COMPANHIA DE SANEAMENTO BASICO DO ESTADO DE SAO PAULO-SABESP

Foreign Filer Report • Sep 20, 2019

6-K 1 sbspr2q19_6k.htm SBSPR2Q19_6K sbspr2q19_6k.htm - Generated by SEC Publisher for SEC Filing

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

For August, 2019

(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):

CIA. DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO - SABESP

Rui de Britto Álvares Affonso

Chief Financial Officer and Investor Relations Officer

Mario Azevedo de Arruda Sampaio

Head of Capital Markets and Investor Relations

SABESP announces 2Q19 results

São Paulo, August 14, 2019 - Companhia de Saneamento Básico do Estado de São Paulo - SABESP (B3: SBSP3; NYSE: SBS), one of the largest water and sewage services providers in the world based on the number of customers, announces today its 2Q19 results . The Company’s operating and financial information, except when indicated otherwise is presented in Brazilian Reais, in accordance with the Brazilian Corporate Law. All comparisons in this release, unless otherwise stated, refer to the same period of 2018 .

SBSP3: R$ 55.96/share SBS: US$ 13.73 (ADR=1 share) Total shares: 683,509,869 Market value: R$ 38.249 billion Closing quote: 08/14/2019

R$ million

1. Financial highlights

(1) Includes Regulation, Control and Inspection Fee (TRCF), totaling R$ 17.0 million in 2Q19 and R$ 15.8 million in 2Q18.

(2) Includes TRCF transfer, totaling R$ 15.1 million in 2Q19 and R$ 13.5 million in 2Q18.

(*) Total shares = 683,509,869

Adjusted EBITDA Reconciliation (Non-accounting measures)

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

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

In 2Q19, net operating revenue, which considers construction revenue, totaled R$ 3,997.9 million, 8.9% up from 2Q18.

Costs and expenses, which consider construction costs, totaled R$ 3,195.0 million, 22.1% up from 2Q18.

Adjusted EBIT, totaling R$ 807.1 million, fell 23.5% from the R$ 1,055.6 million reported in 2Q18.

Adjusted EBITDA, totaling R$ 1,231.6 million, fell 10.9% from the R$ 1,382.6 million reported in 2Q18 (R$ 6,535.3 million in the last 12 months).

The adjusted EBITDA margin reached 30.8% in 2Q19, versus 37.7% in 2Q18 (39.4% in the last 12 months).

Excluding the effects of revenue and construction costs, adjusted EBITDA margin reached 36.8% in 2Q19, versus 45.5% in 2Q18 (46.9% in the last 12 months).

Net income totaled R$ 454.4 million in 2Q19, versus net income of R$ 181.9 million in 2Q18.

2. Gross operating revenue

The gross operating revenue related to sanitation services, in the amount of R$ 3,579.0 million, which does not consider construction revenue, increased by R$ 329.2 million, or 10.1%, from the R$ 3,249.8 million in 2Q18.

The main factors that led to the increase were:

· 3.5% tariff repositioning index since June 2018 and 4.7% tariff adjustment since May 2019 with approximately 4% impact on operating revenue;

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· 2.6% increase in total billed volume, as a result of a 0.2% decrease in the water billed volume and a 6.1% increase in the sewage billed volume; and

· Beginning of operations in the municipality of Guarulhos in January 2019, generating an increase of R$ 90.6 million or 2.8% in operating revenue.

3. Construction revenue

Construction revenue increased by R$ 21.5 million, or 3.2%, YoY, mainly due to higher asset investments in 2Q19.

4. Billed volume

The tables below show water and sewage billed volumes, quarter-over-quarter and YTD, according to the consumer category and region.

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(1) Unaudited

(2) Including costal and interior regions

(3) Wholesale volumes of reuse water and non-domestic sewage

5. Costs, administrative & selling expenses and construction costs

Costs, administrative & selling expenses and construction costs increased by R$ 577.5 million in 2Q19 (22.1%). Excluding construction costs, the increase was R$ 556.5 million (28.3%).

Costs, administrative & selling expenses and construction costs as a percentage of net revenue was 79.9% in 2Q19, versus 71.3% in 2Q18.

5.1. Salaries and payroll charges and Pension plan obligations

In 2Q19, there was an increase of R$ 91.4 million, or 13.4%, due to the following:

· Increase of R$ 44.6 million, mainly due to the addition of 619 employees since June 2018, (net of admissions and dismissals), the application of 1.0% referring to the Career and Salaries Plan ( Plano de Cargos e Salários ) in February 2019 and the 4.99% salary adjustment in May 2019;

· Increase of R$ 29.0 million in medical expenses; and

· Higher overtime expenses, of R$ 7.5 million.

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5.2. General supplies

Increased by R$ 17.5 million, or 32.5%, mainly due to the larger applications in the maintenance of water and sewage networks, systems and connections.

5.3. Treatment materials

Increase of R$ 14.3 million, or 23,3%, due to:

· Greater need for application of oxygen and polymers in several Sewage Treatment Stations, in the amount of R$ 6.1 million; and

· Greater need to use oxidizers and coagulants in water treatment, in the amount of R$ 3.9 million, mainly in the ABV Water Treatment Station.

5.4. Services

Expenses with services increased by R$ 134.9 million, or 42.2%, to R$ 454.4 million, from the R$ 319.5 million recorded in 2Q18, mainly due to:

· Higher expenses with third-party services, of R$ 46.7 million, due to the beginning of operations in the Municipality of Guarulhos in January 2019;

· R$ 25.5 million increase in maintenance services in water and sewage networks and connections;

· R$ 12,4 million increase in maintenance services and IT technical support;

· Higher expenses with contracts to recover credits, of R$ 9.5 million;

· Higher surveillance expenses, totaling R$ 8.1 million;

· R$ 6.8 million increase in meter reading and bill delivery expenses; and

· Higher expenses with paving and replacing of sidewalks, of R$ 5.0 million.

5.5. Electricity

Electricity expenses totaled R$ 279.5 million in 2Q19, up R$ 50.7 million, or 22.2%, from the R$ 228.8 million recorded in 2Q18. Of total electricity expenses, ACL accounted for 19.8%, TUSD for 16.5% and ACR for 63.7%.

The key factors that led to this variation were:

· Average decrease of 3.7% in energy prices of Free Market tariffs ( Ambiente de Contratação Livre – ACL), with a 5.9% increase in consumption;

· Average upturn of 32.6% in Grid Market Tariffs ( Tarifas de Uso do Sistema de Distribuição – TUSD), with a 2.0% increase in consumption; and

· Average increase of 11.1% in Regulated Market tariffs ( Ambiente de Contratação Regulada – ACR), with a 12.5% increase in consumption.

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5.6. General expenses

Increase of R$ 117.1 million, or 52.7%, to R$ 339.2 million in 2Q19, versus R$ 222.1 million in 2Q18, mainly due to:

· Higher provisioning of lawsuits in 2Q19, totaling R$ 52.3 million;

· Expenses related to the conclusion of lawsuits, due to the agreement entered into with the municipality of São Bernardo do Campo, in the amount of R$ 39.0 million; and

· Higher provision for transfers to the São Paulo Municipal Fund for Environmental Sanitation and Infrastructure, in the amount of R$ 9.7 million, due to higher revenue obtained in the municipality.

5.7. Tax expenses

Increase of R$ 10.4 million, or 71.7%, mainly due to higher Property Tax (IPTU) expenses in 2Q19, in the amount of R$ 9.0 million.

5.8. Depreciation and amortization

Depreciation and amortization expenses increased by R$ 97.5 million, or 29.8%, due to the start-up of intangible assets, in the amount of R$ 7.9 billion, of which R$ 3.4 billion related to the São Lourenço Production System.

5.9. Allowance for doubtful accounts

Increase of R$ 22.7 million, due to higher delinquency in 2Q19, with an impact of R$ 53.5 million, partially offset by a higher number of agreements signed, in the amount of R$ 30.8 million.

6. Other operating revenue (expenses), net

Other net operating revenue (expenses) fell by R$ 19.0 million, due to:

· Non-recurring recovery of escrow deposits in 2Q18, in the amount of R$ 10.9 million; and

· Non-recurring revenue from property expropriation in 2Q18, in the amount of R$ 8.1 million.

7. Financial result

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7.1. Financial expenses, net of income

7.1.1. Financial expenses

Increase of R$ 78.4 million, mainly due to:

· R$ 91.2 million increase in other financial expenses, mainly as a result of: (i) the recognition of interest in 2Q19, in the amount of R$ 53.9 million, due to the full start-up of the São Lourenço Production System in July 2018; and (ii) higher recognition of interest on lawsuits, in the amount of R$ 24.1 million.

· R$ 6.7 million decrease in interest and charges on domestic loans and financing, mainly due to the amortization of 15th , 17th and 20th debentures issued; and

· R$ 6.1 million decrease in interest and charges on foreign loans and financing, mainly due to: (i) partial debt amortization in foreign currency; and (ii) 1.7% depreciation of the US dollar against the Brazilian real in 2Q19, compared to a 16.0% appreciation in 2Q18 and lower appreciation of the Yen against the Brazilian real in 2Q19, of 0.9%, compared to the 11.4% appreciation recorded in 2Q18.

7.1.2. Financial income

Decrease of R$ 30.7 million, mainly due to the higher recognition of interest on installment agreements in 2Q18, of R$ 25,3 million.

7.2. Monetary and exchange variation, net

The effect of net monetary and exchange variation in 2Q19 was R$ 790.7 million lower than in 2Q18, highlighting the R$ 856.1 million decrease of exchange variation on loans and financing, as a result of the 1.7% depreciation of the US dollar against the Brazilian real in 2Q19, compared to a 16.0% appreciation in 2Q18, as well as the lower appreciation of the Yen against the Brazilian real in 2Q19 (0.9%), compared to the 11.4% appreciation recorded in 2Q18.

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8. Income tax and Social contribution

The R$ 141.6 million increase was due to higher taxable income in 2Q19, mainly affected by lower exchange variation expenses and higher operating revenue, partially mitigated by higher costs and expenses.

9. Indicators

9.1. Operating

(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

(*) Unaudited.

9.2. Economic

(1) Annual accrual, in %

(2) Annual average

(3) Ptax sale rate on the last day

(*) Unaudited

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10. Loans and financing

In July, it was concluded the 24 th Debenture Issuance, the Company’s first “infrastructure debentures”, regulated by Law 12,431/11. The R$ 400 million raised will be allocated to infrastructure investments related to adjustment and modernization of water supply systems in 71 municipalities, in order to reduce water loss index in said systems.

Information on the 24 th Debenture Issuance: Series 1 – Amortization : 7 th year - Volume: R$ 100,000,000.00 - Remuneration: IPCA + 3.20% p.a. Series 2 – Amortization: years 8/9/10 - Volume: R$ 300,000,000.00 - Remuneration: IPCA + 3.37% p.a.

11. Capex

R$ 739.6 million was invested in 2Q19 totaling R$ 1.5 billion in the first half of the year.

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12. Conference calls

In English August 16, 2019 - Friday 1:00 pm US ET / 2:00 pm (Brasília) Dial in: + 1 (412) 317-6346 Conference ID: Sabesp Replay available for 7 days Dial in: +1 (412) 317-0088 Replay ID: 10133340 Click here for the webcast In Portuguese August 16, 2019 – Friday 9:30 am US ET / 10:30 am (Brasília) Dial in: +55 (11) 3181-8565 Conference ID: Sabesp Replay available for 7 days Dial in: +55 (11) 3193-1012 Replay ID: 8133341# Click here for the webcast

For more information, please contact:

Mario Arruda Sampaio

Head of Capital Markets and Investor Relations

Phone.(55 11) 3388-8664

E-mail: maasampaio@sabesp.com.br

Angela Beatriz Airoldi

Investor Relations Manager

Phone.(55 11) 3388-8793

E-mail: abairoldi@sabesp.com.br

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

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Income Statement

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Balance Sheet

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Cash Flow

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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 14, 2019

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.