.8) | 50.9 | 126.0 | (75.1) | (59.6) |
Sub-total | 426.3 | 361.8 | 64.5 | 17.8 | 1,350.2 | 1,123.4 | 226.8 | 20.2 |
Costs, administrative and selling expenses | 2,183.9 | 2,011.3 | 172.6 | 8.6 | 6,862.3 | 5,975.5 | 886.8 | 14.8 |
Construction costs | 683.7 | 707.9 | (24.2) | (3.4) | 1,946.7 | 1,992.6 | (45.9) | (2.3) |
Costs, adm. & selling expenses and construction costs | 2,867.6 | 2,719.2 | 148.4 | 5.5 | 8,809.0 | 7,968.1 | 840.9 | 10.6 |
% of net revenue | 53.0 | 71.4 |
|
| 66.3 | 71.3 |
|
|
Salaries and payroll charges and Pension plan obligations
In 3Q19, there was a decrease of R$ 175.2 million, mainly due to:
· Reversal of R$ 173.3 million in the provisions of the TAC - Retirees, non-recurring, referring to employees who retired after the signing of the commitment with the Public Prosecution Office of São Paulo due to full complied with the legal requirements by SABESP recognized by the Public Prosecutor; and
· Reduction of R$ 39.1 million in healthcare expenses.
The reductions listed above were partially offset by:
· Increase of R$ 12.0 million, mainly due to the application of 1.0% referring to the Career and Salaries Plan (Plano de Cargos e Salários) in February 2019 and the 4.99% salary adjustment in May 2019, which impacts was mitigated by the reduction of 152 employees since September 2018 (net of hiring and dismissals); and
· Increase of R$ 11.0 million in overtime expenses.
Treatment materials
Increase of R$ 9.3 million, or 16.0%, mainly due to the increase in use of oxidizers and coagulants in the water treatment, especially in the ABV Water Treatment Station.
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Services
Expenses with services totaled R$ 449.9 million increased by R$ 83.4 million, or 22.8% from the R$ 366.5 million recorded in 3Q18. The main factors for the increase were:
· Meter reading and bill delivery expenses, in the amount of R$ 15.2 million;
· Maintenance services in water and sewage networks and connections, in the amount of R$ 10.2 million, with R$ 4.1 million in the municipality of Guarulhos;
· Consulting fees for improvements in IT systems, in the amount of R$ 9.6 million;
· Paving and replacing of sidewalks, in the amount of R$ 9.5 million;
· Treatment services for waste disposal, in the amount of R$ 7.2 million;
· Services related to the beginning of operations in the municipality of Santo André, in August 2019, in the amount of R$ 6.7 million; and
· Customer service expenses, in the amount of R$ 6.3 million.
Electricity
Electricity expenses totaled R$ 282.5 million in 3Q19, up by R$ 41.0 million, or 17.0% from the expenses of R$ 241.5 million recorded in 3Q18. Of total electricity expenses, ACL accounted for 37.7% (includes TUSD) and ACR for 62.3%.
These variations were mainly due to:
· Average decrease of 4.8% in energy prices of Free Market tariffs (Ambiente de Contratação Livre – ACL), with a 9,9% increase in consumption;
· Average increase of 33.8% in Grid Market tariffs (Uso do Sistema de Distribuição – TUSD), with a 6.1% increase in consumption; and
· Average increase of 8.6% in the Regulated Market tariffs (Ambiente de Contratação Regulada – ACR), with a 3.2% increase in consumption.
The increase in consumption in 3Q19 was largely driven by the start of operations at the Jaguari-Atibainha Interconnection, in Guarulhos and in the São Lourenço Production System.
General expenses
Increase of R$ 141.9 million, or 65.5%, totaling R$ 358.6 million in 3Q19, versus the R$ 216.7 million recorded in 3Q18, mainly due to:
· Higher provisioning for lawsuits in 3Q19, in the amount of R$ 81.8 million; and
· Expenses related to the conclusion of lawsuits, due to the agreement signed with the municipality of Guarujá, in the amount of R$ 46.4 million.
Depreciation and amortization
Depreciation and amortization expenses increased by R$ 121.4 million, or 35.4%, mainly due to the start-up of intangible assets, in the amount of R$ 4.0 billion.
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Allowance for doubtful accounts
Decrease of R$ 56.9 million, due to the reversal in estimated losses in the municipality of Santo André, in the amount of R$ 51.5 million due to the agreement signed.
7. Other operating revenue (expenses),net
Other net operating revenue and expenses had a negative variation of R$ 21.0 million, due to the higher receival of resources from the River Basin Depollution Program in 3Q18, in the amount of R$ 17.2 million.
8. Financial result |
| |||
|
|
|
| R$ million |
|
|
| Var. | |
| 3Q19 | 3Q18 | R$ | % |
Financial expenses, net of income | (185.6) | (95.1) | (90.5) | 95.2 |
Net monetary and exchange variation | (534.3) | (167.7) | (366.6) | 218.6 |
Financial result | (719.9) | (262.8) | (457.1) | 173.9 |
Financial expenses, net of income |
|
|
|
|
|
|
|
| R$ million |
| Var. | |||
3Q19 3Q18 | R$ % |
Financial expenses
Interest and charges on domestic loans and financing | (89.9) | (84.2) | (5.7) | 6.8 |
Interest and charges on international loans and financing | (44.0) | (45.7) | 1.7 | (3.7) |
Other financial expenses | (125.0) | (46.3) | (78.7) | 170.0 |
Total financial expenses | (258.9) | (176.2) | (82.7) | 46.9 |
Financial income | 73.3 | 81.1 | (7.8) | (9.6) |
Financial expenses, net of income |
(185.6) |
(95.1) |
(90.5) |
95.2 |
Increase of R$ 90.5 million, mainly due to the addition of R$ 78.7 million in other financial expenses arising from the increase in recognition of interest over: (i) lawsuits, in the amount of R$ 54.9 million; and (ii) the São Lourenço Production System, in the amount of R$ 17.5 million.
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Comments on the Company’s Performance |
Monetary and exchange variation, net
R$ million
| Var. |
3Q19 3Q18 | R$ % |
Monetary and exchange rate variation on liabilities
Monetary variation on loans and financing | (4.3) | (21.3) | 17.0 | (79.8) |
Currency exchange variation on loans and financing | (522.1) | (190.8) | (331.3) | 173.6 |
Other monetary variations | (29.3) | 2.3 | (31.6) | (1.373.9) |
Total monetary and exchange rate variation on liabilities | (555.7) | (209.8) | (345.9) | 164.9 |
Monetary/exchange rate variation on assets | 21.4 | 42.1 | (20.7) | (49.2) |
Monetary/exchange rate variation, net |
(534.3) |
(167.7) |
(366.6) |
218.6 |
The effect of net monetary and exchange variation in 3Q19 totaled R$ 366.6 million, higher than recorded in 3Q18, highlighting:
· Increase of R$ 331.3 million in exchange variations on loans and financing, as a result of the appreciation of the US Dollar and Japanese Yen against the Brazilian Real in 3Q19 (8.7% and 8.4%, respectively), when compared to the amounts recorded in 3Q18 (3.8% and 1.3%, respectively); and
· Increase of R$ 31.6 million in other monetary variations, as a result of: (i) monetary variations on the liabilities of the São Lourenço Production System, in the amount of R$ 17.6 million; and (ii) higher monetary variations on lawsuits, in the amount of R$ 10.0 million.
9. Income tax and social contribution
Increase of R$ 331.5 million, due to higher taxable income in 3Q19, mainly impacted by the increase in operating revenue resulting from the agreement with the municipality of Santo André, the reversal of provisions for the TAC – Retirees, offset by and the increase in expenses for exchange variations.
10. Indicators
Operating
The significant increase in the number of water and sewage connections and the population served is due to the entry of the municipalities of Guarulhos and Santo André. If we exclude these two municipalities, the number of water connections would have been 9.2 million and the number of sewage connections would have been 7.7 million. The population served with water supply and sewage collection would be 25.1 million and 21.9 million, respectively.
With regard to water loss indicators, the Micromeasured Water Loss Index (IPM ) of 29.4% in 3Q19, 19.6% (or 66% of the total) is related to Real Losses (Physical) and 9.8% (or 34% of the total) to Apparent Losses (non- Physical). On the other hand, the Water Loss per Connection Index (IPDt) of the total of 288 liters/connection x day, 192 represents the Real Loss (Physical) and 96 represents Apparent Losses (non-Physical). It should be noted that the Apparent Loss, in both indicators, represents water consumed but not measured by the Company.
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Comments on the Company’s Performance |
Operating indicators(*) | 3TQ9 | 3Q18 | % |
Water connections(1) | 9,881 | 9,010 | 9.7 |
Sewage connections(1) | 8,277 | 7,449 | 11.1 |
Population directly served - water(2) | 27.0 | 25.0 | 8.0 |
Population directly served - sewage(2) | 23.7 | 21.7 | 9.2 |
Number of employees | 14,018 | 14,170 | (1.1) |
Water volume produced in the quarter(3) | 710 | 693 | 2.5 |
Water volume produced in 9M(3) | 2,140 | 2,087 | 2.6 |
IPM – Micromeasured water loss (%)(4) | 29.4 | 30.0 | (2.0) |
IPDt (liters/connection x day)(4) | 288.0 | 292.0 | (1.4) |
(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. Does not include wholesale.
(3) In millions of cubic meters.
(4) Does not include Guarulhos and Santo Andre.
(*) Unaudited
Economic
Economic Variables at the close of the Period (*) | 3Q19 | 3Q18 |
|
|
|
Amplified Consumer Price Index(1) | 0.26 | 0.72 |
National Consumer Price Index(1) | 0.17 | 0.55 |
Consumer Price Index(1) | 0.47 | 1.03 |
Referential Rate(1) | 0.0000 | 0.0000 |
Interbank Deposit Certificate(2) | 5.40 | 6.39 |
US DOLLAR(3) | 4.1644 | 4.0039 |
YEN(3) | 0.03852 | 0.03528 |
(1) Accrued in the quarter (%)
(2) Annual average (9 months)
(3) Ptax sale rate on the last day of the quarter
(*) Unaudited
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Comments on the Company’s Performance |
11. Loans and financing
In 3Q19, 49.2% of the Company's total debt is exposed to the exchange rate variation of the Brazilian Real against the US dollar and Japanese Yen, due to outstanding loans with multilateral banks (IDB and IBRD) and official banks (JICA) that offer debt instruments with longer terms and lower costs, in addition to other funding instruments used in the capital and credit markets.
Considering the current international and national macroeconomic conditions and their impact on interest and exchange rates and, in particular, the significant reduction in the differential between internal and external interest rates, the company should, whenever possible, contemplate actions to capture opportunities that will result in a decrease in its foreign exchange exposure.
In the case of debts with multilateral and official banks, some of our current contracts already have currency exchange clauses and some may be amended to include this option. In these cases, there will be no need for the use of market currency hedging instruments for the execution of any debt currency exchange.
For other debts of the Company in foreign markets, whether of private credit or public financing that do not have currency exchange clauses, the Company may resort to market currency hedging instruments to reduce its currency exposure.
The Company will continue to prioritize access to increasingly diversified credit sources, both internal and external, to support its investments, its cash and refinancing needs and, in this sense, will always evaluate the opportunity to carry out currency hedging operations based on conditions and costs offered by the market.
DEBT PROFILE | |||||||||
|
2019 |
2020 |
2021 |
2022 |
2023 |
2024 | 2025 onwards |
TOTAL |
% of total |
LOCAL CURRENCY |
|
|
|
|
|
|
|
|
|
Brazilian Federal Savings Bank | 19,951 | 82,109 | 86,456 | 91,140 | 83,868 | 82,499 | 956,775 | 1,402,798 | 10.26 |
Debentures | 60,583 | 599,549 | 483,466 | 562,530 | 365,539 | 699,470 | 920,604 | 3,691,741 | 27.01 |
BNDES | 34,164 | 118,349 | 117,896 | 117,896 | 112,194 | 106,713 | 491,766 | 1,098,978 | 8.04 |
Leasing | 108,290 | 27,241 | 29,093 | 31,063 | 34,388 | 36,765 | 299,947 | 566,787 | 4.15 |
Leasing (IFRS 16) | 12,580 | 47,729 | 21,922 | 648 | 59 | ‐ | ‐ | 82,938 | 0.61 |
Others | 346 | 1,526 | 1,627 | 1,627 | 1,607 | 1,384 | 1,268 | 9,385 | 0.07 |
Interest and other charges | 51,164 | 34,227 |
|
|
|
|
| 85,391 | 0.62 |
Total Local Currency | 287,078 | 910,730 | 740,460 | 804,904 | 597,655 | 926,831 | 2,670,360 | 6,938,018 | 50.76 |
FOREIGN CURRENCY |
|
|
|
|
|
|
|
|
|
IADB | ‐ | 175,691 | 175,691 | 175,691 | 175,691 | 175,691 | 1,489,304 | 2,367,759 | 17.32 |
IBRD | ‐ | 25,318 | 25,318 | 25,318 | 25,318 | 25,318 | 240,627 | 367,217 | 2.69 |
Deutsche Bank 350 | 156,043 | ‐ | ‐ | ‐ | ‐ |
| ‐ | 156,043 | 1.14 |
Eurobonds | ‐ | 1,456,510 | ‐ | ‐ | ‐ |
| ‐ | 1,456,510 | 10.66 |
JICA | 6,451 | 165,648 | 167,140 | 159,282 | 159,282 | 159,282 | 1,347,973 | 2,165,058 | 15.84 |
BID 1983AB | ‐ | 73,281 | 32,034 | 32,034 | 30,695 | ‐ | ‐ | 168,044 | 1.23 |
Interest and other charges | 38,887 | 9,447 |
|
|
|
|
| 48,334 | 0.35 |
Total in Foreign Currency | 201,381 | 1,905,895 | 400,183 | 392,325 | 390,986 | 360,291 | 3,077,904 | 6,728,965 | 49.24 |
Total | 488,459 | 2,816,625 | 1,140,643 | 1,197,229 | 988,641 | 1,287,122 | 5,748,264 | 13,666,983 | 100.00 |
12. Capex
In 3Q19, the Company invested R$ 2.2 billion, totaling R$ 3.7 billion year to date, of this total, R$ 1.9 billion refers to investments that did not affect cash. The significant increase in the quarter is due to the start of operations in the municipality of Santo André since it was constituted an intangible by the right to directly provide water supply and sewage services in the municipality.
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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 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 September 30, 2019, the Company operated water and sewage services in 372 municipalities of the State of São Paulo. Most of these municipalities’ operations are based on 30-year concession, program and services contracts; of the 372 municipalities served, 319 have already signed contracts until September 30, 2019.
As of September 30, 2019, 25 concession agreements had expired and are being negotiated. From October 1, 2019 to 2030, 28 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. The table below shows a summary of the contractual situation:
| September 30, 2019 | December 31, 2018 | September 30, 2018 |
|
|
|
|
Total municipalities that have already signed contracts | 319 | 307 | 298 |
|
|
|
|
Municipalities with contracts under negotiation (expired): |
25 |
35 |
42 |
Balance – intangible and contract assets | R$1,627,293 | R$ 4,485,203 | R$ 4,827,224 |
Percentage of intangible and contract assets | 4.16% | 12.32% | 13.90% |
Gross revenue | R$434,415 | R$1,035,906 | R$ 918,677 |
Percentage of gross revenue | 3.08% | 6.07% | 7.72% |
|
|
|
|
Municipalities with concession agreements due by 2030: |
28 |
31 |
31 |
Balance – intangible and contract assets | R$1,229,772 | R$1,917,142 | R$1,935,382 |
Percentage of intangible and contract assets | 3.15% | 5.26% | 5.57% |
Gross revenue | R$ 505,974 | R$1,076,255 | R$787,275 |
Percentage of gross revenue | 3.59% | 6.31% | 6.62% |
|
|
|
|
Municipality of São Paulo: |
|
|
|
Percentage of intangible and contract assets | 43.68% | 46.97% | 48.24% |
Percentage of gross revenue | 43.56% | 51.52% | 54.86% |
|
|
|
|
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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.
As of September 30,2019, three municipalities were operated by public deed. The gross revenue of the threemunicipalities still operated by public deed in the nine-month period ended September 30, 2019totaled
R$66,128(R$59,714in the nine-month period ended September 30, 2018)and the intangible asset and contract asset for those municipalities as ofSeptember 30, 2019totaled R$350,234(R$289,922as of December 31,2018).
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.
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 the scheduled investments.
The financial statements were approved by the Board of Directors on November14,2019.
2 Basis of preparation and presentation of the interim financial information
Presentation of the interim financial information
The interim financial information as of September 30, 2019, 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 are fairly presented consistent with the rules issued by the Brazilian Securities and Exchange Commission (CVM). Accordingly, this interim 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 September 30, 2019, 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, 2018, 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, in this interim financial information, the notes below were either not presented or are not as detailed as those in the annual financial statements (according to numerical references):
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Notes to the Interim Financial Information |
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);
vi. Investments (Note 12);
vii. Contract asset (Note 14)
viii. Intangible assets (Note 15);
ix. Borrowings and financing (Note 17);
x. Deferred taxes and contributions (Note 19);
xi. Provisions (Note 20);
xii. Employees benefits (Note 21);
xiii. Equity (Note 24);
xiv. Insurance (Note 27);
xv. Financial income (expenses) (Note30).
All material information related to the interim information, and this information alone, is being disclosed and corresponds to the information used by the Company’s Management in its administration.
The amounts disclosed in the Notes to the interim financial information are in thousands of reais, unless otherwise stated.
3 Summary of significant accounting policies
Except for the amendments introduced by CPC 06 (R2) / IFRS 16 (Leases) in accordance with the accounting policy described below, the other policies used in the preparation of the interim financial information for the quarter ended September 30, 2019 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2018.
Leases
CPC06(R2)/IFRS16–Leases, replacedCPC06(R1)/IAS17– Leases.The standard established the principles for the recognition, measurement, presentation and disclosure of lease operations, and requires lessees to account for leases based on a single model, similar to the accounting for finance leases, as per CPC 06 (R1), i.e. recognition of a Right-of-Use Asset(“Lease Asset”) that is equal to a Lease Liability, other than short-term leases (leases of 12 months or less) and assets of low value (amounts belowUS$5).
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Notes to the Interim Financial Information |
Transition to CPC 06 (R2) - Leases
The new standard replaces CPC 06 (R1) / IAS 17 – “Leases” and corresponding interpretations, introducing significant changes to lessees, as it requires lessees to recognize the liability of future payments and the right of use of leased assets to virtually all lease agreements, including operating leases; specific short-term contracts or contracts with small amounts may be excluded from the scope of this new standard.
The Company’s financial statements were impacted as follows:
a) recognition of right-of-use assets and lease liabilities in the statement of financial position, initially measured at present value of future lease payments;
b) recognition of amortization expenses of right-of-use assets and interest expenses on lease liabilities in the income statement; and
c) separation of the total cash paid in these transactions between principal (recorded in financing activities) and interest (recorded in operating activities) in the statement of cash flows.
SABESP applied the requirements of CPC 06 (R2)/IFRS 16 as of the fiscal year beginning on January 1, 2019. To this end, the transition method selected by the Company was the modified retrospective approach, whereby the amount referring to the Right-of-Use Asset equals the Lease Liability, without the cumulative effect of the initial application of this new standard recorded as adjustment to the opening balance of equity and without the restatement of comparative periods.
The new lease definitions were applied to all contracts in effect on the transition date. The change in the definition of a lease refers mainly to the concept of control. CPC 06 (R2) / IFRS 16 establishes whether a contract contains a lease based on the fact that customer has the right to control an identified asset for a defined period of time in exchange of consideration.
The Company’s Management analyzed contracts (out of a total of approximately 20,000 contracts), evaluating whether they contained leases in accordance with CPC 06 (R2) / IFRS 16. This analysis identified mainly impacts related to vehicles and properties leased from third parties, corresponding to nearly 95% of the total amount, and less representative amounts arising from other transactions in which we identified assets leased individually or in combination in service contracts.
The recognition of lease expenses of short-term leases (12 months or less) and leases of low-value assets (below RS$ 19) will remain on a linear basis, as permitted byCPC06 (R2) /IFRS16.
On January 1, 2019, the measurement of lease liabilities corresponds to the total future fixed lease payments, adjusted to present value, considering an incremental rate on borrowings, which corresponds to the average statutory rate applicable to borrowings or debt issues in the local capital market, which represent the financing of these assets classified as right of use, allocating the assets based on useful life at the average statutory rate per maturity term of each borrowing contract.
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Notes to the Interim Financial Information |
The Company decided to use the practical expedient of using an average statutory discount rate based on the respective terms for contracts with similar characteristics.
Regarding renewals, the Company considered the assumptions, policies and internal regulations, whose term cannot be automatically renewed, and for which extensions will only occur based on an agreement between the parties in cases proven to be advantageous and necessary to attain the Company’s interests, i.e. when it is reasonable sure that the option will be exercised.
The Company applied the practical expedient relating to the definition of leases during the transition period. This means that it applied CPC 06 (R2) / IFRS 16 to all agreements signed before January 1, 2019, identified as leases in accordance with IAS 17 and IFRIC 4.
After carrying out analysis, the Company concluded that on January 1, 2019, 70 contracts fell under the scope of CPC 06 (R2) / IFRS 16. The adoption of this standard increased assets, due to the recognition of the right of use of leased assets, and liabilities, as shown below:
Impact from first-time adoption of the standard | ||||
Group | Future payments of fixed leases | Impact of the discount rate | Right of use of leased assets | Lease liabilities |
Vehicles | 63,795 | (9,313) | 54,482 | 54,482 |
Properties | 7,525 | (1,333) | 6,192 | 6,192 |
Equipment | 741 | (100) | 641 | 641 |
Other | 4,243 | (603) | 3,640 | 3,640 |
Total | 76,304 | (11,349) | 64,955 | 64,955 |
4 Risk management
4.1Financial risk management
Financial risk factors
The Company's activities are affected by the Brazilian economic scenario, making it exposed to market risk (exchange rate and interest rate), credit risk and liquidity risk. The 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.
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Notes to the Interim Financial Information |
(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.
A significant amount of the Company’s financial debt is indexed to the US dollar and Yen, in the total amount of
R$ 6,750,493 as of September 30, 2019 (R$ 6,694,912 as of December 31, 2018). The exposure to exchange risk is as follows:
| September 30, 2019 | December 31, 2018 | ||
| Foreign currency | R$ | Foreign currency | R$ |
Borrowings and financing – US$ | 1,088,756 | 4,534,015 | 1,191,152 | 4,615,476 |
Borrowings and financing – Yen | 56,286,194 | 2,168,144 | 57,463,173 | 2,026,726 |
Interest and charges from borrowings and financing – US$ |
| 43,952 |
| 40,193 |
Interest and charges from borrowings and financing – Yen |
| 4,382 |
| 12,517 |
Total exposure |
| 6,750,493 |
| 6,694,912 |
Borrowing cost – US$ |
| (18,442) |
| (22,390) |
Borrowing cost – Yen |
| (3,086) |
| (3,113) |
Total foreign-denominated borrowings (Note 16) |
| 6,728,965 |
| 6,669,409 |
The Brazilian real decreased 7.5% against the US dollar, from R$ 3.8748 as of December 31, 2018 to R$ 4.1644 as of September 30, 2019, increasing the US dollar-pegged debt by R$ 323,979. In the same period, the Brazilian real decreased 9.2% against the Yen, from R$ 0.03527 as of December 31, 2018 to R$ 0.03852 as of September 30, 2019, increasing the Yen-pegged debt byR$184,662. On the other hand, foreign currency-denominated debt decreased mainly due to the amortizations in the period, totaling R$554,050 (US$ 102,395 thousand and ¥ 4,170,853 thousand), which was offset by borrowings, in the amount ofR$105,371.
As ofSeptember 30, 2019,if the Brazilian real had depreciated or appreciated by 10 percentage points, in addition to the impacts mentioned above, against the US dollar and Yen with all other variables held constant, the effects on results before taxes on the nine-month period ended September 30, 2019 would have been R$ 675,049 (R$ 696,150 for the nine-month period ended September 30, 2018), lower or higher, mainly as a result of exchange losses or gains on the translation of foreign currency-denominated loans.
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Notes to the Interim Financial Information |
Scenario I below presents the effect in income statements for the next 12 months, considering the projected rates of the US 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.
| Scenario I (Probable) |
| Scenario II (+25%) |
| Scenario III (+50%) |
| (*) |
|
|
|
|
Net currency exposure as of September 30, 2019(Liabilities) in US$ | 1,088,756 |
| 1,088,756 |
| 1,088,756 |
US$ rate as ofSeptember 30, 2019 |
4.1644 |
|
4.1644 |
|
4.1644 |
Exchange rate estimated according to the scenario | 3.9100 |
| 4.8875 |
| 5.8650 |
Differences between the rates | 0.2544 |
| (0.7231) |
| (1.7006) |
Effect on net financial result in R$ - gain/(loss) |
276,980 |
|
(787,279) |
|
(1,851,538) |
Net currency exposure as of September 30, 2019(Liabilities) in Yen |
56,286,194 |
|
56,286,194 |
|
56,286,194 |
Yen rate as ofSeptember 30, 2019 |
0.03852 |
|
0.03852 |
|
0.03852 |
Exchange rate estimated according to the scenario | 0.03918 |
| 0.04897 |
| 0.05877 |
Differences between the rates | (0.00066) |
| (0.01045) |
| (0.02025) |
Effect on net financial result R$ - (loss) |
(37,149) |
|
(588,191) |
|
(1,139,795) |
Totaleffect on net financial result in R$- gain/(loss) |
239,831 |
|
(1,375,470) |
|
(2,991,333) |
(*)For the probable scenario in US dollar, the exchange rate estimated for September 30, 2019 was used, pursuant to the Focus Report-BACEN of September 30, 2019, while for the Yen, the average exchange rate was considered for the 12-month period after September 30, 2019, according to B3’s Reference Rates report ofSeptember 30, 2019.
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Notes to the Interim Financial Information |
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.
The table below provides the borrowings and financing subject to variable interest rate:
| September 30, 2019 | December 31, 2018 |
CDI (i) | 1,866,755 | 1,250,000 |
TR (ii) | 1,664,186 | 1,637,290 |
IPCA (iii) | 1,388,140 | 1,614,595 |
TJLP (iv) | 1,300,309 | 1,322,854 |
LIBOR (v) | 3,076,477 | 3,259,295 |
Interest and other charges | 98,383 | 134,725 |
Total | 9,394,250 | 9,218,759 |
(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 OfferedRate
Another risk to which the Company is exposed is the mismatch of 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 ofSeptember 30, 2019,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 nine-month period ended September 30, 2019 would have been R$ 93,943 (R$ 97,699 for the nine-month period ended September 30, 2018), 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 September 30, 2019 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 in the balance sheet date. See additional information in Notes 6, 7, 8 and9.
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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. For 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:
| September 30, 2019 | December 31, 2018 |
Cash at bank and short-term bank deposits |
|
|
AA(bra) | 2,565,658 | 2,966,080 |
AAA(bra) | 47,114 | 45,430 |
Other (*) | 20,634 | 17,681 |
Total | 2,633,406 | 3,029,191 |
(*) 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 September 30, 2019, in which the Company made deposit transactions and financial investments in local currency (R$ - local 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 | brAAA |
Brazilian Federal Savings Bank | AA(bra) | Aa1.br | brAAA |
Banco Bradesco S/A | AAA(bra) | Aa1.br | brAAA |
Itaú Unibanco Holding S/A | AAA(bra) | Aa1.br | brAAA |
(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 local 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, into relevant maturities, including the installments of principal and future interest to be paid according to the agreement. 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 date ofSeptember 30, 2019.
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Notes to the Interim Financial Information |
| October to December 2019 | 2020 | 2021 | 2022 | 2023 | 2024 onwards | Total |
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Borrowings and financing | 508,060 | 3,350,389 | 1,523,426 | 1,535,383 | 1,255,907 | 8,153,527 | 16,326,692 |
Accounts payable to suppliers and contractors | 325,896 | - | - | - | - | - | 325,896 |
Services payable | 480,730 | - | - | - | - | - | 480,730 |
Public-Private Partnership (PPP) | 95,349 | 381,393 | 381,393 | 381,393 | 381,393 | 4,953,584 | 6,574,505 |
Program contract commitments | 173,088 | 119,921 | 46,558 | 31,808 | 31,808 | 14,728 | 417,911 |
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 475/08 in order to evidence the balances of main financial assets and liabilities, calculated at a rate projected for the twelve-month period after September 30, 2019, 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.
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Notes to the Interim Financial Information |
September 30, 2019 | ||||
Indicators | Exposure | Scenario I (Probable) (i) | Scenario II 25% | Scenario III 50% |
|
|
|
|
|
Assets |
|
|
|
|
CDI | 2,500,660 | 5.0000%(*) | 3.7500% | 2.5000% |
Financial income |
| 125,033 | 93,775 | 62,517 |
|
|
|
|
|
Liabilities |
|
|
|
|
CDI | (1,866,755) | 5.0000%(*) | 3.7500% | 2.5000% |
Interest to be incurred |
| (93,338) | (70,003) | (46,669) |
|
|
|
|
|
CDI net exposure | 633,905 | 31,695 | 23,772 | 15,848 |
|
|
|
|
|
Liabilities |
|
|
|
|
TR | (1,664,186) | 0.0001%(***) | 0.0001% | 0.0002% |
Expenses to be incurred |
| (2) | (2) | (3) |
|
|
|
|
|
IPCA | (1,388,140) | 3.7900%(*) | 4.7375% | 5.6850% |
Expenses to be incurred |
| (52,611) | (65,763) | (78,916) |
|
|
|
|
|
TJLP | (1,300,309) | 5.9500%(*) | 7.4375% | 8.9250% |
Interest to be incurred |
| (77,368) | (96,710) | (116,053) |
|
|
|
|
|
LIBOR | (3,076,477) | 1.8417%(**) | 2.3022% | 2.7626% |
Interest to be incurred |
| (56,659) | (70,827) | (84,991) |
|
|
|
|
|
Total net expenses to be incurred |
| (154,945) | (209,530) | (264,115) |
|
|
|
|
|
(*) Source: CDI and IPCA rates (Focus Report – BACEN, September 30, 2019) and long-term interest rate as at September 30, 2019 (BACEN). | ||||
(**) Source: Bloomberg. | ||||
(***) Source: B3 (previously BM&FBovespa). |
(i) Refers to the scenario of interest to be incurred for the 12 months as of September 30, 2019 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.
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Notes to the Interim Financial Information |
The Company monitors capital based on the leverage ratio. This ratio corresponds to net debt divided by total capital (shareholders and creditor’s equity). Net debt corresponds to total borrowings and financing less cash and cash equivalents. Total capital is calculated as total equity as shown in the statement of financial position plus net debt.
| September 30, 2019 | December 31, 2018 |
|
|
|
Total borrowings and financing (Note 16) | 13,666,983 | 13,152,796 |
(-) Cash and cash equivalents (Note 6) | (2,633,406) | (3,029,191) |
|
|
|
Net debt | 11,033,577 | 10,123,605 |
Total equity | 21,801,883 | 19,551,688 |
|
|
|
Total capital (shareholders plus creditor’s equity) | 32,835,460 | 29,675,293 |
|
|
|
Leverage ratio | 34% | 34% |
As ofSeptember 30, 2019,the leverage ratio remained flat from December 31, 2018; however, equity increased due to the profit calculated in the nine-month period ended September 30, 2019, which was offset by the increase of net debt, generated by the increase of borrowings and financing balance due to new debenture funding and the impact of foreign exchangechanges.
4.3 Fair value estimate
The Company considers 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
As ofSeptember 30, 2019and December 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.
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Notes to the Interim Financial Information |
The estimated fair values of financial instruments are as follows:
Financial assets
| September 30, 2019 | December 31, 2018 | ||
| Carrying amount | Fair value | Carrying amount | Fair value |
Cash and cash equivalents | 2,633,406 | 2,633,406 | 3,029,191 | 3,029,191 |
Restricted cash | 22,477 | 22,477 | 31,900 | 31,900 |
Trade receivables | 2,227,326 | 2,227,326 | 2,052,416 | 2,052,416 |
Water National Agency (ANA) | 37,317 | 37,317 | 49,136 | 49,136 |
Other receivables | 186,551 | 186,551 | 180,681 | 180,681 |
The carrying amount of the related parties, totaling R$ 821,124 as of September 30, 2019 (R$ 843,250 as of December 31, 2018), which were calculated in accordance with the conditions negotiated between the parties. The conditions and additional information related to these financial instruments are disclosed in Note 9 to these financial statements. Part of this balance, totaling R$ 719,391 (R$ 737,503 as of December 31, 2018), refers to reimbursement of additional retirement and pension plan - G0 and is indexed by the IPCA plus simple interest of 0.5% p.m.This interest rate approximates that of National Treasury Notes (NTN-b) with a term similar to the terms of related-party transactions.
Financial liabilities
| September 30, 2019 | December 31, 2018 | ||
| Carrying amount | Fair value | Carrying amount | Fair value |
Borrowings and financing | 13,666,983 | 14,217,343 | 13,152,796 | 13,116,684 |
Accounts payable to suppliers and contractors | 325,896 | 325,896 | 465,993 | 465,993 |
Services payable | 480,730 | 480,730 | 454,022 | 454,022 |
Program contract commitments | 389,175 | 389,175 | 373,009 | 373,009 |
Public-Private Partnership (PPP) | 3,320,229 | 3,320,229 | 3,413,124 | 3,413,124 |
The criteria adopted to obtain the fair values of borrowings and financing in preparing the interim financial information as of September 30, 2019 are consistent with those adopted in preparing the Annual Financial Statements for the fiscal year ended December 31, 2018.
Considering the nature of other financial instruments, assets and liabilities of the Company, the balances recognized in the statement of financial position 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.
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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 plan obligations, (iv) deferred income tax and social contribution and (v) provisions.
6 Cash and cash equivalents
| September 30, 2019 | December 31, 2018 |
|
|
|
Cash and banks | 132,746 | 151,558 |
Cash equivalents | 2,500,660 | 2,877,633 |
Total | 2,633,406 | 3,029,191 |
Cash and cash equivalents include cash, bank deposits and high-liquidity short-term financial investments, mainly represented by repurchase agreements (accruing CDI interest rates), deposited at 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 September 30, 2019, the average yield of financial investments corresponds to98.91%ofCDI(98.28% as of December 31, 2o18).
7 Restricted cash
| September 30, 2019 | December 31, 2018 |
Current |
|
|
Agreement with the São Paulo municipal government (i) | 14,468 | 19,977 |
Brazilian Federal Savings Bank – escrow deposits (ii) | 1,366 | 5,880 |
Other | 6,643 | 6,043 |
Total | 22,477 | 31,900 |
(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 São Paulo municipal government; 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.
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Notes to the Interim Financial Information |
8 Trade receivables
(a) Statement of financial position details
| September 30, 2019 | December 31, 2018 |
Private sector: |
|
|
General and special customers (i) (ii) | 1,482,914 | 1,372,667 |
Agreements (iii) | 377,124 | 347,679 |
|
|
|
| 1,860,038 | 1,720,346 |
Government entities: |
|
|
Municipal | 475,160 | 575,733 |
Federal | 3,939 | 3,876 |
Agreements (iii) | 277,954 | 274,906 |
|
|
|
| 757,053 | 854,515 |
Wholesale customers – Municipal governments: (iv) |
|
|
Mogi das Cruzes | 3,339 | 3,056 |
São Caetano do Sul | 3,390 | 2,869 |
|
|
|
Total wholesale customers – Municipal governments | 6,729 | 5,925 |
|
|
|
Unbilled supply | 632,760 | 571,072 |
|
|
|
Subtotal | 3,256,580 | 3,151,858 |
Allowance for doubtful accounts | (1,029,254) | (1,099,442) |
|
|
|
Total | 2,227,326 | 2,052,416 |
|
|
|
Current | 2,008,771 | 1,843,333 |
Noncurrent | 218,555 | 209,083 |
|
|
|
Total | 2,227,326 | 2,052,416 |
(i) General customers - residential and small- and mid-sized companies;
(ii) Special customers - large consumers, commercial industries, condominiums and special billing customers (fixed demand agreements, industrial waste, wells, etc.);
(iii)Agreements - installment payments of past-due receivables, plus monetary adjustment and interest, according to the agreements; and
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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. The balance presented does not include some of these municipalities, as they are questioning in court the tariffs charged. Therefore, SABESP did not record revenues and receivables due to low expectation of realization, in accordance with IFRS 15 and IFRS 9, as the Company does not believe that it is likely that it will receive the consideration it is entitled to in exchange for the services transferred to the municipalities. Accordingly, the Company did not recognize revenues from the municipality of Mauá in the amount of
R$ 57,089 from January to September 2019, and R$ 287,251 from the municipalities of Santo André, Mauá and Guarulhos from January to September 2018.
The historical value of unrecognized receivables from these municipalities is as follows:
| September 30 |
| December 31 |
2019 |
| 2018 | |
Wholesale customers – Municipal governments: |
|
|
|
Mauá | 657,428 |
| 601,910 |
Santo André (*) | - |
| 1,164,399 |
Total | 657,428 |
| 1,766,309 |
|
|
|
(*)Agreement with the municipality ofSantoAndré
On July31,2019, the Company entered into a debt payment and receipt Agreement with the Municipality ofSantoAndré(“SantoAndré”) and the Santo André Municipal Water and SanitationService (SEMASA), aiming to settle SEMASA’s existing debt upon the transfer of sanitation services to SABESP for40 years.
On the same date, theSãoPaulo State, the Municipality ofSantoAndréand SABESP signed the Public Service Provision Agreement of Water Supply and Sewage Services in the Municipality of SantoAndré, through which the SãoPaulo State and the Municipality ofSantoAndré grantedSABESP the right to provide services for a period of 40years.
Due to the signature of the service agreement, the amount due bySEMASA, of
R$1,336,908,was given as payment for the transfer of sanitation services for a 40-year period, incorporated into intangible asset.
Due to the service transfer, the Company paidR$70,000 to settle administrative costs and terminate the services provided by SAAE.Additionally,R$90,000will be transferred in two annual installments, the first of which due 30days after the signature of the agreement, and the second by February28,2020; these amounts shall be allocated to sanitation initiatives. The total amount of R$160,000was recorded in intangible assets against current liabilities.
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Notes to the Interim Financial Information |
From the first quarter of 2021, four percent (4%) of gross revenue received in the municipality by SABESP, net of Cofins/Pasep, ARSESP’s Regulation, Control and Oversight Fee (TRCF) and other business charges levied on revenue, will be allocated to environmental sanitation, housing, drainage and other urban infrastructure services in the Municipality.
Credits in court, in the form of registered warrants, will be held as collateralof compliance with the Adjustment Instrument. The payment of the registered warrants will be suspended during theperiod in which the Agreement remains in effect.
The collateral amount will be progressively reduced according to the following rules:
· Until the seventh (7th) anniversary of the signature date of the Agreement, Credits 1 and 2 will be reduced by an amount equivalent to one eighty-fourth (1/84) per full month, releasing the collateralized amount related to Credit 1 followed by the amount related to Credit 2;
· After the seventh (7th) anniversary and up to the twelfth (12th) anniversary of the Agreement’s signature date, Credits 3 and 4 will be reduced by an amount equivalent to one-sixtieth (1/60) per full month, releasing the collateralized amount related to Credit 3 followed by the amount related to Credit 4;
· After the twelfth (12th) anniversary and up to the twenty-seventh (27th) anniversary of the Agreement’s signature date, Credit 5 will be reduced by an amount equivalent to one-one hundred and eightieth (1/180) per full month;
· After the twenty-seventh (27th) anniversary and up to the thirty-fifth (35th) anniversary of the Agreement’s signature date, Credits 6 and 7 will be reduced by an amount equivalent to one ninety-sixth (1/96) per full month, releasing the collateralized amount related to Credit 6 followed by the amount related to Credit 7;
· After the thirty-fifth (35th) anniversary and up to the fortieth (40th) anniversary of the Agreement’s signature date, Credits 8 and 9 will be reduced by an amount equivalent to one-sixtieth (1/60) per full month, releasing the collateralized amount related to Credit 8 followed by the amount related to Credit 9.
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Notes to the Interim Financial Information |
(b) The aging of trade receivables is as follows
| September 30, 2019 | December 31, 2018 |
|
|
|
Current | 1,680,251 | 1,449,927 |
Past-due: |
|
|
Up to 30 days | 296,887 | 330,310 |
From 31 and 60 days | 145,963 | 145,153 |
From 61 and 90 days | 74,488 | 83,679 |
From 91 and 120 days | 56,742 | 54,486 |
From 121 and 180 days | 89,492 | 89,740 |
From 181 and 360 days | 41,907 | 44,856 |
Over 360 days | 870,850 | 953,707 |
|
|
|
Total past-due | 1,576,329 | 1,701,931 |
|
|
|
Total | 3,256,580 | 3,151,858 |
The increase in the past-due balance was mainly due to higher default of private sector.
(c) Allowance for doubtful accounts
| January to September 2019 | January to September 2018 |
|
|
|
Balance at the beginning of the period | 1,099,442 | 3,650,198 |
Private sector/government entities | (26,343) | 35,804 |
Recoveries | (43,845) | (76,872) |
Wholesale customers | - | 316,709 |
|
|
|
Net additions/(recoveries) in the period | (70,188) | 275,641 |
|
|
|
Balance at the end of the period | 1,029,254 | 3,925,839 |
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Notes to the Interim Financial Information |
Reconciliation of estimated losses on | July to September | January to September | July to September | January to September |
income | 2019 | 2019 | 2018 | 2018 |
Write-offs | (34,422) | (118,550) | (57,070) | (138,575) |
(Losses)/reversal with state entities – related |
|
|
|
|
parties | (387) | (2,536) | (155) | 960 |
(Losses)/reversal with private sector/government entities | 60,331 | 26,343 | (16,211) | (35,804) |
(Losses)/reversal with wholesale customers | - | - | - | (29,458) |
Recoveries | 12,155 | 43,845 | 54,129 | 76,872 |
Amount recorded as selling expense | 37,677 | (50,898) | (19,307) | (126,005) |
The Company does not have customers representing 10% or more of its total revenues.
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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/entities related to it.
(a) Accounts receivable, interest on capital payable, revenue and expenses with the São Paulo State Government
| September 30, 2019 | December 31, 2018 |
Accounts receivable |
|
|
Current: |
|
|
Sanitation services | 125,596 | 122,522 |
Allowance for losses | (36,356) | (33,820) |
Reimbursement of additional retirement and pension benefits paid (G0): |
|
|
- Monthly flow (payments) | 7,977 | 22,926 |
- GESP Agreement – 2015 | 66,769 | 62,520 |
|
|
|
Total current | 163,986 | 174,148 |
|
|
|
Noncurrent: |
|
|
Agreement for the installment payment of sanitation services | 12,493 | 17,045 |
Reimbursement of additional retirement and pension benefits paid (G0): |
|
|
- GESP Agreement – 2015 | 644,645 | 652,057 |
|
|
|
Total noncurrent | 657,138 | 669,102 |
|
|
|
Total receivables from shareholders | 821,124 | 843,250 |
|
|
|
Assets: |
|
|
Sanitation services | 101,733 | 105,747 |
Reimbursement of additional retirement and pension benefits paid (G0) | 719,391 | 737,503 |
|
|
|
Total | 821,124 | 843,250 |
|
|
|
Liabilities: |
|
|
Interest on equity payable to related parties | - | 338,407 |
Other (g) | 352 | 8,694 |
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Notes to the Interim Financial Information |
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
|
|
|
|
|
Revenue from sanitation services | 137,063 | 406,495 | 119,386 | 366,608 |
Payments from related parties | (133,021) | (399,194) | (127,638) | (384,902) |
|
|
|
|
|
Receipt of GESP reimbursement referring to Law 4,819/58 | (51,070) | (128,433) | (36,948) | (136,714) |
(b) São Paulo State Government-GESP
(i) Disputed amounts
As of September 30, 2019 andDecember 31, 2018,the disputed amounts betweenSABESPandGESP, corresponding to additional retirement and pension benefits paid(Law4,819/58),totaledR$1,168,657 and
R$1,107,104,respectively. The Company created allowances for doubtful accounts for such amounts.
(ii) Actuarial liability
The Company recognized an actuarial liability corresponding to additional retirement and pension benefits paid to employees, retired employees and pensioners of the G0 Plan. As of September 30, 2019 and December 31, 2018, the amounts corresponding to the actuarial liability totaled R$ 2,649,243 and R$ 2,606,107, respectively. For more information on additional retirement and pension benefits, see Note20(b)(iii).
(c) 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.
On 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 SABESP will continue using the reservoirs.
As of September 30, 2019, the balance of the agreement totaled R$ 16,701 and R$ 90,713 (R$ 16,055 and R$ 90,518 on December 31, 2018), recorded under Other Liabilities, in current and noncurrent liabilities, respectively.
(d) 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.
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(e) Guarantees
The State Government provides guarantees for some of the Company’s borrowings and financing and does not charge any fee for such guarantees.
(f) 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 charged. From July to September 2019 and 2018, the expenses related to employees assigned by SABESP to other state government entities amounted to R$ 1,008 and R$ 1,868, respectively, and, from January to September 2019 and 2018, they amounted to R$ 3,982 and R$ 6,396, respectively.
From July to September 2018, expenses related to personnel assigned by other entities to the Company totaled R$ 53. No expenses were recorded in the same period in 2019. From January to September 2019 and 2018, the expenses amounted to R$ 139 and R$ 53, respectively.
(g) Services obtained from state government entities
As of September30, 2019 and December 31, 2018, SABESP had outstanding amounts payable of R$ 352 and R$ 8,694, respectively, for services rendered by São Paulo State Government entities.
(h) Non-operating assets
As of September 30, 2019,the Company had an amount ofR$3,613related to plots of land and lent structures (R$969 as of December 31,2018).
(i) Sabesprev
The Company sponsors a private defined benefit pension plan, which is operated and administered by Sabesprev. The net actuarial liability recognized as of September 30, 2019 amounted to R$ 366,210 (R$ 363,902 as of December 31, 2018), according to Note20 (b) (i).
(j) 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 totaled R$ 1,587 from July to September 2019 (R$ 1,080 from July to September 2018). From January to September 2019, these expenses totaled R$ 3,762 (R$ 3,014 from January to September 2018). An additional amount of R$ 360, related to the bonus program, was recorded from July to September 2019 (R$ 192 from July to September 2018). From January to September 2019, the bonus totaled R$ 1,080 (R$ 536 from January to September2018).
(k) 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 arrangements.
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The Company entered into a loan agreement through credit facility with the SPE Aquapolo Ambiental S/A to finance the operation of this company, until the borrowings and financingrequested with financial institutions is granted.
SPE | Principal | Interest | Total | Interest rate | Maturity | |||||
Aquapolo Ambiental | 19,000 | 15,724 | 34,724 | CDI + 1.2% p.a. | (i) | |||||
(i) The loan originally matured 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 September 30, 2019, the balance of principal and interest of this agreement was R$ 34,724, recorded in noncurrent assets, under “Other Accounts Receivables” (R$ 32,857 as of December 31, 2018). From January to September 2019, the financial income recognized was R$ 1,867 (R$ 2,227 from January to September 2018).
(l) “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 September 30, 2019, the program total amount was R$ 107,454 (R$ 100,928 as of December 31, 2018); as of September 30, 2019 and December 31, 2018, there was no balance receivable from related parties. As of September 30, 2019, R$ 55,280 (R$ 49,919 as of December 31, 2018) was recorded under intangible assets. R$ 52,174 was reimbursed by GESP from the beginning of the program until September 30, 2019 (R$ 51,009 as of December 31, 2018).
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, but remunerates based on 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 September 30, 2019, the balances of assets and liabilities totaled R$ 37,317 (R$ 49,136 as of December 31, 2018), and the liability is recorded in "other liabilities" under noncurrent liabilities.
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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 – CPC19(R2)).
As of September 30, 2019, BRK Operações Industriais S/A sold all of its interest, corresponding to51%, inAquapoloAmbientalS/A toGSInima.
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 | Dividends distributed | Profit (loss) for the period | |||
September 30, 2019 | December 31, 2018 | January to September 2019 | January to September 2019 | January to September 2019 | (*) | January to September 2018 | |
|
|
|
|
|
|
|
|
Sesamm | 45,759 | 43,547 | - | (502) | 4,781 | (2,067) | 4,600 |
Águas de Andradina | 27,209 | 24,832 | - | (623) | 2,799 | 201 | 2,011 |
Águas de Castilho | 7,025 | 6,084 | - | (280) | 1,102 | 119 | 916 |
Saneaqua Mairinque | 5,697 | 5,720 | - | (11) | (8) | (4) | (473) |
Attend Ambiental | 25,415 | 1,426 | 24,277 | - | 148 | (436) | (3,844) |
Aquapolo Ambiental | 43,072 | 30,170 | - | - | 12,902 | - | 7,251 |
Paulista Geradora de Energia | 7,244 | 7,625 | - | - | (381) | - | (76) |
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| Investments | Capital increase | Dividends distributed | Equity result | Interest percentage | ||||
September 30, 2019 | December 31, 2018 | January to September 2019 | January to September 2019 | January to September 2019 | (*) | January to September 2018 | September 30, 2019 | December 31, 2018 | |
|
|
| |||||||
Sesamm | 16,473 | 15,677 | - | (181) | 1,721 | (744) | 1,656 | 36% | 36% |
Águas de Andradina | 8,163 | 7,450 | - | (187) | 840 | 60 | 603 | 30% | 30% |
Águas de Castilho | 2,108 | 1,826 | - | (84) | 330 | 36 | 275 | 30% | 30% |
Saneaqua Mairinque | 1,709 | 1,716 | - | (3) | (2) | (2) | (142) | 30% | 30% |
Attend Ambiental | 11,437 | 642 | 10,925 | - | 66 | (196) | (1,730) | 45% | 45% |
Aquapolo Ambiental | 21,105 | 14,783 | - | - | 6,322 | - | 3,553 | 49% | 49% |
Paulista Geradora de Energia | 1,811 | 1,905 | - | - | (94) | - | (19) | 25% | 25% |
Total | 62,806 | 43,999 | 10,925 | (455) | 9,183 | (846) | 4,196 |
|
|
Other investments | 365 | 588 |
|
|
|
|
|
|
|
Total | 63,171 | 44,587 |
|
|
|
|
|
|
|
(*) Refer to changes in the equity of investees, as their financial statements for the year ended December 31, 2018 were issued after disclosure of the Company’s financial statements.
12 Investment properties
| December 31, 2018 | Transfer | Depreciation | September 30, 2019 |
|
|
|
|
|
Investment properties | 47,620 | (9) | (37) | 47,574 |
| December 31, 2017 | Expropriation | Depreciation | September 30, 2018 |
|
|
|
|
|
Investment properties | 57,652 | (9,983) | (37) | 47,632 |
As of September 30, and December31, 2018, the market value of these properties was approximately R$ 386,000.
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13 Contract asset
Contract Asset (works in progress) is the right to consideration in exchange for goods or services transferred to customers. As established by CPC 47 – Revenue from Contracts with Customers, assets conditioned to the concession under construction, recorded under the scope of ICPC 01 (R1) – Concession Agreements, must be classified as Contract Asset during the construction period and transferred to Intangible Assets only after the conclusion of the works.
A contract asset is initially designated at fair value and includes borrowing costs capitalized during the period when the asset is under construction, based on the weighted average rate of borrowings in effect on the capitalization date. For further information on the capitalization of interest and construction margin, recorded during the construction period, see Note14.
As ofSeptember 30, 2019,the amount recorded as contract asset was R$ 7,579 million, and the largest works are located in the municipalities of São Paulo, São Bernardo do Campo and Franca, in the amounts ofR$3,631 million,R$ 306million andR$299 million, respectively.Additionally,R$2,067million was transferred to intangible assets; the most significant work is the expansion ofthe Barueri Sewage Treatment Station, while the largest additions of the period are located in the municipalities ofSãoPaulo,PraiaGrande andSãoBernardodo Campo, in the amounts ofR$1,356million, R$127million and R$53million, respectively.
| December 31, 2018 | Additions | Transfers | Transfer of works to intangible assets | September 30, 2019 |
|
|
|
|
|
|
Total contract asset | 7,407,948 | 2,228,063 | 10,508 | (2,067,034) | 7,579,485 |
| January 1, 2018 | Additions | Transfer of works to intangible assets | September 30, 2018 |
|
|
|
|
|
Total contract asset | 10,387,715 | 2,215,276 | (4,229,758) | 8,373,233 |
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14 Intangible assets
(a) Statement of financial position details
| September 30, 2019 | December 31, 2018 | ||||
| Cost | Accumulated amortization | Net | Cost | Accumulated amortization | Net |
Intangible right arising from: |
|
|
|
|
|
|
Concession agreements – equity value | 2,058,215 | (574,296) | 1,483,919 | 5,465,206 | (1,391,862) | 4,073,344 |
Concession agreements – economic value | 1,352,937 | (628,063) | 724,874 | 1,948,255 | (716,246) | 1,232,009 |
Program contracts | 18,854,026 | (5,399,067) | 13,454,959 | 12,710,937 | (3,933,008) | 8,777,929 |
Program contracts – commitments | 1,611,434 | (273,965) | 1,337,469 | 1,320,106 | (240,555) | 1,079,551 |
Service contracts – São Paulo | 18,567,169 | (4,611,238) | 13,955,931 | 17,474,797 | (4,083,345) | 13,391,452 |
Software license of use | 820,639 | (341,002) | 479,637 | 748,962 | (290,787) | 458,175 |
Right of use | 110,482 | (30,379) | 80,103 | - | - | - |
Total | 43,374,902 | (11,858,010) | 31,516,892 | 39,668,263 | (10,655,803) | 29,012,460 |
(b) Changes
| December 31, 2018 | First-time adoption of IFRS 16 | Addition | Contract renewal | Transfer to indemnities receivable | Transfer of contract asset | Transfers | Write-offs and disposals | Amortization | September 30, 2019 |
Intangible right arising from: |
|
|
|
|
|
|
|
|
|
|
Concession agreements – equity value | 4,073,344 | - | 1 | (2,645,084) | (4,345) | 53,390 | 80,155 | (53) | (73,489) | 1,483,919 |
Concession agreements –economic value | 1,232,009 | - | 1 | (507,018) | - | 59,461 | 381 | (18) | (59,942) | 724,874 |
Program contracts | 8,777,929 | - | 1,337,443 | 3,152,102 | - | 493,892 | 136,962 | (3,685) | (439,684) | 13,454,959 |
Program contracts – commitments | 1,079,551 | - | 291,327 | - | - | - | - | - | (33,409) | 1,337,469 |
Service contracts – São Paulo | 13,391,452 | - | 3,064 | - | - | 1,387,998 | (229,311) | (10,605) | (586,667) | 13,955,931 |
Software license of use | 458,175 | - | - | - | - | 72,293 | (616) | - | (50,215) | 479,637 |
Right of use | - | 64,955 | 45,527 | - | - | - | - | - | (30,379) | 80,103 |
Total | 29,012,460 | 64,955 | 1,677,363 | - | (4,345) | 2,067,034 | (12,429) | (14,361) | (1,273,785) | 31,516,892 |
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| December 31, 2017 | Additions | Contract renewal | Transfer of contract asset | Transfers | Write-offs and disposals | Amortization | September 30, 2018 |
Intangible right arising from: |
|
|
|
|
|
|
|
|
Concession agreements – equity value | 5,741,791 | 16 | (1,824,197) | 554,841 | 18,751 | (1,954) | (108,747) | 4,380,501 |
Concession agreements – economic value | 1,200,576 | 73 | - | 131,107 | (45,149) | (8) | (74,090) | 1,212,509 |
Program contracts | 5,574,602 | 76 | 1,824,197 | 37,679 | 6,667 | (3,758) | (270,374) | 7,169,089 |
Program contracts – commitments | 910,375 | 28,645 | - | - | - | - | (28,252) | 910,768 |
Service contracts – São Paulo | 9,183,482 | 1,929 | - | 3,468,973 | 20,018 | (11,089) | (432,384) | 12,230,929 |
Software license of use | 467,591 | 4,137 | - | 37,158 | 686 | - | (53,147) | 456,425 |
Total | 23,078,417 | 34,876 | - | 4,229,758 | 973 | (16,809) | (966,994) | 26,360,221 |
In the first half of 2019, the Company renewed the program contract with the municipalities of Espírito Santo do Turvo, Guarujá, Oriente, São Bernardo do Campo and São Sebastião. In the third quarter of 2019 , the Company began operating in the municipality of Santo André and renewed the program contract with the municipalities of Alambari, Bertioga, Caraguatatuba, Itanhaém, Lavrinhas, Mongaguá and Peruíbe. All these contracts are valid for 30 years, except for São Bernardo do Campo and Santo André, which are valid for 40 years.
(c) Intangible rights arising from concession agreements
During the period ended September 30, 2019, there were no significant changes in the criteria to account for intangible assets and types of contracts.
The Company has obligations recorded under “Program Contract – Commitments” in current liabilities in the amount of R$ 265,842 and R$ 230,695 as of September 30, 2019 and December 31, 2018, respectively, and noncurrent liabilities in the amount of R$ 123,333 and R$ 142,314 as of September 30, 2019 and December 31, 2018, respectively.
(d) Capitalization of interest and other finance charges
From January to September 2019, the Company capitalized interest and inflation adjustment, including exchange rate changes, in concession intangible assets, totaling R$ 187,605 (R$ 397,420 from January to September 2018) during the construction period.
(e) Construction margin
The Company is primarily responsible for the construction and installation of the concession infrastructure, either by using its own employees or contracting third parties, and is significantly exposed to its risks and benefits.
Accordingly, the Company recognizes revenue from construction services corresponding to construction costs increased by gross margin. Generally, constructions related to the concessions are performed by third parties. In such case, the Company’s margin is lower, normally to cover administration costs and assume the responsibility for primary risks. As of September 30, 2019 and 2018, the margin was 2.3%.
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The construction margin from July to September 2019 and 2018 was R$ 15,726 and R$ 16,281, respectively, and from January to September 2019 and 2018 was R$ 44,775 and R$ 45,829, 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, whose owners will be compensated either amicably or through courts.
Expropriation costs are recorded as concession intangible assets after the transaction is concluded. From July to September 2019, expropriations totaled R$ 8,612 and, from January to September 2019, they totaled R$ 28,902 (R$ 9,512 from July to September 2018 and R$ 89,562 from January to September 2018).
(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
The Company and the special purpose entity CAB-Sistema Produtor Alto Tietê S/A, formed by Galvão Engenharia S.A. and Companhia Águas do Brasil – Cab Ambiental, signed in June 2008 the contract of public-private partnership of Alto Tietê production system.
As ofSeptember 30, 2019 and December 31, 2018, the carrying amounts related to this PPP recognized in intangible assets were R$ 351,379 and R$ 359,759, respectively.
São LourençoProduction System
In May 2018, the control of SPE Sistema Produtor São Lourenço S/A was transferred to CGGC Construtora do Brasil Ltda, previously composed of Construções e Comércio Camargo Corrêa S/A andConstrutoraAndradeGutierrezS/A.
The São Lourenço Production System (SPSL) PPP started operating on July 10, 2018, as per the contractual clause that allows the beginning of operations provided that system has full operating capacity, without, however implying in the acceptance of the works. Accordingly, the service provision phase began with the corresponding payment of the due considerations, together with the end of the works.
As ofSeptember 30, 2019 and December 31, 2018,the carrying amounts recorded in the Company’s intangible assets, related to this PPP, totaled R$ 3,275.829 and R$ 3,208,464, respectively. The main works of the São Lourenço Production System were concluded on the first quarter of 2019 and this phase is expected to end on the fourth quarter of 2019, after contractual clauses are met and there are no documents pending.
The obligations assumed by the Company as of September 30, 2019 and December 31, 2018 are shown in the table below, and the increase in intangible assets and liabilities was due to the progress of works in2019.
| September 30, 2019 | December 31, 2018 | ||||
| Current liabilities | Noncurrent liabilities | Total liabilities | Current liabilities | Noncurrent liabilities | Total liabilities |
|
|
|
|
|
|
|
Alto Tietê | 41,652 | 220,554 | 262,206 | 39,283 | 252,093 | 291,376 |
São Lourenço | 56,698 | 3,001,325 | 3,058,023 | 98,544 | 3,023,204 | 3,121,748 |
Total | 98,350 | 3,221,879 | 3,320,229 | 137,827 | 3,275,297 | 3,413,124 |
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(h) Works in progress
With the adoption of CPC 47 / IFRS 15 – Revenue from contract with customers, as of January 1, 2018, assets related to the concession under construction, recorded under the scope of ICPC 01 (R1) – Concession Agreements, previously recognized as part of intangible assets, such as works in progress, were reclassified to contract asset, pursuant to Note 13, in the amount of R$ 10,387 million.
(i) Amortization of intangible assets
The amortization average rate was 4.5% and 3.9% as of September 30, 2019 and 2018, respectively.
(j) Software license of use
The software license of use is capitalized based on the costs incurred to acquire software and prepared them for use. As of 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.
(k) Right of use
The statement of financial position account Right of Use, created by the Company on January 1, 2019, reflects the amendment introduced by IFRS 16 / CPC 06 (R2), which requires lessees to record the right-of-use asset and the lease liability, which may not be applied to short-term leases and assets of low-value. For these cases, from January to September 2019, SABESP maintained the amounts of R$ 32,626, R$ 6,728 and R$ 1,582 in its results, allocated to operating costs, selling expenses and administrative expenses, respectively.
Statement of financial position details:
Nature |
| September 30, 2019 |
Vehicles |
| 91,709 |
Properties |
| 12,925 |
Equipment |
| 684 |
Other |
| 5,164 |
Accumulated amortization |
| (30,379) |
Total |
| 80,103 |
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Lease liability corresponds to total future fixed lease payments, adjusted to present value, considering an incremental rate on borrowings. For further information, see Note 16.
15 Property, plant and equipment
(a) Statement of financial position details
| September 30, 2019 | December 31, 2018 | ||||
| Cost | Accumulated depreciation | Net | Cost | Accumulated depreciation | Net |
Land | 92,962 | - | 92,962 | 92,979 | - | 92,979 |
Buildings | 80,426 | (40,051) | 40,375 | 79,086 | (38,961) | 40,125 |
Equipment | 388,330 | (245,162) | 143,168 | 372,872 | (256,786) | 116,086 |
Transportation equipment | 8,820 | (6,779) | 2,041 | 11,333 | (7,860) | 3,473 |
Furniture and fixtures | 30,272 | (13,028) | 17,244 | 27,250 | (13,672) | 13,578 |
Other | 4,462 | (297) | 4,165 | 1,659 | (288) | 1,371 |
Total | 605,272 | (305,317) | 299,955 | 585,179 | (317,567) | 267,612 |
(b) Changes
| December 31, 2018 | Additions | Transfers | Write-offs and disposals | Depreciation | September 30, 2019 |
Land | 92,979 | - | (17) | - | - | 92,962 |
Buildings | 40,125 | 1,781 | 15 | - | (1,546) | 40,375 |
Equipment | 116,086 | 47,724 | 1,962 | (102) | (22,502) | 143,168 |
Transportation equipment | 3,473 | 303 | (1,195) | - | (540) | 2,041 |
Furniture and fixtures | 13,578 | 3,595 | 1,108 | (130) | (907) | 17,244 |
Other | 1,371 | 2,783 | 57 | - | (46) | 4,165 |
Total | 267,612 | 56,186 | 1,930 | (232) | (25,541) | 299,955 |
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| December 31,2017 |
|
Additions |
|
Transfers |
| Write-offs and disposals |
|
Depreciation |
| September 30,2018 |
|
Land | 92,507 |
| 472 |
| - |
| - |
| - |
| 92,979 |
|
Buildings | 42,360 |
| 50 |
| (334) |
| - |
| (1,731) |
| 40,345 |
|
Equipment | 103,803 |
| 22,371 |
| (593) |
| (75) |
| (27,127) |
| 98,379 |
|
Transportation equipment | 3,680 |
| 8 |
| 8 |
| (8) |
| (598) |
| 3,090 |
|
Furniture and fixtures | 11,816 |
| 142 |
| (54) |
| (13) |
| (882) |
| 11,009 |
|
Other | 884 |
| - |
| - |
| - |
| (38) |
| 846 |
|
Total | 255,050 |
| 23,043 |
| (973) |
| (96) |
| (30,376) |
| 246,648 |
|
(c) Depreciation
The Company annually reviews the depreciation rates of buildings (2.3%); equipment (16.2%); transportation equipment (9.9%) and furniture and fixtures (6.7%). Land is not depreciated.
The depreciation average rates were 11.7% and 12.6%, as of September 30, 2019 and 2018, respectively.
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16 Borrowings and financing
Borrowings and financing outstanding balance | September 30, 2019 | December 31, 2018 | ||||
Financial institution |
Current | Noncurrent |
Total |
Current | Noncurrent |
Total |
Local currency |
|
|
|
|
|
|
10th issue debentures | 42,570 | 22,584 | 65,154 | 42,493 | 40,194 | 82,687 |
12th issue debentures | 45,450 | 215,184 | 260,634 | 45,450 | 249,249 | 294,699 |
14th issue debentures | 41,811 | 69,013 | 110,824 | 41,270 | 103,005 | 144,275 |
15th issue debentures | - | - | - | 359,394 | - | 359,394 |
17th issue debentures | 286,893 | 261,196 | 548,089 | 279,100 | 532,691 | 811,791 |
18th issue debentures | 33,929 | 152,801 | 186,730 | 33,469 | 165,267 | 198,736 |
20th issue debentures | - | - | - | 248,334 | - | 248,334 |
21st issue debentures | 149,862 | 349,775 | 499,637 | - | 499,604 | 499,604 |
22nd issue debentures | - | 763,567 | 763,567 | - | 756,040 | 756,040 |
23rd issue debentures | - | 864,578 | 864,578 | - | - | - |
24th issue debentures | - | 392,528 | 392,528 | - | - | - |
Brazilian Federal Savings Bank | 81,107 | 1,321,691 | 1,402,798 | 75,223 | 1,266,592 | 1,341,815 |
Brazilian Development Bank - BNDES BAIXADA SANTISTA | 4,238 | - | 4,238 | 16,899 | - | 16,899 |
Brazilian Development Bank - BNDES PAC | 11,183 | 30,644 | 41,827 | 11,227 | 39,169 | 50,396 |
Brazilian Development Bank - BNDES PAC II 9751 | 3,472 | 16,509 | 19,981 | 4,364 | 18,811 | 23,175 |
Brazilian Development Bank - BNDES PAC II 9752 | 3,196 | 20,774 | 23,970 | 3,186 | 23,100 | 26,286 |
Brazilian Development Bank - BNDES ONDA LIMPA | 23,704 | 106,500 | 130,204 | 23,632 | 123,875 | 147,507 |
Brazilian Development Bank - BNDES TIETÊ III | 40,874 | 306,405 | 347,279 | 30,589 | 252,197 | 282,786 |
Brazilian Development Bank - BNDES 2015 | 31,712 | 468,544 | 500,256 | 31,615 | 490,729 | 522,344 |
Brazilian Development Bank - BNDES 2014 | 4,659 | 26,564 | 31,223 | - | - | - |
Leases | 128,528 | 438,259 | 566,787 | 19,077 | 549,589 | 568,666 |
Leases (IFRS 16) | 48,838 | 34,100 | 82,938 | - | - | - |
Other (FINEP – Studies and Projects Funding, and FEHIDRO – State Water Resources Fund) | 1,465 | 7,920 | 9,385 | 1,380 | 8,163 | 9,543 |
Interest and charges | 85,391 | - | 85,391 | 98,410 | - | 98,410 |
Total in local currency | 1,068,882 | 5,869,136 | 6,938,018 | 1,365,112 | 5,118,275 | 6,483,387 |
Page 57 of 92
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Notes to the Interim Financial Information |
Borrowings and financing outstanding balance | September 30, 2019 | December 31, 2018 | ||||
Financial institution |
Current | Noncurrent |
Total |
Current | Noncurrent |
Total |
Foreign currency |
|
|
|
|
|
|
Inter-American Development Bank - BID 1212 – US$ 61,668 thousand (US$ 71,947 thousand in December 2018) | 42,802 | 214,011 | 256,813 | 39,826 | 238,954 | 278,780 |
Inter-American Development Bank - BID 2202 – US$ 510,573 thousand (US$544,457 thousand in December 2018) | 132,889 | 1,978,057 | 2,110,946 | 124,098 | 1,969,565 | 2,093,663 |
International Bank of Reconstruction and Development - BIRD – US$ 88,246 thousand (US$ 91,286 thousand in December 2018) | 25,318 | 341,899 | 367,217 | 11,779 | 341,646 | 353,425 |
Deutsche Bank – US$ 37,500 thousand (US$ 75,000 thousand in December 2018) | 156,043 | - | 156,043 | 288,479 | - | 288,479 |
Eurobonds – US$ 350,000 thousand (US$ 350,000 thousand in December 2018) | - | 1,456,510 | 1,456,510 | - | 1,354,532 | 1,354,532 |
JICA 15 – ¥ 11,524,300 thousand (¥ 12,676,730 thousand in December 2018) | 44,392 | 399,524 | 443,916 | 40,646 | 406,462 | 447,108 |
JICA 18 – ¥ 10,361,600 thousand (¥ 11,397,760 thousand in December 2018) | 39,913 | 359,008 | 398,921 | 36,545 | 365,230 | 401,775 |
JICA 17 – ¥ 2,663,729 thousand (¥ 1,826,957 thousand in December 2018) | 12,194 | 89,561 | 101,755 | 11,835 | 51,786 | 63,621 |
JICA 19 – ¥ 31,736,565 thousand (¥ 31,561,726 thousand in December 2018) | 69,857 | 1,150,609 | 1,220,466 | 64,028 | 1,047,081 | 1,111,109 |
BID 1983AB – US$ 40,769 thousand (US$ 58,462 thousand in December 2018) | 73,678 | 94,366 | 168,044 | 68,554 | 155,653 | 224,207 |
Interest and charges | 48,334 | - | 48,334 | 52,710 | - | 52,710 |
Total in foreign currency | 645,420 | 6,083,545 | 6,728,965 | 738,500 | 5,930,909 | 6,669,409 |
|
|
|
|
|
|
|
Total | 1,714,302 | 11,952,681 | 13,666,983 | 2,103,612 | 11,049,184 | 13,152,796 |
Exchange rate as of September 30, 2019: US$ 4.1644; ¥ 0.03852 (as of December 31, 2018: US$ 3.8748; ¥ 0.03527). On September 30, 2019, the Company did not have balances of borrowings and financing raised during the year, maturing within 12 months. | ||||||
|
Page 58 of 92
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Notes to the Interim Financial Information |
Local currency | Guarantees | Maturity | Annual interest rate | 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% (series 1) and CDI+ 0.90% (series 2) |
|
22nd issue debentures | Own funds | 2025 | CDI + 0.58% (series 1) and CDI+ 0.90% (series 2) and 6.0% (series 3) | IPCA (series 3) |
23rd issue debentures | Own funds | 2027 | CDI + 0.63% (series 1) and CDI+ 0.49% (series 2) |
|
24th issue debentures | Own funds | 2029 | 3.20% (series 1) and 3.37% (series 2) | IPCA (series 1 and 2) |
Brazilian Federal Savings Bank | Own funds | 2019/2039 | 5% to 9.5% | TR |
Brazilian Development Bank - BNDES BAIXADA SANTISTA | Own funds | 2019 | TJLP + 2.5% |
|
Brazilian Development Bank - BNDES PAC | Own funds | 2023 | TJLP + 2.15% |
|
Brazilian Development Bank - BNDES PAC II 9751 | Own funds | 2027 | TJLP + 1.72% |
|
Brazilian Development Bank - BNDES PAC II 9752 | Own funds | 2027 | TJLP + 1.72% |
|
Brazilian Development Bank - BNDES ONDA LIMPA | Own funds | 2025 | TJLP + 1.92% |
|
Brazilian Development Bank - BNDES TIETÊ III | Own funds | 2028 | TJLP + 1.66% |
|
Brazilian Development Bank - BNDES 2015 | Own funds | 2035 | TJLP + 2.5% |
|
Brazilian Development Bank - BNDES 2014 | Own funds | 2026 | TJLP + 1.76% |
|
Leases |
| 2035 | 7.73% to 10.12% | IPC |
Leases (IFRS 16) |
| 2023 | 6.01% to 9.84% |
|
FINEP – Studies and Projects Funding | Own funds | 2025 | TJLP + 1.5% (FINEP) |
|
FEHIDRO – State Water Resources Fund | Own funds | 2023 | 3% |
|
Page 59 of 92
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Notes to the Interim Financial Information |
Foreign currency | Guarantees | Maturity | Annual interest rate | Exchange rate changes |
|
|
|
|
|
Inter-American Development Bank - BID 1212– US$ 61,668 thousand | Government | 2025 | 3.31% (*) | US$ |
Inter-American Development Bank - BID 2202– US$ 510,573 thousand | Government | 2035 | 3.42% (*) | US$ |
International Bank for Reconstruction and Development - BIRD – US$ 88,246 thousand | Government | 2034 | 2.85% (*) | US$ |
Deutsche Bank–US$ 37,500 thousand | - | 2019 | 4.50%(*) | US$ |
Eurobonds– US$ 350,000 thousand | - | 2020 | 6.25% | US$ |
JICA 15– ¥ 11,524,300thousand | Government | 2029 | 1.8% and 2.5% | Yen |
JICA 18– ¥ 10,361,600thousand | Government | 2029 | 1.8% and 2.5% | Yen |
JICA 17– ¥ 2,663,729thousand | Government | 2035 | 1.2% and 0.01% | Yen |
JICA 19– ¥ 31,736,565thousand | Government | 2037 | 1.7% and 0.01% | Yen |
BID 1983AB– US$ 40,769thousand | - | 2023 | 2.08% to 2.38% (*) | US$ |
(*) Rates comprising LIBOR + contractually defined spread. |
|
|
|
|
Page 60 of 92
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Notes to the Interim Financial Information |
(i) Payment schedule – accounting balances as of September 30,2019
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 |
| 2025to2039 |
| TOTAL |
LOCAL CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures | 60,583 |
| 599,549 |
| 483,466 |
| 562,530 |
| 365,539 |
| 699,470 |
| 920,604 |
| 3,691,741 |
Brazilian Federal Savings Bank | 19,951 |
| 82,109 |
| 86,456 |
| 91,140 |
| 83,868 |
| 82,499 |
| 956,775 |
| 1,402,798 |
BNDES | 34,164 |
| 118,349 |
| 117,896 |
| 117,896 |
| 112,194 |
| 106,713 |
| 491,766 |
| 1,098,978 |
Leases | 108,290 |
| 27,241 |
| 29,093 |
| 31,063 |
| 34,388 |
| 36,765 |
| 299,947 |
| 566,787 |
Leases (IFRS 16) | 12,580 |
| 47,729 |
| 21,922 |
| 648 |
| 59 |
| - |
| - |
| 82,938 |
Other (FINEP and FEHIDRO) | 346 |
| 1,526 |
| 1,627 |
| 1,627 |
| 1,607 |
| 1,384 |
| 1,268 |
| 9,385 |
Interest and other charges | 51,164 |
| 34,227 |
| - |
| - |
| - |
| - |
| - |
| 85,391 |
TOTAL IN LOCAL CURRENCY | 287,078 |
| 910,730 |
| 740,460 |
| 804,904 |
| 597,655 |
| 926,831 |
| 2,670,360 |
| 6,938,018 |
FOREIGN CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BID | - |
| 175,691 |
| 175,691 |
| 175,691 |
| 175,691 |
| 175,691 |
| 1,489,304 |
| 2,367,759 |
BIRD | - |
| 25,318 |
| 25,318 |
| 25,318 |
| 25,318 |
| 25,318 |
| 240,627 |
| 367,217 |
Deutsche Bank | 156,043 |
| - |
| - |
| - |
| - |
| - |
| - |
| 156,043 |
Eurobonds | - |
| 1,456,510 |
| - |
| - |
| - |
| - |
| - |
| 1,456,510 |
JICA | 6,451 |
| 165,648 |
| 167,140 |
| 159,282 |
| 159,282 |
| 159,282 |
| 1,347,973 |
| 2,165,058 |
BID 1983AB | - |
| 73,281 |
| 32,034 |
| 32,034 |
| 30,695 |
| - |
| - |
| 168,044 |
Interest and other charges | 38,887 |
| 9,447 |
| - |
| - |
| - |
| - |
| - |
| 48,334 |
TOTAL IN FOREIGN CURRENCY | 201,381 |
| 1,905,895 |
| 400,183 |
| 392,325 |
| 390,986 |
| 360,291 |
| 3,077,904 |
| 6,728,965 |
Total | 488,459 |
| 2,816,625 |
| 1,140,643 |
| 1,197,229 |
| 988,641 |
| 1,287,122 |
| 5,748,264 |
| 13,666,983 |
Page 61 of 92
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Notes to the Interim Financial Information |
(ii) Changes
December 31, 2018 | Addition as per IFRS 16 | Funding | Borrowing costs | Monetary variation and exchange rate changes | Inflation adjustment / exchange rate changes - Capitalized | Interest paid | Amortization | Accrued interest | Provision for interest and fees - Capitalized | Amortization of borrowing costs | September 30, 2019 | |
|
|
|
|
|
|
|
|
|
|
|
| |
LOCAL CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
Debentures | 3,486,861 | - | 1,266,755 | (11,580) | 32,105 | - | (171,877) | (994,228) | 146,267 | 12,402 | 3,129 | 3,769,834 |
Brazilian Federal Savings Bank | 1,345,684 | - | 120,243 | - | - | - | (81,178) | (59,259) | 55,692 | 25,637 | - | 1,406,819 |
BNDES | 1,072,605 | - | 123,000 | (628) | 2,082 | 826 | (62,874) | (95,864) | 46,304 | 16,616 | 169 | 1,102,236 |
Leases | 568,666 | - | - | - | 684 | 3,761 | (34,526) | (15,610) | 35,949 | 7,862 | - | 566,786 |
Leases (IFRS 16)* | - | 110,482 | - | - | - | - | (1,968) | (30,439) | 4,863 | - | - | 82,938 |
Other | 9,571 | - | 851 | - | 28 | - | (502) | (1,037) | 496 | - | - | 9,407 |
TOTAL IN LOCAL CURRENCY | 6,483,387 | 110,482 | 1,510,849 | (12,208) | 34,899 | 4,587 | (352,925) | (1,196,437) | 289,571 | 62,517 | 3,298 | 6,938,020 |
|
|
|
|
|
|
|
|
|
|
|
| |
FOREIGN CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
BID | 2,399,985 | - | - | - | 125,351 | 41,139 | (83,602) | (171,892) | 20,450 | 42,778 | 716 | 2,374,925 |
BIRD | 356,420 | - | - | - | 24,672 | 1,378 | (10,627) | (12,273) | 6,749 | 1,241 | 14 | 367,574 |
Deutsche Bank | 292,872 | - | - | - | 15,686 | - | (15,572) | (150,131) | 12,122 | 1,168 | 2,008 | 158,153 |
Eurobonds | 1,358,412 | - | - | - | 101,360 | - | (49,689) | - | 70,196 | 6,575 | 618 | 1,487,472 |
JICA | 2,036,128 | - | 105,371 | (111) | 181,976 | 2,686 | (34,622) | (148,613) | 24,408 | 2,077 | 138 | 2,169,438 |
BID 1983AB | 225,592 | - | - | (106) | 14,393 | - | (6,065) | (71,141) | 7,342 | 693 | 693 | 171,401 |
TOTAL IN FOREIGN CURRENCY | 6,669,409 | - | 105,371 | (217) | 463,438 | 45,203 | (200,177) | (554,050) | 141,267 | 54,532 | 4,187 | 6,728,963 |
Total | 13,152,796 | 110,482 | 1,616,220 | (12,425) | 498,337 | 49,790 | (553,102) | (1,750,487) | 430,838 | 117,049 | 7,485 | 13,666,983 |
(*) Leases (IFRS 16) include R$ 64,955 corresponding to the first-time adoption of the standard as of January 1, 2019. See Note3.
Page 62 of 92
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Notes to the Interim Financial Information |
December 31, 2017 | Funding | Borrowing costs | Leases | Monetary variation and exchange rate changes | Inflation adjustment / exchange rate changes - Capitalized | Interest paid | Amortization | Accrued interest | Provision for interest and fees - Capitalized | Amortization of borrowing costs | September 30, 2018 | |
|
|
|
|
|
|
|
|
|
|
|
| |
LOCAL CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
Debentures | 3,576,842 | 750,000 | (2,779) | - | 51,200 | - | (190,937) | (594,693) | 169,504 | 26,681 | 2,481 | 3,788,299 |
Brazilian Federal Savings Bank | 1,236,674 | 156,695 | - | - | - | - | (76,146) | (67,072) | 57,094 | 19,285 | - | 1,326,530 |
BNDES | 1,042,036 | 131,000 | - | - | 2,343 | 2,565 | (69,137) | (71,972) | 19,606 | 43,616 | 157 | 1,100,214 |
Leases | 561,616 | - | - | 18,877 | - | - | - | (12,901) | - | - | - | 567,592 |
Other | 10,977 | - | - | - | 47 | - | (593) | (1,126) | 583 | 4 | - | 9,892 |
TOTAL IN LOCAL CURRENCY | 6,428,145 | 1,037,695 | (2,779) | 18,877 | 53,590 | 2,565 | (336,813) | (747,764) | 246,787 | 89,586 | 2,638 | 6,792,527 |
|
|
|
|
|
|
|
|
|
|
|
| |
FOREIGN CURRENCY |
|
|
|
|
|
|
|
|
|
|
|
|
BID | 1,743,257 | 484,690 | (2,365) | - | 330,794 | 39,423 | (55,391) | (130,520) | 20,363 | 28,097 | 646 | 2,458,994 |
BIRD | 303,278 | - | - | - | 60,563 | 2,963 | (7,610) | - | 4,862 | 1,565 | 17 | 365,638 |
Deutsche Bank | 496,726 | - | - | - | 84,184 | - | (26,665) | (129,945) | 23,325 | 3,698 | 2,717 | 454,040 |
Eurobonds | 1,158,642 | - | - | - | 243,565 | - | (47,662) | - | 63,590 | 10,529 | 616 | 1,429,280 |
JICA | 1,700,448 | 38,546 | (117) | - | 334,263 | 2,114 | (33,361) | (77,097) | 25,741 | 799 | 131 | 1,991,467 |
BID 1983AB | 270,470 | - | - | - | 46,789 | - | (5,674) | (85,306) | 6,787 | 1,100 | 856 | 235,022 |
TOTAL IN FOREIGN CURRENCY | 5,672,821 | 523,236 | (2,482) | - | 1,100,158 | 44,500 | (176,363) | (422,868) | 144,668 | 45,788 | 4,983 | 6,934,441 |
Overall Total | 12,100,966 | 1,560,931 | (5,261) | 18,877 | 1,153,748 | 47,065 | (513,176) | (1,170,632) | 391,455 | 135,374 | 7,621 | 13,726,968 |
Page 63 of 92
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Notes to the Interim Financial Information |
(i) Main events in the nine-month period ended September 30, 2019
(a) Debentures
On May 27, 2019, the Company carried out the 23rd debenture issue, of R$ 866,755,as follows:
| Value |
| Maturity |
| Remuneration |
Series 1 Series 2 | R$491,755 R$375,000 |
| May/2024 May/2027 |
| CDI+0.63p.a. CDI+0.49 p.a. |
On July24,2019,theCompany held its24th debenture issue, in the amount ofR$400,000,as follows:
| Value |
| Maturity |
| Remuneration |
Series 1 Series 2 | R$100.000 R$300.000 |
| July/2026 July /2029 |
| IPCA+ 3.20 p.a. IPCA+3.37 p.a. |
The covenantsagreed upon for the24th Debentures Issue are as follows:
Calculated on a quarterly basis, when disclosing the interim financial information or annual financial statements:
- Net debt/adjusted EBITDA ratio lower than or equal to3.50;
- Adjusted EBITDA/paid financial expenses ratio equal to or higher than1.5;
- Disposal of operating assets, termination of license, loss of concession or loss of the Issuer’s capacity to execute and operate public sanitation services in areas of theSão Paulo State which, individually or jointly during the term of the agreement, result in a reduction of the Issuer’s net sales and/or service revenue of more than twenty-five percent (25%). The above limit will be calculated on a quarterly basis, taking into consideration the Issuer’s net operating revenues during the twelve (12) months prior to the end of each quarter and using the financial information disclosed by the Issuer.
The failure to comply with the covenants for at least two consecutive quarters, or for two non-consecutive quarters within a twelve-month period, will cause the early termination of the agreement(the 30-day grace period is not applicable in this case).
The agreement has acrossacceleration clause, i.e. the early maturity of any Company debt, in an individual or aggregate amount equal to or higher thanR$ 150million, adjusted by the variation of theIPCAas from the issue date, is a default event that may cause the early maturity of the obligations arising from theDebentures.
(b) BNDES
The initial funding of agreement BNDES 2014, totaling R$ 33,000, was carried out on June 18, 2019. The agreement, totaling R$ 61,143, was signed on June 30, 2014 for the implementation of Setor Gênesis (sub-conductor) and Fazendinha, in the Municipality of Santana de Parnaíba, in São Paulo. The contract will be amortized in 85 installments, began in July 2019 and is expected to end in July2026.
Page 64 of 92
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Notes to the Interim Financial Information |
(ii) Covenants
As ofSeptember 30, 2019,the Company met the requirements set forth by its borrowing and financing agreements.
(iii) Borrowings and financing – Credit Limited
In order to comply with its capex plan, the Company 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.
Agent |
| September 30, 2019 |
Brazilian Federal Savings Bank |
| (in millions of R$) 1,774 |
Brazilian Development Bank (BNDES) |
| 1,337 |
Japan International Cooperation Agency (JICA) (*) |
| 111 |
Other |
| 38 |
Total |
| 3,260 |
(*) Brazilian Central Bank’s exchange rate as of September 30, 2019 (¥ 1.00 = R$ 0.03852).
17 Taxes and contributions
(a) Current assets
| September 30, 2019 | December 31, 2018 |
Taxes recoverable |
|
|
Income tax and social contribution | 120,342 | 361,758 |
Withholding income tax (IRRF) on financial investments | 5,559 | 6,423 |
Other federal taxes | 3,435 | 12,522 |
Total | 129,336 | 380,703 |
(b) Current liabilities
| September 30, 2019 | December 31, 2018 |
Taxes obligations |
|
|
Income tax and social contribution | 69,967 | - |
Cofins and Pasep | 94,113 | 82,381 |
INSS (social security contribution) | 38,224 | 38,871 |
IRRF (withholding income tax) | 7,250 | 66,825 |
Other | 34,898 | 12,486 |
Total | 244,452 | 200,563 |
Page 65 of 92
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Notes to the Interim Financial Information |
18 Deferred taxes and contributions
(a) Statement of financial position details
| September 30, 2019 | December 31, 2018 |
Deferred tax assets |
|
|
Provisions | 358,410 | 337,833 |
Pension plan obligations – G1 | 157,738 | 157,044 |
Donations of underlying assets on concession agreements | 52,311 | 54,131 |
Credit losses | 140,756 | 197,920 |
Other | 187,210 | 186,887 |
Total deferred tax assets | 896,425 | 933,815 |
|
|
|
Deferred tax liabilities |
|
|
Temporary difference on concession of intangible asset | (414,816) | (433,842) |
Capitalization of borrowing costs | (413,969) | (420,978) |
Profit on supply to government entities | (373,852) | (206,978) |
Actuarial (gain)/loss – G1 Plan | (36,430) | (36,430) |
Construction margin | (84,090) | (86,164) |
Borrowing costs | (11,854) | (10,665) |
Total deferred tax liabilities | (1,335,011) | (1,195,057) |
|
|
|
Deferred tax assets/(liabilities), net | (438,586) | (261,242) |
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(b) Changes
Deferred tax assets | December 31, 2018 | Net change | September 30, 2019 |
Provisions | 337,833 | 20,577 | 358,410 |
Pension obligations – G1 | 157,044 | 694 | 157,738 |
Donations of underlying asset on concession agreements | 54,131 | (1,820) | 52,311 |
Credit losses | 197,920 | (57,164) | 140,756 |
Other | 186,887 | 323 | 187,210 |
Total | 933,815 | (37,390) | 896,425 |
|
|
|
|
Deferred tax liabilities |
|
|
|
Temporary difference on concession of intangible asset | (433,842) | 19,026 | (414,816) |
Capitalization of borrowing costs | (420,978) | 7,009 | (413,969) |
Profit on supply to government entities | (206,978) | (166,874) | (373,852) |
Actuarial (gain)/loss – G1 | (36,430) | - | (36,430) |
Construction margin | (86,164) | 2,074 | (84,090) |
Borrowing costs | (10,665) | (1,189) | (11,854) |
Total | (1,195,057) | (139,954) | (1,335,011) |
|
|
|
|
Deferred tax asset/(liability), net | (261,242) | (177,344) | (438,586) |
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Deferred tax assets | December 31, 2017 |
| Net change |
| September 30, 2018 |
Provisions | 482,863 |
| (133,262) |
| 349,601 |
Pension obligations –G1 | 165,503 |
| (6,308) |
| 159,195 |
Donations of underlying asset on concession agreements | 55,112 |
| (1,997) |
| 53,115 |
Credit losses | 199,063 |
| 56,719 |
| 255,782 |
Other | 151,562 |
| 29,921 |
| 181,483 |
Total | 1,054,103 |
| (54,927) |
| 999,176 |
Deferred tax liabilities |
|
|
|
|
|
Temporary difference on concession of intangible asset | (460,177) |
| 20,909 |
| (439,268) |
Capitalization of borrowing costs | (415,379) |
| (4,689) |
| (420,068) |
Profit on supply to government entities | (76,705) |
| (20,202) |
| (96,907) |
Actuarial (gain)/loss – G1 | (36,538) |
| - |
| (36,538) |
Construction margin | (88,947) |
| 2,091 |
| (86,856) |
Borrowing costs | (13,111) |
| 1,628 |
| (11,483) |
Total | (1,090,857) |
| (263) |
| (1,091,120) |
Deferred tax liabilities, net |
(36,754) |
|
(55,190) |
|
(91,944) |
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(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:
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
|
|
|
|
|
Profit before income taxes | 1,838,628 | 3,478,621 | 863,511 | 1,986,875 |
Statutory rate | 34% | 34% | 34% | 34% |
|
|
|
|
|
Estimated expense at statutory rate | (625,134) | (1,182,731) | (293,594) | (675,536) |
Tax benefit of interest on equity | - | 40,412 | - | 35,884 |
Permanent differences |
|
|
|
|
Provision Law 4,819/58 – G0 (i) | (12,162) | (35,594) | (12,301) | (36,834) |
Donations | (3,092) | (11,557) | (3,022) | (5,170) |
Other differences | 10,620 | 21,375 | 10,570 | 22,262 |
|
|
|
|
|
Income tax and social contribution | (629,768) | (1,168,095) | (298,347) | (659,394) |
|
|
|
|
|
Current income tax and social contribution | (434,142) | (990,751) | (303,572) | (604,204) |
Deferred income tax and social contribution | (195,626) | (177,344) | 5,225 | (55,190) |
Effective rate | 34% | 34% | 35% | 33% |
(i) Permanent difference related to the provision for actuarial liability (Note20(b)(iii)).
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19 Provisions
(a) Lawsuits and proceedings that resulted in provisions
(I) Statement of financial position details
The Company is a party to a number of legal claims and administrative proceedings arising from 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 of the Annual Financial Statements of December 31, 2018. The terms and payment amounts depend on the outcome of the lawsuits. The provisions, net of escrow deposits are as follows:
| September 30, 2019 |
| December 31, 2018 | ||||
| Provisions | Escrow deposits | Provisions net of deposits |
| Provisions | Escrow deposits | Provisions net of deposits |
Customer claims (i) | 195,866 | (10,703) | 185,163 |
| 290,649 | (43,841) | 246,808 |
Supplier claims (ii) | 89,870 | (389) | 89,481 |
| 67,985 | (24,380) | 43,605 |
Other civil claims (iii) | 111,772 | (16,442) | 95,330 |
| 98,302 | (13,519) | 84,783 |
Tax claims (iv) | 66,314 | (3,500) | 62,814 |
| 63,335 | (8,091) | 55,244 |
Labor claims (v) | 400,688 | (11,134) | 389,554 |
| 302,935 | (10,932) | 292,003 |
Environmental claims (vi) | 189,638 | (321) | 189,317 |
| 170,419 | - | 170,419 |
Total | 1,054,148 | (42,489) | 1,011,659 |
| 993,625 | (100,763) | 892,862 |
|
|
|
|
|
|
|
|
Current | 531,497 | - | 531,497 |
| 458,387 | - | 458,387 |
Noncurrent | 522,651 | (42,489) | 480,162 |
| 535,238 | (100,763) | 434,475 |
(II) Changes
| December 31, 2018 | Additional provisions | Interest and inflation adjustment | Use of the accrual | Amounts not used (reversal) | September 30, 2019 |
Customer claims (i) | 290,649 | 13,717 | 17,624 | (86,455) | (39,669) | 195,866 |
Supplier claims (ii) | 67,985 | 31,161 | 44,816 | (25,970) | (28,122) | 89,870 |
Other civil claims (iii) | 98,302 | 26,119 | 16,703 | (7,521) | (21,831) | 111,772 |
Tax claims (iv) | 63,335 | 9,991 | 2,267 | (4,813) | (4,466) | 66,314 |
Labor claims (v) | 302,935 | 131,300 | 53,214 | (42,250) | (44,511) | 400,688 |
Environmental claims (vi) | 170,419 | 33,475 | 19,678 | - | (33,934) | 189,638 |
Provisions | 993,625 | 245,763 | 154,302 | (167,009) | (172,533) | 1,054,148 |
Escrow deposits | (100,763) | (12,613) | (11,215) | 17,854 | 64,248 | (42,489) |
Provisions net of deposits | 892,862 | 233,150 | 143,087 | (149,155) | (108,285) | 1,011,659 |
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| December 31, 2017 | Additional provisions | Interest and inflation adjustment | Use of the accrual | Amounts not used (reversal) | September 30, 2018 |
Customer claims (i) | 438,619 | 14,923 | 29,319 | (85,739) | (58,839) | 338,283 |
Supplier claims (ii) | 332,037 | 24,925 | 5,935 | (283,513) | (12,789) | 66,595 |
Other civil claims (iii) | 114,544 | 18,327 | 9,995 | (10,421) | (32,658) | 99,787 |
Tax claims (iv) | 77,100 | 4,931 | 3,443 | (2,458) | (20,621) | 62,395 |
Labor claims (v) | 299,842 | 63,950 | 23,962 | (33,305) | (55,800) | 298,649 |
Environmental claims (vi) | 160,446 | 26,290 | 14,658 | (114) | (36,348) | 164,932 |
Provisions | 1,422,588 | 153,346 | 87,312 | (415,550) | (217,055) | 1,030,641 |
Escrow deposits | (344,384) | (42,457) | (4,994) | 264,203 | 32,185 | (95,447) |
Provisions net of deposits | 1,078,204 | 110,889 | 82,318 | (151,347) | (184,870) | 935,194 |
(b) Lawsuits deemed as contingent liabilities
The Company is a 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, net of deposits, are represented as follows:
| September 30, 2019 | December 31, 2018 |
Customer claims (i) | 153,885 | 207,600 |
Supplier claims (ii) | 1,653,831 | 1,459,100 |
Other civil claims (iii) | 663,394 | 719,300 |
Tax claims (iv) | 1,151,494 | 1,439,100 |
Labor claims (v) | 618,751 | 624,200 |
Environmental claims (vi) | 4,692,848 | 4,343,800 |
Total | 8,934,203 | 8,793,100 |
(c) Explanation on the nature of main classes of lawsuits
(i) Customer claims
Approximately 760 lawsuits (890 as of December 31, 2018) were filed by commercial customers, who claim that their tariffs should correspond to other consumer categories, and 400 lawsuits (490 as of December 31, 2018) 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 40 lawsuits (40 as of December 31, 2018) in which customers plead the reduction in tariff under the category “Social Welfare Entity”.
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(ii) Supplier claims
These lawsuits 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, such as vehicle accidents, claims, challenges on the methodology to collect tariffs, among others, 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 São Paulo State, 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
On May 25, 2019, the Company contracted guarantee insurance for escrow deposit, in the amount of R$ 500 million. Such insurance will be used to settle legal claims instead of having immediate cash disbursement by the Company, such insurance is used until the conclusion of these proceedings limited to up to five years.
From July to September 2019, the Company used R$ 23,683 of the guarantee insurance (R$ 25,729 from July to September 2018). A total of R$ 462,292 from the current contract is outstanding.
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20 Employee benefits
(a) Health benefit plan
Since August1, 2019, the new health plans managed by Fundação CESP -Funcesp, which replaced the previous health plans managed by FundaçãoSabespdeSeguridadeSocial–Sabesprev, have been in effect.The health plan operator was changed by means of the signature of an Adhesion Agreement between the parties.The entire process was in accordance with the current industry law, which is applicable to SABESP, andwas approved by the controlling authorities of the State Government.
Benefits are now paid after the event, free of choice, sponsored by contributions of SABESP and the employees is as follows:
· Company: 3.2% on average, of gross payroll;
Employees: the contributions are based on three plans: (i) plan I (0.58%), (ii) plan II (2.57%) and (iii) plan III (3.97%) of the base salary and premiums, equivalent to 3.3% of payroll, on average.
(b) Pension plan benefits
Funded plan – G1 |
|
|
Pension plan liabilities as of December 31, 2018 |
| 363,902 |
Expenses recognized in 2019 |
| 30,056 |
Payments made in 2019 |
| (27,748) |
Pension plan liabilities as of September 30, 2019 (i) |
| 366,210 |
|
|
|
Unfunded plan– G0 |
|
|
Pension plan liabilities as of December 31, 2018 |
| 2,606,107 |
Expenses recognized in 2019 |
| 170,525 |
Payments made in 2019 |
| (127,389) |
Pension plan liabilities as of September 30, 2019 (iii) |
| 2,649,243 |
|
|
|
Total |
| 3,015,453 |
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(i) G1 Plan
Managed by Sabesprev, the defined benefit plan (“G1 Plan”) 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 ofSeptember 30, 2019,SABESP had a net actuarial liability of R$ 366,210 (R$ 363,902 as of December 31, 2018) representing the difference between the present value of the Company's defined benefit obligations to the participating employees, retired employees, and pensioners, and the fair value of the plan’s assets.
(ii) Private pension plan benefits – Defined contribution
As ofSeptember 30, 2019, Sabesprev Mais plan, based on defined contribution, had 9,876 active and assisted participants (9,586 as of December 31, 2018).
With respect to the Sabesprev Mais plan, the contributions from the sponsor represent 100% over the total basic contribution from the participants. In 2019, expenses related to the obligation of defined contribution, totaling
R$ 9,535, R$ 1,252 and R$ 2,546, were allocated to operating costs, selling expenses and administrative expenses. The amount of R$ 1,533 was capitalized in assets.
The Company has made contributions in the amount of R$ 14,866 from January to September 2019 (R$ 15,167 from January to September 2018).
(iii) G0 Plan
Pursuant to State 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 "G0 Plan". 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 September 30, 2019, the Company recorded a defined benefit obligation for the G0 Plan of R$ 2,649,243 (R$ 2,606,107 as of December 31, 2018).
(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, from January to December 2019. The limit of the profit sharing is up to one-month salary for each employee, depending on performance goals reached.
In the third quarter of 2019, the Company accrued R$ 23,650 (R$ 27,553 in the third quarter of 2018). From January to September 2019 and 2018, R$ 69,880 and R$ 81,695, respectively, were accrued under “Payroll and related charges”.
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21 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 the transfer of 7.5% of revenue from the São Paulo municipal government to the Municipal Fund (Note 15 (c) (v) (6) of the Annual Financial Statements of December 31, 2018). The balances as of September 30, 2019 and December 31, 2018 were R$ 480,730 and R$ 454,022, respectively.
22 Knowledge Retention Program and Consent Decree
a) Knowledge Retention Program(“PRC”)
In June 2018, SABESP implemented the Knowledge Retention Program (PRC), aiming to provide personnel planning conditions and mitigate the impact of the exit of employees who possess strategic knowledge acquired throughout their career.
For those enrolled in the Program, the compliance with the agreements of the Collective Bargaining Agreement effective on the date of termination is thereby guaranteed. They will also receive a severance incentive proportional to the length of service at SABESP, corresponding to a percentage of the balance of the Guarantee Fund for Length of Service (FGTS), for termination purposes, on the date of termination.
In the third quarter of 2019, the Company wrote-off R$ 11,527, corresponding to the exit of employees enrolled in the Program. As of September 30, 2019, the balance totaled R$ 159,469 (R$ 196,472 as of December 31, 2018), R$ 58,076 of which recorded under “Tax liabilities”, in current liabilities (R$ 74,324 as of December 31, 2018), and R$ 101,393 under “Labor liabilities”, in noncurrent liabilities (R$ 122,148 as of December 31, 2018).
b) Consent Decree(“TAC”)
On February20,2009,SABESP signed a Consent Decree,proposed by the State Prosecution Office, in which the Company undertook to: a) continue hiring employees by means of public competition, except for filling positions in commission or trust functions; b) gradually dismissing retired employees, replacing them with permanent staff, except in segmentswhere increased efficiency requires the reduction in the effective number of employees.
The Consent Decree clarifies“the need of training and carrying out phased dismissal of approximately two thousand an two hundred (2,200)retired employees within a reasonable period of time,as well as those who will retire in the future”,which allowed interpreting that the Consent Decree did not cover the approximately2,200retirees at that time, but all other employees who retire at SABESP. Accordingly, the Company created a provision for indemnity of all retired employees who worked atSABESP.
On October 11, 2019, the Prosecutor filed the Consent Decree stating that for the time elapsed and the successive information provided bySABESP,the objective of the Consent Decree was fully complied with. Accordingly, the amount of R$ 173,284,corresponding to the provisioned amount related to number of employees who retired after February20,2009 was reversed,taking into consideration that the Consent Decree was filed following the dismissal of the2,200 retired employees on the date the Decree was signed.
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As of September 30,2019,the amount provisioned under“Labor obligations”,related to the Consent Decree totaledR$13,024 (R$140,818 as of December 31, 2018), of which R$ 9,673 (R$136,293 as of December 31, 2018) under current liabilities, and R$3,351(R$4,525as of December 31, 2018) under noncurrent liabilities.
23 Equity
(a) Subscribed and paid-in capital
As of September 30, 2019 and December 31, 2018, subscribed and paid-in capital was represented by 683,509,869 registered, book-entry common shares with no par value, as follows:
| September 30, 2019 | December 31, 2018 | ||
| Number of shares | % | Number of shares | % |
State Department of Finance | 343,524,285 | 50.26% | 343,524,285 | 50.26% |
Companhia Brasileira de Liquidação e Custódia | 231,353,251 | 33.85% | 212,612,143 | 31.10% |
The Bank Of New York ADR Department (equivalent in shares) (*) | 106,582,285 | 15.59% | 125,278,967 | 18.33% |
Other | 2,050,048 | 0.30% | 2,094,474 | 0.31% |
|
|
|
|
|
Total | 683,509,869 | 100.00% | 683,509,869 | 100.00% |
(*) each ADRcorresponds to1share.
The Annual and Extraordinary General Meeting of April 29, 2019, approved the distribution of dividends as interest on capital, in the amount of R$ 792,187, the transfer of R$ 1,901,126 to “Investment Reserves”, corresponding to the balance of retained earnings, and the allocation of R$ 141,755 to “Legal Reserve”.
The payment of interest on capital in the amount of R$ 740,126, net of withholding income tax of R$ 52,061, totaling R$ 792,187, began in June 2019, with a paid amount of R$ 739,990.
24 Earnings per share
Basic and diluted
Basic earnings per share is calculated by dividing the equity attributable to the 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.
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| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
|
|
|
|
|
Profit attributable to Company’s owners | 1,208,860 | 2,310,526 | 565,164 | 1,327,481 |
Weighted average number of common shares issued | 683,509,869 | 683,509,869 | 683,509,869 | 683,509,869 |
|
|
|
|
|
Basic and diluted earnings per share (reais per share) | 1.76861 | 3.38039 | 0.82686 | 1.94216 |
25 Operating segment information
Management, comprised of the Board of Directors and Board of Executive Officers, has determined the operating segment used to make strategic decisions, as sanitation services.
Result
| July to September 2019 | ||
| Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements |
Gross operating revenue | 4,984,140 | 699,458 | 5,683,598 |
Gross sales deductions | (273,005) | - | (273,005) |
Net operating revenue | 4,711,135 | 699,458 | 5,410,593 |
Costs, selling, general and administrative expenses | (2,183,855) | (683,732) | (2,867,587) |
Income from operations before other operating expenses, net and equity accounting | 2,527,280 | 15,726 | 2,543,006 |
Other operating income/(expenses), net |
|
| 13,198 |
Equity accounting |
|
| 2,352 |
Financial result, net |
|
| (719,928) |
Income before taxes |
|
| 1,838,628 |
Depreciation and amortization | (463,962) | - | (463,962) |
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| January to September 2019 | ||
| Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements |
Gross operating revenue | 12,099,335 | 1,991,515 | 14,090,850 |
Gross sales deductions | (803,843) | - | (803,843) |
Net operating revenue | 11,295,492 | 1,991,515 | 13,287,007 |
Costs, selling, general and administrative expenses | (6,862,346) | (1,946,740) | (8,809,086) |
Income from operations before other operating expenses, net and equity accounting | 4,433,146 | 44,775 | 4,477,921 |
Other operating income/(expenses), net |
|
| 18,324 |
Equity accounting |
|
| 8,337 |
Financial result, net |
|
| (1,025,961) |
Income from operations before taxes |
|
| 3,478,621 |
Depreciation and amortization | (1,299,363) | - | (1,299,363) |
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| July to September 2018 | ||
| Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements |
Gross operating revenue | 3,331,564 | 724,158 | 4,055,722 |
Gross sales deductions | (244,941) | - | (244,941) |
Net operating revenue | 3,086,623 | 724,158 | 3,810,781 |
Costs, selling, general and administrative expenses | (2,011,284) | (707,877) | (2,719,161) |
Income from operations before other operating expenses, net and equity accounting | 1,075,339 | 16,281 | 1,091,620 |
Other operating income/(expenses), net |
|
| 34,159 |
Equity accounting |
|
| 502 |
Financial result, net |
|
| (262,770) |
Income from operations before taxes |
|
| 863,511 |
Depreciation and amortization | (342,520) | - | (342,520) |
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| January to September 2018 | ||
| Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements |
Gross operating revenue | 9,862,258 | 2,038,406 | 11,900,664 |
Gross sales deductions | (717,981) | - | (717,981) |
Net operating revenue | 9,144,277 | 2,038,406 | 11,182,683 |
Costs, selling, general and administrative expenses | (5,975,461) | (1,992,577) | (7,968,038) |
Income from operations before other operating expenses, net and equity accounting | 3,168,816 | 45,829 | 3,214,645 |
Other operating income/(expenses), net |
|
| 61,971 |
Equity accounting |
|
| 4,196 |
Financial result, net |
|
| (1,293,937) |
Income from operations before taxes |
|
| 1,986,875 |
Depreciation and amortization | (997,406) | - | (997,406) |
(i) See Note 31 for further information about non-cash items, other than depreciation and amortization that impact segment results, and for additional information to long-lived asset.
(ii) Construction revenue and related costs not reported to the CODM.
Explanation on the reconciliation items for the financial statements. The impacts on gross operating income and costs are as follows:
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
|
|
|
|
|
Gross revenue from construction recognized under ICPC 1 (R1) (a) | 699,458 | 1,991,515 | 724,158 | 2,038,406 |
Construction costs recognized under ICPC 1 (R1) (a) | (683,732) | (1,946,740) | (707,877) | (1,992,577) |
|
|
|
|
|
Construction margin | 15,726 | 44,775 | 16,281 | 45,829 |
(a) Revenue from construction is recognized in accordance with ICPC 01 (R1) / IFRIC 12 (Concession Agreements) and CPC 47 / IFRS 15 (Revenue from Contracts with Customers), as all performance obligations are satisfied over time. See Note14(e).
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| |
Notes to the Interim Financial Information |
26 Operating revenue
(a) Revenue from sanitation services:
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
|
|
|
|
|
Metropolitan Region of São Paulo | 3,920,970 | 8,941,288 | 2,355,358 | 6,935,754 |
Regional systems | 1,063,170 | 3,158,047 | 976,206 | 2,926,504 |
Total | 4,984,140 | 12,099,335 | 3,331,564 | 9,862,258 |
(b) Reconciliation between gross operating income and net operating income:
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
|
|
|
|
|
Revenue from sanitation services (i) | 4,984,140 | 12,099,335 | 3,331,564 | 9,862,258 |
Construction revenue | 699,458 | 1,991,515 | 724,158 | 2,038,406 |
Sales tax | (257,951) | (759,085) | (231,470) | (677,569) |
Regulation, Control and Oversight Fee (TRCF) (ii) | (15,054) | (44,758) | (13,471) | (40,412) |
Net revenue | 5,410,593 | 13,287,007 | 3,810,781 | 11,182,683 |
(i) Includes the amounts of R$ 17,381 from July to September 2019 and R$ 51,057 from January to September 2019 (R$ 15,832 from July to September 2018 and R$ 41,176 from January to September 2018), from the TRCF charged from customers from the municipalities regulated by ARSESP.
(ii)Amount payable to ARSESP referring to regulation, control and oversight activities, pursuant to State Complementary Law 1,025/07.
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| |
| |
Notes to the Interim Financial Information |
27 Operating costs and expenses
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
Operating costs |
|
|
|
|
Salaries, payroll charges and benefits | (368,245) | (1,435,511) | (504,663) | (1,458,988) |
Pension obligations | (12,461) | (37,130) | (6,449) | (18,626) |
Construction costs (Note 25) | (683,732) | (1,946,740) | (707,877) | (1,992,577) |
General supplies | (64,810) | (188,336) | (58,101) | (161,792) |
Treatment supplies | (67,402) | (229,831) | (58,132) | (195,490) |
Outsourced services | (306,514) | (897,873) | (250,452) | (714,289) |
Electricity | (282,000) | (843,019) | (240,952) | (690,308) |
General expenses | (161,536) | (486,512) | (173,426) | (463,996) |
Depreciation and amortization | (433,012) | (1,215,842) | (313,237) | (908,824) |
| (2,379,712) | (7,280,794) | (2,313,289) | (6,604,890) |
|
|
|
|
|
Selling expenses |
|
|
|
|
Salaries, payroll charges and benefits | (48,874) | (200,292) | (72,711) | (219,267) |
Pension obligations | (1,731) | (5,135) | (892) | (2,615) |
General supplies | (1,683) | (5,357) | (1,753) | (4,294) |
Outsourced services | (101,514) | (272,110) | (66,367) | (198,976) |
Electricity | (292) | (1,002) | (254) | (853) |
General expenses | (33,763) | (89,503) | (23,680) | (73,852) |
Depreciation and amortization | (8,088) | (16,910) | (4,365) | (13,028) |
| (195,945) | (590,309) | (170,022) | (512,885) |
|
|
|
|
|
Bad debt expenses (Note 8 (c)) | 37,677 | (50,898) | (19,307) | (126,005) |
|
|
|
|
|
Administrative expenses |
|
|
|
|
Salaries, payroll charges and benefits | (48,219) | (181,069) | (70,362) | (190,905) |
Pension obligations | (37,500) | (110,467) | (37,102) | (111,913) |
General supplies | (790) | (2,380) | (1,182) | (3,828) |
Outsourced services | (41,897) | (156,482) | (49,681) | (149,972) |
Electricity | (203) | (997) | (252) | (945) |
General expenses | (163,273) | (313,492) | (19,599) | (147,152) |
Depreciation and amortization | (22,862) | (66,611) | (24,918) | (75,554) |
Tax expenses | (14,863) | (55,587) | (13,447) | (43,989) |
| (329,607) | (887,085) | (216,543) | (724,258) |
|
|
|
|
|
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| |
Notes to the Interim Financial Information |
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
Operating costs and expenses |
|
|
|
|
Salaries, payroll charges and benefits | (465,338) | (1,816,872) | (647,736) | (1,869,160) |
Pension obligations | (51,692) | (152,732) | (44,443) | (133,154) |
Construction costs (Note 25) | (683,732) | (1,946,740) | (707,877) | (1,992,577) |
General supplies | (67,283) | (196,073) | (61,036) | (169,914) |
Treatment supplies | (67,402) | (229,831) | (58,132) | (195,490) |
Outsourced services | (449,925) | (1,326,465) | (366,500) | (1,063,237) |
Electricity | (282,495) | (845,018) | (241,458) | (692,106) |
General expenses | (358,572) | (889,507) | (216,705) | (685,000) |
Depreciation and amortization | (463,962) | (1,299,363) | (342,520) | (997,406) |
Tax expenses | (14,863) | (55,587) | (13,447) | (43,989) |
Bad debt expenses (Note 8 (c)) | 37,677 | (50,898) | (19,307) | (126,005) |
Total | (2,867,587) | (8,809,086) | (2,719,161) | (7,968,038) |
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Notes to the Interim Financial Information |
28 Financial income (expenses)
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
Financial expenses |
|
|
|
|
Interest and charges on borrowings and financing – local currency | (89,886) | (248,817) | (84,191) | (246,785) |
Interest and charges on borrowings and financing – foreign currency | (44,049) | (127,578) | (45,725) | (129,495) |
Other financial expenses | (83,064) | (254,386) | (58,533) | (105,030) |
Income tax over international remittance | (4,531) | (13,552) | (5,235) | (15,175) |
Inflation adjustment on borrowings and financing | (4,217) | (34,216) | (21,251) | (53,589) |
Other inflation adjustments | (27,857) | (69,466) | (6,176) | (26,162) |
Interest and inflation adjustments on provisions | (39,009) | (105,333) | 25,916 | 37,929 |
Total financial expenses | (292,613) | (853,348) | (195,195) | (538,307) |
|
|
|
|
|
Financial income |
|
|
|
|
Inflation adjustment gains | 20,970 | 71,512 | 30,915 | 89,177 |
Income on short-term investments | 41,886 | 119,094 | 49,420 | 133,751 |
Interest income | 37,726 | 115,027 | 37,181 | 125,301 |
Cofins and Pasep | (6,274) | (15,848) | (5,465) | (16,944) |
Other | 3 | 10 | 3 | 6 |
Total financial income | 94,311 | 289,795 | 112,054 | 331,291 |
|
|
|
|
|
Financial income (expenses), net before exchange rate changes | (198,302) | (563,553) | (83,141) | (207,016) |
|
|
|
|
|
Net exchange gains (losses) |
|
|
|
|
Exchange rate changes on borrowings and financing | (522,069) | (463,438) | (190,812) | (1,100,166) |
Exchange rate changes on assets | 451 | 1,042 | 11,183 | 13,245 |
Other exchange rate changes | (8) | (12) | - | - |
|
|
|
|
|
Exchange rate changes, net | (521,626) | (462,408) | (179,629) | (1,086,921) |
|
|
|
|
|
Financial income (expenses) | (719,928) | (1,025,961) | (262,770) | (1,293,937) |
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Notes to the Interim Financial Information |
29 Other operating income (expenses), net
| July to September 2019 | January to September 2019 | July to September 2018 | January to September 2018 |
|
|
|
|
|
Other operating income, net | 14,477 | 48,693 | 44,424 | 98,845 |
Other operating expenses | (1,279) | (30,369) | (10,265) | (36,874) |
|
|
|
|
|
Other operating income (expenses), net | 13,198 | 18,324 | 34,159 | 61,971 |
Other operating income is comprised of 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 assets due to obsolescence, discontinued construction works, unproductive wells, projects considered economically unfeasible, losses on property, plant and equipment and exceeding cost of electricity sold.
30 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. The main committed amounts as of September 30, 2019 are as follows:
1 year | 1-3 years | 3-5 years | More than 5 years | Total | |
Contractual obligations - Expenses | 918,418 | 2,072,779 | 338,693 | 1,123,604 | 4,453,494 |
Contractual obligations - Investments | 1,446,881 | 3,897,291 | 1,545,937 | 6,077,956 | 12,968,065 |
Total | 2,365,299 | 5,970,070 | 1,884,630 | 7,201,560 | 17,421,559 |
The main commitment refers to the São Lourenço PPP. See Note14(g).
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| |
Notes to the Interim Financial Information |
31 Supplemental cash flow information
| January to September 2019 | January to September 2018 |
|
|
|
Total additions of contract assets (Note 13) | 2,228,063 | 2,215,276 |
Total additions to intangible assets (Note 14 (b)) | 1,742,318 | 34,876 |
|
|
|
Items not affecting cash (see breakdown below) | (1,941,168) | (883,468) |
|
|
|
Total additions to intangible assets and contract assets as per statement of cash flows | 2,029,213 | 1,366,684 |
|
|
|
Investments and financing operations affecting intangible assets but not cash: |
|
|
Interest capitalized in the period (Note 14 (d)) | 187,605 | 397,420 |
Contractors payable | 210,988 | 245,576 |
Program contract commitments | 39,819 | 22,763 |
Public-Private Partnership – São Lourenço PPP (Note 14 (g)) | 10,591 | 169,785 |
Right of use | 110,482 | 2,095 |
Construction margin (Note 25) | 44,775 | 45,829 |
Agreement with the Municipality of Santo André (Note 8(a)) | 1,336,908 | - |
Total | 1,941,168 | 883,468 |
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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 87 of 92
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Other Information Deemed as Relevant by the Company |
1. CHANGES IN INTEREST HELD BY THE CONTROLLING SHAREHOLDER, BOARD MEMBERS AND EXECUTIVE OFFICERS
CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES Position as of 9/30/2019 | ||||
Shareholder | Number of Common Shares(units) | % | Total Number of Shares (units) | % |
Controlling Shareholder |
|
|
|
|
Treasury Department | 343,524,285 | 50.3% | 343,524,285 | 50.3% |
Management |
|
|
|
|
Board of Directors | 3,000 | 0.0% | 3.000 | 0.0% |
Board of Executive Officers | - | - | - | - |
|
|
|
|
|
Fiscal Council |
2 |
0.0% |
2 |
0.0% |
|
|
|
|
|
Treasury Shares | - | - | - | - |
|
|
|
|
|
Other Shareholders |
|
|
|
|
|
|
|
|
|
Total | 343,527,287 | 50.3% | 343,527,287 | 50.3% |
|
|
|
|
|
|
|
|
|
|
Outstanding Shares | 339,982,582 | 49.7% | 339,982,582 | 49.7% |
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Other Information Deemed as Relevant by the Company |
CONSOLIDATED SHAREHOLDING OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES Position as of 9/30/2018 | ||||
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 | 10,600 | 0.00% | 10,600 | 0.00% |
Board of Executive Officers | - | - | - | - |
|
|
|
|
|
Fiscal Council | 64 | 0.00% | 64 | 0.00% |
|
|
|
|
|
Treasury Shares | - | - | - | - |
|
|
|
|
|
Other Shareholders |
|
|
|
|
|
|
|
|
|
Total | 343,539,227 | 50.3% | 343,539,227 | 50.3% |
|
|
|
|
|
|
|
|
|
|
Outstanding Shares | 339,970,642 | 49.7% | 339,970,642 | 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 9/30/2019 (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 89 of 92
ITR – Quarterly Financial Form – 9/30/2019 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Reports and Statements / Unqualified Reports on Special Review
Report on Review of Quarterly Financial Information - ITR
To the Shareholders, Board Members and Management of
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
São Paulo - SP
Introduction
We have reviewed the interim financial information ofCompanhia de Saneamento Básico do Estado de São Paulo – SABESP (“The Company”), contained in the Quarterly Financial Information Form (ITR) for the quarter ended September 30, 2019, comprising the balance sheet as of September 30, 2019, the respective statements of income and comprehensive income for the three and nine-month periods ended and changes in shareholders' equity and cash flows for the nine-month period then ended, including the explanatory notes.
Management is responsible for the preparation ofthe interim financial information in accordance with Accounting Pronouncement CPC 21(R1) and International Standard IAS 34 - Interim Financial Reporting, issued by International Accounting Standards Board - IASB, and for the presentation of this information in accordance with the standards issued by the Brazilian Securities and Exchange Commission, applicable to the preparation of the 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 Standard 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 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 standards on auditing 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 interim financial information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34, applicable to the preparation of Quarterly Financial Information - ITR and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission.
Other matters
Statement of added value
The interim financial information referred above comprise the statement of added value (DVA) for thenine-month periodended September 30, 2019, prepared under the responsibility of the Company's management, presented as supplementary information for the purposes of IAS 34. This statement was submitted to the review procedures performed together with the review of the Quarterly Financial Information, with the purpose to evaluate whether this is reconciled to the financial information and to accounting records, as applicable, and whether their form and presentation are in accordance with the criteria set on Technical Pronouncement CPC 09 - Statement of Added Value. Based on our review, nothing has come to our attention that causes us to believe that the statement of added value referred to above has not been prepared, in all material respects, according to the criteria defined in this Standard and consistently in relation to the interim financial information taken as a whole.
São Paulo, November 14, 2019
KPMG Auditores Independentes
CRC SP-014428/O-6
(Original report in Portuguese signed by)
Bernardo Moreira Peixoto Neto
Accountant CRC RJ-064887/O-8
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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 Taxpayers’ 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 25, items V and VI of CVM Instruction 480, of December 7, 2009, that:
They revised, discussed and agreed with the interim financial information for the period ended September 30,2019.São Paulo, November 14, 2019.
Companhia de Saneamento Básico do Estado de São Paulo –SABESP
Benedito Pinto Ferreira Braga Junior
Chief Executive Officer
Rui de Britto Álvares Affonso
Chief Financial and Investor Relations Officer
Adriano Candido Stringhini
Corporate Management Officer
Edison Airoldi
Technology, Project and Environment Officer
Paulo Massato Yoshimoto
Metropolitan Officer
Ricardo Daruiz Borsari
Regional System Officer
Page 91 of 92
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Reports and Statements / Executive Officers’ Statement on the Report of Independent 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 25, items V and VI, of CVM Instruction 480, of December 7, 2009, that:
They revised, discussed and agreed with the Report of Independent Registered Public Accounting Firm on the interim financial information for the period ended September 30, 2019.
São Paulo, November 14, 2019.
Companhia de Saneamento Básico do Estado de São Paulo –SABESP
Benedito Pinto Ferreira Braga Junior
Chief Executive Officer
Rui de Britto Álvares Affonso
Chief Financial and Investor Relations Officer
Adriano Candido Stringhini
Corporate Management Officer
Edison Airoldi
Technology, Project and Environment Officer
Paulo Massato Yoshimoto
Metropolitan Officer
Ricardo Daruiz Borsari
Regional Systems Officer
Page 92 of 92
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 |
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.