SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For August, 2020
(Commission File No. 1-31317)
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
(Exact name of registrant as specified in its charter)
Basic Sanitation Company of the State of Sao Paulo - SABESP
(Translation of Registrant's name into English)
Rua Costa Carvalho, 300
São Paulo, S.P., 05429-900
Federative Republic of Brazil
(Address of Registrant's principal executive offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F.
Form 20-F ___X___ Form 40-F ______
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1)__.
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7)__.
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.
Yes ______ No ___X___
If "Yes" is marked, indicated below the file number assigned to the
registrant in connection with Rule 12g3-2(b):
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
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 Flows | 9 |
Statement of Changes in Equity | |
1/01/2020 to 6/30/2020 | 11 |
1/01/2019 to 6/30/2019 | 12 |
Statement of Value Added | 13 |
Comments on the Company’s Performance | 14 |
Notes to the Interim Financial Information | 26 |
Comments on the Company’s Projections | 76 |
Other Information Deemed as Relevant by the Company | 77 |
Reports and Statements | |
Unqualified Reports on Special Review | 79 |
Executive Officers’ Statement on the Financial Statements | 80 |
Executive Officers’ Statement on the Report of Independent Registered Public Accounting Firm | 81 |
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Company Information / Capital Breakdown
Number of shares | Current Quarter |
(Units) | 6/30/2020 |
Paid-in Capital | |
Common | 683,509,869 |
Preferred | 0 |
Total | 683,509,869 |
Treasury Shares | |
Common | 0 |
Preferred | 0 |
Total | 0 |
PAGE: 1 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 | 3/26/2020 | Interest on Capital Payable | 5/29/2020 | Common | 1.37670 |
PAGE: 2 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 |
6/30/2020 | 12/31/2019 | ||
1 | Total Assets | 48,739,402 | 46,457,800 |
1,01 | Current Assets | 5,981,001 | 4,896,138 |
1.01.01 | Cash and Cash Equivalents | 3,366,405 | 2,253,210 |
1.01.03 | Accounts Receivable | 2,101,449 | 2,330,658 |
1.01.03.01 | Trade Receivables | 1,927,175 | 2,137,752 |
1.01.03.02 | Other Receivables | 174,274 | 192,906 |
1.01.03.02.01 | Related-Party Balances | 174,274 | 192,906 |
1.01.04 | Inventories | 84,745 | 70,454 |
1.01.06 | Recoverable Taxes | 295,656 | 141,266 |
1.01.06.01 | Current Recoverable Taxes | 295,656 | 141,266 |
1.01.08 | Other Current Assets | 132,746 | 100,550 |
1.01.08.03 | Other | 132,746 | 100,550 |
1.01.08.03.01 | Restricted Cash | 28,595 | 26,018 |
1.01.08.03.20 | Other Assets | 104,151 | 74,532 |
1,02 | Noncurrent Assets | 42,758,401 | 41,561,662 |
1.02.01 | Long-Term Assets | 8,990,112 | 8,821,073 |
1.02.01.04 | Accounts Receivable | 266,098 | 215,275 |
1.02.01.04.01 | Trade Receivables | 266,098 | 215,275 |
1.02.01.09 | Receivables from Related Parties | 636,137 | 657,990 |
1.02.01.09.03 | Receivables from Controlling Shareholders | 636,137 | 657,990 |
1.02.01.10 | Other Noncurrent Assets | 8,087,877 | 7,947,808 |
1.02.01.10.04 | Escrow Deposits | 176,681 | 177,982 |
1.02.01.10.05 | Water National Agency (ANA) | 32,798 | 32,466 |
1.02.01.10.06 | Contract Asset | 7,711,747 | 7,617,714 |
1.02.01.10.20 | Other Assets | 166,651 | 119,646 |
1.02.02 | Investments | 107,216 | 100,749 |
1.02.02.01 | Equity Investments | 59,667 | 53,187 |
1.02.02.01.03 | Equity Interest in Jointly-Owned Subsidiaries | 59,667 | 53,187 |
1.02.02.02 | Investment Properties | 47,549 | 47,562 |
1.02.03 | Property, Plant and Equipment | 318,586 | 314,393 |
1.02.04 | Intangible Assets | 33,342,487 | 32,325,447 |
1.02.04.01 | Intangible Assets | 33,342,487 | 32,325,447 |
1.02.04.01.01 | Concession Contracts | 1,198,712 | 2,207,705 |
1.02.04.01.02 | Program Contracts | 17,098,947 | 15,184,575 |
1.02.04.01.03 | Service Contracts | 14,452,978 | 14,390,763 |
1.02.04.01.04 | Software License of Use | 526,156 | 471,706 |
1.02.04.01.05 | Right of Use | 65,694 | 70,698 |
PAGE: 3 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 |
6/30/2020 | 12/31/2019 | ||
2 | Total Liabilities | 48,739,402 | 46,457,800 |
2,01 | Current Liabilities | 6,680,810 | 6,453,424 |
2.01.01 | Labor and Pension Plan Liabilities | 581,792 | 594,279 |
2.01.01.01 | Pension Plan Liabilities | 57,310 | 51,716 |
2.01.01.02 | Labor Liabilities | 524,482 | 542,563 |
2.01.02 | Trade Payable | 396,951 | 369,631 |
2.01.02.01 | Domestic Suppliers | 396,951 | 369,631 |
2.01.03 | Tax Liabilities | 490,206 | 250,318 |
2.01.03.01 | Federal Tax Liabilities | 484,911 | 243,732 |
2.01.03.01.02 | Pis-Pasep and Cofins Payable | 326,475 | 94,027 |
2.01.03.01.03 | INSS (Social Security Contribution) Payable | 121,819 | 39,404 |
2.01.03.01.20 | Other Federal Taxes | 36,617 | 110,301 |
2.01.03.03 | Municipal Tax Liabilities | 5,295 | 6,586 |
2.01.04 | Borrowings and Financing | 3,415,864 | 2,859,843 |
2.01.04.01 | Borrowings and Financing | 2,817,806 | 2,179,580 |
2.01.04.01.01 | In Local Currency | 525,784 | 297,680 |
2.01.04.01.02 | In Foreign Currency | 2,292,022 | 1,881,900 |
2.01.04.02 | Debentures | 516,697 | 601,861 |
2.01.04.03 | Financing through Lease | 81,361 | 78,402 |
2.01.05 | Other Liabilities | 1,198,821 | 1,829,106 |
2.01.05.01 | Payables to Related Parties | 626 | 293 |
2.01.05.01.03 | Payables to Controlling Shareholders | 626 | 293 |
2.01.05.02 | Other | 1,198,195 | 1,828,813 |
2.01.05.02.01 | Dividends and Interest on Capital Payable | 767 | 800,352 |
2.01.05.02.04 | Services Payable | 580,139 | 474,078 |
2.01.05.02.05 | Refundable Amounts | 44,196 | 42,093 |
2.01.05.02.06 | Program Contract Commitments | 252,704 | 273,932 |
2.01.05.02.07 | Public-Private Partnership (PPP) | 177,267 | 110,291 |
2.01.05.02.09 | Indemnities | 8,538 | 9,693 |
2.01.05.02.20 | Other Liabilities | 134,584 | 118,374 |
2.01.06 | Provisions | 597,176 | 550,247 |
2.01.06.01 | Tax, Social Security, Labor and Civil Provisions | 243,822 | 200,391 |
2.01.06.01.01 | Tax Provisions | 25,689 | 26,375 |
2.01.06.01.02 | Social Security and Labor Provisions | 143,600 | 103,041 |
2.01.06.01.04 | Civil Provisions | 74,533 | 70,975 |
2.01.06.02 | Other Provisions | 353,354 | 349,856 |
2.01.06.02.03 | Provisions for Environmental Liabilities and Decommissioning | 15,367 | 15,086 |
2.01.06.02.04 | Provisions for Customers | 139,393 | 242,001 |
2.01.06.02.05 | Provisions for Suppliers | 198,594 | 92,769 |
2,02 | Noncurrent Liabilities | 20,783,568 | 18,368,593 |
2.02.01 | Borrowings and Financing | 12,971,497 | 10,384,866 |
2.02.01.01 | Borrowings and Financing | 8,470,899 | 6,889,591 |
2.02.01.01.01 | In Local Currency | 5,133,649 | 2,412,693 |
2.02.01.01.02 | In Foreign Currency | 3,337,250 | 4,476,898 |
2.02.01.02 | Debentures | 4,068,256 | 3,039,553 |
2.02.01.03 | Financing through Lease | 432,342 | 455,722 |
PAGE: 4 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 |
6/30/2020 | 12/31/2019 | ||
2.02.02 | Other Liabilities | 7,025,482 | 7,064,170 |
2.02.02.02 | Other | 7,025,482 | 7,064,170 |
2.02.02.02.04 | Pension Plan Liabilities | 3,373,098 | 3,360,932 |
2.02.02.02.05 | Program Contract Commitments | 77,547 | 103,321 |
2.02.02.02.06 | Public-Private Partnership (PPP) | 3,087,888 | 3,183,689 |
2.02.02.02.07 | Indemnities | 28,814 | 31,740 |
2.02.02.02.08 | Labor Liabilities | 0 | 2,230 |
2.02.02.02.09 | Deferred Cofins/Pasep | 143,907 | 143,693 |
2.02.02.02.20 | Other Liabilities | 314,228 | 238,565 |
2.02.03 | Deferred Taxes | 378,989 | 433,996 |
2.02.03.01 | Deferred Income Tax and Social Contribution | 378,989 | 433,996 |
2.02.03.01.01 | Deferred Income Tax and Social Contribution | 378,989 | 433,996 |
2.02.04 | Provisions | 407,600 | 485,561 |
2.02.04.01 | Tax, Social Security, Labor and Civil Provisions | 198,342 | 245,448 |
2.02.04.01.01 | Tax Provisions | 30,687 | 29,250 |
2.02.04.01.02 | Social Security and Labor Provisions | 161,218 | 209,759 |
2.02.04.01.04 | Civil Provisions | 6,437 | 6,439 |
2.02.04.02 | Other Provisions | 209,258 | 240,113 |
2.02.04.02.03 | Provisions for Environmental Liabilities and Decommissioning | 203,964 | 177,835 |
2.02.04.02.04 | Provisions for Customers | 4,349 | 1,691 |
2.02.04.02.05 | Provisions for Suppliers | 945 | 60,587 |
2,03 | Equity | 21,275,024 | 21,635,783 |
2.03.01 | Paid-Up Capital | 15,000,000 | 15,000,000 |
2.03.04 | Profit Reserve | 7,466,981 | 7,547,954 |
2.03.04.01 | Legal Reserve | 1,368,406 | 1,368,406 |
2.03.04.08 | Additional Dividend Proposed | 0 | 80,973 |
2.03.04.10 | Reserve for Investments | 6,098,575 | 6,098,575 |
2.03.05 | Retained Earnings/Accumulated Losses | -279,786 | 0 |
2.03.06 | Equity Valuation Adjustments | -912,171 | -912,171 |
PAGE: 5 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Income Statement
(R$ thousands)
Code | Description | Current Quarter | YTD Current | Same Quarter | YTD Previous |
4/01/2020 to 6/30/2020 | Year | Previous Year | Year | ||
1/01/2020 to 6/30/2020 | 4/01/2019 to 6/30/2019 | 1/01/2019 to 6/30/2019 | |||
3.01 | Revenue from Sales and/or Services | 4,432,546 | 8,474,896 | 3,997,910 | 7,876,414 |
3.02 | Cost of Sales and/or Services | -2,818,900 | -5,240,912 | -2,563,979 | -4,901,082 |
3.02.01 | Cost of Sales and/or Services | -1,822,224 | -3,735,471 | -1,890,929 | -3,638,074 |
3.02.02 | Construction Cost | -996,676 | -1,505,441 | -673,050 | -1,263,008 |
3,03 | Gross Profit | 1,613,646 | 3,233,984 | 1,433,931 | 2,975,332 |
3.04 | Operating Income/Expenses | -421,087 | -1,038,397 | -629,561 | -1,029,306 |
3.04.01 | Selling Expenses | -308,700 | -648,159 | -283,984 | -482,939 |
3.04.01.01 | Selling Expenses | -191,523 | -373,493 | -203,169 | -394,364 |
3.04.01.02 | Allowance for Doubtful Accounts | -117,177 | -274,666 | -80,815 | -88,575 |
3.04.02 | General and Administrative Expenses | -224,976 | -509,155 | -347,097 | -557,478 |
3.04.04 | Other Operating Income | 30,616 | 40,655 | 20,831 | 34,216 |
3.04.04.01 | Other Operating Income | 33,803 | 44,859 | 22,955 | 37,947 |
3.04.04.02 | Cofins and Pasep | -3,187 | -4,204 | -2,124 | -3,731 |
3.04.05 | Other Operating Expenses | 79,068 | 71,782 | -23,532 | -29,090 |
3.04.06 | Equity Results | 2,905 | 6,480 | 4,221 | 5,985 |
3.05 | Income before Financial Result and Taxes | 1,192,559 | 2,195,587 | 804,370 | 1,946,026 |
3.06 | Financial Result | -675,468 | -2,655,753 | -155,577 | -306,033 |
3.06.01 | Financial Income | 69,568 | 169,724 | 93,875 | 196,075 |
3.06.01.01 | Financial Income | 72,763 | 176,572 | 97,108 | 205,058 |
3.06.01.02 | Exchange Gains | 404 | 1,628 | 1,322 | 591 |
3.06.01.03 | Cofins and Pasep | -3,599 | -8,476 | -4,555 | -9,574 |
3.06.02 | Financial Expenses | -745,036 | -2,825,477 | -249,452 | -502,108 |
3.06.02.01 | Financial Expenses | -242,998 | -526,903 | -308,258 | -560,735 |
3.06.02.02 | Exchange Losses | -502,038 | -2,298,574 | 58,806 | 58,627 |
3.07 | Earnings before Income Tax | 517,091 | -460,166 | 648,793 | 1,639,993 |
3.08 | Income Tax and Social Contribution | -138,931 | 180,380 | -194,418 | -538,327 |
3.08.01 | Current | -107,351 | 125,373 | -246,124 | -556,609 |
3.08.02 | Deferred | -31,580 | 55,007 | 51,706 | 18,282 |
PAGE: 6 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Income Statement
(R$ thousands)
Code | Description | Current Quarter | YTD Current | Same Quarter | YTD Previous |
4/01/2020 to 6/30/2020 | Year | Previous Year | Year | ||
1/01/2020 to 6/30/2020 | 4/01/2019 to 6/30/2019 | 1/01/2019 to 6/30/2019 | |||
3.09 | Net Result from Continued Operations | 378,160 | -279,786 | 454,375 | 1,101,666 |
3.11 | Profit/Loss for the Period | 378,160 | -279,786 | 454,375 | 1,101,666 |
3.99 | Earnings per Share - (Reais/Share) | ||||
3.99.01 | Basic Earnings per Share | ||||
3.99.01.01 | Common | 0.55326 | -0.40934 | 0.66477 | 1.61178 |
3.99.02 | Diluted Earnings per Share | ||||
3.99.02.01 | Common | 0.55326 | -0.40934 | 0.66477 | 1.61178 |
PAGE: 7 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 |
4/01/2020 to 6/30/2020 | Year | Previous Year | Year | ||
1/01/2020 to 6/30/2020 | 4/01/2019 to 6/30/2019 | 1/01/2019 to 6/30/2019 | |||
4.01 | Net Income for the Period | 378,160 | -279,786 | 454,375 | 1,101,666 |
4.03 | Comprehensive Income for the Period | 378,160 | -279,786 | 454,375 | 1,101,666 |
PAGE: 8 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 |
1/01/2020 to 6/30/2020 | 1/01/2019 to 6/30/2019 | ||
6.01 | Net Cash from Operating Activities | 2,874,261 | 1,835,367 |
6.01.01 | Cash from Operations | 3,186,034 | 3,064,366 |
6.01.01.01 | Profit before Income Tax and Social Contribution | -460,166 | 1,639,993 |
6.01.01.02 | Provision and Inflation Adjustments on Provisions | 122,039 | 159,872 |
6.01.01.04 | Finance Charges from Customers | -438,406 | -152,075 |
6.01.01.05 | Residual Value of Property, Plant and Equipment, Intangible Assets and Investment Properties Written-off | 5,757 | 14,192 |
6.01.01.06 | Depreciation and Amortization | 982,115 | 835,401 |
6.01.01.07 | Interest on Borrowings and Financing Payable | 285,680 | 273,784 |
6.01.01.08 | Monetary and Exchange Variation on Borrowings and Financing | 2,307,083 | -28,631 |
6.01.01.09 | Interest and Monetary Variation on Liabilities | 13,118 | 21,874 |
6.01.01.10 | Interest and Monetary Variation on Assets | -12,335 | -21,076 |
6.01.01.11 | Allowance for Doubtful Accounts | 274,666 | 88,575 |
6.01.01.12 | Provision for Consent Decree (TAC) and Knowledge Retention Program (PCR) | 1,744 | 15,426 |
6.01.01.13 | Equity Results | -6,480 | -5,985 |
6.01.01.14 | Interest and Inflation Adjustment PPP | 200,749 | 0 |
6.01.01.15 | Other Adjustments | -3,263 | 119,421 |
6.01.01.16 | Transfer of Funds to the São Paulo Municipal Government | 114,473 | -1,076 |
6.01.01.17 | Construction Margin over Intangible Assets Resulting from Concession Contracts | -35,579 | -29,049 |
6.01.01.18 | Pension Plan Liabilities | 115,613 | 133,720 |
6.01.01.19 | Agreement with the Municipality of Mauá | -280,774 | 0 |
6.01.02 | Changes in Assets and Liabilities | 56,283 | -469,596 |
6.01.02.01 | Trade Receivables | 314,234 | -40,291 |
6.01.02.02 | Related-Party Balances and Transactions | 50,217 | 19,411 |
6.01.02.03 | Inventories | -14,291 | -54,797 |
6.01.02.04 | Recoverable Taxes | -29,017 | 176,149 |
6.01.02.05 | Other Assets | -76,931 | 9,197 |
6.01.02.06 | Escrow Deposits | 13,164 | -6,906 |
6.01.02.08 | Trade Payables and Contractors | -169,547 | -331,681 |
6.01.02.09 | Salaries, Payroll Charges and Social Contributions | -14,231 | -32,233 |
6.01.02.10 | Pension Plan Liabilities | -103,447 | -102,250 |
6.01.02.11 | Taxes and Contributions Payable | 249,381 | -109,030 |
6.01.02.12 | Services Payable | -8,412 | 42,448 |
6.01.02.13 | Other Liabilities | -1,980 | 80,499 |
6.01.02.14 | Provisions | -153,071 | -119,904 |
6.01.02.15 | Deferred Cofins/Pasep | 214 | -208 |
6.01.03 | Other | -368,056 | -759,403 |
6.01.03.01 | Interest Paid | -368,056 | -390,247 |
6.01.03.02 | Income Tax and Social Contribution Paid | 0 | -369,156 |
6.02 | Net Cash from Investing Activities | -1,278,629 | -922,656 |
6.02.01 | Acquisition of Contract Asset and Intangible Assets | -1,255,386 | -901,495 |
6.02.02 | Acquisition of Property, Plant and Equipment | -20,666 | -28,614 |
6.02.03 | Increase in Investments | 0 | 223 |
PAGE: 9 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 |
1/01/2020 to 6/30/2020 | 1/01/2019 to 6/30/2019 | ||
6.02.04 | Restricted Cash | -2,577 | 7,230 |
6.03 | Net Cash from Financing Activities | -482,437 | -1,278,010 |
6.03.01 | Funding | 1,718,412 | 1,150,807 |
6.03.02 | Amortization | -968,179 | -1,476,152 |
6.03.03 | Payment of Interest on Capital | -890,051 | -739,990 |
6.03.04 | Public-Private Partnership (PPP) | -229,574 | -211,253 |
6.03.05 | Program Contract Commitments | -113,045 | -1,422 |
6,05 | Increase (Decrease) in Cash and Cash Equivalents | 1,113,195 | -365,299 |
6.05.01 | Opening Balance of Cash and Cash Equivalents | 2,253,210 | 3,029,191 |
6.05.02 | Closing Balance of Cash and Cash Equivalents | 3,366,405 | 2,663,892 |
PAGE: 10 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Changes in Equity / 1/01/2020 to 06/30/2020
(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 | 7,547,954 | 0 | -912,171 | 21,635,783 |
5.03 | Restated Opening Balances | 15,000,000 | 0 | 7,547,954 | 0 | -912,171 | 21,635,783 |
5.04 | Capital Transactions with Partners | 0 | 0 | -80,973 | 0 | 0 | -80,973 |
5.04.08 | Additional Dividends Approved | 0 | 0 | -80,973 | 0 | 0 | -80,973 |
5,05 | Total Comprehensive Income | 0 | 0 | 0 | -279,786 | 0 | -279,786 |
5.05.01 | Net Income for the Period | 0 | 0 | 0 | -279,786 | 0 | -279,786 |
5.07 | Closing Balances | 15,000,000 | 0 | 7,466,981 | -279,786 | -912,171 | 21,275,024 |
PAGE: 11 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Parent Company’s Financial Statements / Statement of Changes in Equity / 1/01/2019 to 06/30/2019
(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 | Additional Dividends Approved | 0 | 0 | -60,331 | 0 | 0 | -60,331 |
5.05 | Total Comprehensive Income | 0 | 0 | 0 | 1,101,666 | 0 | 1,101,666 |
5.05.01 | Net Income for the Period | 0 | 0 | 0 | 1,101,666 | 0 | 1,101,666 |
5.07 | Closing Balances | 15,000,000 | 0 | 5,040,452 | 1,101,666 | -549,095 | 20,593,023 |
PAGE: 12 of 81
ITR - Quarterly Information Form - 6/30/2020 - 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 |
1/01/2020 to 6/30/2020 | 1/01/2019 to 6/30/2019 | ||
7.01 | Revenue | 8,777,703 | 8,356,624 |
7.01.01 | Goods, Products and Services Sold | 7,466,490 | 7,115,195 |
7.01.02 | Other Revenue | 44,859 | 37,947 |
7.01.03 | Revenue from Construction of Own Assets | 1,541,020 | 1,292,057 |
7.01.04 | Allowance for/Reversal of Doubtful Accounts | -274,666 | -88,575 |
7.02 | Inputs Acquired from Third Parties | -3,551,164 | -3,250,879 |
7.02.01 | Costs of Sales and Services | -3,083,956 | -2,648,235 |
7.02.02 | Materials, Electricity, Outside Services and Others | -538,990 | -573,554 |
7.02.04 | Other | 71,782 | -29,090 |
7.03 | Gross Value Added | 5,226,539 | 5,105,745 |
7.04 | Retentions | -982,115 | -835,401 |
7.04.01 | Depreciation, Amortization and Depletion | -982,115 | -835,401 |
7.05 | Net Value Added Produced | 4,244,424 | 4,270,344 |
7.06 | Wealth Received in Transfer | 184,680 | 211,634 |
7.06.01 | Equity Results | 6,480 | 5,985 |
7.06.02 | Financial Income | 178,200 | 205,649 |
7.07 | Total Value Added to Distribute | 4,429,104 | 4,481,978 |
7.08 | Value Added Distribution | 4,429,104 | 4,481,978 |
7.08.01 | Personnel | 1,211,122 | 1,326,445 |
7.08.01.01 | Salaries and Wages | 858,114 | 860,598 |
7.08.01.02 | Benefits | 288,725 | 387,075 |
7.08.01.03 | Government Severance Indemnity Fund for Employees (FGTS) | 64,283 | 78,772 |
7.08.02 | Taxes and Contributions | 664,202 | 1,390,131 |
7.08.02.01 | Federal | 564,074 | 1,285,678 |
7.08.02.02 | Sate | 73,562 | 69,243 |
7.08.02.03 | Municipal | 26,566 | 35,210 |
7.08.03 | Value Distributed to Providers of Capital | 2,833,566 | 663,736 |
7.08.03.01 | Interest | 2,825,476 | 633,111 |
7.08.03.02 | Rental | 8,090 | 30,625 |
7.08.04 | Value Distributed to Shareholders | -279,786 | 1,101,666 |
7.08.04.03 | Retained Earnings/Accumulated Loss for the Period | -279,786 | 1,101,666 |
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ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Comments on the Company’s Performance
1. | Quarter Highlights |
The Company recorded net income of R$ 378.2 million in 2Q20, compared to net income of R$ 454.4 million in 2Q19, a decrease of R$ 76.2 million.
Adjusted EBITDA totaled R$ 1,581.4 million, an increase of R$ 349.8 million over the R$ 1,231.6 million reported in 2Q19.
The main quarterly highlights were:
(a) | Agreement with the municipality of Mauá |
On June 16, 2020, the Company signed an agreement with the municipality of Mauá, and operations will begin on August 16. The impact of this agreement resulted in an increase of R$ 193.6 million in operating income and a reversion of
R$ 85.9 million in 2Q20 expenses, as shown below:
Impacts of Mauá (R$ million) | Var. | ||
2Q20 | 2Q19 | R$ | |
Wholesale Revenue (1) | 195.0 | 1.4 | 193.6 |
(=) Total Revenue | 195.0 | 1.4 | 193.6 |
Estimated losses with asset compensation (2) | 85.9 | - | 85.9 |
(=) Total Expenses | 85.9 | - | 85.9 |
(=) Net effect | 280.9 | 1.4 | 279.5 |
(1) | Non-recurring revenue from 2Q20, as a result from the agreement signed with the municipality. |
(2) | Reversal of non-recurring estimated loss expenses, as a result from the agreement signed with the municipality. |
(b) | Economic instability worsened by COVID-19 |
The economic instability worsened by COVID-19 caused adverse results for the Company, especially:
(i) | reduction in revenues from commercial and industrial customers in the amount of approximately R$ 323.1 million, mainly offset by the increase in residential volume; |
(ii) | postponement of the tariff readjustment, with estimated impact of R$ 28.0 million on operating revenue; |
(iii) | payment exemption by customers of Residential Social and Residential Favela categories, of approximately R$ 65.3 million; |
(iv) | increase in the default levels and expectation of higher future losses, due to the decrease in the municipalities’ revenue and the increase in bankruptcy petitions, with an impact of R$ 36.4 million; and |
(v) | exchange volatility, increasing expenses with exchange variation by R$ 560.8 million. |
(c) | Operation in the municipality of Santo André |
The operation in the municipality of Santo André, started in August 2019, increased gross operating revenue by R$ 73.4 million and expenses by R$ 36.9 million year over year in 2Q20, as shown below:
Impacts of Santo André (R$ million) | Var. | ||
2Q20 | 2Q19 | R$ | |
Revenue – Wholesale (1) | - | 10.0 | (10.0) |
Revenue - Retail (2) | 83.4 | - | 83.4 |
(=) Total Gross Revenue | 83.4 | 10.0 | 73.4 |
COFINS and PASEP | (5.3) | (0.7) | (4.6) |
Net Revenue | 78.1 | 9.3 | 68.8 |
Costs and Expenses (3) | (33.2) | - | (33.2) |
Allowance for doubtful accounts | (3.7) | - | (3.7) |
(=) Total Expenses | (36.9) | - | (36.9) |
(=) Net effect | 41.2 | 9.3 | 31.9 |
(1) | Revenue in 2Q19, referring to wholesale billing. |
(2) | Revenue in 2Q20, referring to billing from retail operations. |
(3) | Costs and expenses in 2Q20, related to the operation (excludes indirect costs and expenses). |
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(d) | Signing of a new health plan with Fundação CESP - FUNCESP |
With the beginning of operations of the health plan administered by Fundação CESP in August 2019, expenses with medical assistance fell by R$38.6 million in 2Q20, as shown below:
R$ million | |||
2Q20 | 2Q19 | Var. | |
Healthcare expenses | 35.9 | 74.5 | (38.6) |
2. | Profit (loss) for the period |
R$ million
Var. | Var. | |||||||
2Q20 | 2Q19 | R$ | % | 1H20 | 1H19 | R$ | % | |
Gross operating revenue | 3,662.6 | 3,579.0 | 83.6 | 2.3 | 7,466.5 | 7,115.2 | 351.3 | 4.9 |
Construction revenue | 1,019.6 | 688.5 | 331.1 | 48.1 | 1,541.0 | 1,292.0 | 249.0 | 19.3 |
COFINS, PASEP and TRCF taxes | (249.7) | (269.6) | 19.9 | (7.4) | (532.6) | (530.8) | (1.8) | 0.3 |
(=) Net operating revenue | 4,432.5 | 3,997.9 | 434.6 | 10.9 | 8,474.9 | 7,876.4 | 598.5 | 7.6 |
Costs and expenses | (2,355.9) | (2,522.0) | 166.1 | (6.6) | (4,892.8) | (4,678.5) | (214.3) | 4.6 |
Construction costs | (996.7) | (673.0) | (323.7) | 48.1 | (1,505.4) | (1,263.0) | (242.4) | 19.2 |
Equity result | 3.0 | 4.2 | (1.2) | (28.6) | 6.5 | 6.0 | 0.5 | 8.3 |
Other operating revenues (expenses), net | 109.7 | (2.7) | 112.4 | - | 112.4 | 5.1 | 107.3 | - |
(=) Earnings before financial result, income tax and social contribution | 1,192.6 | 804.4 | 388.2 | 48.3 | 2,195.6 | 1,946.0 | 249.6 | 12.8 |
Financial result | (675.5) | (155.6) | (519.9) | 334.1 | (2,655.8) | (306.0) | (2,349.8) | 767.9 |
(=) Earnings before income tax and social contribution | 517.1 | 648.8 | (131.7) | (20.3) | (460.2) | 1,640.0 | (2,100.2) | (128.1) |
Income tax and social contribution | (138.9) | (194.4) | 55.5 | (28.5) | 180.4 | (538.3) | 718.7 | (133.5) |
(=) Net income/(loss) | 378.2 | 454.4 | (76.2) | (16.8) | (279.8) | 1,101.7 | (1,381.5) | (125.4) |
Earnings/(loss) per share (R$) * | 0.55 | 0.66 | (0.41) | 1.61 |
(*) Total shares = 683,509,869
Adjusted EBITDA Reconciliation (Non-accounting measures)
R$ million
Var. | Var. | |||||||
2Q20 | 2Q19 | R$ | % | 1H20 | 1H19 | R$ | % | |
Net profit/(loss) | 378.2 | 454.4 | (76.2) | (16.8) | (279.8) | 1,101.7 | (1,381.5) | (125.4) |
Income tax and social contribution | 138.9 | 194.4 | (55.5) | (28.5) | (180.4) | 538.3 | (718.7) | (133.5) |
Financial result | 675.5 | 155.6 | 519.9 | 334.1 | 2,655.8 | 306.0 | 2,349.8 | 767.9 |
Other operating revenues (expenses), net | (109.7) | 2.7 | (112.4) | (4,163.0) | (112.4) | (5.1) | (107.3) | 2,103.9 |
(=) Adjusted EBIT* | 1,082.9 | 807.1 | 275.8 | 34.2 | 2,083.2 | 1,940.9 | 142.3 | 7.3 |
Depreciation and amortization | 498.5 | 424.5 | 74.0 | 17.4 | 982.0 | 835.4 | 146.6 | 17.5 |
(=) Adjusted EBITDA** | 1,581.4 | 1,231.6 | 349.8 | 28.4 | 3,065.2 | 2,776.3 | 288.9 | 10.4 |
(%) Adjusted EBITDA margin | 35.7 | 30.8 | 36.2 | 35.2 |
* Adjusted EBIT corresponds to net profit/(loss) before: (i) other operating revenues/expenses, net; (ii) financial result; and (iii) income tax and social contribution.
** Adjusted EBITA corresponds to net profit/(loss) before: (i) other operating revenues/expenses, net; (ii) financial result; (iii) income tax and social contribution; and (iv) depreciation and amortization expenses.
In 2Q20, net operating revenue, which considers construction revenue, totaled R$4,432.5 million, up by 10.9% over the same period of the prior year.
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Costs and expenses, which consider construction costs, totaled R$ 3,352.6 million, up 4.9% over the prior year.
Adjusted EBIT totaled R$ 1,082.9 million, up 34.2% over the R$ 807.1 million recorded in 2Q19.
Adjusted EBITDA, in the amount of R$ 1,581.4 million, increased 28.4% when compared to the R$ 1,231.6 million reported in 2Q19 (R$ 7,799.4 million in the last 12 months).
Adjusted EBITDA margin was 35.7% in 2Q20, against 30.8% in 2Q19 (42.0% in the last 12 months).
Excluding the effects of revenue and construction costs, the adjusted EBITDA margin was 45.7% in 2Q20, compared to 36.7% in 2Q19 and 50.2% in the last 12 months.
In 2Q20, the Company recorded net income of R$ 378.2 million, compared to net income of R$ 454.4 million in 2Q19.
3. | Gross operating revenue |
The gross operating revenue related to sanitation services, in the amount of R$ 3,662.6 million, which does not consider construction revenue, increased by R$ 83.6 million or 2.3%, when compared to R$ 3,579.0 million in 2Q19.
The main factors that led to this variation were:
· | Tariff adjustment of 4.7% since May 2019; |
· | R$ 73.4 million increase in operating revenues, resulting from the operation in the municipality of Santo André, which started in 2019; and |
· | R$ 193.6 million increase in operating revenues, resulting from the agreement with the municipality of Mauá. |
The increase in operating revenue was mitigated by:
· | 2.0% decrease in total billed volume, 2.1% from water supply and 2.0% from sewage services, excluding the volumes of Santo André, Mauá, and customers from the “Residential Social” and “Residential Favela” categories, who are exempt from paying water and sewage bills; |
· | Exemption granted to customers in the “Residential Social” and “Residential Favela” categories from paying water and sewage bills, leading to a decrease of R$ 38.6 million; and |
· | Lower billed volume in the Commercial, Industrial and Public categories, leading to a reduction of approximately R$ 323.1 million, compared to 2Q19. |
4. | Construction revenue |
Construction revenue increased by R$ 331.1 million, or 48.1%, from 2Q19. The variation was mainly due to higher asset investments.
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5. | Billed volume |
The following tables show water and sewage billed volumes, on a quarter-over-quarter and year-over-year basis, per customer category and region. The volumes of Santo André, Mauá and the categories exempt from payment are presented individually.
WATER AND SEWAGE BILLED VOLUME(1) PER CUSTOMER CATEGORY - million m3 | |||||||||
Water | Sewage | Water + Sewage | |||||||
Category | 2Q20 | 2Q19 | Var. % | 2Q20 | 2Q19 | Var. % | 2Q20 | 2Q19 | Var. % |
Residential | 420.8 | 420.4 | 0.1 | 366.8 | 362.0 | 1.3 | 787.6 | 782.4 | 0.7 |
Commercial | 36.4 | 43.7 | (16.7) | 34.1 | 42.7 | (20.1) | 70.5 | 86.4 | (18.4) |
Industrial | 6.9 | 8.1 | (14.8) | 8.1 | 9.9 | (18.2) | 15.0 | 18.0 | (16.7) |
Public | 8.6 | 11.4 | (24.6) | 7.7 | 10.2 | (24.5) | 16.3 | 21.6 | (24.5) |
Total retail | 472.7 | 483.6 | (2.3) | 416.7 | 424.8 | (1.9) | 889.4 | 908.4 | (2.1) |
Wholesale (3) | 12.4 | 11.9 | 4.2 | 3.5 | 3.9 | (10.3) | 15.9 | 15.8 | 0.6 |
Subtotal | 485.1 | 495.5 | (2.1) | 420.2 | 428.7 | (2.0) | 905.3 | 924.2 | (2.0) |
Santo André (4) | 13.5 | 18.0 | (25.0) | 13.3 | 4.5 | 195.6 | 26.8 | 22.5 | 19.1 |
Mauá (5) | 9.3 | 8.7 | 6.9 | - | - | - | 9.3 | 8.7 | 6.9 |
Residential Social/Favela (6) | 25.9 | - | - | 19.1 | - | - | 45.0 | - | - |
Total | 533.8 | 522.2 | 2.2 | 452.6 | 433.2 | 4.5 | 986.4 | 955.4 | 3.2 |
Water | Sewage | Water + Sewage | |||||||
Category | 1H20 | 1H19 | Var. % | 1H20 | 1H19 | Var. % | 1H20 | 1H19 | Var. % |
Residential | 860.3 | 852.5 | 0.9 | 746.0 | 731.8 | 1.9 | 1,606.3 | 1,584.3 | 1.4 |
Commercial | 80.1 | 87.4 | (8.4) | 76.5 | 84.9 | (9.9) | 156.6 | 172.3 | (9.1) |
Industrial | 14.9 | 16.4 | (9.1) | 17.9 | 19.8 | (9.6) | 32.8 | 36.2 | (9.4) |
Public | 18.9 | 21.8 | (13.3) | 16.8 | 19.5 | (13.8) | 35.7 | 41.3 | (13.6) |
Total retail | 974.2 | 978.1 | (0.4) | 857.2 | 856.0 | 0.1 | 1,831.4 | 1,834.1 | (0.1) |
Wholesale (3) | 24.8 | 23.8 | 4.2 | 7.5 | 8.2 | (8.5) | 32.3 | 32.0 | 0.9 |
Subtotal | 999.0 | 1,001.9 | (0.3) | 864.7 | 864.2 | 0.1 | 1,863.7 | 1,866.1 | (0.1) |
Santo André (4) | 26.7 | 35.8 | (25.4) | 26.5 | 8.8 | 201.1 | 53.2 | 44.6 | 19.3 |
Mauá (5) | 9.3 | 17.2 | (45.9) | - | - | - | 9.3 | 17.2 | (45.9) |
Residential Social/Favela (6) | 28.5 | - | - | 21.0 | - | - | 49.5 | - | - |
Total | 1,063.5 | 1,054.9 | 0.8 | 912.2 | 873.0 | 4.5 | 1,975.7 | 1,927.9 | 2.5 |
WATER AND SEWAGE BILLED VOLUME (1) PER REGION - million m3 | |||||||||
Water | Sewage | Water + Sewage | |||||||
Region | 2Q20 | 2Q19 | Var. % | 2Q20 | 2Q19 | Var. % | 2Q20 | 2Q19 | Var. % |
Metropolitan | 306.3 | 322.0 | (4.9) | 270.8 | 282.8 | (4.2) | 577.1 | 604.8 | (4.6) |
Regional (2) | 166.4 | 161.6 | 3.0 | 145.9 | 142.0 | 2.7 | 312.3 | 303.6 | 2.9 |
Total retail | 472.7 | 483.6 | (2.3) | 416.7 | 424.8 | (1.9) | 889.4 | 908.4 | (2.1) |
Wholesale (3) | 12.4 | 11.9 | 4.2 | 3.5 | 3.9 | (10.3) | 15.9 | 15.8 | 0.6 |
Subtotal | 485.1 | 495.5 | (2.1) | 420.2 | 428.7 | (2.0) | 905.3 | 924.2 | (2.0) |
Santo André (4) | 13.5 | 18.0 | (25.0) | 13.3 | 4.5 | 195.6 | 26.8 | 22.5 | 19.1 |
Mauá (5) | 9.3 | 8.7 | 6.9 | - | - | - | 9.3 | 8.7 | 6.9 |
Residential Social/Favela (6) | 25.9 | - | - | 19.1 | - | - | 45.0 | - | - |
Total | 533.8 | 522.2 | 2.2 | 452.6 | 433.2 | 4.5 | 986.4 | 955.4 | 3.2 |
Water | Sewage | Water + Sewage | |||||||
Region | 1H20 | 1H19 | Var. % | 1H20 | 1H19 | Var. % | 1H20 | 1H19 | Var. % |
Metropolitan | 635.6 | 644.4 | (1.4) | 560.3 | 564.1 | (0.7) | 1,195.9 | 1,208.5 | (1.0) |
Regional (2) | 338.6 | 333.7 | 1.5 | 296.9 | 291.9 | 1.7 | 635.5 | 625.6 | 1.6 |
Total retail | 974.2 | 978.1 | (0.4) | 857.2 | 856.0 | 0.1 | 1,831.4 | 1,834.1 | (0.1) |
Wholesale (3) | 24.8 | 23.8 | 4.2 | 7.5 | 8.2 | (8.5) | 32.3 | 32.0 | 0.9 |
Subtotal | 999.0 | 1,001.9 | (0.3) | 864.7 | 864.2 | 0.1 | 1,863.7 | 1,866.1 | (0.1) |
Santo André (4) | 26.7 | 35.8 | (25.4) | 26.5 | 8.8 | 201.1 | 53.2 | 44.6 | 19.3 |
Mauá (5) | 9.3 | 17.2 | (45.9) | - | - | - | 9.3 | 17.2 | (45.9) |
Residential Social/Favela (6) | 28.5 | - | - | 21.0 | - | - | 49.5 | - | - |
Total | 1,063.5 | 1,054.9 | 0.8 | 912.2 | 873.0 | 4.5 | 1,975.7 | 1,927.9 | 2.5 |
(1) | Unaudited |
(2) | Including coastal and interior regions |
(3) | Wholesale includes volumes of reuse water and non-domestic sewage |
(4) | Billed volume in the retail segment in 2Q20/1H20 and in the wholesale segment in 2Q19/1H19 |
(5) | Billed volume in the wholesale segment |
(6) | Billed volume in the categories exempt from paying water and sewage bills |
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6. | Costs, administrative & selling expenses and construction costs |
Costs, administrative & selling expenses and construction costs increased by R$ 157.6 million in 2Q20 (4.9%). Excluding construction costs, the increase was R$ 166.1 million (6.6%).
Costs, administrative & selling expenses and construction costs as a percentage of net revenues was 75.6% in 2Q20, compared to 79.9% in 2Q19.
R$ million
Var. | Var | |||||||
2Q20 | 2Q19 | R$ | % | 1H20 | 1H19 | R$ | % | |
Salaries and payroll charges and Pension plan obligations | 658.3 | 771.6 | (113.3) | (14.7) | 1,336.1 | 1,452.6 | (116.5) | (8.0) |
General supplies | 57.5 | 71.4 | (13.9) | (19.5) | 123.2 | 128.8 | (5.6) | (4.3) |
Treatment supplies | 81.2 | 75.7 | 5.5 | 7.3 | 175.0 | 162.4 | 12.6 | 7.8 |
Services | 442.0 | 454.4 | (12.4) | (2.7) | 866.1 | 876.5 | (10.4) | (1.2) |
Electricity | 278.5 | 279.5 | (1.0) | (0.4) | 605.0 | 562.6 | 42.4 | 7.5 |
General expenses | 204.5 | 339.2 | (134.7) | (39.7) | 496.9 | 530.9 | (34.0) | (6.4) |
Tax expenses | 18.2 | 24.9 | (6.7) | (26.9) | 33.7 | 40.7 | (7.0) | (17.2) |
Subtotal | 1,740.2 | 2,016.7 | (276.5) | (13.7) | 3,636.0 | 3,754.5 | (118.5) | (3.2) |
Depreciation and amortization | 498.5 | 424.5 | 74.0 | 17.4 | 982.0 | 835.4 | 146.6 | 17.5 |
Allowance for doubtful accounts | 117.2 | 80.8 | 36.4 | 45.0 | 274.8 | 88.6 | 186.2 | 210.2 |
Subtotal | 615.7 | 505.3 | 110.4 | 21.8 | 1,256.8 | 924.0 | 332.8 | 36.0 |
Costs, administrative and selling expenses | 2,355.9 | 2,522.0 | (166.1) | (6.6) | 4,892.8 | 4,678.5 | 214.3 | 4.6 |
Construction costs | 996.7 | 673.0 | 323.7 | 48.1 | 1,505.4 | 1,263.0 | 242.4 | 19.2 |
Costs, adm & selling expenses and construction costs | 3,352.6 | 3,195.0 | 157.6 | 4.9 | 6,398.2 | 5,941.5 | 456.7 | 7.7 |
% of net revenue | 75.6 | 79.9 | 75.5 | 75.4 |
Salaries and payroll charges and Pension plan obligations
In 2Q20, the R$ 113.3 million decrease was due to:
· | R$ 38.6 million decrease in healthcare expenses. |
· | R$ 37,4 million decrease in TAC expenses of retirees; and |
· | R$ 22.7 million, mainly due to the 4.99% salary adjustment in May 2019, leading to an adjustment to the provisions with the payroll of such period (vacation and Christmas bonus, among others). There was no salary adjustment in 2Q20. |
General supplies
Decrease of R$ 13.9 million, or 19.5%, mostly due to lower volumes of supplies used in the maintenance of water and sewage networks and connections in 2Q20.
Services
Service expenses, totaling R$ 442.0 million, increased by R$ 12.4 million, or 2.7%, compared to the R$ 454.4 million reported in 2Q19. The main changes were:
· | R$ 14.3 million decrease with employees assigned by the municipality of Guarulhos; |
· | R$ 7.5 million decrease from higher credit recovery in 2Q19; and |
· | R$ 5.9 million decrease with IT maintenance and support. |
The decreases above were offset by the R$ 12.7 million increase in customer service.
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General expenses
Decrease of R$ 134.7 million, or 39.7%, to R$ 204.5 million in 2Q20, compared to the R$ 339.2 million recorded in 2Q19, mainly due to:
· | Non-recurring expenses related to the conclusion of lawsuits in 2Q19, due to the signing of an agreement with the municipality of São Bernardo do Campo, in the amount of R$ 39.0 million; |
· | Lower provisioning for lawsuits in 2Q20, in the amount of R$ 54.0 million; and |
· | Lower provision for the Municipal Fund for Environmental Sanitation and Infrastructure, in the amount of R$14.0 million, as a result of the decrease in revenues earned in the municipality of São Paulo. |
Depreciation and amortization
Increase of R$ 74.0 million, or 17.4%, due to the entry into the intangible asset’s operation, in the total of R$ 3.2 billion.
Allowance for doubtful accounts
Increase of R$ 36.4 million, due to the economic instability worsened by COVID-19, mainly because of: (i) increase in default levels; and (ii) expectation of higher future losses, due to the decrease in the municipalities’ revenue and the increase in bankruptcy petitions.
Other operating revenues (expenses), net
Other net operational revenues and expenses increased by R$ 112.4 million, mostly from the reversal of estimated losses with asset compensation in the municipality of Mauá, in the amount of R$ 85.9 million, due to the signing of an agreement.
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7. | Financial result |
R$ million
Var. | ||||
2Q20 | 2Q19 | R$ | % |
Financial expenses, net of income | (173.0) | (176.1) | 3.1 | (1.8) |
Monetary and exchange variations, net | (502.5) | 20.5 | (523.0) | - |
Financial Result | (675.5) | (155.6) | (519.9) | 334.1 |
Financial expenses, net of income
R$ million
Var. | ||||
2Q20 | 2Q19 | R$ | % |
Financial expenses
Interest and charges on domestic borrowings and financing | (89.3) | (77.8) | (11.5) | 14.8 |
Interest and charges on international borrowings and financing | (35.2) | (41.1) | 5.9 | (14.4) |
Other financial expenses | (94.3) | (125.0) | 30.7 | (24.6) |
Total financial expenses | (218.8) | (243.9) | 25.1 | (10.3) |
Financial revenue | 45.8 | 67.8 | (22.0) | (32.4) |
Financial expenses, net of income | (173.0) | (176.1) | 3.1 | (1.8) |
Decrease of R$ 3.0 million, due to:
· | R$ 11.5 million increase in interest and charges on local borrowings and financing, mainly due to the partial debt exchange from foreign currency to local currency; |
· | R$ 5.9 million decrease in interest and charges on foreign borrowings and financing, mainly due to the US$ 494.6 million debt exchange to R$ 2,810.9 million with the Interamerican Development Bank (IDB); |
· | R$ 30.7 million decrease in other financial expenses, as a result of lower recognition of interest on lawsuits, in the amount of R$ 24.5 million; and |
· | R$ 22.0 million decrease in financial revenues, mostly from the lower yield on financial investments, due to the reduction in the remuneration of the DI rate. |
Monetary and exchange variations, net
R$ million
Var. | ||||
2Q20 | 2Q19 | R$ | % |
Monetary and exchange variation on liabilities | ||||
Monetary variation on borrowings and financing | 10.1 | (13.3) | 23.4 | (175.9) |
Exchange variation on borrowings and financing | (502.0) | 58.8 | (560.8) | (953.7) |
Other monetary variations | (34.3) | (51.1) | 16.8 | (32.9) |
Total monetary and exchange variation on liabilities | (526.2) | (5.6) | (520.6) | 9,296.4 |
Monetary/exchange variation on assets | 23.7 | 26.1 | (2.4) | (9.2) |
Monetary/exchange variation, net | (502.5) | 20.5 | (523.0) | (2,551.2) |
The effect of net monetary and exchange variations was R$ 523.0 million in 2Q20, higher than in 2Q19, especially due to:
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· | R$ 560.8 million increase in exchange variation on borrowings and financing, due to: (i) appreciation of the Dollar against the Real in 2Q20, compared to a depreciation in 2Q19 (5.3% and -1.7%, respectively); and (ii) higher appreciation of the Yen against the Real in 2Q20, compared to the appreciation in 2Q19 (5.1% and 0.9%, respectively); |
· | R$ 23.4 million decrease in monetary variation on borrowings and financing, due to the decrease in the IPCA consumer price index; and |
· | R$ 16.8 million decrease in other monetary variations, due to higher monetary variation on lawsuits in 2Q20, in the amount of R$ 20.0 million. |
8. | Income tax and social contribution |
The lower taxable result presented in 2Q20, mainly due to higher expenses with exchange variation, mitigated by the impacts from the signing of an agreement with the municipality of Mauá, led to a decrease of R$ 55.5 million.
9. | Indicators |
a) | Operating |
Operating indicators(*) | 2Q20 | 2Q19 | % |
Water connections (1) | 10,022 | 9,546 | 5.0 |
Sewage connections (1) | 8,426 | 7,961 | 5.8 |
Population directly served - water (2) | 27.2 | 26.3 | 3.4 |
Population directly served - sewage (2) | 24.0 | 22.9 | 4.8 |
Number of employees | 13,881 | 14,156 | (1.9) |
Water volume produced in the quarter (3) | 714 | 719 | (0.7) |
Water volume produced in the semester (3) | 1,445 | 1,430 | 1.0 |
IPM - Measured water loss (%) (4) | 28.3 | 29.8 | (5.0) |
IPDt (liters/connection x day) (4) | 277.0 | 291.0 | (4.8) |
(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 André
(*) Unaudited
b) | Managerial |
The Managerial performance indicators below show gross revenue, operating expenses and EBITDA, all of them per billed cubic meter.
The historical series has been presented since 2014, based on quarterly financial data disclosed by the Company, excluding some non-recurring and significant events that would distort the result.
All indicators were calculated based on average values of 2Q20, adjusted by changes in the IPCA consumer price index, to determine the behavior on a same-price base in the period.
Gross Revenue per billed cubic meter increased, especially after the third quarter of 2015. Second-quarter result fell by 8% year-over-year, influenced by the lower consumption of non-residential customers, exemption of users under the “Residential Social" and “Residential Favela" (shantytown) categories from paying the tariffs and postponement of the tariff adjustment.
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Operating Expenses per billed cubic meter increased in a controlled manner on a quarterly basis, compatible with the expansion of operations showing a stable average performance and reflecting disciplined cost management. 2Q20 is the fourth quarter with consecutive decrease.
Finally, the EBITDA per cubic meter increased in the period, basically due to the performance of Gross Revenue and Operating Expenses.
Total Gross Revenue per Billed m³ - R$/m³
Values at average prices in 2Q20, adjusted by the IPCA consumer price index
Excluding:
1. | Construction revenue |
2. | R$ 928 million referring to the agreement signed with the municipality of Guarulhos in 4Q18 |
3. | R$ 1,254 million referring to the agreement signed with the municipality of Santo André in 3Q19 |
4. | R$ 194.9 million referring to the agreement signed with the municipality of Mauá in 2Q20 |
Operating Expenses per Billed m³ - R$/m³
Values at average prices in 2Q20, adjusted by the IPCA consumer price index
Considers: personnel, treatment supplies, general supplies, outsourced services, electricity, general expenses and tax expenses.
Reversals excluded:
1. | R$ 696 million referring to the agreement signed with the State Government in 1Q15 |
2. | R$ 307 million referring to the migration of the private pension plan in 3Q16 |
3. | R$ 173 million referring to the end of TAC of retirees in 3Q19 |
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EBITDA per Billed m³ - R$/m³
Values at average prices in 2Q20, adjusted by the IPCA consumer price index
Excluding:
1. | Revenue: |
− | R$ 928 million referring to the agreement signed with the municipality of Guarulhos in 4Q18 |
− | R$ 1,254 million referring to the agreement signed with the municipality of Santo André in 3Q19 |
− | R$ 194.9 million referring to the agreement signed with the municipality of Mauá in 2Q20 |
2. | Reversal of Expenses: |
− | R$ 696 million referring to the agreement signed with the State Government in 1Q15 |
− | R$ 307 million referring to the migration of the private pension plan in 3Q16 |
− | R$ 173 million referring to the end of TAC of retirees in 3Q19 |
c) | Economic |
Economic variables at the end of the quarter (*) | 2Q20 | 2Q19 |
Amplified Consumer Price Index (1) | (0.43) | 0.71 |
National Consumer Price Index (1) | (0.18) | 0.76 |
Consumer Price Index (1) | (0.15) | 0.42 |
Interbank Deposit Certificate (2) | 2.15 | 6.40 |
DOLLAR (3) | 5.4760 | 3.8322 |
YEN (3) | 0.05081 | 0.03554 |
(1) Accrued in the quarter (%)
(2) Quarterly average
(3) Ptax sale rate on the last day
(*) Unaudited
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10. | Borrowings and financing |
On July 10, 2020, SABESP carried out the 26th issue of debentures in the amount of R$ 1.045 billion, maturing in July 2030, in two series, the first of which totaling R$ 600.0 million at IPCA + 4.65% p.a., and the second totaling R$ 445.0 million at IPCA + 4.95% p.a.
(R$ thousand)
DEBT PROFILE | |||||||||
INSTITUTION |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 | 2026 onwards |
TOTAL | % of total |
Local currency | |||||||||
Debentures | 89,816 | 1,926,442 | 566,742 | 369,819 | 703,791 | 280,825 | 647,518 | 4,584,953 | 28 |
Brazilian Federal Savings Bank | 43,111 | 89,474 | 94,344 | 87,270 | 86,111 | 91,504 | 924,963 | 1,416,777 | 9 |
BNDES | 80,841 | 161,682 | 161,682 | 155,995 | 150,497 | 132,572 | 496,981 | 1,340,250 | 8 |
IDB 2202 | 90,674 | 181,349 | 181,349 | 181,349 | 181,349 | 181,349 | 1,798,924 | 2,796,343 | 17 |
Leases | 59,145 | 62,890 | 39,843 | 36,298 | 39,446 | 42,942 | 233,139 | 513,703 | 3 |
Other | 1,043 | 3,004 | 3,188 | 3,130 | 1,384 | 1,268 | - | 13,017 | 0 |
Interest and charges | 80,957 | 12,089 | - | - | - | - | - | 93,046 | 1 |
Total in local currency | 445,587 | 2,436,930 | 1,047,148 | 833,861 | 1,162,578 | 730,460 | 4,101,525 | 10,758,089 | 66 |
Foreign currency | |||||||||
IDB 1212 | 28,141 | 56,283 | 56,283 | 56,283 | 56,283 | 56,283 | - | 309,556 | 2 |
IBRD | 16,646 | 33,292 | 33,292 | 33,292 | 33,292 | 33,292 | 283,810 | 466,916 | 3 |
Eurobonds | 1,916,188 | - | - | - | - | - | - | 1,916,188 | 12 |
JICA | 106,490 | 213,338 | 213,697 | 213,697 | 213,697 | , | 1,605,683 | 2,780,299 | 17 |
IDB 1983AB | - | 42,123 | 42,123 | 40,910 | - | - | - | 125,156 | 1 |
Interest and charges | 31,157 | - | - | - | - | - | - | 31,157 | 0 |
Total in foreign currency | 2,098,622 | 345,036 | 345,395 | 344,182 | 303,272 | 303,272 | 1,889,493 | 5,629,272 | 34 |
TOTAL | 2,544,209 | 2,781,966 | 1,392,543 | 1,178,043 | 1,465,850 | 1,033,732 | 5,991,018 | 16,387,361 | 100 |
Covenants
The table below shows the most restrictive covenants in 2Q20:
Covenants | |
Adjusted EBITDA/Adjusted Financial Expenses | Equal to or higher than 2.80 |
Adjusted Net Debt/Adjusted EBITDA | Equal to or lower than 3.80 |
Adjusted Total Debt/Adjusted EBITDA | Lower than 3.65 |
Other Onerous Debt (1)/Adjusted EBITDA | Equal to or lower than 1.30 |
Adjusted current ratio | Higher than 1.00 |
EBITDA/Financial Expenses Paid | Equal to or higher than 2.35 |
Net Debt/Adjusted EBITDA | Equal to or lower than 3.50 |
(1)“Other Onerous Debts” correspond to the sum of pension obligations and healthcare plan, installment payment of tax debts and installment payment of debts with the electricity supplier.
On June 30, 2020, the Company had met the requirements set forth by its loan and financing agreements.
11. | Capex |
The Company invested R$ 1,328.8 million in 2Q20, R$ 514.3 million of which did not affect cash. Investments totaled R$ 2,044.8 million in 1H20, R$ 827.1 million of which did not affect cash.
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12. | New Legal Sanitation Framework |
On July 15, 2020, the Brazilian President sanctioned Law 14,026/2020 with 11 vetoes. Although they can be overruled by the Brazilian Congress, by extinguishing the program contract, the Law changes the scenario for operations in the sector, ensuring competition.
Additionally, the Law imposes performance goals that encourage operators to increase operating efficiency, and provides conditions for the National Water Agency (ANA) to establish parameters and guidelines in order to minimize regulatory uncertainties, thus creating a more stable and attractive environment for investments in the sector.
In this context, the Company believes it has competitive advantages, given that: i) contracts already include goals that meet or even anticipate those contained in the new regulatory framework, ii) it provides access to public and private capital, iii) it has high governance level; and iv) it has great exposure to the market, thus being prepared to compete in the expansion of its market share.
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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 the municipality São Paulo, at Rua Costa Carvalho, 300, CEP 05429-900, controlled by the São Paulo State Government (GESP). The Company is engaged in the provision of basic and environmental sanitation services in the São Paulo State, as well as it supplies treated water and sewage services on a wholesale basis.
In addition to providing basic sanitation services in the São Paulo State, 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 June 30, 2020, the Company operated water and sewage services in 373 municipalities of the São Paulo State. Most of these municipalities’ operations are based on 30-year concession, program and service contracts; of the 373 municipalities served, 339 have already signed contracts, pursuant to Law 11,445/2007.
The table below shows a summary of the contractual situation of the municipalities served:
June 30, 2020 | December 31, 2019 | June 30, 2019 | |
Total municipalities that have already signed contracts* | 341 | 325 | 312 |
Balance – intangible and contract assets | 38,369,843 | 35,990,087 | 31,306,076 |
Percentage of intangible and contract assets | 93.46% | 90.10% | 84.19% |
Revenue from sanitation services (excluding construction revenue) | 6,913,492 | 13,700,777 | 6,379,170 |
Percentage of revenue from sanitation services (excluding construction revenue) | 92.59% | 84.92% | 89.66% |
Municipalities with contracts under negotiation (expired): | 8 | 21 | 32 |
Balance – intangible and contract assets | 214,050 | 1,637,878 | 3,709,463 |
Percentage of intangible and contract assets | 0.52% | 4.10% | 9.98% |
Revenue from sanitation services (excluding construction revenue) | 18,892 | 451,603 | 364,252 |
Percentage of revenue from sanitation services (excluding construction revenue) | 0.25% | 2.80% | 5.12% |
Municipalities with concession agreements due by 2030: | 26 | 27 | 29 |
Balance – intangible and contract assets | 1,184,831 | 1,181,172 | 1,233,471 |
Percentage of intangible and contract assets | 2.89% | 2.96% | 3.32% |
Revenue from sanitation services (excluding construction revenue) | 283,603 | 588,628 | 293,031 |
Percentage of revenue from sanitation services (excluding construction revenue) | 3.80% | 3.65% | 4.12% |
| |||
Municipality of São Paulo: | |||
Percentage of intangible and contract assets | 42.30% | 43.37% | 45.62% |
Percentage of revenue from sanitation services (excluding construction revenue) | 43.94% | 44.48% | 48.33% |
* Includes the municipalities of Tejupá and Mauá, which signed contracts in March and June 2020, and will be provided with services as from September and August 2020, respectively. |
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Notes to the Interim Financial Information |
The Company operates in the municipality of Juquitiba under authorization by public deeds, which are valid and governed by the Brazilian Civil Code. Revenue from sanitation services (excluding construction revenue) of this municipality totaled R$ 2,995 in the six-month period ended June 30, 2020 (R$ 2,651 in the six-month period ended June 30, 2019) and the total amount of intangible and contract assets for this municipality was R$ 81,416 as of June 30, 2020 (R$ 80,563 as of June 30, 2019).
The Company's shares have been listed in the Novo Mercado segment of B3 under ticker SBSP3 since April 2002 and on the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) Level III, under ticker SBS, 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.
Economic instability worsened by COVID-19
The global economic instability worsened in early 2020 with the outbreak of a new coronavirus, which was considered pandemic by the World Health Organization (WHO). Accordingly, SABESP has adopted and has taken several preventive measures to ensure the continuity and quality of the services provided to the population, given that the services rendered by the Company have become even more essential to the society in the context of the COVID-19 pandemic. It is worth noting that any interruption in water supply by a basic sanitation company may compromise compliance with WHO’s recommendations for everyone to keep good hygiene habits, such as washing hands correctly and more frequently.
The Company implemented a number of preventive measures so that its employees are not exposed situations of risks, such as: (i) employees from the administrative sectors (especially) and those with more than 60 years of age are working under a remote system; (ii) restriction of domestic and international trips; (iii) use of remote means of communication; and (iv) anticipation of the vaccination campaign; among others. The Company also took all necessary preventive measures so that employees with strategic functions can work without increasing the risk of contamination, thus ensuring the continuity in the provision of essential services.
Some of the consequences arising from the COVID-19 pandemic include: (i) high exchange volatility and increase in new funding costs; (ii) reduction in revenues from commercial and industrial customers; (iii) postponement of the tariff adjustment from May 11 to August 15, 2020; (iv) increase in default and in the expectation of higher future losses, due to the decrease in the municipalities’ revenue and the increase in bankruptcy petitions, which negatively impacted estimated losses by R$ 36.4 million; (v) payment exemption of water and sewage bills for consumers in the Residential Social and Residential Favela categories in all operated municipalities from April 1 to August 15, 2020, which led to a reduction in revenue of R$ 38.6 million; and (vi) lower billed volume in the Commercial, Industrial and Public categories, reducing revenue by approximately R$ 323.1 million when compared to the same period of the previous year. Opposed to the adverse effects, there was a positive effect, such as the increase in revenues from residential customers, except for the social and favela categories, as well as the postponement of the payment of 50% of the Regulation, Control and Inspection Fee (TRCF) to January 2021.
Because of the adverse effects, the Company reduced expenses and budget adjustments to preserve economic and financial sustainability and, on April 27, 2020 and July 10, 2020, it held the 25th and 26th issue debentures in the amounts of R$ 1.45 billion and R$ 1.05 billion, respectively. In addition to these initiatives, on April 28, 2020, the Company concluded the translation of a debt contracted with the Inter-American Development Bank (IDB), from US$ 494.6 million to R$ 2,810.9 million, reducing its exposure to the variation of the US dollar.
Management expects that the initiatives implemented because of the above-mentioned impacts, in addition to the signature of contracts with the municipalities of Guarulhos, Santo André and Mauá, improved water security, due to the works carried out, and the credit lines contracted for purposes of investments, will be sufficient to meet its commitments and not compromise the Company’s operating and financial continuity.
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Notes to the Interim Financial Information |
New Legal Sanitation Framework
On July 15, 2020, the Brazilian President sanctioned Law 14,026/2020 with 11 vetoes. Although they can be overruled by the Brazilian Congress, by extinguishing the program contract, the Law changes the scenario for operations in the sector, ensuring competition.
Additionally, the Law imposes performance goals that encourage operators to increase operating efficiency, and provides conditions for the National Water Agency (ANA) to establish parameters and guidelines in order to minimize regulatory uncertainties, thus creating a more stable and attractive environment for investments in the sector.
In this context, the Company believes it has competitive advantages, given that: i) contracts already include goals that meet or even anticipate those contained in the new regulatory framework, ii) it provides access to public and private capital, iii) it has high governance level and iv) it has great exposure to the market, thus being prepared to compete in the expansion of its market share.
The financial statements were approved by the Board of Directors on August 13, 2020.
2 | Basis of preparation and presentation of the interim financial information |
Presentation of the Interim Financial Information
The interim financial information as of June 30 2020, was prepared based on the provisions of CPC 21 (R1) – Interim Financial Information and the international standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), applicable to the preparation of Quarterly Information Form – ITR and they are fairly presented consistent with the rules issued by the Brazilian Securities and Exchange Commission (CVM). 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 June 30, 2020, 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, 2019, 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):
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 11); |
vii. | Intangible assets (Note 14); |
viii. | Borrowings and financing (Note 16); |
ix. | Deferred taxes and contributions (Note 18); |
x. | Provisions (Note 19); |
xi. | Employees benefits (Note 20); |
xii. | Equity (Note 23); |
xiii. | Insurance (Note 26); |
xiv. | Financial income (expenses) (Note 29). |
All material information related to the interim financial 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.
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Notes to the Interim Financial Information |
3 | Summary of significant accounting policies |
The accounting policies used in the preparation of the interim financial information for the quarter ended June 30, 2020 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2019, disclosed on Note 3.
4 | Risk management |
4.1 | Financial 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.
(a) Market risk
Exchange risk
SABESP’s currency 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 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$ 5,637,011 as of June 30, 2020 (R$ 6,382,009 as of December 31, 2019). The exposure to exchange risk is as follows:
June 30, 2020 | December 31, 2019 | |||
Foreign currency | R$ | Foreign currency | R$ | |
Borrowings and financing – US$ | 515,439 | 2,822,544 | 1,051,881 | 4,239,817 |
Borrowings and financing – Yen | 54,778,785 | 2,783,310 | 56,452,885 | 2,097,225 |
Interest and charges from borrowings and financing – US$ | 14,595 | 32,242 | ||
Interest and charges from borrowings and financing – Yen | 16,562 | 12,725 | ||
Total exposure | 5,637,011 | 6,382,009 | ||
Borrowing cost – US$ | (4,728) | (20,173) | ||
Borrowing cost – Yen | (3,011) | (3,038) | ||
Total foreign currency-denominated borrowings (Note 15) | 5,629,272 | 6,358,798 |
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Notes to the Interim Financial Information |
The 11.5% decrease in foreign-currency denominated debt from December 31, 2019 to June 30, 2020, was mainly due to the translation of IDB 2202 contract from foreign to local currency, offset by the appreciation of the US dollar and Yen against the Real, as shown below:
June 30, 2020 | December 31, 2019 | Var. | |
US$ | R$ 5.4760 | R$ 4.0307 | 35.9% |
Yen | R$ 0.05081 | R$ 0.03715 | 36.8% |
From January to June 2020, the Company recorded R$ 2,356,350 from the currency variation of the borrowing and financing agreements. As of June 30, 2020, 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, effects on results before taxes on the six-month period ended June 30, 2020 would have been R$ 563,701 (R$ 637,588 for the six-month period ended June 30, 2019), lower or higher, mainly as a result of exchange losses or gains on the translation of foreign currency-denominated loans.
Scenario I below presents the effect in income statements for the next 12 months, considering the projected rates of the 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 June 30, 2020 in US$ - Liabilities | 515,439 | 515,439 | 515,439 |
US$ rate as of June 30, 2020 | 5.4760 | 5.4760 | 5.4760 |
Exchange rate estimated according to the scenario | 5.1000 | 6.3750 | 7.6500 |
Differences between the rates | 0.3760 | (0.8990) | (2.1740) |
Effect on net financial result R$ - gain/(loss) | 193,805 | (463,380) | (1,120,564) |
Net currency exposure as of June 30, 2020, in Yen - Liabilities | 54,778,785 | 54,778,785 | 54,778,785 |
Yen rate as of June 30, 2020 | 0.05081 | 0.05081 | 0.05081 |
Exchange rate estimated according to the scenario | 0.05068 | 0.06335 | 0.07602 |
Differences between the rates | 0.00013 | (0.01254) | (0.02521) |
Effect on net financial result R$ - gain/(loss) | 7,121 | (686,926) | (1,380,973) |
Total effect on net financial result in R$ - gain/(loss) | 200,926 | (1,150,306) | (2,501,537) |
(*) For the probable scenario in US dollar, the exchange rate estimated for June 30, 2021 was used, pursuant to the BACEN Focus Report of June 30, 2020, while for the Yen, the average exchange rate was considered for the 12-month period after June 30, 2020, according to B3’s Reference Rates report of June 30, 2020. |
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.
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Notes to the Interim Financial Information |
The table below provides the borrowings and financing subject to variable interest rate:
June 30, 2020 | December 31, 2019 | |
CDI (i) | 5,977,662 | 1,866,755 |
TR (ii) | 1,644,077 | 1,675,203 |
IPCA (iii) | 1,065,666 | 1,366,134 |
TJLP (iv) | 1,500,432 | 1,381,342 |
LIBOR (v) | 905,938 | 2,829,073 |
Interest and charges | 102,146 | 105,667 |
Total | 11,195,921 | 9,224,174 |
(i) | CDI - (Certificado de Depósito Interbancário), an interbank deposit certificate |
(ii) | TR – Interest Benchmark Rate |
(iii) | IPCA – (Índice Nacional de Preços ao Consumidor Amplo), a consumer price index |
(iv) | TJLP – (Taxa de Juros a Longo Prazo), a long-term interest rate index |
(v) | LIBOR – London Interbank Offered Rate |
Another risk to which the Company is exposed is the mismatch of inflation adjustment indices of its debts with those of its service revenues. Tariff adjustments of services provided by the Company do not necessarily follow the increases in the inflation indexes to adjust loans, financing and interest rates affecting indebtedness.
As of June 30, 2020, 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 six-month period ended June 30, 2020 would have been R$ 111,959 (R$ 88,592 for the six-month period ended June 30, 2020), 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 June 30, 2020 are the carrying amounts of instruments classified cash and cash equivalents, restricted cash, trade receivables and accounts receivable from related parties in the reporting period. See additional information in Notes 6, 7, 8, 9 and 10.
Regarding the financial assets held with financial institutions, the credit quality that is not past due or subject to impairment loss 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:
June 30, 2020 | December 31, 2019 | |
Cash and cash equivalents | ||
AA(bra) | 2,204,876 | 2,193,725 |
AAA(bra) | 890,654 | 41,992 |
Other (*) | 270,875 | 17,493 |
3,366,405 | 2,253,210 |
(*) This category includes current accounts and investment funds in banks whose balances were not significant.
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Notes to the Interim Financial Information |
The available credit rating information of the banks, as of June 30, 2020, 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 | AA(bra) | Aa1.br | brAAA |
Banco Bradesco S/A | AAA(bra) | Aa1.br | brAAA |
Banco Itaú Unibanco S/A | AAA(bra) | Aa1.br | brAAA |
Banco BV | - | Aa3.br | brAAA |
Banco BTG Pactual S/A | AA(bra) | Aa2.br | brAA+ |
(c) | Liquidity risk |
The Company's liquidity is primarily reliant upon cash provided by operating activities and borrowings and financing obtained 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, per 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 of June 30, 2020.
July to December 2020 | 2021 | 2022 | 2023 | 2024 | 2025 onwards | Total | |
June 30, 2020 | |||||||
Liabilities | |||||||
Borrowings and financing | 2,723,932 | 3,246,284 | 1,773,010 | 1,523,236 | 1,756,191 | 8,994,778 | 20,017,431 |
Trade payables and contractors | 396,951 | - | - | - | - | - | 396,951 |
Services payable | 580,139 | - | - | - | - | - | 580,139 |
Public-Private Partnership – PPP | 396,693 | 396,693 | 396,693 | 382,699 | 337,154 | 4,635,870 | 6,545,802 |
Program Contract Commitments | 222,761 | 47,038 | 32,288 | 32,288 | 1,022 | 13,864 | 349,261 |
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, and the most restrictive are shown in Note 15 (c).
(d) Sensitivity analysis on interest rate risk
The table below shows the sensitivity analysis of the financial instruments, prepared in accordance with CVM Rule 475/2008 in order to evidence the balances of main financial assets and liabilities, calculated at a rate projected for the twelve-month period after June 30, 2020, 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).
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Notes to the Interim Financial Information |
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.
June 30, 2020 | ||||
Indicators | Exposure | Scenario I (Probable) (i) | Scenario II 25% | Scenario III 50% |
Assets | ||||
CDI | 3,222,016 | 3.00%(*) | 3.75% | 4.50% |
Financial income | 96,660 | 120,826 | 144,991 | |
Liabilities | ||||
CDI | (5,977,662) | 3.00%(*) | 3.75% | 4.50% |
Interest to be incurred | (179,330) | (224,162) | (268,995) | |
CDI net exposure | (2,755,646) | (82,670) | (103,336) | (124,004) |
Liabilities | ||||
TR | (1,644,077) | 0.00%(***) | 0.00% | 0.00% |
Expenses to be incurred | - | - | - | |
IPCA | (1,065,666) | 3.00%(*) | 3.75% | 4.50% |
Expenses to be incurred | (31,970) | (39,962) | (47,955) | |
TJLP | (1,500,432) | 4.94%(*) | 6.17% | 7.41% |
Interest to be incurred | (74,121) | (92,577) | (111,182) | |
LIBOR | (905,938) | 0.27%(**) | 0.33% | 0.40% |
Interest to be incurred | (2,446) | (2,990) | (3,624) | |
Total net expenses to be incurred | (191,207) | (238,865) | (286,765) | |
(*) Source: CDI and IPCA (BACEN Focus Report, June 30, 2020) and long-term interest rate as of June 30, 2020 (BACEN). | ||||
(**) Source: Bloomberg. | ||||
(***) Source: B3. |
(i) Refers to the scenario of interest to be incurred for the 12 months as of June 30, 2020 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 increase investments in infrastructure, provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.
Capital is monitored based on the leverage ratio, which 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 plus net debt, as shown in the statement of financial position.
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Notes to the Interim Financial Information |
June 30, 2020 | December 31, 2019 | |
Total borrowings and financing (Note 15) | 16,387,361 | 13,244,709 |
(-) Cash and cash equivalents (Note 6) | (3,366,405) | (2,253,210) |
Net debt | 13,020,956 | 10,991,499 |
Total equity | 21,275,024 | 21,635,783 |
Total (shareholders + providers of capital) | 34,295,980 | 32,627,282 |
Leverage rate | 38% | 34% |
As of June 30, 2020, the leverage rate reached 38% compared to the 34% as of December 31, 2019, mainly because of the increase in net debt, due to the appreciation of the US dollar and Yen, as well as the reduction in equity arising from the loss reported in the period.
4.3 | Fair value estimates |
The Company considers that balances from trade receivables (current) and trade payables 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 |
The Company did not have financial assets classified as fair value through other comprehensive income and fair value through profit or loss. The financial instruments included in the amortized cost category comprise cash and cash equivalents, restricted cash, trade receivables, balances with related parties, other assets and balances receivable from the Water National Agency (ANA), accounts payable to contractors and suppliers, borrowings and financing, services payable, balances payable deriving from the Public Private Partnership (PPP) and program contract commitments, which are non-derivative financial assets and liabilities with fixed or determinable payments, not quoted in an active market.
The estimated fair values of financial instruments are as follows:
Financial assets
June 30, 2020 | December 31, 2019 | |||
Carrying amount | Fair value | Carrying amount | Fair value | |
Cash and cash equivalents | 3,366,405 | 3,366,405 | 2,253,210 | 2,253,210 |
Restricted cash | 28,595 | 28,595 | 26,018 | 26,018 |
Trade receivables | 2,193,273 | 2,193,273 | 2,353,027 | 2,353,027 |
ANA | 32,798 | 32,798 | 32,466 | 32,466 |
Other assets | 270,802 | 270,802 | 194,178 | 194,178 |
Additionally, SABESP has financial assets receivable from related parties, totaling R$ 810,411 as of June 30, 2020 (R$ 850,896 as of December 31, 2019), which were calculated in accordance with the conditions negotiated between the related parties. The conditions and additional information related to these financial instruments are disclosed in Note 9. Part of this balance, totaling R$ 738,412 (R$ 747,579 as of December 31, 2019), refers to reimbursement of additional retirement and pension plan - G0 and is indexed by IPCA plus simple interest of 0.5% p.m. On the transaction date, this interest rate approximated that of National Treasury Notes (NTN-b), with terms similar to those of related-party transactions.
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Notes to the Interim Financial Information |
Financial Liabilities
June 30, 2020 | December 31, 2019 | |||
Carrying amount | Fair value | Carrying amount | Fair value | |
Borrowings and financing | 16,387,361 | 16,568,163 | 13,244,709 | 13,937,611 |
Trade payables and contractors | 396,951 | 396,951 | 369,631 | 369,631 |
Services payable | 580,139 | 580,139 | 474,078 | 474,078 |
Program Contract Commitment | 330,251 | 330,251 | 377,253 | 377,253 |
Public-Private Partnership (PPP) | 3,265,155 | 3,265,155 | 3,293,980 | 3,293,980 |
The criteria adopted to obtain the fair values of borrowings and financing, in preparing the interim financial information as of June 30, 2020, are consistent with those adopted in the Annual Financial Statements for the fiscal year ended December 31, 2019.
Considering the nature of other financial instruments, assets and liabilities, the balances recognized in the statement of financial position approximate the fair values, except for borrowings and financing, considering the maturities close to the end of the reporting date, comparison of contractual interest rates with market rates in similar operations at the end of the reporting period, their nature and maturity terms.
5 | Key accounting estimates and judgments |
The preparation of the financial statements requires Management to make judgements and use assumptions based on experience and other factors deemed as relevant, which affect the values of assets and liabilities and present results that may differ from the actual ones.
The areas that require a higher level of judgment and greater complexity, as well as the areas in which assumptions and estimates are significant for the financial statements are: (i) allowance for doubtful accounts; (ii) intangible assets arising from concession agreements and program contracts; (iii) pension plan liabilities; (iv) deferred income tax and social contribution, and (v) provisions.
6 | Cash and cash equivalents |
June 30, 2020 | December 31, 2019 | |
Cash and banks | 144,389 | 176,497 |
Cash equivalents | 3,222,016 | 2,076,713 |
Total | 3,366,405 | 2,253,210 |
Cash and cash equivalents include cash, bank deposits and high-liquidity short-term financial investments, mainly represented by repurchase agreements, fund shares (accruing CDI interest rates) and CDBs, whose original maturities or intention of realization are lower than three months, which are convertible into a cash amount and subject to an insignificant risk of change in value, totaling R$ 1,756,715 (R$ 2,076,713 as of December 31, 2019), which are deposited at a fund in Banco do Brasil, in which SABESP is the exclusive shareholder.
The fund exclusively aims at receiving resources from SABESP and, as of June 30, 2020, it was mainly comprised of investments in treasury notes, repurchase agreements backed by national treasury notes and fixed income financial assets.
Given that SABESP is the exclusive shareholder and has control over the fund, it should be consolidated in the financial statements; however, since 99% of the balance has already been presented in the financial statements under Cash and cash equivalents and the remaining balance, referring to the fund's management and maintenance expenses, is irrelevant, the Company decided not to present the balances between Parent Company and Consolidated because there is no significant difference between such balances and because it does not generate significant disclosure to users of financial statements.
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Notes to the Interim Financial Information |
As of June 30, 2020, the average yield of financial investments corresponds to 96.99% of CDI (98.02% as of December 31, 2019).
7 | Restricted cash |
June 30, 2020 | December 31, 2019 | |
Agreement with the São Paulo municipal government (i) | 21,469 | 17,068 |
Brazilian Federal Savings Bank – escrow deposits (ii) | 1,312 | 2,245 |
Other | 5,814 | 6,705 |
28,595 | 26,018 |
(i) | Refers to the amount deducted from the 7.5% of revenue earned in the municipality 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. |
8 | Trade receivables |
(a) Statement of financial position details
June 30, 2020 | December 31, 2019 | |
Private sector: | ||
General (i) and special customers (ii) | 1,611,947 | 1,505,150 |
Agreements (iii) | 383,628 | 378,341 |
1,995,575 | 1,883,491 | |
Government entities: | ||
Municipal | 449,804 | 472,666 |
Federal | 2,307 | 2,805 |
Agreements (iii) | 331,150 | 277,047 |
783,261 | 752,518 | |
Wholesale customers – Municipal governments: (iv) | ||
Mogi das Cruzes | 3,575 | 3,278 |
São Caetano do Sul | 7,393 | 9,871 |
Total wholesale customers – Municipal governments | 10,968 | 13,149 |
Unbilled supply | 608,260 | 745,884 |
Subtotal | 3,398,064 | 3,395,042 |
Allowance for doubtful accounts | (1,204,791) | (1,042,015) |
Total | 2,193,273 | 2,353,027 |
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Notes to the Interim Financial Information |
June 30, 2020 | December 31, 2019 | |
Current | 1,927,175 | 2,137,752 |
Noncurrent | 266,098 | 215,275 |
2,193,273 | 2,353,027 |
(i) | General customers - residential and small and mid-sized companies |
(ii) | Special customers – large consumers, commercial industries, condominiums and special billing consumers (fixed demand agreements, industrial waste, wells, etc); |
(iii) | Agreements - installment payments of past-due receivables, plus monetary restatement and interest, according to the agreements; and |
(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. |
Agreement with the municipality of Mauá
On June 16, 2020, the Company entered into a debt payment and receipt Consent Decree with the Municipality of Mauá (“Mauá”) and the Mauá Basic Sanitation (SAMA), aiming to settle SAMA’s existing debt upon the transfer of sanitation services to SABESP for 40 years.
On the same date, the São Paulo State, the Municipality of Mauá and SABESP signed the Public Utility Service Agreement to Provide Water Supply in the Municipality of Mauá, through which the São Paulo State and the Municipality of Mauá granted SABESP the right to provide services for 40 years.
As a result of the signature of the service provision agreement, the amounts due by Mauá and SAMA, of
R$ 725,533 corresponding to receivables for the provision of water supply in the wholesale and R$ 85,918 to the compensation of assets due to the resumption of water supply and sewage services by the municipality in 1996, were given in exchange for the transfer of water supply services for a period of 40 years, appraised at R$ 280,774. As a result of this transaction, the corresponding intangible asset was recognized against profit (loss) for the year at the fair value of the asset received, since the assets given in the exchange had not been recognized for not meeting the criteria for revenue recognition.
In view of the service transfer, the Company will contribute R$ 2,500 to settle administrative costs arising from the end of SAMA’s activities, recorded in intangible assets, for being a necessary cost for acquisition of the concession, against current liabilities.
After the signature of the Agreement, four percent (4%) of the quarterly amount collected in the municipality by SABESP, less Cofins/Pasep, ARSESP’s Regulatory, Control and Oversight Fee (TRCF) and any charges levied on revenue, should be paid up to 30 days after the publication of SABEP’s quarterly financial results. Such transfers will begin as from the third quarter of 2020.
Credits in court, in the form of registered warrants, will be maintained as performance bond of the Consent Decree and will be reduced based on the Contract duration.
The measurement of the fair value of the transaction with the municipality of Mauá was classified as level 3 fair value in its initial recognition, using the discounted cash flow technique considering the present value of such net cash flows expected from water supply services for a period of 40 years, taking into consideration the following main assumptions:
· | Average tariff and average volume of water and sewage by economy based on SAMA’s average consumption histogram, referring to the period between January and December 2018; |
· | Indirect revenue based on historical data of the municipalities operated by SABESP in the Metropolitan Region of São Paulo; |
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Notes to the Interim Financial Information |
· | Average unit cost of the Metropolitan Region of São Paulo with synergy, due to economies of scale and the use of existing structures at SABESP (administrative and operational); |
· | Personnel costs – in the first two years, considering the payment of employees assigned by SAMA; |
· | Costs and Investments in the integrated metropolitan supply system prorated based on the volume of water supplied to the municipality; |
· | Exclusive investments by the municipality following the Municipal Sanitation Plan; |
· | Additional investments to be made by the municipality and paid by SABESP, corresponding to 4% of net revenue as of the first year; and |
· | Projected cash flow discount rate – 8.11% p.a. (WACC). |
(b) | The aging of trade receivables is as follows: |
June 30, 2020 | December 31, 2019 | |
Current |
1,609,212 |
1,762,606 |
Past-due: | ||
Up to 30 days | 294,022 | 330,488 |
From 31 to 60 days | 161,020 | 164,913 |
From 61 to 90 days | 117,308 | 86,765 |
From 91 to 120 days | 124,601 | 58,971 |
From 121 to 180 days | 163,506 | 81,003 |
From 181 to 360 days | 46,413 | 33,206 |
Over 360 days | 881,982 | 877,090 |
Total past-due | 1,788,852 | 1,632,436 |
Total | 3,398,064 | 3,395,042 |
The increase in the past-due balance was mainly due to higher default of the private sector.
(c) | Allowance for doubtful accounts |
January to June 2020 | January to June 2019 | |
Balance at the beginning of the period |
1,042,015 |
1,099,442 |
Private sector/government entities | 193,295 | 33,989 |
Recoveries | (30,519) | (31,690) |
Net additions/(recoveries) in the period | 162,776 | 2,299 |
Balance at the end of the period | 1,204,791 | 1,101,741 |
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Notes to the Interim Financial Information |
Reconciliation of estimated losses at the result | April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 |
Write-offs |
(66,579) |
(104,347) |
(61,316) |
(84,128) |
(Losses)/reversal with state entities – related parties |
(6,812) |
(7,543) |
1,161 |
(2,148) |
(Losses) with private sector/government entities | (66,808) | (193,295) | (43,845) | (33,989) |
Recoveries | 23,022 | 30,519 | 23,185 | 31,690 |
Amount recorded as expense | (117,177) | (274,666) | (80,815) | (88,575) |
Estimated losses increased from R$ 88,575 from January to June 2019 to R$ 274,666 from January to June 2020, due to the higher percentage of expected losses resulting from the worsening of Brazil’s economic situation because of the COVID 19 pandemic, mainly due to higher bankruptcy petitions in the commerce, services and industry sectors, and to the lower collections of the municipalities.
The Company does not have customers representing 10% or more of its total revenues.
9 | Related-party balances and transactions |
(a) | Accounts receivable, interest on capital payable, revenue and expenses with the São Paulo State Government |
June 30, 2020 | December 31, 2019 | |
Accounts receivable | ||
Current: | ||
Sanitation services | 111,328 | 131,851 |
Allowance for losses | (46,960) | (39,417) |
Reimbursement of additional retirement and pension benefits paid (G0): | ||
- Monthly flow (payments) | 38,805 | 31,584 |
- GESP Agreement– 2015 | 71,101 | 68,888 |
Total current | 174,274 | 192,906 |
Noncurrent: | ||
Agreement for the installment payment of sanitation services | 7,631 | 10,883 |
Reimbursement of additional retirement and pension benefits paid (G0): | ||
- GESP Agreement – 2015 (iv) | 628,506 | 647,107 |
Total noncurrent | 636,137 | 657,990 |
Total receivables from shareholders | 810,411 | 850,896 |
Assets: | ||
Sanitation services | 71,999 | 103,317 |
Reimbursement of additional retirement and pension benefits (G0) | 738,412 | 747,579 |
Total | 810,411 | 850,896 |
Liabilities: | ||
Interest on capital payable to related parties | 767 | 401,963 |
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Notes to the Interim Financial Information |
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Revenue from sanitation services | 123,949 | 265,834 | 146,432 | 269,432 |
Payments from related parties | (143,946) | (293,441) | (141,075) | (266,173) |
Receipt of GESP reimbursement referring to Law 4,819/1958 | (17,714) | (71,916) | (31,803) | (76,589) |
(b) | São Paulo State Government - GESP |
(i) | Disputed amounts |
As of June 30, 2020, and December 31, 2019, the disputed amounts between SABESP and GESP, corresponding to additional retirement and pension benefits paid (Law 4,819/1958), totaled R$ 1,234,940 and R$ 1,195,217, 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 June 30, 2020, and December 31, 2019, the amounts corresponding to the actuarial liability totaled R$ 3,064,660 and R$ 3,046,255, respectively. For detailed information on additional retirement and pension benefits, see Note 19 (b).
(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 settle the disputes fully and completely and SABESP will continue using the reservoirs.
As of June 30, 2020, the balance of the agreement totaled R$ 16,723 and R$ 82,253 (R$ 16,653 and R$ 87,231 as of December 31, 2019), recorded in Other liabilities, under current and noncurrent liabilities, respectively.
(d) Agreements with reduced tariff for State and Municipal 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.
(e) | Guarantees |
The State Government provides guarantees for some of the Company’s borrowings and financing and does not charge ny fee for such guarantees.
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Notes to the Interim Financial Information |
(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 April to June 2020 and 2019, the expenses related to employees assigned to other state government entities amounted to R$ 579 and R$ 1,520, respectively, and, from January to June 2020 and 2019, they amounted to R$ 1,267 and R$ 2,974, respectively.
From April to June 2019 and 2020, expenses related to personnel assigned by other entities to the Company totaled R$ 13 and R$ 59, the latter corresponding to a member of the Board of Executive Officers. From January to June 2020 and 2019, they amounted to R$ 13 and R$ 139, respectively.
(g) | Non-operating assets |
As of June 30, 2020 and December 31, 2019, the Company had an amount of R$ 3,613 related to land and lent structures.
(h) | SABESPREV |
The Company sponsors a private defined benefit pension plan (G1 Plan), which is operated and administered by SABESPREV. The net actuarial liability recognized as of June 30, 2020, amounted to R$ 308,438 (R$ 314,677 as of December 31, 2019), according to Note 19 (b).
(i) | Compensation of Management Key Personnel and Fiscal Council |
From April to June 2020 and 2019, expenses related to the compensation of the members of the Management and Fiscal Council totaled R$ 1,596 and R$ 1,162, respectively. From January to June 2020 and 2019, these amounts totaled R$ 3,179 and R$ 2,175, respectively.
Additional amounts of R$ 360 and R$ 550 referring to the Executive Officers' bonus program were recorded from April to June 2020 and 2019, respectively, and, from January to June 2020 and 2019, these amounts totaled R$ 720.
(j) | Loan agreement through credit facility |
The Company holds interest in certain Special Purpose Entities (SPEs), not holding the majority interest but with cast vote and power of veto in some issues, with no ability to use such power of veto in a way to affect returns over investments. Therefore, these SPEs are considered for accounting purposes as jointly arrangements.
The Company entered into a loan agreement through credit facility with the SPE Aquapolo Ambiental S/A to finance the operations of this company, until the borrowings and financing requested with financial institutions is granted.
As of June 30, 2020, the balance of principal and interest of this agreement totaled R$ 32,759, which was recorded in Noncurrent assets, under Other assets (R$ 34,992 as of December 31, 2019), at CDI + 1.2% p.a. As of January 27, 2020, the Company received R$ 3,000, of which R$ 1,231 for amortization of principal and R$ 1,769 for amortization of interest.
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.
(k) | “Se Liga na Rede” (Connect to the Network Program) |
The State Government enacted the State Law 14,687/2012, 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 June 30, 2020, the program total amount was R$ 120,374 (R$ 117,272 as of December 31, 2019); as of June 30, 2020 and December 31, 2019, there was no balance receivable from related parties. As of June 30, 2020, R$ 68,200 (R$ 65,099 as of December 31, 2019) was recorded under intangible assets. R$ 52,174 was reimbursed by GESP (R$ 52,174 as of December 31, 2019)
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Notes to the Interim Financial Information |
from the beginning of the program until June 30, 2020.
10 | Investments |
The Company holds interest in certain Special Purpose Entities (SPE). Although SABESP has no majority shares of its investees, the shareholders’ agreement provides for the power of veto in certain management issues, however, with no ability to use such power of veto in a way to affect returns over investments, indicating participating shared control (joint venture – CPC 19 (R2)).
The Company holds interest valued by the equity accounting in the following investees:
Below is a summary of the investees’ financial statements and SABESP’s equity interest:
Equity | Profit (loss) for the period | ||||
June 30, 2020 | December 31, 2019 | January to June 2020 | (*) | January to June 2019 | |
Sesamm | 49,544 | 45,923 | 3,621 | - | 1,108 |
Águas de Andradina | 28,453 | 30,065 | 1,013 | (2,625) | 2,118 |
Águas de Castilho | 7,797 | 7,242 | 542 | 13 | 779 |
Saneaqua Mairinque | 4,064 | 4,783 | (719) | - | (315) |
Attend Ambiental | 10,536 | 7,486 | 3,085 | (35) | 1,448 |
Aquapolo Ambiental | 46,736 | 37,772 | 8,964 | - | 8,600 |
Paulista Geradora de Energia | 6,919 | 7,144 | (225) | - | (214) |
Investments | Equity result | Interest percentage | |||||
June 30, 2020 | December 31, 2019 | January to June 2020 | (*) | January to June 2019 | June 30, 2020 | December 31, 2019 | |
Sesamm | 17,836 | 16,533 | 1,303 | - | 399 | 36% | 36% |
Águas de Andradina | 8,537 | 9,020 | 304 | (787) | 635 | 30% | 30% |
Águas de Castilho | 2,340 | 2,172 | 164 | 4 | 234 | 30% | 30% |
Saneaqua Mairinque | 1,218 | 1,434 | (216) | - | (95) | 30% | 30% |
Attend Ambiental | 4,741 | 3,369 | 1,388 | (16) | 651 | 45% | 45% |
Aquapolo Ambiental | 22,900 | 18,508 | 4,392 | - | 4,214 | 49% | 49% |
Paulista Geradora de Energia | 1,730 | 1,786 | (56) | - | (53) | 25% | 25% |
Total | 59,302 | 52,822 | 7,279 | (799) | 5,985 | ||
Other investments | 365 | 365 | |||||
Overall total | 59,667 | 53,187 |
(*) Refer to changes in the equity of investees, as their financial statements for the year ended December 31, 2019 were issued after disclosure of SABESP’s financial statements.
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11 | Investment Properties |
December 31, 2019 | Transfers | Depreciation | June 30, 2020 | |
Investment properties | 47,562 | 11 | (24) | 47,549 |
December 31, 2018 | Depreciation | June 30, 2019 | |
Investment properties | 47,620 | (25) | 47,595 |
As of June 30, 2020 and December 31, 2019, the market values of these properties were approximately R$ 383,000 and R$ 386,000, respectively.
12 | Contract assets |
Contract Assets (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 Assets 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 Note 13.
December 31, 2019 | Additions (ii) | Transfers | Transfers of works to intangible assets | June 30, 2020 (i) | |
Total contract assets | 7,617,714 | 1,708,731 | 35 | (1,614,733) | 7,711,747 |
December 31, 2018 | Additions | Transfers | Transfers of works to intangible assets | June 30, 2019 | |
Total contract assets | 7,407,948 | 1,390,646 | 10,508 | (1,771,014) | 7,038,088 |
(i) | The largest works are located in the municipalities of São Paulo, Praia Grande and São Bernardo do Campo, in the amounts of R$ 3,564 million, R$ 409 million and R$ 405 million, respectively. |
(ii) | The largest additions of the period are located in the municipalities of São Paulo, Praia Grande and São Bernardo do Campo, in the amounts of R$ 701 million, R$ 121 million and R$ 97 million, respectively. |
As of June 30, 2020, the contract asset included R$ 276,893, recorded as lease (R$ 276,893 as of December 31, 2019).
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13 | Intangible assets |
(a) | Statement of financial position details |
June 30, 2020 | December 31, 2019 | |||||
Cost | Accumulated amortization |
Net |
Cost | Accumulated amortization |
Net | |
Intangible right arising from: | ||||||
Concession agreements – equity value | 667,861 | (182,404) | 485,457 | 2,066,459 | (571,606) | 1,494,853 |
Concession agreements – economic value | 1,379,165 | (665,910) | 713,255 | 1,334,531 | (621,679) | 712,852 |
Program contracts | 22,074,366 | (6,372,825) | 15,701,541 | 19,413,768 | (5,594,068) | 13,819,700 |
Program contracts – commitments | 1,709,757 | (312,351) | 1,397,406 | 1,651,434 | (286,559) | 1,364,875 |
Services contracts – São Paulo | 19,712,846 | (5,259,868) | 14,452,978 | 19,217,091 | (4,826,328) | 14,390,763 |
Software license of use | 917,522 | (391,366) | 526,156 | 829,739 | (358,033) | 471,706 |
Right of use – Other assets | 136,579 | (70,885) | 65,694 | 113,233 | (42,535) | 70,698 |
Total | 46,598,096 | (13,255,609) | 33,342,487 | 44,626,255 | (12,300,808) | 32,325,447 |
(b) | Changes |
December 31, 2019 | Additions | Contract renewals | Transfer of contract asset | Transfers | Write-offs and disposals | Amortization | June 30, 2020 | |
Intangible right arising from: | ||||||||
Concession agreements – equity value (*) | 1,494,853 | - | (1,030,964) | 40,719 | 180 | (193) | (19,138) | 485,457 |
Concession agreements – economic value | 712,852 | - | - | 44,635 | (1) | (8) | (44,223) | 713,255 |
Program contracts (*) | 13,819,700 | 285,589 | 1,030,964 | 1,014,385 | (66,071) | (2,440) | (380,586) | 15,701,541 |
Program contracts – commitments | 1,364,875 | 58,323 | - | - | - | - | (25,792) | 1,397,406 |
Service contracts – São Paulo | 14,390,763 | 6,469 | - | 505,577 | (11,781) | (3,053) | (434,997) | 14,452,978 |
Software license of use | 471,706 | - | - | 9,417 | 78,243 | - | (33,210) | 526,156 |
Right of use – Other assets | 70,698 | 23,347 | - | - | - | - | (28,351) | 65,694 |
Total | 32,325,447 | 373,728 | - | 1,614,733 | 570 | (5,694) | (966,297) | 33,342,487 |
(*) As of June 30, 2020, Concession agreements – equity value, and Program contracts included leases in the amounts of R$ 81,860 and R$ 199,332 (R$ 87,266 and R$ 205,558 as of December 31, 2019), respectively.
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December 31. 2018 | First-time adoption of IFRS 16 | Additions | Contract renewal | Transfer to indemnities | Transfer of contract asset | Transfers | Write-offs and disposals | Amortization | June 30, 2019 | |
Intangible right arising from: | ||||||||||
Concession agréments – equity value (*) | 4,073,344 | - | 4 | (960,809) | (4,345) | 315,607 | (6,397) | (143) | (53,226) | 3,364,035 |
Concession agréments – economic value | 1,232,009 | - | - | (556,579) | - | 130,225 | (1,534) | (990) | (59,517) | 743,614 |
Program contracts (*) | 8,777,929 | - | 359 | 1,517,388 | - | 214,880 | (6,033) | (2,399) | (250,992) | 10,251,132 |
Program contracts – commitments | 1,079,551 | - | 106,327 | - | - | - | - | - | (21,707) | 1,164,171 |
Service contracts – São Paulo | 13,391,452 | - | 1,532 | - | - | 1,044,606 | (1,771) | (10,552) | (380,950) | 14,044,317 |
Software license of use | 458,175 | - | - | - | - | 65,696 | - | - | (32,340) | 491,531 |
Right of use | - | 64,955 | 40,999 | - | - | - | - | - | (19,256) | 86,698 |
Total | 29,012,460 | 64,955 | 149,221 | - | (4,345) | 1,771,014 | (15,735) | (14,084) | (817,988) | 30,145,498 |
(*) As of June 30, 2019, Concession agreements – equity value and Program contracts included leases in the amounts of R$ 92,672 and R$ 211,669, respectively.
In the first half of 2020, the Company renewed contracts with the municipalities of Bragança Paulista, Cubatão, Ilhabela, Jandira, Joanópolis, Lupércio, Meridiano, Paulínia, Pinhalzinho, Piracaia, Pirapora do Bom Jesus, Santana de Parnaíba, Ubatuba and Vargem Grande Paulista for 30 years.
In addition to the municipalities above, SABESP also signed contracts with the municipalities of Tejupá and Mauá in March and June 2020 for 40 years, which will start being served as from September and August 2020, respectively.
The Company entered into an agreement with the municipality of Tapiratiba in October 2019 and started operations in April 2020, for 30 years.
As of June 30, 2020, a contract was signed for the provision of treatment services and final disposal of solid waste and collection of garbage tax in the Municipality of Diadema for 40 years, which will start operations as of January 1, 2021. Regarding treatment services and final disposal of solid waste, SABESP is analyzing the best way to operationalize such services.
(c) | Intangible arising from concession agreements |
The Company has obligations recorded in “Program Contract– Commitments” in current liabilities in the amounts of R$ 252,704 and R$ 273,932 as of June 30, 2020 and December 31, 2019, respectively, and in noncurrent liabilities in the amounts of R$ 77,547 and R$ 103,321 as of June 30, 2020 and December 31, 2019, respectively.
(d) | Capitalization of interest and other finance charges |
From January to June 2020, the Company capitalized interest and inflation adjustment, including exchange variation, in concession intangible assets, totaling R$ 139,994 (R$ 133,010 from January to June 2019) during the construction period.
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(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 margin is lower to cover administration costs and the assumption of responsibility for primary risks is lower. As of June 30, 2020 and 2019, the margin was 2.3%.
The construction margin from April to June 2020 and 2019 was R$ 22,924 and R$ 15,480, respectively, and from January to June 2020 and 2019 it was R$ 35,579 and R$ 29,049, 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 April to June 2020, expropriations totaled R$ 14,137 and, from January to June 2020 totaled R$ 21,453 (R$ 12,472 from April to June 2019 and R$ 20,291 from January to June 2019).
(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 11,079/2004.
Alto Tietê Production System
As of June 30, 2020 and December 31, 2019, the carrying amounts related to this PPP recorded in intangible assets were R$ 330,425 and R$ 348,586, respectively.
São Lourenço Production System
As of June 30, 2020, and December 31, 2019, the carrying amounts recorded in the Company’s intangible assets, related to this PPP, were R$ 3,150,227 and R$ 3,235,008, respectively.
The main works of the São Lourenço Production System were concluded in the first quarter of 2019, with completion of the work phase (phase 1) on November 1, 2019, after contractual clauses were met and no documents were pending.
The obligations assumed by the Company as of June 30, 2020, and December 31, 2019, are shown in the table below:
June 30, 2020 | December 31, 2019 | |||||
Current liabilities | Noncurrent liabilities | Total liabilities | Current liabilities | Noncurrent liabilities | Total liabilities | |
Alto Tietê | 62,520 | 169,389 | 231,909 | 44,003 | 208,217 | 252,220 |
São Lourenço | 114,747 | 2,918,499 | 3,033,246 | 66,288 | 2,975,472 | 3,041,760 |
Total | 177,267 | 3,087,888 | 3,265,155 | 110,291 | 3,183,689 | 3,293,980 |
(h) | Amortization of Intangible Assets |
The amortization average rate totaled 4.7% and 4.3% as of June 30, 2020 and 2019, respectively.
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(i) | Software license of use |
The software license of use is capitalized based on the costs incurred to acquire software and make them ready for use. 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.
The implementation of the commercial module Net@Suíte system began in August 2019 and is being carried out in different phases. As of June 30, 2020, it had already been implemented in five municipalities. The implementation is expected to be concluded in December 2021.
(j) | 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 June 2020, SABESP maintained the amounts of R$ 1,961, R$ 4,869 and R$ 984 in its results, allocated to operating costs, selling expenses and administrative expenses, respectively.
Nature | June 30, 2020 | December 31, 2019 |
Leases – Contract asset | 276,893 | 276,893 |
Leases – Concession and Program Contract | ||
- Net | 281,192 | 292,824 |
- Cost | 405,426 | 405,426 |
- Accumulated amortization | (124,234) | (112,602) |
Other assets | ||
- Net | 65,694 | 70,698 |
- Vehicles | 113,645 | 91,709 |
- Properties | 13,309 | 13,309 |
- Equipment | 4,329 | 3,801 |
- Other assets | 5,296 | 4,414 |
- Accumulated amortization | (70,885) | (42,535) |
Right of use | 623,779 | 640,415 |
Lease liability corresponds to total future fixed lease payments, adjusted to present value, considering an incremental rate on borrowings. For further information, see Note 15.
The table below shows the impact on the Company’s result:
Impact on the result | ||
June 30, 2020 | December 31, 2019 | |
Right of use amortization | (39,981) | (19,256) |
Financial result – interest expense and inflation adjustment | (31,616) | (22,223) |
Short-term and low-value lease expenses | (7,814) | (30,317) |
Decrease of the income of the period | (79,411) | (71,796) |
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14 | Property, plant and equipment |
(a) | Statement of financial position details |
June 30, 2020 | December 31, 2019 | |||||||
Cost | Accumulated depreciation | Net | Average depreciation rate | Cost | Accumulated depreciation | Net | Average depreciation rate | |
Land | 92,962 | - | 92,962 | - | 92,962 | - | 92,962 | - |
Buildings | 83,111 | (41,000) | 42,111 | 2.1% | 82,143 | (40,438) | 41,705 | 2.1% |
Equipment | 416,849 | (261,638) | 155,211 | 16.0% | 402,850 | (250,577) | 152,273 | 16.3% |
Transportation equipment | 9,914 | (7,029) | 2,885 | 9.9% | 8,946 | (6,962) | 1,984 | 9.9% |
Furniture and fixtures | 30,799 | (13,656) | 17,143 | 6.7% | 31,365 | (13,146) | 18,219 | 6.7% |
Other | 8,613 | (339) | 8,274 | 5.0% | 7,559 | (309) | 7,250 | 5.0% |
Total | 642,248 | (323,662) | 318,586 | 12.6% | 625,825 | (311,432) | 314,393 | 12.5% |
(b) | Changes |
December 31, 2019 | Additions | Transfers | Write-offs and disposals | Depreciation | June 30, 2020 | |
Land | 92,962 | - | - | - | - | 92,962 |
Buildings | 41,705 | 1,157 | (189) | - | (562) | 42,111 |
Equipment | 152,273 | 17,351 | (50) | (53) | (14,310) | 155,211 |
Transportation equipment | 1,984 | 299 | 891 | - | (289) | 2,885 |
Furniture and fixtures | 18,219 | 902 | (1,365) | (10) | (603) | 17,143 |
Other | 7,250 | 957 | 97 | - | (30) | 8,274 |
Total | 314,393 | 20,666 | (616) | (63) | (15,794) | 318,586 |
December 31, 2018 | Additions | Transfers | Write-offs and disposals | Depreciation | June 30, 2019 | |
Land | 92,979 | - | (17) | - | - | 92,962 |
Buildings | 40,125 | 173 | (136) | - | (1,107) | 39,055 |
Equipment | 116,086 | 25,048 | 3,394 | (72) | (15,276) | 129,180 |
Transportation equipment | 3,473 | 296 | 70 | - | (367) | 3,472 |
Furniture and fixtures | 13,578 | 1,464 | 1,646 | (36) | (607) | 16,045 |
Other | 1,371 | 1,633 | 270 | - | (31) | 3,243 |
Total | 267,612 | 28,614 | 5,227 | (108) | (17,388) | 283,957 |
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15 | Borrowings and Financing |
Borrowings and financing outstanding balance | June 30, 2020 | December 31, 2019 | ||||
Financial institution |
Current | Noncurrent |
Total |
Current | Noncurrent |
Total |
Local currency | ||||||
10th issue debentures | 28,659 | - | 28,659 | 41,021 | - | 41,021 |
12th issue debentures | 45,450 | 181,124 | 226,574 | 45,450 | 203,829 | 249,279 |
14th issue debentures | 42,190 | 33,526 | 75,716 | 41,940 | 63,012 | 104,952 |
17th issue debentures | 88,343 | 176,301 | 264,644 | 289,211 | 263,226 | 552,437 |
18th issue debentures | 37,180 | 133,694 | 170,874 | 34,239 | 133,679 | 167,918 |
21st issue debentures | 174,965 | 174,780 | 349,745 | 150,000 | 349,660 | 499,660 |
22nd issue debentures | 99,910 | 667,365 | 767,275 | - | 765,689 | 765,689 |
23rd issue debentures | - | 864,647 | 864,647 | - | 864,603 | 864,603 |
24th issue debentures | - | 398,429 | 398,429 | - | 395,855 | 395,855 |
25th issue debentures | - | 1,438,390 | 1,438,390 | - | - | - |
Brazilian Federal Savings Bank | 87,256 | 1,329,521 | 1,416,777 | 83,519 | 1,341,660 | 1,425,179 |
Brazilian Development Bank - BNDES PAC | 11,185 | 22,276 | 33,461 | 11,184 | 27,854 | 39,038 |
Brazilian Development Bank - BNDES PAC II 9751 | 6,537 | 37,428 | 43,965 | 6,990 | 40,685 | 47,675 |
Brazilian Development Bank - BNDES PAC II 9752 | 3,913 | 22,501 | 26,414 | 3,913 | 24,457 | 28,370 |
Brazilian Development Bank - BNDES ONDA LIMPA | 23,704 | 88,745 | 112,449 | 23,704 | 100,582 | 124,286 |
Brazilian Development Bank – BNDES TIETÊ III | 79,970 | 539,665 | 619,635 | 52,874 | 383,191 | 436,065 |
Brazilian Development Bank - BNDES 2015 | 31,712 | 444,848 | 476,560 | 31,712 | 460,646 | 492,358 |
Brazilian Development Bank - BNDES 2014 | 4,659 | 23,107 | 27,766 | 4,659 | 25,411 | 30,070 |
Inter-American Development Bank – IDB 2202 | 181,349 | 2,614,994 | 2,796,343 | - | - | - |
Leases | 81,361 | 432,342 | 513,703 | 78,402 | 455,722 | 534,124 |
Other | 2,453 | 10,564 | 13,017 | 1,665 | 8,207 | 9,872 |
Interest and charges | 93,046 | - | 93,046 | 77,460 | - | 77,460 |
Total in local currency | 1,123,842 | 9,634,247 | 10,758,089 | 977,943 | 5,907,968 | 6,885,911 |
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Borrowings and financing outstanding balance | June 30, 2020 | December 31, 2019 | ||||
Financial institution |
Current | Noncurrent |
Total |
Current | Noncurrent |
Total |
Foreign currency | ||||||
Inter-American Development Bank - IDB 1212 – US$ 56,530 thousand (US$ 61,668 thousand in December 2019) | 56,283 | 253,273 | 309,556 | 41,428 | 207,140 | 248,568 |
Inter-American Development Bank - IDB 2202 – (US$ 510,573 thousand in December 2019) | - | - | - | 128,623 | 1,914,298 | 2,042,921 |
International Bank for Reconstruction and Development (IBRD) 7662 – US$ 85,832 thousand (US$ 88,871 thousand in December 2019) | 33,292 | 433,624 | 466,916 | 24,505 | 330,898 | 355,403 |
Eurobonds – US$ 350,000 thousand (US$ 350,000 thousand in December 2019) | 1,916,188 | - | 1,916,188 | 1,409,921 | - | 1,409,921 |
JICA 15 – ¥ 10,948,085 thousand (¥ 11,524,300 thousand in December 2019) | 58,555 | 497,717 | 556,272 | 42,813 | 385,315 | 428,128 |
JICA 18 – ¥ 9,843,520 thousand (¥ 10,361,600 thousand in December 2019) | 52,647 | 447,310 | 499,957 | 38,493 | 346,237 | 384,730 |
JICA 17 – ¥ 3,157,374 thousand (¥ 2,830,420 thousand in December 2019) | 9,632 | 149,915 | 159,547 | 12,466 | 91,845 | 104,311 |
JICA 19 – ¥ 30,829,806 thousand (¥ 31,736,565 thousand in December 2019) | 92,145 | 1,472,378 | 1,564,523 | 67,372 | 1,109,644 | 1,177,016 |
IDB 1983AB – US$ 23,077 thousand (US$ 40,769 thousand in December 2019) | 42,123 | 83,033 | 125,156 | 71,312 | 91,521 | 162,833 |
Interest and charges | 31,157 | - | 31,157 | 44,967 | - | 44,967 |
Total in foreign currency | 2,292,022 | 3,337,250 | 5,629,272 | 1,881,900 | 4,476,898 | 6,358,798 |
Total borrowings and financing | 3,415,864 | 12,971,497 | 16,387,361 | 2,859,843 | 10,384,866 | 13,244,709 |
Exchange rate as of June 30, 2020: US$ 5.4760; ¥ 0.05081 (as of December 31, 2019: US$ 4.0307; ¥ 0.03715). As of June 30, 2020, the Company did not have balances of borrowings and financing raised during the year, maturing within 12 months. | ||||||
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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) |
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) |
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) |
25th issue debentures | Own funds | 2021 | CDI + 3.3% | |
Brazilian Federal Savings Bank | Own funds | 2020/2039 | 5% to 9.5% | TR |
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% | |
Inter-American Development Bank – IDB 2202 | Government | 2035 | CDI + 0.86% | |
Leases | - | 2035 | 4.25% to 10.47% | IPC |
Other | Own funds | 2025 | 3% (FEHIDRO) TJLP + 1.5% (FINEP) |
PAGE: 51 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
Foreign currency | Guarantees | Maturity | Annual interest rate | Exchange variation |
Inter-American Development Bank - IDB 1212 – US$ 56,530 thousand | Government | 2025 | 3.73% (*) | US$ |
International Bank for Reconstruction and Development – IBRD – US$ 85,832 thousand | Government | 2048 | 1.02% and 2.12% (*) | US$ |
Eurobonds – US$ 350,000 thousand | - | 2020 | 6.25% | US$ |
JICA 15 – ¥ 10,948,085 thousand | Government | 2029 | 1.8% and 2.5% | Yen |
JICA 18 – ¥ 9,843,520 thousand | Government | 2029 | 1.8% and 2.5% | Yen |
JICA 17 – ¥ 3,157,374 thousand | Government | 2035 | 1.2% and 0.01% | Yen |
JICA 19 – ¥ 30,829,806 thousand | Government | 2037 | 1.7% and 0.01% | Yen |
IDB 1983AB – US$ 23,077 thousand | - | 2023 | 2.08% to 2.38% (*) | US$ |
(*) Rates comprising LIBOR + contractually defined spread.
PAGE: 52 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
(i) | Payment schedule – accounting balances as of June 30, 2020 |
2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 to 2048 | TOTAL | |
LOCAL CURRENCY | ||||||||
Debentures | 89,816 | 1,926,442 | 566,742 | 369,819 | 703,791 | 280,825 | 647,518 | 4,584,953 |
Brazilian Federal Savings Bank | 43,111 | 89,474 | 94,344 | 87,270 | 86,111 | 91,504 | 924,963 | 1,416,777 |
BNDES | 80,841 | 161,682 | 161,682 | 155,995 | 150,497 | 132,572 | 496,981 | 1,340,250 |
IDB 2202 | 90,674 | 181,349 | 181,349 | 181,349 | 181,349 | 181,349 | 1,798,924 | 2,796,343 |
Leases | 59,145 | 62,890 | 39,843 | 36,298 | 39,446 | 42,942 | 233,139 | 513,703 |
Other | 1,043 | 3,004 | 3,188 | 3,130 | 1,384 | 1,268 | - | 13,017 |
Interest and charges | 80,957 | 12,089 | - | - | - | - | - | 93,046 |
TOTAL IN LOCAL CURRENCY | 445,587 | 2,436,930 | 1,047,148 | 833,861 | 1,162,578 | 730,460 | 4,101,525 | 10,758,089 |
FOREIGN CURRENCY | ||||||||
IDB 1212 | 28,141 | 56,283 | 56,283 | 56,283 | 56,283 | 56,283 | - | 309,556 |
IBRD | 16,646 | 33,292 | 33,292 | 33,292 | 33,292 | 33,292 | 283,810 | 466,916 |
Eurobonds | 1,916,188 | - | - | - | - | - | - | 1,916,188 |
JICA | 106,490 | 213,338 | 213,697 | 213,697 | 213,697 | 213,697 | 1,605,683 | 2,780,299 |
IDB 1983AB | - | 42,123 | 42,123 | 40,910 | - | - | - | 125,156 |
Interest and charges | 31,157 | - | - | - | - | - | - | 31,157 |
TOTAL IN FOREIGN CURRENCY | 2,098,622 | 345,036 | 345,395 | 344,182 | 303,272 | 303,272 | 1,889,493 | 5,629,272 |
Total | 2,544,209 | 2,781,966 | 1,392,543 | 1,178,043 | 1,465,850 | 1,033,732 | 5,991,018 | 16,387,361 |
PAGE: 53 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
(ii) | Changes |
December 31, 2019 | Foreign/local currency translation | Addition (lease) | Funding | Borrowing costs | Monetary and exchange variation | Inflation adjustment / exchange variation and incorporated interest - Capitalized | Interest paid | Amortization | Accrued interest | Provision for interest and fees - Capitalized | Expenses with borrowing costs | June 30, 2020 | |
LOCAL CURRENCY | |||||||||||||
Debentures | 3,711,228 | - | - | 1,462,640 | (13,551) | 8,505 | - | (108,961) | (516,816) | 88,678 | 9,129 | 2,760 | 4,643,612 |
Brazilian Federal Savings Bank | 1,429,250 | - | - | 33,129 | - | - | - | (56,252) | (41,531) | 37,297 | 18,921 | - | 1,420,814 |
BNDES | 1,201,411 | - | - | 210,000 | - | - | - | (40,078) | (67,740) | 26,225 | 13,699 | 129 | 1,343,646 |
IDB 2202 | - | 2,063,069 | - | - | - | - | - | - | - | 10,255 | 5,561 | 80 | 2,078,965 |
Leases | 534,124 | - | 23,346 | - | - | - | - | (30,884) | (41,836) | 28,953 | - | - | 513,703 |
Other | 9,898 | - | - | 3,896 | - | - | - | (305) | (750) | 295 | 14 | - | 13,048 |
TOTAL IN LOCAL CURRENCY | 6,885,911 | 2,063,069 | 23,346 | 1,709,665 | (13,551) | 8,505 | - | (236,480) | (668,673) | 191,703 | 47,324 | 2,969 | 10,013,788 |
FOREIGN CURRENCY | |||||||||||||
IDB 1212 and 2202 | 2,316,190 | (2,063,069) | - | - | - | 859,110 | 48,246 | (39,415) | (93,424) | 6,270 | 24,695 | 398 | 1,059,001 |
IBRD | 357,880 | - | - | - | (352) | 125,533 | 1,217 | (5,159) | (14,950) | 5,209 | 752 | 65 | 470,195 |
Eurobonds | 1,413,956 | - | - | - | - | 505,855 | - | (62,722) | - | 58,388 | 5,780 | 412 | 1,921,669 |
JICA | 2,106,908 | - | - | 22,869 | (67) | 742,556 | 8,310 | (19,188) | (87,650) | 19,777 | 3,247 | 95 | 2,796,857 |
IDB 1983AB | 163,864 | - | - | - | (152) | 65,524 | - | (5,092) | (103,482) | 4,333 | 423 | 433 | 125,851 |
TOTAL IN FOREIGN CURRENCY | 6,358,798 | (2,063,069) | - | 22,869 | (571) | 2,298,578 | 57,773 | (131,576) | (299,506) | 93,977 | 34,897 | 1,403 | 6,373,573 |
Total | 13,244,709 | - | 23,346 | 1,732,534 | (14,122) | 2,307,083 | 57,773 | (368,056) | (968,179) | 285,680 | 82,221 | 4,372 | 16,387,361 |
PAGE: 54 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
December 31, 2018 | Additions (lease) | Funding | Borrowing costs | Monetary and exchange variation | Inflation adjustment / exchange variation and incorporated interest - Capitalized | Interest paid | Amortization | Accrued interest | Provision for interest and fees - Capitalized | Expenses with borrowing costs | June 30, 2019 | |
LOCAL CURRENCY | ||||||||||||
Debentures | 3,486,861 | - | 866,755 | (2,477) | 27,894 | - | (144,273) | (965,425) | 90,644 | 7,919 | 2,530 | 3,370,428 |
Brazilian Federal Savings Bank | 1,345,684 | - | 70,283 | - | - | - | (53,815) | (39,008) | 37,117 | 16,773 | - | 1,377,034 |
BNDES | 1,072,605 | - | 123,000 | (628) | 2,077 | 824 | (41,203) | (61,702) | 30,776 | 10,346 | 104 | 1,136,199 |
Leases (*) | 568,666 | 105,954 | - | - | - | 3,761 | (19,808) | (28,193) | 22,224 | 7,862 | - | 660,466 |
FINEP | 9,571 | - | - | - | 28 | - | (340) | (691) | 336 | - | - | 8,904 |
TOTAL IN LOCAL CURRENCY | 6,483,387 | 105,954 | 1,060,038 | (3,105) | 29,999 | 4,585 | (259,439) | (1,095,019) | 181,097 | 42,900 | 2,634 | 6,553,031 |
FOREIGN CURRENCY | ||||||||||||
IDB | 2,399,985 | - | - | - | (52,673) | 24,258 | (40,579) | (86,249) | 13,396 | 27,618 | 478 | 2,286,234 |
IBRD | 356,420 | - | - | - | (4,740) | 851 | (5,014) | - | 4,320 | 796 | 10 | 352,643 |
Deutsche Bank | 292,872 | - | - | - | 3,229 | - | (12,602) | (150,131) | 9,327 | 945 | 1,643 | 145,283 |
Eurobonds | 1,358,412 | - | - | - | (14,910) | - | (49,689) | - | 45,068 | 4,578 | 412 | 1,343,871 |
JICA | 2,036,128 | - | 94,091 | (111) | 9,614 | 4,000 | (16,859) | (73,612) | 15,390 | 1,189 | 91 | 2,069,921 |
IDB 1983AB | 225,592 | - | - | (106) | 850 | - | (6,065) | (71,141) | 5,186 | 523 | 452 | 155,291 |
TOTAL IN FOREIGN CURRENCY | 6,669,409 | - | 94,091 | (217) | (58,630) | 29,109 | (130,808) | (381,133) | 92,687 | 35,649 | 3,086 | 6,353,243 |
Total | 13,152,796 | 105,954 | 1,154,129 | (3,322) | (28,631) | 33,694 | (390,247) | (1,476,152) | 273,784 | 78,549 | 5,720 | 12,906,274 |
(*) Additions of leases include R$ 64,955 in 2019, corresponding to the first-time adoption of CPC 06 (R2) as of January 1, 2019.
PAGE: 55 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
(a) | Main events in the six-month period ended June 30, 2020 |
(i) | Debentures |
As of January 2020, the Company amortized the last installment of series 2 of the 17th issue debentures, totaling R$ 291.8 million.
On April 27, 2020, the Company carried out the 25th issue debentures, in the amount of R$ 1,450,000, as follows:
Value | Maturity | Remuneration | |||
Single series | R$ 1,450,000 | 10/2021 | CDI + 3.3 p.a. |
The covenants agreed for the 25th issue debentures are:
Calculated on a quarterly basis, when disclosing the interim financial information or annual financial statements:
- | Net debt/adjusted EBITDA lower than or equal to 3.50; |
- | Adjusted EBITDA/paid financial expenses equal to or higher than 1.5; |
- Disposal of operating assets, termination of license, loss of concession or loss of the Issuer’s capacity to execute and operate public sanitation services in areas of the São 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 (in which case the 30-day cure period does not apply).
The contract has a cross acceleration clause, i.e., the early maturity of any of the Company’s debts, in and individual or aggregate amount equal to or higher than R$ 155 million, adjusted by the IPCA inflation index as of the issue date, constitutes a default event and may result in the early maturity of the obligations arising from the Debentures.
(ii) | IDB |
In May 2020, the Company translated IDB 2202/OC contract from Dollars to Reais, using the exchange rate of R$ 5.683 to compose the debt balance. The maturities remain unchanged and the interest rate is CDI + 0.86%.
- | Effective translation date: May 5, 2020 |
- | Financing amount: R$ 2,810,907 |
- | Type of interest rate: CDI + 6 pbs. To this rate it will be added the current margin used for Ordinary Capital borrowings in basis points (pbs), periodically established by the Bank. |
- | Period for payment of interest: Semi-annual, every March 3 and September 3, as from September 3, 2020. |
(b) | Lease |
The Company has lease agreements signed as Assets Lease. During the construction period, works are capitalized to intangible assets in progress and the lease amount is recorded at the same proportion.
After startup, the lease payment period starts (240 monthly installments), whose amount is periodically restated by contracted price index.
The amounts payable for the right of use of assets are also recorded in this line (Note 13 (j))
PAGE: 56 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
(c) | Covenants |
The table below shows the most restrictive covenants as of June 30, 2020.
Covenants | |
Adjusted EBITDA/Adjusted Financial Expenses | Equal to or higher than 2.80 |
Adjusted Net Debt/Adjusted EBITDA | Equal to or lower than 3.80 |
Adjusted Total Debt/Adjusted EBITDA | Lower than 3.65 |
Other Onerous Debt (1)/Adjusted EBITDA | Equal to or lower than 1.30 |
Adjusted Current Ratio | Higher than 1.00 |
EBITDA/Financial Expenses Paid | Equal to or higher than 2.35 |
Net Debt/Adjusted EBITDA | Equal to or lower than 3.50 |
(1) “Other Onerous Debts” correspond to the sum of pension obligations and health care plan, installment payment of tax debts and installment payment of debts with the electricity supplier. |
As of June 30, 2020, and December 31, 2019, the Company met the requirements set forth by its borrowings and financing agreements.
Borrowings and financing – Credit limited
Agent | June 30, 2020 | |
(in millions of reais (*)) | ||
Brazilian Federal Savings Bank | 1,696 | |
Brazilian Development Bank (BNDES) | 711 | |
Japan International Cooperation Agency (JICA) | 104 | |
Inter-American Development Bank (BID) | 1,643 | |
International Bank for Reconstruction and Development (BIRD) | 1,366 | |
Other | 49 | |
TOTAL | 5,569 |
(*) Brazilian Central Bank’s exchange rate as of June 30, 2020 (US$ 1.00 = R$ 5.4760; ¥ 1.00 = R$ 0.05081).
Financing resources contracted have specific purposes, which have been released for the execution of their respective investments, according to the progress of the works.
16 | Taxes and contributions |
(a) | Current assets |
June 30, 2020 | December 31, 2019 | |
Recoverable taxes | ||
Income tax and social contribution | 277,063 | 136,436 |
Withheld income tax (IRRF) on financial investments | 1,499 | 1,359 |
Other federal taxes | 17,094 | 3,471 |
Total | 295,656 | 141,266 |
The increase in income tax and social contribution was mainly due to the tax loss calculated in the period.
PAGE: 57 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
(b) | Current liabilities |
June 30, 2020 | December 31, 2019 | |
Taxes and contributions payable | ||
Cofins and Pasep | 326,474 | 94,027 |
INSS (social security contribution) | 121,819 | 39,404 |
IRRF (withholding income tax) | 8,117 | 69,932 |
Other | 33,796 | 46,955 |
Total | 490,206 | 250,318 |
The increase in Cofins, Pasep and INSS was due to payment postponements permitted by the Administrative Rules 139 of April 13, 2020 and 245 of June 15, 2020, of the Ministry of Economy.
17 | Deferred taxes and contributions |
(a) | Statement of financial position details |
June 30, 2020 | December 31, 2019 | |
Deferred tax assets | ||
Provisions | 351,910 | 366,673 |
Pension plan liabilities - G1 | 156,003 | 157,998 |
Donations of underlying assets on concession agreements | 50,757 | 51,818 |
Credit losses | 175,201 | 145,622 |
Other | 158,893 | 183,147 |
Total deferred tax asset | 892,764 | 905,258 |
Deferred tax liabilities | ||
Temporary difference on concession of intangible asset | (398,472) | (408,732) |
Capitalization of borrowing costs | (398,711) | (409,236) |
Profit on supply to government entities | (360,063) | (372,289) |
Actuarial gain – G1 Plan | (54,222) | (54,222) |
Construction margin | (50,225) | (83,399) |
Borrowing costs | (10,060) | (11,376) |
Total deferred tax liabilities | (1,271,753) | (1,339,254) |
Deferred tax assets/(liabilities), net | (378,989) | (433,996) |
PAGE: 58 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
(b) | Changes |
Deferred income tax assets | December 31, 2019 | Net change | June 30, 2020 |
Provisions | 366,673 | (14,763) | 351,910 |
Pension obligations - G1 | 157,998 | (1,995) | 156,003 |
Donations of underlying assets on concession agreements | 51,818 | (1,061) | 50,757 |
Credit losses | 145,622 | 29,579 | 175,201 |
Other | 183,147 | (24,254) | 158,893 |
Total | 905,258 | (12,494) | 892,764 |
Deferred income tax liabilities | |||
Temporary difference on concession of intangible asset | (408,732) | 10,260 | (398,472) |
Capitalization of borrowing costs | (409,236) | 10,525 | (398,711) |
Profit on supply to government entities | (372,289) | 12,226 | (360,063) |
Actuarial gain – G1 | (54,222) | - | (54,222) |
Construction margin | (83,399) | 33,174 | (50,225) |
Borrowing costs | (11,376) | 1,316 | (10,060) |
Total | (1,339,254) | 67,501 | (1,271,753) |
Deferred tax liability, net | (433,996) | 55,007 | (378,989) |
Deferred income tax assets | December 31, 2018 | Net change | June 30, 2019 |
Provisions | 337,833 | (6,102) | 331,731 |
Pension obligations - G1 | 157,044 | 454 | 157,498 |
Donations of underlying assets on concession agreements | 54,131 | (1,320) | 52,811 |
Credit losses | 197,920 | 9,429 | 207,349 |
Other | 186,887 | (5,407) | 181,480 |
Total | 933,815 | (2,946) | 930,869 |
Deferred income tax liabilities | |||
Temporary difference on concession of intangible asset | (433,842) | 12,566 | (421,276) |
Capitalization of borrowing costs | (420,978) | 3,757 | (417,221) |
Profit on supply to government entities | (206,978) | 1,703 | (205,275) |
Actuarial gain – G1 | (36,430) | - | (36,430) |
Construction margin | (86,164) | 1,383 | (84,781) |
Borrowing costs | (10,665) | 1,819 | (8,846) |
Total | (1,195,057) | 21,228 | (1,173,829) |
Deferred tax liability, net | (261,242) | 18,282 | (242,960) |
PAGE: 59 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
Deferred income tax assets | December 31, 2018 | Net change | June 30, 2019 |
Provisions | 337,833 | (6,102) | 331,731 |
Pension obligations - G1 | 157,044 | 454 | 157,498 |
Donations of underlying assets on concession agreements | 54,131 | (1,320) | 52,811 |
Credit losses | 197,920 | 9,429 | 207,349 |
Other | 186,887 | (5,407) | 181,480 |
Total | 933,815 | (2,946) | 930,869 |
Deferred income tax liabilities | |||
Temporary difference on concession of intangible asset | (433,842) | 12,566 | (421,276) |
Capitalization of borrowing costs | (420,978) | 3,757 | (417,221) |
Profit on supply to government entities | (206,978) | 1,703 | (205,275) |
Actuarial gain – G1 | (36,430) | - | (36,430) |
Construction margin | (86,164) | 1,383 | (84,781) |
Borrowing costs | (10,665) | 1,819 | (8,846) |
Total | (1,195,057) | 21,228 | (1,173,829) |
Deferred tax liability, net | (261,242) | 18,282 | (242,960) |
(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:
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Profit/(loss) before income taxes | 517,091 | (460,166) | 648,793 | 1.639,993 |
Statutory rate | 34% | 34% | 34% | 34% |
Estimated expense at statutory rate | (175,811) | 156,456 | (220,590) | (557,598) |
Benefit of interest on equity | 48,009 | 48,009 | 40,412 | 40,412 |
Permanent differences: | ||||
Provision Law 4,819/1958 – G0 (i) | (9,669) | (19,764) | (11,507) | (23,433) |
Donations | (2,156) | (5,930) | (6,191) | (8,012) |
Other differences | 696 | 1,609 | 3,458 | 10,304 |
Income tax and social contribution | (138,931) | 180,380 | (194,418) | (538,327) |
Current income tax and social contribution | (107,351) | 125,373 | (246,124) | (556,609) |
Deferred income tax and social contribution | (31,580) | 55,007 | 51,706 | 18,282 |
Effective rate | 27% | 39% | 30% | 33% |
(i) | Permanent difference related to the provision for actuarial liability (Note 19 (b) (ii)). |
PAGE: 60 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
18 | 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 3.14 to the Annual Financial Statements as of December 31, 2019. The terms and payment amounts depend on the outcome of the lawsuits.
June 30, 2020 | December 31, 2019 | ||||||
| Provisions | Escrow deposits | Provisions net of deposits | Provisions | Escrow deposits | Provisions net of deposits | |
Customer claims (i) | 153,738 | (9,996) | 143,742 | 253,665 | (9,973) | 243,692 | |
Supplier claims (ii) | 199,841 | (302) | 199,539 | 153,654 | (298) | 153,356 | |
Other civil claims (iii) | 83,479 | (2,509) | 80,970 | 93,910 | (16,496) | 77,414 | |
Tax claims (iv) | 59,939 | (3,563) | 56,376 | 59,143 | (3,518) | 55,625 | |
Labor claims (v) | 318,672 | (13,854) | 304,818 | 325,129 | (12,329) | 312,800 | |
Environmental claims (vi) | 219,360 | (29) | 219,331 | 192,950 | (29) | 192,921 | |
Total | 1,035,029 | (30,253) | 1,004,776 | 1,078,451 | (42,643) | 1,035,808 | |
Current | 597,176 | - | 597,176 | 550,247 | - | 550,247 | |
Noncurrent | 437,853 | (30,253) | 407,600 | 528,204 | (42,643) | 485,561 |
(II) Changes
December 31, 2019 |
Additional provisions | Interest and inflation adjustment |
Use of the accrual | Amounts not used (reversal) |
June 30, 2020 | |
Customer claims (i) | 253,665 | 6,240 | 9,054 | (73,380) | (41,841) | 153,738 |
Supplier claims (ii) | 153,654 | 74,383 | 8,073 | (35,535) | (734) | 199,841 |
Other civil claims (iii) | 93,910 | 7,297 | 5,247 | (16,981) | (5,994) | 83,479 |
Tax claims (iv) | 59,143 | 1,496 | 1,139 | (75) | (1,764) | 59,939 |
Labor claims (v) | 325,129 | 28,126 | 20,092 | (34,736) | (19,939) | 318,672 |
Environmental claims (vi) | 192,950 | 17,731 | 10,369 | - | (1,690) | 219,360 |
Subtotal | 1,078,451 | 135,273 | 53,974 | (160,707) | (71,962) | 1,035,029 |
Escrow deposits | (42,643) | (6,903) | (833) | 14,539 | 5,587 | (30,253) |
Total | 1,035,808 | 128,370 | 53,141 | (146,168) | (66,375) | 1,004,776 |
PAGE: 61 of 81
ITR - Quarterly Information Form - 6/30/2020 - CIA SANEAMENTO BASICO EST SAO PAULO | Version : 1 |
Notes to the Interim Financial Information |
December 31, 2018 | Additional provisions | Interest and inflation adjustment | Use of the accrual | Amounts not used (reversal) | June 30, 2019 | |
Customer claims (i) | 290,649 | 9,401 | 13,698 | (68,993) | (35,145) | 209,610 |
Supplier claims (ii) | 67,985 | 4,856 | 7,694 | (25,970) | (27,807) | 26,758 |
Other civil claims (iii) | 98,302 | 9,280 | 15,168 | (5,297) | (19,081) | 98,372 |
Tax claims (iv) | 63,335 | 838 | 1,680 | (4,491) | (2,097) | 59,265 |
Labor claims (v) | 302,935 | 81,211 | 41,653 | (21,976) | (26,602) | 377,221 |
Environmental claims (vi) | 170,419 | 22,148 | 12,172 | - | (287) | 204,452 |
Subtotal | 993,625 | 127,734 | 92,065 | (126,727) | (111,019) | 975,678 |
Escrow deposits | (100,763) | (10,449) | (11,102) | 17,272 | 62,194 | (42,848) |
Total | 892,862 | 117,285 | 80,963 | (109,455) | (48,825) | 932,830 |
(b) | Lawsuits deemed as contingent liabilities |
The Company is party to lawsuits and administrative proceedings relating to environmental, tax, civil and labor claims, which are assessed as contingent liabilities in the financial statements, since it either does not expect outflows to be required or the amount of the obligation cannot be reliably measured. Contingent liabilities, net of deposits, are represented as follows:
June 30, 2020 | December 31, 2019 | |
Customer claims (i) | 100,839 | 86,061 |
Supplier claims (ii) | 1,667,893 | 1,986,736 |
Other civil claims (iii) | 721,371 | 679,623 |
Tax claims (iv) | 1,207,466 | 1,184,811 |
Labor claims (v) | 921,140 | 631,364 |
Environmental claims (vi) | 5,150,506 | 4,864,894 |
Total | 9,769,215 | 9,433,489 |
(c) | Explanation on the nature of main classes of lawsuits |
(i) | Customer claims |
Approximately 680 lawsuits (680 as of December 31, 2019) were filed by commercial customers, who claim that their tariffs should correspond to other customer categories, and 320 lawsuits (320 as of December 31, 2019) in which customers claimed a reduction in the sewage tariff due to losses in the system, consequently requesting the refund of amounts charged by the Company, and 30 lawsuits (30 as of December 31, 2019) 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 adjustments 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 tax collections and fines in general challenged due to disagreements regarding notification or differences in the interpretation of legislation by the Company's Management, which were accrued while others were deemed as contingent liabilities.
(v) | Labor claims |
The Company is a party to several 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, which are at various court levels.
(vi) | Environmental claims |
These refer to several administrative proceedings and lawsuits filed by government entities, including Companhia Ambiental do Estado de São Paulo (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.
(d) | Guarantee insurance for escrow deposit |
On May 25, 2020, the Company contracted guarantee insurance for escrow deposit, in the amount of R$ 500 million, for one year. 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 April to June 2020, the Company used R$ 69.8 million of the contracted amount (R$ 43.2 million from April to June 2019). A total of R$ 431.8 million from the current contract is outstanding.
19 | Employees benefits |
(a) | Healthcare plan |
Since August 1, 2019, the new health plans managed by Fundação CESP (FUNCESP), which replaced the previous health plans managed by SABESPREV, have been in effect.
Benefits are now paid after the event, free of choice, sponsored by contributions of SABESP and the employees. In the second quarter of 2020, the Company contributed 9.4%, on average, of gross payroll, totaling R$ 58,670 (8.2% in the second quarter of 2019, totaling R$ 56,995, of which R$ 50,577 corresponding to regular expenses and R$ 6,418 to extraordinary contributions to meet the solvency margin).
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Notes to the Interim Financial Information |
(b) | Pension plan liabilities |
The Company has Post-Employment Benefit Plans in the following modalities: Defined Benefit (BD) – G1 (i) and G0 (ii); and Defined Contribution (CD) – Sabesprev Mais and FUNCESP (iii).
Defined benefit plans
Summary of pension plan - Liabilities
G1 Plan | G0 Plan | Total | |
Pension plan liabilities as of December 31, 2019 | (314,677) | (3,046,255) | (3,360,932) |
Expenses recognized in 2020 | (12,482) | (103,131) | (115,613) |
Payments made in 2020 | 18,721 | 84,726 | 103,447 |
Pension plan liabilities on June 30, 2020 | (308,438) | (3,064,660) | (3,373,098) |
G1 Plan | G0 Plan | Total | |
Pension plan liabilities as of December 31, 2018 | (363,902) | (2,606,107) | (2,970,009) |
Expenses recognized in 2019 | (20,037) | (113,683) | (133,720) |
Payments made in 2019 | 18,455 | 83,795 | 102,250 |
Pension plan liabilities as of June 30, 2019 | (365,484) | (2,635,995) | (3,001,479) |
(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. |
In the second quarter of 2020, expenses related to the obligation of defined benefit in the G1 Plan totaled R$ 4,619, R$ 646 and R$ 408 (R$ 7,506, R$ 1,063 and R$ 689 in the second quarter of 2019), from January to June 2020, they totaled R$ 9,149, R$ 1,283 and R$ 805 (R$ 13,699, R$ 2,587 and R$ 1,930 from January to June 2019), allocated to operating costs, selling expenses and administrative expenses, respectively. In the second quarter of 2020 and 2019, R$ 568 and R$ 760 were capitalized in assets, respectively. From January to June, these amounts totaled R$ 1,245 and R$ 1,821 in 2020 and 2019, respectively.
(ii) | G0 Plan |
Pursuant to State Law 4,819/1958, 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 GESP 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 GESP.
In the second quarter of 2020, expenses related to the obligation of the benefit defined in the G0 Plan, recorded under administrative expenses, totaled R$ 51,566 (R$ 56,842 in the second quarter of 2019). From January to June 2020 and 2019, these expenses totaled R$ 103,131 and R$ 113,683, respectively.
(iii) | Sabesprev Mais and FUNCESP Plan |
Since December 31, 2019, the “Sabesprev Mais” Defined Contribution Plan, managed by SABESPREV, has not been accepting any new adhesions and, since January 1, 2020, new employees have the option to enroll in the Defined Contribution Plan managed by FUNCESP, as well as those who did not enroll in the Sabesprev Mais Plan.
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Notes to the Interim Financial Information |
The sponsor's contributions correspond to the result obtained by applying a percentage of 100% on the basic contribution made by the participant.
In the second quarter of 2020, expenses related to defined contribution totaled R$ 3,617, R$ 458 and R$ 1,046 (R$ 3,471, R$ 457 an R$ 927 in the second quarter of 2019), and from January to June 2020, these expenses totaled R$ 7,387, R$ 938 and R$ 2,102 (R$ 7,031, R$ 928 and R$ 1,866 from January to June 2019), allocated to operating costs, selling expenses and administrative expenses, respectively. In the second quarter of 2020 and 2019, R$ 654 and R$ 487 were capitalized in assets, respectively. From January to June, these amounts totaled R$ 1,317 and R$ 979 in 2020 and 2019, respectively.
(c) | Profit sharing |
The Company has a profit-sharing program in accordance with an agreement with the labor union. Payment corresponds to up to one-month salary for each employee, depending on performance of goals reached from January to December. In the second quarter of 2020 and 2019, R$ 22,050 and R$ 23,429, respectively, were accrued under Labor liabilities and, from January to June 2020 and 2019, these amounts totaled R$ 46,067 and R$ 46,230, respectively.
20 | Services payable |
This 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 earned in the São Paulo municipal government to the Municipal Fund for Environmental Sanitation and Infrastructure. The balances as of June 30, 2020, and December 31, 2019, were R$ 580,139 and R$ 474,078, respectively.
21 | Knowledge Retention Program and Consent Decree |
a) Knowledge Retention Program (PRC)
In June 2018, the Knowledge Retention Program (PRC) was implemented 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.
As of June 30, 2020, the total balance was R$ 148,135 (R$ 153,377 as of December 31, 2019), recoded in Labor liabilities, under current liabilities.
b) Consent Decree (TAC)
As of June 30, 2020, the amount accrued under Labor liabilities, related to the Consent Decree, totaled R$ 10,045 under current liabilities (R$ 8.242 as of December 31, 2019 under current liabilities and R$ 2,230 under noncurrent liabilities).
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Notes to the Interim Financial Information |
22 | Equity |
(a) | Subscribed and paid-in capital |
As of June 30, 2020, and December 31, 2019, subscribed and paid-in capital was represented by 683,509,869 registered, book-entry common shares with no par value, as follows:
June 30, 2020 | December 31, 2019 | |||
Number of shares | % | Number of shares | % | |
São Paulo State Government (1) (2) | 343,507,756 | 50.26 | 343,524,285 | 50.26 |
Companhia Brasileira de Liquidação e Custódia | 246,578,730 | 36.07 | 235,643,765 | 34.47 |
The Bank Of New York ADR Department (equivalent in shares) (3) | 92,890,157 | 13.59 | 103,823,655 | 15.19 |
Others | 533,226 | 0.08 | 518,164 | 0.08 |
683,509,869 | 100.00 | 683,509,869 | 100.00 |
(1) | As of June 30, 2020, includes 343,507,750 shares from the Treasury Department of the São Paulo State and six shares held by Companhia Paulista de Parcerias (CPP), which is controlled by the São Paulo State Government. |
(2) | There is a lawsuit with a mandatory injunction filed under number 1051534-40.2019.8.26.0053 pending at the 7th Tax Court of the City of São Paulo, pleading the unlawfulness of the disposal of shares owned by the Treasury Department of the São Paulo State to third parties, filed by Banco Bradesco S.A., the custodian and bookkeeping agent of the Company’s shares. |
(3) | each ADR corresponds to 1 share. |
(b) | Interest on capital payable |
The Annual Shareholders’ Meeting of April 28, 2020 approved the distribution of dividends as interest on capital in the amount of R$ 799,785, corresponding to minimum mandatory dividend of R$ 141,203 as additional dividends, totaling R$ 940,988, paid on May 29, 2020.
23 | Earnings/(loss) per share |
Basic earnings/(loss) per share is calculated by dividing the equity attributable to 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.
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Profit/(loss) attributable to Company’s owners | 378,160 | (279,786) | 454,375 | 1,101,666 |
Weighted average number of common shares issued | 683,509,869 | 683,509,869 | 683,509,869 | 683,509,869 |
Basic and diluted earnings/(loss) per share (reais per share) | 0.55326 | (0.40934) | 0.66477 | 1.61178 |
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Notes to the Interim Financial Information |
24 | Operating segment information |
Management has determined the operating segment used to make strategic decisions, as sanitation services.
Result
April to June 2020 | |||
Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements | |
Gross operating revenue | 3,662,613 | 1,019,600 | 4,682,213 |
Gross sales deductions | (249,667) | - | (249,667) |
Net operating revenue | 3,412,946 | 1,019,600 | 4,432,546 |
Costs, selling, general and administrative expenses | (2,355,900) | (996,676) | (3,352,576) |
Income from operations before other operating expenses, net and equity accounting | 1,057,046 | 22,924 | 1,079,970 |
Other operating income / (expenses), net | 109,684 | ||
Equity accounting | 2,905 | ||
Financial result, net | (675,468) | ||
Income before income tax and social contribution | 517,091 | ||
Depreciation and amortization | (498,546) | - | (498,546) |
January to June 2020 | |||
Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements | |
Gross operating revenue | 7,466,490 | 1,541,020 | 9,007,510 |
Gross sales deductions | (532,614) | - | (532,614) |
Net operating revenue | 6,933,876 | 1,541,020 | 8,474,896 |
Costs, selling, general and administrative expenses | (4,892,785) | (1,505,441) | (6,398,226) |
Income from operations before other operating expenses, net and equity accounting | 2,041,091 | 35,579 | 2,076,670 |
Other operating income / (expenses), net | 112,437 | ||
Equity accounting | 6,480 | ||
Financial result, net | (2,655,753) | ||
Income before income tax and social contribution | (460,166) | ||
Depreciation and amortization | (982,115) | - | (982,115) |
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April to June 2019 | |||
Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements | |
Gross operating revenue | 3,579,047 | 688,530 | 4,267,577 |
Gross sales deductions | (269,667) | - | (269,667) |
Net operating revenue | 3,309,380 | 688,530 | 3,997,910 |
Costs, selling, general and administrative expenses | (2,522,010) | (673,050) | (3,195,060) |
Income from operations before other operating expenses, net and equity accounting | 787,370 | 15,480 | 802,850 |
Other operating income/(expenses), net | (2,701) | ||
Equity accounting | 4,221 | ||
Financial result, net | (155,577) | ||
Income before taxes | 648,793 | ||
Depreciation and amortization | (424,538) | - | (424,538) |
January to June 2019 | |||
Sanitation (i) | Reconciliation to the income statement (ii) | Balance as per financial statements | |
Gross operating revenue | 7,115,195 | 1,292,057 | 8,407,252 |
Gross sales deductions | (530,838) | - | (530,838) |
Net operating revenue | 6,584,357 | 1,292,057 | 7,876,414 |
Costs, selling, general and administrative expenses | (4,678,491) | (1,263,008) | (5,941,499) |
Income from operations before other operating expenses, net and equity accounting | 1,905,866 | 29,049 | 1,934,915 |
Other operating income/(expenses), net | 5,126 | ||
Equity accounting | 5,985 | ||
Financial result, net | (306,033) | ||
Income from operations before taxes | 1,639,993 | ||
Depreciation and amortization | (835,401) | (835,401) |
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Notes to the Interim Financial Information |
(i) | See Note 30 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 are not reported to the CODM. 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 Note 13 (e) for further information. |
Explanation on the reconciliation items for the financial statements. The impacts on gross operating income and costs are as follows:
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Gross revenue from construction recognized under ICPC 1 (R1) | 1,019,600 | 1,541,020 | 688,530 | 1,292,057 |
Construction costs recognized under ICPC 1 (R1) | (996,676) | (1,505,441) | (673,050) | (1,263,008) |
Construction margin | 22,924 | 35,579 | 15,480 | 29,049 |
25 | Operating revenue |
(a) | Revenue from sanitation services: |
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Metropolitan Region of São Paulo | 2,630,554 | 5,300,720 | 2,552,184 | 5,020,318 |
Regional Systems | 1,032,058 | 2,165,770 | 1,026,863 | 2,094,877 |
Total | 3,662,612 | 7,466,490 | 3,579,047 | 7,115,195 |
(b) | Reconciliation between gross operating income and net operating income: |
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Revenue from sanitation services (i) | 3,662,612 | 7,466,490 | 3,579,047 | 7,115,195 |
Construction revenue | 1,019,600 | 1,541,020 | 688,530 | 1,292,057 |
Sales tax | (232,769) | (498,820) | (254,613) | (501,135) |
Regulation, Control and Oversight Fee (TRCF) | (16,897) | (33,794) | (15,054) | (29,703) |
Net revenue | 4,432,546 | 8,474,896 | 3,997,910 | 7,876,414 |
(i) Includes the amounts of R$ 17,168 from April to June 2020 and R$ 35,906 from January to June 2020 (R$ 16,958 from April to June 2019 and R$ 33,676 from January to June 2019), from the TRCF charged from customers from the municipalities regulated by ARSESP.
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Notes to the Interim Financial Information |
26 | Operating costs and expenses |
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Operating costs | ||||
Salaries, payroll charges and benefits | (488,232) | (991,909) | (567,718) | (1,067,266) |
Pension plan obligations | (8,979) | (18,681) | (12,438) | (24,669) |
Construction costs (Note 24) | (996,676) | (1,505,441) | (673,050) | (1,263,008) |
General supplies | (48,814) | (105,463) | (68,426) | (123,526) |
Treatment supplies | (81,198) | (174,962) | (75,736) | (162,429) |
Outsourced services | (306,044) | (615,008) | (317,405) | (591,359) |
Electricity | (277,707) | (603,545) | (278,585) | (561,019) |
General expenses | (148,979) | (314,775) | (172,472) | (324,976) |
Depreciation and amortization | (462,271) | (911,128) | (398,149) | (782,830) |
(2,818,900) | (5,240,912) | (2,563,979) | (4,901,082) | |
Selling expenses | ||||
Salaries, payroll charges and benefits | (70,081) | (138,075) | (81,396) | (151,418) |
Pension plan obligations | (1,209) | (2,523) | (1,726) | (3,404) |
General supplies | (982) | (2,397) | (1,954) | (3,674) |
Outsourced services | (78,446) | (140,506) | (84,619) | (170,596) |
Electricity | (273) | (636) | (343) | (710) |
General expenses | (26,069) | (60,455) | (28,504) | (55,740) |
Depreciation and amortization | (14,463) | (28,901) | (4,627) | (8,822) |
(191,523) | (373,493) | (203,169) | (394,364) | |
Bad debt expenses (Nota 8 (c)) | (117,177) | (274,666) | (80,815) | (88,575) |
Administrative expenses | ||||
Salaries, payroll charges and benefits | (59,865) | (123,784) | (72,374) | (132,850) |
Pension plan obligations | (29,956) | (61,161) | (35,908) | (72,967) |
General supplies | (7,721) | (15,345) | (1,002) | (1,590) |
Outsourced services | (57,529) | (110,626) | (52,341) | (114,585) |
Electricity | (482) | (815) | (601) | (794) |
General expenses | (29,416) | (121,647) | (138,209) | (150,219) |
Depreciation and amortization | (21,812) | (42,086) | (21,762) | (43,749) |
Tax expenses | (18,195) | (33,691) | (24,900) | (40,724) |
(224,976) | (509,155) | (347,097) | (557,478) | |
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Notes to the Interim Financial Information |
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Operating costs and expenses | ||||
Salaries, payroll charges and benefits | (618,178) | (1,253,768) | (721,488) | (1,351,534) |
Pension plan obligations | (40,144) | (82,365) | (50,072) | (101,040) |
Construction costs (Note 24) | (996,676) | (1,505,441) | (673,050) | (1,263,008) |
General supplies | (57,517) | (123,205) | (71,382) | (128,790) |
Treatment supplies | (81,198) | (174,962) | (75,736) | (162,429) |
Outsourced services | (442,019) | (866,140) | (454,365) | (876,540) |
Electricity | (278,462) | (604,996) | (279,529) | (562,523) |
General expenses | (204,464) | (496,877) | (339,185) | (530,935) |
Depreciation and amortization | (498,546) | (982,115) | (424,538) | (835,401) |
Tax expenses | (18,195) | (33,691) | (24,900) | (40,724) |
Bad debt expenses (Nota 8 (c)) | (117,177) | (274,666) | (80,815) | (88,575) |
(3,352,576) | (6,398,226) | (3,195,060) | (5,941,499) |
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Notes to the Interim Financial Information |
27 | Financial income (expenses) |
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Financial expenses | ||||
Interest and charges on borrowings and financing – local currency | (89,259) | (162,840) | (77,763) | (158,931) |
Interest and charges on borrowings and financing – foreign currency | (35,241) | (84,339) | (41,068) | (83,529) |
Other financial expenses | (85,319) | (164,270) | (91,687) | (171,322) |
Income tax over international remittance | (4,546) | (9,739) | (4,353) | (9,021) |
Inflation adjustment on borrowings and financing | 10,102 | (8,505) | (13,307) | (29,999) |
Other inflation adjustments | (33,587) | (65,801) | (30,429) | (41,609) |
Interest and inflation adjustments on provisions | (5,148) | (31,409) | (49,651) | (66,324) |
Total financial expenses | (242,998) | (526,903) | (308,258) | (560,735) |
Financial revenue | ||||
Inflation adjustment gains | 23,372 | 59,520 | 24,732 | 50,542 |
Income on short-term investments | 22,847 | 44,949 | 38,233 | 77,208 |
Interest income | 26,543 | 72,099 | 34,139 | 77,301 |
Cofins and Pasep | (3,599) | (8,476) | (4,555) | (9,574) |
Other | 1 | 4 | 4 | 7 |
Total financial income | 69,164 | 168,096 | 92,553 | 195,484 |
Financial income (expenses), net before exchange variation | (173,834) | (358,807) | (215,705) | (365,251) |
Net exchange gains (losses) | ||||
Exchange rate changes on borrowings and financing (i) | (502,039) | (2,298,578) | 58,806 | 58,631 |
Exchange gains on assets | 404 | 1,628 | 1,322 | 591 |
Other exchange variations | 1 | 4 | - | (4) |
Exchange variations, net | (501,634) | (2,296,946) | 60,128 | 59,218 |
Financial income (expenses), net | (675,468) | (2,655,753) | (155,577) | (306,033) |
(i) Increase of R$ 560.8 million in exchange variations in borrowings and financing, mainly due to higher appreciation of the US dollar and Yen against the Real in the second quarter of 2020, of 5.3% and 5.1%, respectively, compared to the variation in the second quarter of 2019, of -1.7% (dollar) and 0.9% (Yen).
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Notes to the Interim Financial Information |
28 | Other operating revenues (expenses), net |
April to June 2020 | January to June 2020 | April to June 2019 | January to June 2019 | |
Other operating income, net | 30,616 | 40,655 | 20,831 | 34,216 |
Other operating expenses | 79,068 | 71,782 | (23,532) | (29,090) |
Other operating income (expenses), net | 109,684 | 112,437 | (2,701) | 5,126 |
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 creation and reversal of estimated losses with asset indemnification, the main quarterly impact being the agreement signed with the municipality of Mauá.
29 | 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 unrecognized committed amounts as of June 30, 2020 are as follows:
1 year | 1-3 years | 3-5 years | More than 5 years | Total | |
Contractual obligations – Expenses | 1,651,494 | 1,414,227 | 679,162 | 2,782,343 | 6,527,226 |
Contractual obligations – Investments | 2,134,581 | 2,197,548 | 1,956,272 | 863,080 | 7,151,481 |
Total | 3,786,075 | 3,611,775 | 2,635,434 | 3,645,423 | 13,678,707 |
The main commitment refers to the São Lourenço PPP. See Note 13 (g).
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Notes to the Interim Financial Information |
30 | Supplemental cash flow information |
January to June 2020 | January to June 2019 | |
Total additions to contract assets (Note 12) | 1,708,731 | 1,390,646 |
Total additions to intangible assets (Note 13 (b)) | 373,728 | 214,176 |
Items not affecting cash (see breakdown below) | (827,073) | (703,327) |
Total additions to intangible and contract assets as per statement of cash flows | 1,255,386 | 901,495 |
Investments and financing operations affecting intangible assets but not cash: | ||
Interest capitalized in the period (Note 13 (d)) | 139,994 | 133,010 |
Contractors payable | 196,867 | 319,793 |
Program contract commitments | 58,323 | 104,931 |
Public-Private Partnership - São Lourenço PPP (Note 13 (g)) | - | 10,590 |
Performance agreements | 92,190 | - |
Lease | 23,346 | 105,954 |
Construction margin (Note 24) | 35,579 | 29,049 |
Agreement with the municipality of Mauá | 280,774 | - |
Total | 827,073 | 703,327 |
31 | Events after the reporting period |
· | ARSESP Resolution 1,017 |
On July 1, 2020, the São Paulo State Sanitation and Energy Regulatory Agency (ARSESP) published Resolution 1,017, which:
i. | Extends the exemption from payment of water/sewage bills for consumers in the Residential Social and Residential Favela categories until August 15, 2020; and |
ii. | Postpones the application of the Company's tariff adjustment index to August 15, 2020. |
· | 26th Issue Debentures |
On July 10, 2020, SABESP carried out the 26th issue debentures in the amount of R$ 1.045 billion, maturing in July 2030, in two series, the first of which totaling R$ 600.0 million with interest at IPCA + 4.65% p.a., and the second totaling R$ 445.0 million at IPCA + 4.95% p.a.
· | Program Contract |
On July 10, 2020, the Company renewed the Program Contract with the municipality of Pedrinhas Paulista for 30 years.
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Notes to the Interim Financial Information |
· | Temporary suspension of payments of principal and interest – BNDES - (Standstill) |
On July 21, 2020, BNDES authorized the Company to temporarily suspend the payments of principal and interest from August 15, 2020 to December 15, 2020, with capitalization on the outstanding balance, for each event falling due, without changing the final term of the debt amortization or the interest rates of the Contracts.
· | Weighted Average Cost of Capital (WACC) |
On July 30, 2020, the São Paulo State Sanitation and Energy Regulatory Agency (ARSESP) released Technical Note NT.F-0042-2020 and the Substantiated Report with the result of Public Consultation 06/2020, which addresses the establishment of the Weighted Average Cost of Capital (WACC) of 8.10% for SABESP’s Third Ordinary Tariff Revision.
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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.
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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 POSITION OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES Position as of June 30, 2020 | ||||
Shareholder | Number of Common Shares (units) |
% | Total Number of Shares (units) |
% |
Controlling Shareholder | ||||
Treasury Department (1) | 343,507,750 | 50.3% | 343,507,750 | 50.3% |
Companhia Paulista de Parcerias - CPP |
6 |
0% |
6 |
0% |
Management | ||||
Board of Directors | 3,000 | 0.0% | 3,000 | 0.0% |
Board of Executive Officers | - | - | - | - |
Fiscal Council | 0 | 0% | 0 | 0% |
Treasury Shares | - | - | - | - |
Other Shareholders | ||||
Total | 343,510,756 | 50.3% | 343,510,756 | 50.3% |
Outstanding Shares | 339,999,113 | 49.7% | 339,999,113 | 49.7% |
(1) There is a lawsuit with a mandatory injunction filed under number 1051534-40.2019.8.26.0053 pending at the 7th Tax Court of the City of São Paulo, pleading the unlawfulness of the disposal of shares owned by the Treasury Department of the São Paulo State to third parties, filed by Banco Bradesco S.A., the custodian and bookkeeping agent of SABESP’s shares.
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CONSOLIDATED SHAREHOLDING POSITION OF CONTROLLING SHAREHOLDERS, MANAGEMENT AND OUTSTANDING SHARES Position as of June 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% |
Companhia Paulista de Parcerias - CPP |
6 |
0% |
6 |
0% |
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 | 343,527,293 | 50.3% | 343,527,293 | 50.3% |
Outstanding Shares | 339,982,576 | 49.7% | 339,982,576 | 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 June 30, 2020 (Number of shares) | |||
Common shares | Total | |||
Shareholder | Number of shares | % | Number of shares | % |
Treasury Department |
343,507,750 |
50.3 |
343,507,750 |
50.3 |
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Reports and Statements / Unqualified Report on Special Review
Report on Review of Quarterly Financial Information - ITR
To the Shareholders, Board of Directors and Management of
Companhia de Saneamento Básico do Estado de São Paulo - SABESP
São Paulo - SP
Introduction
We have reviewed the interim financial information of Companhia de Saneamento Básico do Estado de São Paulo – SABESP (“The Company”), contained in the Quarterly Financial Information Form (ITR) for the quarter ended June 30, 2020, comprising the balance sheet as of June 30, 2020 and the respective statements of income, comprehensive income, changes in shareholders' equity and cash flows for the three-month period then ended, including the explanatory notes.
Management is responsible for the preparation of the 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 the three-month period ended June 30, 2020, 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 and content 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, August 13, 2020
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) 43.776.517/0001-80, headquartered at Rua Costa Carvalho, nº 300, Pinheiros, São Paulo, declare that, pursuant to paragraph 1 of article 25, item VI of CVM Instruction 480, of December 7, 2009, that:
They revised, discussed and agreed with the interim financial information for the period ended June 30, 2020. São Paulo, August 13, 2020.
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 Officer and Investor Relations Officer
Adriano Candido Stringhini
Corporate Management Officer
Alceu Segamarchi Junior
Technology, Project and Environment Officer
Paulo Massato Yoshimoto
Metropolitan Officer
Ricardo Daruiz Borsari
Regional Systems Officer
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Reports and Statements / Executive Officers’ Statement on the Report of Independent Registered Public Accounting Firm
Executive Officers’ Statement on the Report of Independent Registered Public Accounting Firm
STATEMENT
The Executive Officers of Companhia de Saneamento Básico do Estado de São Paulo - SABESP, with Corporate Taxpayer’s ID (CNPJ/MF) 43.776.517/0001-80, headquartered at Rua Costa Carvalho, nº 300, Pinheiros, São Paulo, declare that, pursuant to paragraph 1 of article 25, item V, 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 June 30, 2020.
São Paulo, August 13, 2020.
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 Officer and Investor Relations Officer
Adriano Candido Stringhini
Corporate Management Officer
Alceu Segamarchi Junior
Technology, Project and Environment Officer
Paulo Massato Yoshimoto
Metropolitan Officer
Ricardo Daruiz Borsari
Regional Systems Officer
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city São Paulo, Brazil.
Date: August 28, 2020
Companhia de Saneamento Básico do Estado de São Paulo - SABESP | |
By: | /s/ Rui de Britto Álvares Affonso |
Name: Rui de Britto Álvares Affonso Title: Chief Financial Officer and Investor Relations Officer |
FORWARD-LOOKING STATEMENTS
This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.