2Q19 Results

Economic-Financial Office and Investor Relations Office

DISCLAIMER

This presentation may contain forward-looking statements referring to SABESP's business outlook, operating and financial results estimates, and growth prospects. These are only forecasts, and as such, they are exclusively based on SABESP's management expectation in relation to the future of business and its continuous access to capital to finance the Company's business plan. These forward-looking statements largely depend on changes in market conditions, governmental rules, industry performance and the Brazilian economy, among other factors, in addition to risks exhibited in disclosure documents filed by SABESP. Therefore, they are subject to changes without prior notice.

AGENDA

  1. COMPANY OVERVIEW
  2. OUR OPERATIONS
  3. OUR FINANCIAL PERFORMANCE
  4. SPMR - WATER SITUATION

...ONE OF THE LARGEST WATER AND SEWAGE PROVIDERS IN THE WORLD

COMPANY OVERVIEW

  • Sabesp is one of the largest water and sewage service providers in the world based on the number of Customers*
  • Provides water to 26.3 million people and sewage services to 22.9 million people
  • Also sells wholesale treated water to 4 municipalities (1.7 million people)
  • Natural monopoly, low operating risk
  • Serves the City of São Paulo and 370 out of 645 municipalities in the State
  • Covers around 69% of State's urban population, including the wholesale
  • Operations in the São Paulo Metropolitan Region**represent 70.6% of our total revenues

*Source: Depth Water Yearbook 2014-2015

**The Metropolitan Region we consider for this estimate, includes 8 municipalities outside the legal boundaries of the São Paulo Metropolitan Region and represents the municipalities served by the Company's Metropolitan Division

MAIN OPERATIONAL INDICATORS(1)

Water

Sewage

Connections (million)(2)

9.5

8.0

Coverage(3)(%)

97

89

Service(4)(%)

94

83

Treatment(5)(%)

---

77

Billed Volume (m³ million)

522.2

433.2

(1) As of June 30, 2019

  1. Active and Inacttive water connections. It includes Guarulhos
  2. Services Available. It includes Guarulhos
  3. Connected households. It includes Guarulhos
  4. Consumer units connected to the sewage treatment - It does not include Guarulhos

Sistemas Regionais

RMSP

São Paulo

4

...WITH STRONG CORPORATE GOVERNANCE

  • We are a mixed capital company,majority-owned by the State of São Paulo, with significant private ownership
    • State law requires the State of São Paulo to own at least 50% + 1 voting shares at all times (State Law 11,454/2003)
    • Currently the Government of São Paulo has 50.3% share
  • 100% common shares
  • Market Cap: R$ 32.3 billion (as of June, 2019)
  • Law nº 13.303/16 -Government-Controlled Companies Law

OWNERSHIP STRUCTURE % (1)

(1) June/2019

5

AGENDA

  1. THE COMPANY
  2. OUR OPERATIONS
  3. OUR FINANCIAL PERFORMANCE
  4. SPMR - WATER SITUATION

DIVERSIFIED CONSUMER BASE

WATER BILLED VOLUME BY TYPE OF CUSTOMER

SEWAGE BILLED VOLUME BY TYPE OF CUSTOMER

  • 80% of water volume and revenue come from residential, commercial and industrial customer

WATER REVENUES BY TYPE OF CUSTOMER*

  • 90% of sewage volume and revenue come from residential, commercial and industrial customer

SEWAGE REVENUES BY TYPE OF CUSTOMER*

*Managerial information

7

BROAD COVERAGE OF MUNICIPALITIES

CONTRACTS

Nº CONTRACTS

% OF REVENUE

Renewed/Secured(1)

312(2)

89.5%

Metropolitan region without contract

23

4.8%

Expired Contracts / Under negotiation

9

0.9%

To be expired (2019 - 2025)

3

0.2%

To be expired (2026 - 2030)

26

3.7%

Total Retail

373

99.1%

Wholesale

4

0.9%

Total Sabesp

377

100.0%

  1. Program and Service Contract from 2007 to Jun/2019
  2. It includes two patial contracts with Mogi das Cruzes and Aguaí

CONTRACT WITH THE MUNICIPALITY OF SÃO PAULO

  • 30-year-serviceagreement between Sabesp, Municipality of São Paulo and State Government (expires in 2040)
  • Minimum investment of 13% of the Gross Revenue, net of Cofins and Pasep
  • Transfer of 7.5% of the Gross Revenue, net of Cofins and Pasep, to the Municipal Environmental Sanitation and Infrastructure Fund
  • Since May/18 -Pass-through of 4%

TOP 10 CONTRACTS

% of Total Revenue

Remaining Period

Municipalities

(1H19)

(Years)

São Paulo

47.8

21

São Bernardo do Campo

3.3

40

Guarulhos

2.4

39

Praia Grande

2.3

29

Osasco

2.1

10

Santos

2.1

26

São José dos Campos

1.8

19

Barueri

1.6

26

Diadema

1.3

25

Itaquaquecetuba

1.1

28

Total 10+ / Avg.

65.7

26

8

CONTRACT WITH GUARULHOS

TERM OF DEBT ADJUSTMENT

  • The municipality withdraws pending appeals of Sabesp's collections legal procedings
  • Sabesp: Court orders debt payments ("Precatórios")
    • Sabesp suspends the judicial collection of debt
    • The payments remains suspended during the contract term
    • The amounts are used as guarantees in the service contract
    • If the service contract is interrupted, the court orders will be reactivated
  • Transfer R$ 50 million to the municipality in order to end SAAE's activities
  • SAAEs employees ceded to Sabesp:
    • During 6 months - All SAAE's employees will be ceded to Sabesp
    • From month 7 up to a maximum of 4 years up to 400 employees will continue to be ceded

CONTRACT

  • 40-yearservice contract
    • Water Supply Service
    • Sewage collection, removal and treatment services*
  • Contract signing parties: State, Municipality and Sabesp
  • Planning shared among State and Municipality (SPMR)
  • Regulator: ARSESP Tariff, control and monitoring
  • Tariff: the same as SPMR (adjustment -catch-up period of approximately 2 years)
  • Expected investment of R$ 2 billion over 40 years
  • Transfers to the Municipal Fund for Environmental Sanitation and Infrastructure
    • R$ 150 million in 5 years (R$ 30 million per year)
    • 4% of net revenue from the second year onwards

* Part of the removal and treatment services will be remaine under the municipality's direct and indirect responsibility

9

CONTRACT WITH SANTO ANDRÉ

TERM OF DEBT ADJUSTMENT

  • The municipality withdraws pending appeals of Sabesp's collections legal procedings
  • Sabesp: Court orders debt payments ("Precatórios")
    • Sabesp suspends the judicial collection of debt
    • The payments remains suspended during the contract term
    • The amounts are used as guarantees in the service contract
    • If the service contract is interrupted, the court orders will be reactivated
    • R$ 600 million discount on fines and interest
  • Transfer R$ 70 million to the municipality in order to end Semasa's activities
  • Semasa employees ceded to Sabesp:
    • During 6 months - All Semasa's employees will be ceded to Sabesp
    • From month 7 up to a maximum of 4 years up to 400 employees will continue to be ceded

CONTRACT

  • 40-yearservice contract
    • Water Supply Service
    • Sewage collection, removal and treatment services
  • Contract signing parties: State, Municipality and Sabesp
  • Planning shared among State and Municipality (SPMR)
  • Regulator: ARSESP Tariff, control and monitoring
  • Tariff: the same as SPMR stating in 2021
  • Expected investment of R$ 917 million over 40 years
  • Transfers to the Municipal Fund for Environmental Sanitation and Infrastructure
    • R$ 90 million in the first year of the contract
    • 4% of net revenue from the second year onwards

10

REGULATORY FRAMEWORK

FEDERAL LAW 11.445/07 / FEDERAL DECREES: 7.217/10, 8.211/14, 8.629/15, 9.254/17

  • Separation of duties: planning, service provision and regulation
  • Obligation to install the service regulation → Municipal, State level or Consortium
  • Clarifies the payment conditions ofnon-amortized investments → up to 4 years
  • Disbursement of federal funds conditioned to the existence of a sanitation plan

CONCESSION POWER IN METROPOLITAN REGIONS

  • Legal proceeding related to this matter under Supreme Court (STF) appraisal was ruled in March 2013
  • The decision was released in September 2013
    • Sanitation services in metro regions are subject to shared responsibility between State and Municipality

REVISION OF THE REGULATORY FRAMEWORK (under discussion)

  • The Provisional Measure Nº 868 of December 28, 2018 expired on June 3, 2019
  • A new Bill 3,261/19 was proposed by the senator Tasso Jereissati. The Bill, which changes the previous content proposed by the Provisional Measure 868, was approved by the Senate on June 06 and advanced to the Lower House
  • On August 02, a new Bill of Law 4,162/19 was proposed by the Executive body to the Lower House, resuming the content previously used on the Provisional Measure 868
  • There are currently several Bills dealing with the sanitation framework pending in the Lower House

11

TARIFF REVIEW

METHODOLOGY OF TARIFF REVIEW (PRICE CAP)

Required Revenue

=

+

CAPEX

+

Taxes

+

RABt- RAB0

WACC

OPEX

Average

Billed

Personnel

Water

Income Taxes

Amortization

Cost of Equity

Energy

Tariff (P0)

Volume

Sewage

Revenue

Rate

Cost of Debt

Materials

Others

Taxes

PRICE CAP

Others

Output of

Reduced by X Factor X

Sabesp 4 year Business Plan

Asset

Arsesp

the Model

defined by Arsesp

+

Useful Life

Technical

(after year1)

Arsesp Review

Note

New Average

Tariff

ANNUAL TARIFF ADJUSTMENT FORMULA

InflationProductivity

(IPCA)-Factor

(0.6920%)

= 1+

x

Previous

-

Quality

100

Average Tariff

Factor*

*Not defined yet

12

TARIFF READJUSTMENTS AND REVISIONS

READJUSTMENTS AND REVISIONS INDEXES

IPCA Index - Between the readjustement/revision periods

OTR- Ordinary Tariff Revision

ETR- Extraordinary Tariff Revision

2015 - Readjustment + Residual + ETR = 15.24%

ORDINARY TARIFF REVISION (OTR) - 2º CYCLE FROM 2017 TO 2020

Initial Phase - Oct/2017

Final Phase- May/2018

RAB(1)(R$ Billion)

40.3

39.0

WACC (%)

8.11

8.11

Current Average Tariff (R$/m³)

3.37255

3.6425

X Factor(%)

-

0.6920

P0 (R$/m³)

3.63861

3.7702

TRI(2)(%)

7.8888

3.507

(1) Regulatory Asset Base

(2) Tariff Repositioning Index

  • ARSESP's Resolutions nº 865 and nº 866 → Tariff Structure Revision (to be defined by June 2020)
  • Opening of the Public Consultation 06/2019 General Quality Index (to be aplied in 2019)
  • Opening of the Public Consultation 09/2019 Methodology for Updating the Regulatory Asset Base of 3rd ORT (Sabesp must

send contribution until September 24)

13

WATER AND SEWAGE OPERATIONS

WATER CONNECTION EVOLUTION (million)

WATER COVERAGE (Connection in 000's)

Add 954 thousand new connections by 2023

SEWAGE CONNECTION EVOLUTION (million)

SEWAGE COVERAGE (´000s)

Add 1.2 million new connections by 2023

Coverage: 93% in 2023

Treatment: 84% in 2023

14

CAPEX AND FINANCING

CAPEX PLAN OF R$ 18.7 BILLION FROM 2019 TO 2023

Financial Values (in R$ million)

(*) Book Value - Includes non-cash items (**) Book Value - Items that affected cash

1.527*Additional information is presented in Note 31 of the 2Q19 Financial Information

929**

FINANCING

MAIN PROGRAMS

Metropolitan Water Program

Tietê Project

Corporate Program for Water Loss Reduction

Clean Stream Program

Clean Wave Program

15

AGENDA

  1. COMPANY OVERVIEW
  2. OUR OPERATIONS
  3. OUR FINANCIAL PERFORMANCE
  4. SPMR - WATER SITUATION

LONG TERM AND LOW COST FUNDING

TOTAL DEBT BREAKDOWN

TOTAL DEBT BY CURRENCY

DEBT AMORTIZATION PROFILE (R$ million)

17

CONSISTENT PERFORMANCES

NET REVENUE (R$ million)

NET INCOME (R$ million)

ADJUSTED EBITDA (R$ million)

DIVIDENDS / PAY OUT

2013

2014

2015

2016

2017

2018

Dividends declared (R$)

0.8

0.4

0.2

1.2

1.0

1.2

Pay Out %

27.9

27.9

27.9

27.9

27.9

27.9

Outstanding Shares

683.5

683.5

683.5

683.5

683.5

683.5

(million)

Adjusted EBITDA - Last 12 months Adjusted EBTIDA Margin - Last 12 months Adjusted EBITDA Margin Without Construction - Last 12 months

18

HISTORICAL LEVERAGE (R$ million)

GROSS DEBT VS. ADJUSTED EBITDA*

ADJUSTED EBITDA* VS. FINANCIAL EXPENSES**

NET DEBT VS. ADJUSTED EBITDA*

NET DEBT VS. EQUITY

* Adjusted EBITDA - LTM

** Financial Explosures paid - LTM

Calculated in accordance with CPCs/IFRS

19

COVENANT - ADJUSTED NET DEBT vs. EBITDA

20

COVENANT - ADJUSTED TOTAL DEBT vs. EBITDA

21

FINANCIAL HIGHLIGHTS (R$ million)

2002

2003

2004

2005

2006

2007

2008*

2009*

2010*

2011*

2012*

2013*

2014*

2015*

2016*

2017*

2018*

1H19

Gross Revenues w/ construction

3,962

4,308

4,642

5,356

5,984

6,448

6,839

9,085

9,787

10,530

11,391

11,985

11,823

12,284

14,855

15,375

17,056

8,407

Net Revenues

3,767

4,131

4,397

4,953

5,527

5,971

7,809

8,580

9,231

9,927

10,738

11,316

11,213

11,712

14,098

14,608

16,085

7,876

Adjusted EBITDA

1,860

2,076

1,927

2,286

2,446

2,699

2,865

2,727

3,222

3,371

3,605

4,007

2,919

3,974

4,572

5,269

6,541

2,776

Adjusted EBITDA Margin

49.4

50.3

43.8

46.1

44.3

45.2

36.7

31.8

34.9

34.0

33.6

35.4

26.0

33.9

32.4

36.1

40.7

30,8

Adj. EBITDA without Construction

Margin

46.3

41.2

44.7

43.2

43.0

44.6

34.4

46.6

43.3

45.4

48.8

36,8

Net Income

(651)

833

513

866

789

1,055

863

1,508

1,630

1,381

1,912

1,924

903

536

2,947

2,519

2,835

1,102

Net Margin (%)

20.2

11.7

17.5

14.3

17.7

11.0

17.6

17.7

13.9

17.8

17.0

8.1

4.6

20.9

17.2

17.6

14.0

2002

2003

2004

2005

2006

2007

2008*

2009*

2010*

2011*

2012*

2013*

2014*

2015*

2016*

2017*

2018*

1H19

Total Assets

16,332

16,590

16,784

17,431

18,000

18,660

17,206

20,243

23,293

25,019

26,476

28,274

30,355

33,707

36,745

39,546

43,565

43,985

Total Debt

7,878

7,264

7,051

6,664

6,327

5,685

6,865

6,560

8,209

8,423

8,875

9,450

10,786

13,122

11,964

12,101

13,153

12,906

Short-term Debt

1,132

997

1,497

759

853

742

1,449

1,010

1,240

1,629

1,343

641

1,207

1,526

1,247

1,747

2,104

1,524

Long-Term Debt

6,593

6,267

5,554

5,905

5,474

4,943

5,416

5,548

6,970

6,794

7,533

8,809

9,579

11,595

10,718

10,354

11,049

11,383

Foreign Currency Debt

3,708

3,013

2,681

1,576

1,472

1,242

2,281

1,746

2,249

3,053

3,216

3,699

4,346

6,618

5,660

5,673

6,669

6,353

Shareholders' Equity

4,217

7,577

7,952

8,483

9,019

9,781

6,758

8,439

9,682

10,546

11,257

12,931

13,304

13,717

15,419

17,513

19,552

20,593

Total Debt/Total Cap. (%)

65.1

48.9

47.0

44.0

41.2

36.8

50.4

43.7

45.9

44.4

44

42

45

48.9

43.7

40.9

40.2

39

Investments

619

594

601

678

905

921

1,734

2,059

2,194

2,440

2,536

2,716

3,211

3,482

3,878

3,388

4,177

1,527

2002

2003

2004

2005

2006

2007

2008*

2009*

2010*

2011*

2012*

2013*

2014*

2015*

2016*

2017*

2018*

1H19

Dividend Declared (R$/ share)

-

17.7**

5.4**

12.2**

9.5**

1.3

1.3

1.7

2.0

2.5

2.3

0.8

0.4

0.2

1.2

1.0

1.2

-

Pay Out (%)

-

60.5

29.8

40.2

34.7

28.5

34.3

26.1

28.0

47.3

27.9

27.9

27.9

27.9

27.9

27.9

27.9

-

Dividend Yield (%)

-

10.8

3.4

7.8

3.2

3.2

4.7

5.0

4.7

4.9

2.7

3.0

2.2

1.2

4.2

3.0

3.8

-

Outstanding shares (million)28.5

28.5

28.5

28.5

28.5

227.8

227.8

227.8

227.8

227.8

227.8

683.5

683.5

683.5

683.5

683.5

683.5

683.5

  • In accordance with CPCs / IFRS, which includes Construction Costs.
  • R$ / 000 shares

22

AGENDA

  1. COMPANY OVERVIEW
  2. OUR OPERATIONS
  3. OUR FINANCIAL PERFORMANCE
  4. SPMR - WATER SITUATION

SPMR - WATER SITUATION

RAINFALL IN THE MAIN WATER PRODUCTION SYSTEMS (mm)

Cantareira

Guarapiranga

Alto Tietê

300

400

105%

400

LTA

177%

188%

250

116%

350

213%

LTA

350

LTA

85%

2017/2018

149%;

300

2017/2018

300

2017/2018

200

82%

2018/2019

93%

250

2018/2019

101%

133%

2018/2019

91%

176%

170%

94%

250

86%

82%

80%

120%

150

79%

76%

58%

47%

200

111%

87%

200

139%

190%

150

122%

80%

150

100

157%

62%

213%

88%

83%

87%

112%

198%

71%49%

61%

100

53%

182%

50

47%

55%

26%

92%

107%

100

70%

106%

26%

64%

81% 51%

28%

83%

120%50%

17%

32%

24%

28%

50

34%

45%

50

0

27%

8%

18%

31% 27%

12%

0

0

OCT NOV DEC JAN FEB MAR APR MAY JUN

JUL AUG SEP

OCT NOV DEC JAN

FEB MAR APR MAY JUN JUL AUG SEP

OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP

Long Term Average - Oct/17 to Sep/18

VOLUME STORAGE (%)

AVERAGE PRODUCTION (m³/s)

Until August 11, 2019

23

SPMR - WATER SITUATION

WATER SUPPLY SYSTEM STRONGER THAN BEFORE THE WATER CRISIS OF 2014/2015

RESERVOIRS

2013

2019

Var. %

Reservoirs (water right) (m³/s)

70.4

80.3

14%

Maximum storage capacity (hm³)

1,816

1,945

7%

(without the technical reserve)

Transfers between reservoirs (m³/s)

13.2

35.4

168%

PRODUCTION AND DISTRIBUTION

2013

2019

Var. %

Urban population in the area served (source: SEADE)

20.1

20.9

3.6%

(million inhabitants)

730,000 inhab.

Total water treatment capacity (m³/s)

73.4

82.3

12%

Water production systems

8

9

-

Average monthly production (m³/s)

69.1

62.4

(10%)

Average residential consumption (m³/month)

13.0

10.8

(17%)

Treated water transfers between the systems (m³/s)

Up to 3

Up to 12

300%

IPDT (water loss per connection per day) in the SPMR

434

323

(27%)

24

SPMR- WATER SITUATION

WATER PLAN FOR SPMR - FROM 2015 TO 2019 (MAIN ACTIONS)

FLOW (m³/s)

DESCRIPTION

PURPOSE

AVAILABILITY/

SECURITY

INITIATIVES ACCOMPLISHED IN 2015

Reversal increase from Guaratuba River to the Ponte Nova reservoir by 0.5

0.5

m³/s

Recover the storage volume and ensure Alto Tietê's water source

Reversal from the Guaió River to the Taiaçupeba reservoir: 1 m³/s

1

Increase of the ABV Water Treatment Station production from 15 to 16 m³/s

Transfer water from Guarapiranga to the Cantareira area via the

aqueduct system

Interconnection between: Pequeno River → Grande River (Billings) →

4

Recover the storage volume and ensure the Alto Tietê reservoir

Taiaçupeba (Alto Tietê) 4 m³/s

Transfer water to Cantareira's area

1 m³/s transfer increase from Taquacetuba to Guarapiranga (from 4 to 5

1

Ensure Guarapiranga's water source

m³/s)

Transfer water to Cantareira's area

TOTAL 2015

6.5

INITIATIVES ACCOMPLISHED IN 2018

Jaguari → Atibainha Interconnection: 5.13 m³/s to the Cantareira system

5.13

Recover storage volume and ensure the Cantareira System's water

(security increase)

source

São Lourenço Production System: 6.4 m³/s

6.4

Produce 6.4 m³/s for the Greater São Paulo's western region

TOTAL 2018

11.53

INITIATIVE PLANNED FOR 2019

Reversal from Itapanhaú River (Ribeirão Sertãozinho) to the Biritiba reservoir

2

Recover the storage volume and assure Alto Tietê's water source

TOTAL 2019

2

TOTAL 2015 - 2019

20.03

25

www.sabesp.com.br

IR Contacts

Mario Azevedo de Arruda Sampaio Head of Capital Markets and IR maasampaio@sabesp.com.br +55 (11) 3388-8664

Angela Beatriz Airoldi Investor Relations Manager abairoldi@sabesp.com.br +55 (11) 3388-8793

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Disclaimer

SABESP - Companhia de Saneamento Básico do Estado de São Paulo published this content on 16 August 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 August 2019 09:11:01 UTC