Notes to the Interim Financial
Information
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|
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1
Operations
Companhia de
Saneamento Básico do Estado de São Paulo ("SABESP" or the "Company") is a
mixed-capital company headquartered in São Paulo, at Rua Costa Carvalho, 300,
CEP 05429-900, controlled by the São Paulo State Government.
The Company is
engaged in the provision of basic and environmental sanitation services in the
State of São Paulo, as well as it supplies treated water and sewage services on
a wholesale basis
.
In addition to
providing basic sanitation services in the State of São Paulo, SABESP may
perform these activities in other states and countries, and can operate in
drainage, urban cleaning, solid waste handling and energy markets. SABESP aims
to be a world reference in the provision of sanitation services, in a
sustainable, competitive and innovative manner, with a focus on
customers
.
As of June 30, 2017, the
Company operated water and sewage services in 367 municipalities of the State of
São Paulo. Most of these municipalities operations are based on 30-year
concession, program and services contracts. The Company has two partial
contracts with the municipality of Mogi das Cruzes, however, since most of
municipality is serviced by wholesale, it was not included in the 367
municipalities. As of June 30, 2017, the Company had 369 contracts.
SABESP is not
temporarily operating in some municipalities due to judicial orders. The
lawsuits in progress refer to Macatuba and Cajobi, and the carrying amount of
these municipalities’ intangible assets was R$ 4,345 as of
June 30, 2017
(R$ 4,345 as of
December 31, 2016
).
As of
June 30, 2017
, 53 concession
agreements (54 as of December 31, 2016) had expired and are being negotiated.
From
July 1,
2017
to 2030, 33 concession agreements will expire. Management believes that
concession agreements expired and not yet renewed will result in new contracts,
disregarding the risk of discontinuity in the provision of municipal water
supply and sewage services. By
June 30, 2017
, 283 program and services contracts were signed (281
contracts as of December 31, 2016
).
As of
June 30, 2017
, the carrying
amount of the underlying assets used in the 53 concessions of the municipalities
under negotiation totaled R$ 6,673,906, accounting for 20.74% of the total, and
the related gross revenue for the six-month period ended June 30, 2017 totaled
R$ 904,237, accounting for 12.16% of the total
.
The Company’s
operations are concentrated in the municipality of São Paulo, which represents
53.58% of the gross revenues on
June 30, 2017
(54.25% on
June 30, 2016
) and 48.00% of intangible
assets (46.57% on December 31, 2016
).
On June 23, 2010,
the State of São Paulo, the Municipality of São Paulo, the Company and the
regulatory agency “Sanitation and Energy Regulatory Agency – ARSESP” signed an
agreement to share the responsibility for water supply and sewage services to
the Municipality of São Paulo based on a 30-year concession agreement. This
agreement is extendable for another 30 years, pursuant to the law. This
agreement sets forth SABESP as the exclusive service provider and designates
ARSESP as regulator, establishing prices, controlling and monitoring services.
On the same date, the State of São Paulo, the Municipality of São Paulo and
SABESP signed the “Public service provision agreement of water supply and sewage
services”, a 30-year concession agreement which is extendable for another 30
years. This agreement involves the following activities
:
21
Notes to the Interim Financial
Information
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i.
protection of the
sources of water in collaboration with other agencies of the State and the
City;
ii.
capture, transport and treatment of
water;
iii.
collect,
transport, treatment and final dispose of sanitary sewage; and
iv.
adoption of other
actions of basic and
environmental sanitation.
The Company
operates under an authorization by public deed in some municipalities in the
Santos coast region and in the Ribeira Valley, where the Company started to
operate after the merger of the companies that formed it. In September 2015, the
Company entered into a water supply and sewage public utility services agreement
with the municipality of Santos; the gross revenue calculated in the six-month
period ended June 30, 2017 totaled R$ 183,508 (R$ 138,253 in the period ended
June 30, 2016) and the intangible asset was R$ 300,503 on June 30, 2017 (R$
303,540 on December 31, 2016).
Article 58 of Law
11,445/07 determines that precarious and overdue concessions, as well as those
effective for an undetermined period of time, including those that do not have
an instrument formalizing them, will be valid until December 31, 2010. However,
Article 2 of Law 12,693 of July 24, 2012, which amended Article 7°-A of Law
11,578, of November 26, 2007, allowed the provision of public basic sanitation
services to be executed until December 31, 2016.
The Company’s
Management understands that in the municipalities where the concession
agreements were not yet renewed, the operation is governed by Laws 8,987/95 and
11,445/07, including those municipalities served without an
agreement
.
Public deeds are valid and
governed by the Brazilian Civil Code
.
The Company's
shares have been listed in the Novo Mercado segment of BM&FBovespa under the
ticker symbol SBSP3 since April 2002 and on the New York Stock Exchange (NYSE)
as American Depositary Receipts (“ADRs”) Level III, under the SBS code, since
May 2002
.
Since 2008, the
Company has been setting up partnerships with other companies, which resulted in
the following companies: Sesamm, Águas de Andradina, Saneaqua Mairinque,
Aquapolo Ambiental, Águas de Castilho, Attend Ambiental and Paulista Geradora de
Energia. Although SABESP has no majority interest in the capital stock of these
companies, the shareholders’ agreements provide for the power of veto and
casting vote in certain issues jointly with associates, indicating the shared
control in the management of investees
.
As of May 31, 2017,
ANA and DAEE disclosed the renewal of the concession of the Cantareira System
for another 10 years. The terms of this concession define the water volume the
Company is authorized to withdraw from the Cantareira System to supply the São
Paulo Metropolitan Region. This concession establishes five water
withdrawal bands, based on the volume of water available in the Cantareira
System reservoirs: (i) if the volume of water available is higher than 60%
of the reservoirs’ capacity, the Company may withdraw up to 33 m³/s;
(ii) if the volume of water available is between 40% and 60% of the
reservoirs’ capacity, the Company may withdraw up to 31 m³/s; (iii) if the
volume of water available is between 30% and 40% of the reservoirs’ capacity,
the Company may withdraw up to 27 m³/s; (iv) if the volume of water available is
between 20% and 30% of the reservoirs’ capacity, the Company may withdraw up
to 23 m³/s; and (v) if the volume of water available is lower than 20% of
the reservoirs’ capacity, the Company my withdraw up to 15.5
m³/s.
22
Notes to the Interim Financial
Information
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In June 2017, the
reservoirs of the São Paulo Metropolitan Region stored approximately 1.3
trillion litters of treatment water, versus approximately 1.0 trillion litters
in June 2016
.
At the end of 2017
and beginning of 2018 two important projects aimed to increase water security in
the São Paulo Metropolitan Region are expected to be concluded, as follows: (i)
the Jaguarí-Atibainha interconnection, which will transfer up to 5.13 cubic
meters per second (m³/s) from the Paraíba do Sul Basin to the Cantareira System;
and (ii) the construction of the São Lourenço Production System, which will
expand water production and capacity by 6.4
m³/s.
Management expects
that with the normalization of rainfall, the generation of operating cash and
the credit lines available for investment, the Company will have sufficient
funds to meet its commitments and not compromise its necessary
investments
.
The interim financial
information was approved by the Board of Directors on August 14,
2017
.
2
Basis of preparation and presentation of the financial
statements
Presentation of the quarterly
financial information
The interim
financial information as of June 30, 2017, was prepared based on the provisions
of CPC 21 (R1) – Interim Financial Information and the international standard
IAS 34 – Interim Financial Reporting, issued by the International Accounting
Standards Board (IASB), applicable to the preparation of Quarterly Information
Form– ITR and they are fairly presented consistent with the rules issued by the
Brazilian Securities and Exchange Commission (CVM). Therefore, this interim
financial information takes into consideration the official letter CVM/SNC/SEP
003 of April 28, 2011, which allows the entities to present selected notes to
the financial statements, in cases of redundant information already disclosed in
the Annual Financial Statements. The interim financial information for June 30,
2017, 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, 2016, prepared pursuant to the
International Financial Reporting Standards – IFRS, issued by the International
Accounting Standards Board – IASB and pursuant to the accounting practices
adopted in Brazil which observe the pronouncements issued by the Brazilian
Accounting Pronouncements Committee- CPC. Therefore, the interim financial
information as of June 30, 2017 was not fully completed due to redundancies with
the information presented in the annual financial statements of December 31,
2016 and, as provided for in Official Letter/CVM/SNC/SEP no. 003/2011. In this
interim financial information, the notes below was either not presented or are
not as detailed as those in the annual financial statements
:
i.
Summary of significant accounting policies (Note 3);
ii.
Changes in accounting practices and disclosures (Note
4);
iii.
Risk
Management – Financial Instruments (Note 5.4);
iv.
Key
Accounting Estimates and Judgments (Note 6);
v.
Related-Party Balances and Transactions (Note 10);
vi.
Investments (Note 12);
vii.
Intangible Assets (Note 14);
viii.
Borrowings and
Financing (Note
16);
ix.
Deferred Taxes and Contributions (Note 18);
x.
Provisions (Note 19);
xi.
Employees Benefits (Note 20);
xii.
Equity
(Note 22);
xiii.
Insurance (Note
25);
xiv.
Financial Income
(Expenses) (Note
28).
All material
information related to the financial statements, and this information alone, is
being disclosed and corresponds to the information used by the Company’s
Management in its administration
.
23
Notes to the Interim Financial Information
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3
Summary of significant accounting policies
The accounting policies used in the preparation of the interim financial information for the quarter ended June 30, 2017 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2016. These policies are disclosed in Note 3 to the Annual Financial Statements
.
4
Risk management
4.1
Financial Risk Management Financial risk factors
The Company's activities are affected by Brazilian economic scenario, making it exposed to market risk (exchange rate and interest rate), credit risk and liquidity risk. The Company’s financial risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance
.
The Company has not utilized derivative instruments in any of the reported periods
.
(a)
Market risk
Foreign currency risk
SABESP’s foreign exchange exposure implies market risks associated with currency fluctuations, since the Company has foreign currency-denominated liabilities, mainly US dollar and yen-denominated short and long-term borrowings
.
The management of SABESP’s foreign currency exposure considers several current and projected economic factors, besides market conditions
.
This risk arises from the possibility that the Company may incur in losses due to exchange rate fluctuations that would impact liability balances of foreign currency-denominated borrowings and financing raised in the market and related financial expenses. The Company does not maintain hedge or swap contracts or any derivative financial instrument to hedge against this risk
.
A significant amount of the Company’s financial debt is indexed to the U.S. dollar and Yen, in the total amount of R$ 5,725,544 as of June 30, 2017 (R$ 5,692,984 as of December 31, 2016). Below, the Company’s exposure to exchange risk
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings and financing – US$
|
1,201,121
|
3,973,548
|
1,241,963
|
4,047,682
|
|
Borrowings and financing – Yen
|
58,297,411
|
1,716,276
|
57,643,930
|
1,609,419
|
|
Interest and charges from borrowings and financing – US$
|
|
24,892
|
|
25,114
|
|
Interest and charges from borrowings and financing – Yen
|
|
|
|
|
|
Total exposure
|
|
5,725,544
|
|
5,692,984
|
|
Borrowing cost
– US$
|
|
(28,277)
|
|
(29,650)
|
|
Borrowing cost
– Yen
|
|
|
|
|
|
Total foreign currency-denominated borrowings (Note 15)
|
|
|
|
|
24
Notes to the Interim Financial
Information
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The 1% increase in
foreign-currency denominated debt from June 30, 2017 to December 31, 2016 was
mainly due to the following
:
1)
Exchange rate changes, due to
the 1.5% increase in the US dollar, from R$ 3.2591 as of December 31, 2016, to
R$ 3.3082 as of June 30, 2017. The US dollar-denominated debt accounts for 69.7%
of foreign currency-denominated debts; and
2)
Exchange rate changes, due to
the 5.4% increase in the Yen, from R$ 0.02792 as of December 31, 2016 to R$
0.02944 as of June 30, 2017
.
3)
The increase was
partially offset by the amortization of the BID 713 and AB LOAN
agreements
.
As of June 30,
2017, if the Brazilian real had depreciated or appreciated by 10%, 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, 2017 would have been R$ 572,554 (R$ 569,298 for the year ended
December 31, 2016), lower or higher, mainly as a result of exchange losses or
gains on the translation of foreign currency-denominated loans
.
Scenario I below
presents the effect in income statements for the next 12 months, considering the
projected rates of the U.S. dollar and the Yen. Considering the other variables
as remaining constant, the impacts for the next 12 months are shown in scenarios
II and III with possible depreciations of 25% and 50%, respectively, in the
Brazilian real
.
|
|
|
|
|
|
|
(*)
|
|
|
|
Net currency exposure as of June 30, 2017 (Liabilities) in
US$
|
1,201,121
|
1,201,121
|
1,201,121
|
|
|
|
|
|
|
US$ rate as of June 30, 2017
|
3.3082
|
3.3082
|
3.3082
|
|
Exchange rate estimated according to the
scenario
|
|
|
|
|
Differences between the rates
|
(0.0918)
|
(0.9418)
|
(1.7918)
|
|
|
|
|
|
|
Effect on net financial result R$ - (loss)
|
(110,263)
|
(1,131,216)
|
(2,152,169)
|
|
|
|
|
|
|
Net currency exposure as of June 30, 2017 (Liabilities) in
Yen
|
58,297,411
|
58,297,411
|
58,297,411
|
|
|
|
|
|
|
Yen rate as of June 30, 2017
|
0.02944
|
0.02944
|
0.02944
|
|
Exchange rate estimated according to the
scenario
|
|
|
|
|
Differences between the rates
|
(0.00102)
|
(0.00864)
|
(0.01625)
|
|
|
|
|
|
|
Effect on net financial result R$ - (loss)
|
|
|
|
|
|
|
|
|
|
Total effect on net financial result in R$ - (loss)
|
(169,726)
|
(1,634,906)
|
(3,099,502)
|
|
|
|
|
|
|
(*) For the probable scenario in US dollar, the exchange rate
estimated for June 30, 2018 was used, pursuant to the Focus Report-BACEN
of June 30, 2017, while for the Yen, the average exchange rate was
considered for the 12-month period after June 30, 2017, according to
BM&FBovespa’s Reference Rates report of June 30,
2017.
|
25
Notes to the Interim Financial
Information
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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
continually monitors market interest rates, in order to evaluate the possible
need to replace its debt
.
The table below provides the
Company's borrowings and financing subject to variable interest rate
:
|
|
|
|
|
TR
(i)
|
1,535,608
|
1,535,030
|
|
CDI
(ii)
|
644,391
|
1,082,228
|
|
TJLP
(iii)
|
1,426,876
|
1,326,631
|
|
IPCA
(iv)
|
1,711,995
|
1,697,452
|
|
LIBOR
(v)
|
2,815,677
|
2,906,999
|
|
Interest and
charges
|
|
|
|
Total
|
|
|
(i)
TR
–
Interest Benchmark
Rate
(ii)
CDI – (Certificado
de Depósito Interbancário), an interbank deposit certificate
(iii)
TJLP – (Taxa de Juros a Longo
Prazo), a long-term interest rate index
(iv)
IPCA – (Índice Nacional de
Preços ao Consumidor Amplo), a consumer price index
(v)
LIBOR – London Interbank Offered Rate
Another risk to
which the Company is exposed, is the mismatch of the monetary restatement
indices of its debts with those of its service revenues. Tariff adjustments of
services provided by the Company do not necessarily follow the increases in the
inflation indexes to adjust borrowings, financing and interest rates affecting
indebtedness
.
As of June 30,
2017, if interest rates on borrowings and financing had been 1% higher or lower
with all other variables held constant, the effects on profit for the six-month
period ended June 30, 2017 before taxes would have been R$ 82,235 (R$ 86,910 as
of December 31, 2016) lower or higher, mainly as a result of a lower or higher
interest expense on floating rate borrowings and financing
.
(b)
Credit
risk
Credit risk arises
from 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, 2017 are the carrying amounts of
instruments classified as cash equivalents, deposits in banks and financial
institutions, restricted cash, trade receivables and accounts receivable from
related parties at the end of reporting period. See additional information in
Notes 6, 7, 8 and
9.
26
Notes to the Interim
Financial Information
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Regarding the
financial assets held with financial institutions, the credit quality that is
not past due or subject to impairment can be assessed by reference to external
credit ratings (if available) or to historical information about counterparty
default rates. The credit quality of counterparties which are banks, such as
deposits and financial investments, the Company considers the lower rating of
the counterparty published by three main international rating agencies (Fitch,
Moody's and S&P), according to internal policy of market risk
management
:
|
|
June
30, 2017
|
|
December 31, 2016
|
|
Cash at bank and
short-term bank deposits
|
|
|
|
|
AA+(bra)
|
1,334,495
|
|
1,850,220
|
|
AAA(bra)
|
26,195
|
|
35,452
|
|
Other (*)
|
6,915
|
|
549
|
|
|
1,367,605
|
|
1,886,221
|
(*)
This category includes current
accounts and investment funds in banks (the balances of which were not material)
that have no credit rating information available
.
The available
credit rating information of the banks, as at June 30, 2017, in which the
Company made deposit transactions and financial investments in domestic currency
(R$ - domestic rating) during the period is as follows
:
|
|
|
|
|
|
Banco do Brasil S/A
|
AA+(bra)
|
Aa1.br
|
-
|
|
Banco Santander Brasil S/A
|
-
|
Aaa.br
|
brAA-
|
|
Brazilian Federal Savings Bank
|
AA+(bra)
|
Aa1.br
|
brAA-
|
|
Banco Bradesco S/A
|
AAA(bra)
|
Aa1.br
|
brAA-
|
|
Itaú Unibanco Holding S/A
|
AAA(bra)
|
Aa1.br
|
brAA-
|
(c)
Liquidity risk
The Company's
liquidity is primarily reliant upon cash provided by operating activities, loans
from Brazilian Federal and State governmental financial institutions, and
financing in the domestic and international capital markets. The liquidity risk
management considers the assessment of its liquidity requirements to ensure it
has sufficient cash to meet its operating and capital expenditures needs, as
well as the payment of debts
.
The funds held by
the Company are invested in interest-bearing current accounts, time deposits and
securities, selecting instruments with appropriate maturity or liquidity
sufficient to provide margin as determined by projections mentioned
above
.
The table below
shows the financial liabilities of the Company, into relevant maturities,
including the installment of principal and future interest to be paid according
to the agreement
.
27
Notes to the Interim
Financial Information
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|
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|
|
|
|
|
|
|
|
|
|
As at June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Borrowings and
financing
|
639,648
|
2,196,269
|
2,287,565
|
2,486,413
|
917,521
|
6,188,060
|
14,715,476
|
|
Trade payables and
contractors
|
384,174
|
-
|
-
|
-
|
-
|
-
|
384,174
|
|
Services
payable
|
480,873
|
-
|
-
|
-
|
-
|
-
|
480,873
|
|
Public-Private
Partnership – PPP (*)
|
27,125
|
362,914
|
362,914
|
362,914
|
362,914
|
5,446,512
|
6,925,293
|
|
Program contract
commitments
|
72,405
|
44,513
|
30,007
|
882
|
1,021
|
16,882
|
165,710
|
(*)
The Company also considered
future commitments (construction not yet performed) still not recognized in the
financial statements related to São Lourenço PPP, due to the relevance of future
cash flows, the impacts on its operations and the fact the Company already has
formalized this commitment through an agreement signed by the
parties
.
Future interest
Future interest was calculated
based on the contractual clauses for all agreements. For agreements with
floating interest rate, the interest rates used correspond to the base dates
above.
Cross default
The Company has
borrowings and financing agreements including cross default clauses, i.e., the
early maturity of any debt, may imply the early maturity of these agreements.
The indicators are continuously monitored in order to avoid the execution of
these clauses
.
(d)
Sensitivity
analysis on interest rate risk
The table below
shows the sensitivity analysis of the financial instruments, prepared in
accordance with CVM Rule 475/2008 in order to evidence the balances of main
financial assets and liabilities, calculated at a rate projected for the
twelve-month period after June 30, 2017, or until the final settlement of each
contract, whichever is shorter, considering a probable scenario (scenario I),
appreciation of 25% (scenario II) and 50% (scenario
III).
The purpose of the
sensitivity analysis is to measure the impact of changes in the market over the
financial instruments of the Company, considering constant all other variables.
In the time of settlement the amounts can be different from those presented, due
to the estimates used in the measurement
.
28
Notes to the Interim Financial
Information
|
|
|
|
June 30,
2017
|
|
Indicators
|
Exposure
|
Scenario I
(Probable) (i)
|
Scenario II
25%
|
Scenario III
50%
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
CDI
|
1,277,068
|
8.2500%(*)
|
6.1875%
|
4.1250%
|
|
Financial income
|
|
105,358
|
79,019
|
52,679
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
CDI
|
(644,391)
|
8.2500%(*)
|
6.1875%
|
4.1250%
|
|
Interest to be incurred
|
|
(53,162)
|
(39,872)
|
(26,581)
|
|
|
|
|
|
|
|
CDI net exposure
|
632,677
|
52,196
|
39,147
|
26,098
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
TR
|
(1,535,608)
|
0.0001%(***)
|
0.0001%
|
0.0002%
|
|
Expenses to be incurred
|
|
(2)
|
(2)
|
(3)
|
|
|
|
|
|
|
|
IPCA
|
(1,711,995)
|
4.2500 %(*)
|
5.3125%
|
6.3750%
|
|
Expenses to be incurred
|
|
(72,760)
|
(90,950)
|
(109,140)
|
|
|
|
|
|
|
|
TJLP
|
(1,426,876)
|
7.0000% (*)
|
8.7500%
|
10.5000%
|
|
Interest to be incurred
|
|
(99,881)
|
(124,852)
|
(149,822)
|
|
|
|
|
|
|
|
LIBOR
|
(2,815,677)
|
1.4495%
(**)
|
1.8119%
|
2.1743%
|
|
Interest to be incurred
|
|
(40,813)
|
(51,017)
|
(61,221)
|
|
|
|
|
|
|
|
Total net expenses to be incurred
|
|
|
|
|
|
|
|
|
|
|
|
(*) Source: CDI and IPCA rates (Focus Report – BACEN, June
30, 2017) and long-term interest rate at June 30, 2017
(BACEN).
|
|
(**) Source: Bloomberg
|
|
(***) Source:
BM&FBovespa
|
(i)
Refers to the scenario of interest to be incurred for
the 12 months as of June 30, 2017 or until the maturity of the agreements,
whichever is shorter
.
4.2
Capital
management
The Company’s
objectives when managing capital are ensure its ability to continue as a going
concern in order to provide returns for shareholders and benefits for other
stakeholders, and to maintain an optimal capital structure to reduce the cost of
capital
.
29
Notes to the Interim Financial
Information
|
|
|
The Company
monitors capital based on the leverage ratio. This ratio corresponds to net debt
divided by total capital. Net debt corresponds to total borrowings and financing
less cash and cash equivalents. Total capital is calculated as total equity as
shown in the balance sheet plus net debt
.
|
|
|
|
|
|
|
|
|
Total borrowings and
financing (Note 15)
|
11,624,811
|
11,964,143
|
|
(-) Cash and cash
equivalents (Note 6)
|
|
|
|
|
|
|
|
Net debt
|
10,257,206
|
10,077,922
|
|
Total
equity
|
|
|
|
|
|
|
|
Total
capital
|
|
|
|
|
|
|
|
Leverage
ratio
|
|
|
As of June 30,
2017, the leverage ratio decreased to 39% from the 40% as of December 31, 2016,
not showing significant variation in the period
.
4.3
Fair value
estimates
It is assumed that
balances from trade receivables (current) and accounts payable to suppliers by
carrying amount, less impairment approximate their fair values, considering the
short maturity. Long-term trade receivables also approximate their fair values,
as they will be adjusted by inflation and/or will bear contractual interest
rates over time
.
4.4
Financial
instruments
As of June 30,
2017
and December 31,
2016, the Company did not have financial assets classified as fair value through
profit or loss, held to maturity and available for sale neither financial
liabilities classified as fair value through profit or loss. The Company’s
financial instruments included in the borrowings and receivables category
comprise cash and cash equivalents, restricted cash, trade receivables, balances
with related parties, other receivables, and balances receivable from the Water
National Agency – ANA. The financial instruments under the “other liabilities”
category comprise 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
.
30
Notes to the Interim
Financial Information
|
|
|
The estimated fair values of
financial instruments are as follows
:
Financial assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
1,367,605
|
1,367,605
|
1,886,221
|
1,886,221
|
|
Restricted
cash
|
30,597
|
30,597
|
24,078
|
24,078
|
|
Trade
receivables
|
1,667,728
|
1,667,728
|
1,711,306
|
1,711,306
|
|
Water National Agency –
ANA
|
82,926
|
82,926
|
81,221
|
81,221
|
|
Other receivables
|
220,962
|
220,962
|
167,369
|
167,369
|
Additionally,
SABESP has financial instrument assets receivables from related parties, in the
amount of R$ 843,509 as of June 30, 2017 (R$ 871,709 as of December 31, 2016),
which were calculated in accordance with the conditions negotiated between
related parties. The conditions and additional information referring to these
financial instruments are disclosed in Note 9 to this interim financial
information and Note 10 to the Annual Financial Statements of December 31, 2016.
Part of this balance, totaling R$ 763,279 (R$ 788,180 as of December 31, 2016),
refers to reimbursement of additional retirement and pension plan - G0 and is
indexed by IPCA plus simple interest of 0.5% p.m. This interest rate
approximates that one practiced by federal government bonds (NTN-b) with terms
similar to those of related-party transactions
.
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
Borrowings and
financing
|
11,624,811
|
11,456,926
|
11,964,143
|
11,776,178
|
|
Trade
payables and
contractors
|
384,174
|
384,174
|
311,960
|
311,960
|
|
Services
payable
|
480,873
|
480,873
|
460,054
|
460,054
|
|
Program contract
commitments
|
151,564
|
151,564
|
178,093
|
178,093
|
|
Public-Private
Partnership - PPP
|
2,559,380
|
2,559,380
|
2,249,418
|
2,249,418
|
The criteria
adopted to obtain the fair values of borrowings and financing, in preparing the
interim financial information as of June 30, 2017, are consistent with those
adopted in the Annual Financial Statements for the fiscal year ended December
31, 2016. In the Annual Financial Statements, these criteria are disclosed in
Note 5.4
.
Considering the
nature of other financial instruments, assets and liabilities of the Company,
the balances recognized in the balance sheet approximate the fair values, taking
into account the maturities close to the end of the reporting period, comparison
of contractual interest rates with market rates in similar operations at the end
of the reporting period, their nature and maturity terms
.
31
Notes to the Interim Financial
Information
5
Key
accounting estimates and judgments
Estimates and
judgments are continually evaluated and are based on historical experience and
on other factors, including expectations of future events that are believed to
be reasonable under the circumstances
.
(ii)
The key accounting estimates and judgments are: (i)
allowance for doubtful
accounts
, (ii) intangible
assets resulting from concession and program contracts, (iii) provisions, (iv)
pension benefits, and (v) deferred income tax and social contribution, and are
disclosed in Note 6 to the Annual Financial Statements as of December 31,
2016
.
6
Cash and
cash equivalents
|
|
|
|
|
Cash and
banks
|
90,537
|
137,395
|
|
Cash
equivalents
|
|
|
|
|
|
|
Cash and cash
equivalents include cash, bank deposits and high-liquidity short-term financial
investments, mainly represented by repurchase agreements (remunerated based on
the variation of the Interbank Deposit Certificates (CDI) interest rates),
entered into with Banco do Brasil, whose original maturities are lower than
three months, which are convertible into a cash amount and subject to an
insignificant risk of change in value
.
As of June 30,
2017, the average yield of financial investments corresponds to 99.89% of CDI
(99.24% as of December 31, 2016
).
7
Restricted cash
|
|
|
|
|
|
|
|
|
Agreement with the São
Paulo municipal government (i)
|
22,459
|
15,858
|
|
Brazilian Federal
Savings Bank – escrow deposits (ii)
|
2,711
|
2,989
|
|
Other
|
|
|
|
|
|
|
(i)
Refers to the amount deducted from the 7.5% of
Municipal revenue transferred to the Municipal Fund, corresponding to eventual
amounts unpaid by direct management bodies, foundations and government agencies,
as established in the agreement entered into with the municipal government of
São Paulo
;
(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
.
32
Notes to the Interim Financial
Information
|
|
|
|
8
|
Trade receivables
(a) Financial position
balances
|
June 30, 2017
|
|
December 31,
2016
|
|
|
Private sector:
|
|
|
|
|
|
General and special customers (i)
(ii)
|
1,160,649
|
|
1,205,498
|
|
|
Agreements
(iii)
|
330,085
|
|
315,351
|
|
|
|
1,490,734
|
|
1,520,849
|
|
|
Government entities:
|
|
|
|
|
|
Municipal
|
509,600
|
|
520,950
|
|
|
Federal
|
4,032
|
|
3,414
|
|
|
Agreements
(iii)
|
278,931
|
|
279,449
|
|
|
|
792,563
|
|
803,813
|
|
|
Wholesale customers – Municipal
governments: (iv)
|
|
|
|
|
|
Guarulhos
|
811,687
|
|
778,106
|
|
|
Mauá
|
499,120
|
|
467,775
|
|
|
Mogi das Cruzes
|
2,568
|
|
2,527
|
|
|
Santo André
|
995,930
|
|
946,045
|
|
|
São Caetano do Sul
|
2,606
|
|
2,371
|
|
|
Diadema
|
222,671
|
|
222,671
|
|
|
Total wholesale customers
– Municipal governments
|
2,534,582
|
|
2,419,495
|
|
|
Unbilled
supply
|
478,826
|
|
481,389
|
|
|
Subtotal
|
5,296,705
|
|
5,225,546
|
|
|
Allowance for doubtful
accounts
|
(3,628,977)
|
|
(3,514,240)
|
|
|
Total
|
1,667,728
|
|
1,711,306
|
|
|
Current
|
1,481,552
|
|
1,557,472
|
|
|
Noncurrent
|
186,176
|
|
153,834
|
|
|
|
1,667,728
|
|
1,711,306
|
(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, when provided for in the
agreements
.
(iv)
Wholesale basis customers - municipal governments - This balance
refers to the sale of treated water to municipalities, which are responsible for
distributing to, billing and charging final customers. Some of these
municipalities are questioning in court the tariffs charged by
SABESP, which have full allowance for doubtful accounts. Additionally, the
overdue amounts are included in the
allowance for doubtful accounts
.
33
Notes to the Interim Financial
Information
|
|
|
(b)
The aging of trade receivables is as follows
|
|
|
|
|
|
|
|
|
Current
|
1,329,568
|
1,337,503
|
|
Past-due:
|
|
|
|
Up to 30
days
|
260,104
|
263,157
|
|
From 31 to 60
days
|
109,796
|
148,927
|
|
From 61 to 90
days
|
15,139
|
53,268
|
|
From 91 to 120
days
|
106,911
|
109,138
|
|
From 121 to 180
days
|
93,634
|
124,001
|
|
From 181 to 360
days
|
225,892
|
203,837
|
|
Over 360
days
|
|
|
|
|
|
|
|
Total
past-due
|
|
|
|
|
|
|
|
Total
|
|
|
The increase in the
overdue balance was mainly due to the default of the municipalities that
purchased water on a wholesale basis, given that they are challenging the
tariffs charged by SABESP in court, and the increase in default of amounts
overdue, related to private customers
.
34
Notes to the Interim Financial
Information
|
|
|
(c)
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
Balance at beginning of
the period
|
3,514,240
|
3,307,793
|
|
Private sector
/government entities
|
48,281
|
30,731
|
|
Recoveries
|
(29,489)
|
(93,409)
|
|
Wholesale
customers
|
|
|
|
|
|
|
|
Net additions for the
period
|
115,709
|
85,750
|
|
|
|
|
|
Write-offs in the period
referring to accounts receivable
|
|
|
|
|
|
|
|
Balance at the end of
the period
|
|
|
|
Reconciliation of
estimated losses
of
income
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs
|
43,835
|
101,971
|
40,595
|
82,132
|
|
Losses/(reversal) with
state entities (related parties)
|
158
|
(130)
|
3,315
|
3,561
|
|
Losses/(reversal) with
private sector / government entities
|
17,735
|
48,281
|
(8,962)
|
30,731
|
|
Losses/(reversal) with
wholesale customers
|
-
|
1,227
|
-
|
(2,542)
|
|
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
Amount recorded as
selling expenses
|
35,724
|
121,860
|
(35,605)
|
20,473
|
Wholesale sales
losses, amounting to R$ 58,639 from April to June 2017 and R$ 95,690 from
January to June 2017 (April to June 2016 – R$ 79,681 and January to June 2016 –
R$ 150,970), were also recorded as revenue reduction
.
The Company does not have
customers representing 10% or more of its total revenues
.
35
Notes to the Interim Financial
Information
|
|
|
9
Related-Party Balances and Transactions
The Company is a
party to transactions with its controlling shareholder, the State Government,
and companies related to it
.
(a)
Accounts receivable, interest on capital payable, revenue and
expenses with the São Paulo State Government
|
|
|
|
|
Accounts
receivable
|
|
|
|
Current:
|
|
|
|
Sanitation services
|
132,952
|
134,005
|
|
Allowance for losses
|
(56,494)
|
(56,624)
|
|
Reimbursement for retirement and pension
benefits paid (G0)
|
|
|
|
- monthly flow (payments)
|
22,855
|
22,696
|
|
- GESP Agreement – 2008
|
47,094
|
56,512
|
|
- GESP Agreement – 2015
|
54,379
|
39,816
|
|
“Se Liga na Rede” program (l)
|
|
|
|
|
|
|
|
Total
current
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
Reimbursement for retirement and pension
benefits paid (G0)
|
|
|
|
- GESP Agreement – 2008
|
-
|
18,838
|
|
- GESP Agreement – 2015
|
|
|
|
|
|
|
|
Total
noncurrent
|
|
|
|
|
|
|
|
Total receivables from
shareholders
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
Sanitation
services
|
76,458
|
77,381
|
|
Reimbursement of
additional retirement and pension benefits (G0)
|
763,279
|
788,180
|
|
“Se Liga na Rede” program
(l)
|
|
|
|
|
|
|
|
Total
|
843,509
|
871,709
|
|
|
|
|
|
Liabilities:
|
|
|
|
Interest on capital
payable to related parties
|
-
|
351,788
|
|
Other
(g)
|
492
|
1,853
|
36
Notes to the Interim Financial
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sanitation
services
|
120,936
|
230,862
|
115,247
|
212,773
|
|
Payments received from
related parties
|
(115,911)
|
(235,497)
|
(108,988)
|
(196,639)
|
|
|
|
|
|
|
|
Receipt of GESP
reimbursement referring to Law 4819/58
|
(35,757)
|
(72,309)
|
(25,659)
|
(72,325)
|
(b)
Contingent
assets -
GESP
(not
recorded)
As of June 30, 2017
and December 31, 2016, SABESP had contingent assets with GESP, not recorded in
assets referring to the additional retirement and pension paid (Law 4,819/58),
named “Disputed amounts receivable”, totaling R$ 974,438 and R$ 937,035,
respectively
.
(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
.
Several lawsuits
were filed by EMAE, among which an arbitration proceeding related to the
Guarapiranga reservoir and a lawsuit related to the Billings reservoir, both
pleading for financial compensation due to SABESP’s water collect for public
supply, alleging that this conduct has been causing permanent and growing loss
in the capacity of generating electricity of Henry Borden hydroelectric power
plant, resulting in financial losses
.
As of April 10,
2014, the Company issued a Notice to the Market including the information about
an eventual future agreement
.
As of October 28,
2016, the Company entered into an agreement based on a Private Transaction
Agreement and Other Adjustments with EMAE aimed to fully and completely settle
the disputes involving the two companies
.
Pursuant to the
terms of Clause Two of the agreement, the transaction is subject to the
condition precedent of approval by the competent bodies of EMAE
.
Upon ratification
of the agreement, all litigation between SABESP and EMAE will cease
permanently
.
The agreement
involves the payment by SABESP to EMAE of the following amounts
:
-
R$ 6,610 annually, adjusted for inflation from the signature date
of this instrument, based on the IPCA or on any other index that may replace it,
to the last business day of October of each fiscal year, of which (i) the first
annual payment until the last business day of October 2017 and (ii) the last
payment until the last business day of October 2042; and
37
Notes to the Interim Financial
Information
|
|
|
-
R$ 46,270, in five annual and successive installments,
adjusted for inflation based on the IPCA, or on any other index that may replace
it, the first installment of R$ 9,254 maturing on April 30, 2017 and the
remaining 4 (four) installments, of the same amount, due on every April 30
(thirty) of the subsequent years, or the first subsequent business
day
.
At the same time,
on April 11, 2016, the Company was served with process filed by EMAE’s minority
shareholders against the São Paulo State. The plaintiffs of these lawsuits are
seeking a decision that requires the State to prohibit SABESP from extracting
water from these reservoirs without paying a financial compensation to EMAE and
that allows EMAE to pump water from the reservoirs to its hydroelectric power
plant. The plaintiffs of this lawsuit claim that the State, as EMA’s controlling
shareholder, acted against EMAE and in favor of SABESP
.
On August 7, 2017,
the Company was once again served with process in a citizen suit filed by Alvaro
Luiz de Lima de Alvares Otero against ANEEL, EMAE and SABESP requesting the
annulment of ANEEL order 3431/16, which consents to the above transaction. The
plaintiff claims that the act is illegal and harmful, compromises the
operational feasibility of the Henry Borden hydroelectric power plant and
jeopardizes the energy security of the São Paulo State, the Southeast region and
Brazil. Finally, the plaintiff requests SABESP to indemnify EMAE for said act,
at an amount to be calculated in the liquidation of the award
.
If SABESP can no
longer extract water from these reservoirs, it will have to transport water from
more distant places, increasing water transportation costs, which may jeopardize
the Company’s ability to provide an appropriate service in the
region
.
(d)
Agreements with reduced tariffs with State and Municipal Government
Entities that joined the Rational Water Use Program
(PURA)
The Company has
signed agreements with government entities related to the State Government and
municipalities where it operates that benefit from a reduction of 25% in the
tariff of water supply and sewage services when they are not in default. These
agreements provide for the implementation of the rational water use program,
which takes into consideration the reduction in water consumption
.
(e)
Guarantees
The State
Government provides guarantees for some borrowings and financing of the Company
and does not charge any fee with respect to such guarantees
.
(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 passed on and monetarily reimbursed. From April to June
2017 and in the same period in 2016, the expenses related to personnel assigned
by SABESP to other state government entities amounted to R$ 2,612 and R$ 2,962,
respectively, and, from January to June 2017 and 2016, they amounted to R$ 5,135
and R$ 5,209, respectively
.
From January to
June 2017 and 2016, there were no expenses related to personnel assigned by
other entities to SABESP, but totaled R$ 7 from April to June, and R$ 10 from
January to June
.
38
Notes to the Interim Financial
Information
|
|
|
(g)
Services obtained from state government entities
As of June 30, 2017 and December 31, 2016, SABESP had
an outstanding amount payable of R$492 and R$1,853, respectively, for services
rendered by São Paulo State Government entities
.
(h)
Non-operating assets
As of June 30, 2017
and December 31, 2016, the Company had an amount of R$ 969 related to a free
land lent to DAEE (Department of Water and Electricity)
.
(i)
Sabesprev
The Company
sponsors a private defined benefit pension plan, which is operated and
administered by Sabesprev. The net actuarial liability recognized as of June 30,
2017 amounted to R$ 748,437 (R$ 753,170 as of December 31, 2016), according to
Note 19
(b).
(j)
Compensation of Management Key Personnel
Expenses related to
the compensation of the members of its Board of Directors, Fiscal Council and
Board of Executive Officers from April to June 2017 amounted to R$ 969 (R$ 940
from April to June 2016). From January to June 2017, these expenses totaled R$
1,895 (R$ 1,923 from January to June 2016). An additional amount of R$ 185,
related to the bonus program paid to Executive Officers, was recorded from April
to June 2017 (R$ 123 from April to June 2016). From January to June 2017, the
bonus totaled R$ 309 (R$ 247 from January to June 2016
).
(k)
Loan agreement through credit facility
The Company holds
interest in certain Special Purpose Entities (SPEs), not holding the majority
interest but with cast vote and power of veto in some issues, with no ability to
use such power of veto in a way to affect returns over investments. Therefore,
these SPEs are considered for accounting purposes as jointly-owned
subsidiaries
.
The Company entered
into a loan agreement through credit facility with the SPEs Aquapolo Ambiental
S.A. on March 30, 2012, and with Attend Ambiental S.A. on May 9, 2014, to
finance the operations of these companies, until the borrowings and financing
requested with financial institutions is cleared. These agreements remain with
the same characteristics, according to the table below
:
|
|
Principal disbursed amount
|
|
|
|
|
|
Attend Ambiental
|
5,400
|
3,357
|
8,757
|
SELIC + 3.5 %
p.a.
|
(i)
|
|
Aquapolo Ambiental
|
5,629
|
5,411
|
11,040
|
CDI + 1.2%
p.a.
|
04/30/2016
(ii)
|
|
Aquapolo Ambiental
|
|
|
|
CDI + 1.2%
p.a.
|
10/30/2015
(ii)
|
|
Total
|
30,029
|
18,955
|
48,984
|
|
|
39
Notes to the Interim Financial
Information
|
|
|
(i)
The loan agreement with SPE Attend Ambiental S/A
matures within 180 days, from the date
when the respective amount is available in the borrower’s account,
renewable for the same period. The credit has been overdue since May 11, 2015
and is subject to contractual default charges (inflation adjustment considering
the IGP-M variation, 2% fine and default interest of 1% p.m.). The agreement has
been renegotiated between the parties
.
(ii)
The R$ 19,000 loan agreement originally expired on
April 30, 2015, but was extended to October 30, 2015.
The Company and Aquapolo Ambiental S/A are renegotiating the
payment terms and the maturity of both agreements
.
As a result of the
renegotiations, the principal, in the amount of R$ 30,029, and interest, in the
amount of R$ 18,955, that used to be recognized in current assets, under “other
receivables”, were reclassified to the same group of noncurrent assets until new
payment conditions are agreed upon. As of June 30, 2017, the balance of
principal and interest rates of these agreements was R$ 48,984 (R$ 52,407 as of
December 31, 2016). From January to June 2017, a financial income recognized was
R$ 2,683 (R$ 4,079 from January to June 2016
).
(l)
“Se Liga na Rede” (Connect to the Network Program)
The State
Government enacted the State Law nº 14,687/12, creating the pro-connection
program, destined to financially subsidize the execution of household branches
necessary to connect to the sewage collecting networks, in low income households
which agreed to adhere to the program. The program expenditures, except for
indirect costs, construction margin and borrowing costs are financed with 80% of
funds deriving from the State Government and the remaining 20% invested by
SABESP, which is also liable for the execution of works. As of June 30, 2017,
the program total amount was R$ 79,525 (R$ 79,274 as of December 31, 2016), R$
3,772 (R$ 6,148 as of December 31, 2016) recorded in balances receivable from
related parties, the amount of R$ 35,166 (R$ 34,915 as of December 31, 2016)
recorded in the group of intangible assets and R$ 40,587 (R$ 38,211 as of
December 31, 2016) reimbursed by GESP
.
10
Water National Agency - ANA
The Company has
agreements executed within the scope of the Hydrographic Basin Depollution
Program (PRODES), also known as "Treated Sewage Purchase Program"
.
This program does
not finance works or equipment, remunerates by results achieved, i.e., by
effectively treated sewage. In this program, the Water National Agency (ANA)
makes available funds, which are restricted to a specific current account and
applied in investment funds at the Brazilian Federal Savings Banks (CEF), until
the fulfillment of treated sewage volume is evidenced, as well as, the reduction
of polluting cargoes of each agreement
.
When resources are
made available, liabilities are recorded until funds are released by ANA. After
the evidence of targets stipulated in each contract, the revenue deriving from
these funds is recognized, but if these targets are not met, funds will return
to the National Treasury with the appropriate funds earnings. As of June 30,
2017, the balances of assets and liabilities were R$ 82,926 (R$ 81,221 as of
December 31, 2016), and the liabilities are recorded under "other liabilities"
of noncurrent liabilities
.
40
Notes to the Interim Financial
Information
|
|
|
11
Investments
The Company holds
interest in certain Special Purpose Entities (SPE). Although SABESP has no
majority shares of its investees, the shareholders’ agreement provides for the
power of veto in certain management issues, however, with no ability to use such
power of veto in a way to affect returns over investments, indicating
participating shared control (joint venture – CPC
19(R2)).
The Company holds interest
valued by the equity method
.
See additional
information on the operations of each investee in Note 12 to the Annual
Financial Statements as of December 31,
2016.
(a)
Summary of the investees’ financial statements and SABESP’s equity
interest
:
|
Company
|
|
Profit (loss) for the
period
|
|
|
|
|
|
|
|
Sesamm
|
40,820
|
37,198
|
3,622
|
3,110
|
|
Águas de Andradina (i)
|
17,950
|
16,161
|
1,789
|
835
|
|
Águas de Castilho
|
4,162
|
3,706
|
456
|
290
|
|
Saneaqua Mairinque
|
4,505
|
4,090
|
415
|
483
|
|
Attend Ambiental
|
6,725
|
3,925
|
2,800
|
1,965
|
|
Aquapolo Ambiental
|
12,563
|
12,340
|
223
|
(2,923)
|
|
Paulista Geradora de Energia
|
8,451
|
8,469
|
(18)
|
(20)
|
|
Company
|
|
Equity in the earnings (losses) of
subsidiaries
|
|
|
|
|
|
|
|
|
|
|
Sesamm
|
14,695
|
13,391
|
1,304
|
1,104
|
36%
|
36%
|
|
Águas de Andradina
|
5,386
|
4,849
|
537
|
341
|
30%
|
30%
|
|
Águas de Castilho
|
1,249
|
1,112
|
137
|
126
|
30%
|
30%
|
|
Saneaqua Mairinque
|
1,352
|
1,227
|
125
|
(1)
|
30%
|
30%
|
|
Attend Ambiental
|
3,026
|
1,766
|
1,260
|
531
|
45%
|
45%
|
|
Aquapolo Ambiental
|
6,156
|
6,047
|
109
|
(340)
|
49%
|
49%
|
|
Paulista Geradora de Energia
|
|
|
|
|
25%
|
25%
|
|
Total
|
33,976
|
30,509
|
3,467
|
1,753
|
|
|
|
Other investments
|
|
|
|
|
|
|
|
Overall total
|
|
|
|
|
|
|
41
Notes to the Interim Financial
Information
|
|
|
12
Investment
properties
As of June 30,
2017, the balance of “Investment properties”, mainly composed of land, is R$
57,913 (December 31, 2016 – R$ 57,968). As of June 30, 2017 and December 31,
2016, the market value of these properties is approximately R$
404,000
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
properties
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
Reversal of allowance for losses
|
|
|
|
|
|
|
|
|
|
|
Investment
properties
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
42
Notes to the Interim
Financial Information
|
|
|
13
Intangible
assets
(a)
Statement
of financial position details
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible right arising
from:
|
|
|
|
|
|
|
|
Agreements – equity
value
|
9,355,839
|
(1,831,091)
|
7,524,748
|
9,222,543
|
(1,739,588)
|
7,482,955
|
|
Agreements – economic
value
|
1,934,604
|
(588,992)
|
1,345,612
|
1,925,361
|
(543,709)
|
1,381,652
|
|
Program contracts
|
9,397,893
|
(2,770,334)
|
6,627,559
|
9,209,367
|
(2,633,346)
|
6,576,021
|
|
Program contracts –
commitments
|
996,686
|
(185,182)
|
811,504
|
991,848
|
(168,632)
|
823,216
|
|
Services contracts – São
Paulo
|
18,627,050
|
(3,179,948)
|
15,447,102
|
17,457,658
|
(2,904,951)
|
14,552,707
|
|
Software
license
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(b)
Changes
|
|
|
|
Reversal of
estimated losses
|
|
|
|
|
|
Intangible right arising
from:
|
|
|
|
|
|
|
|
|
Agreements – equity
value
|
7,482,955
|
137,182
|
2,078
|
312
|
(1,848)
|
(95,931)
|
7,524,748
|
|
Agreements – economic
value
|
1,381,652
|
66,129
|
8
|
(55,133)
|
(1,008)
|
(46,036)
|
1,345,612
|
|
Program contracts
|
6,576,021
|
196,640
|
4,834
|
513
|
(3,688)
|
(146,761)
|
6,627,559
|
|
Program contracts –
commitments
|
823,216
|
4,838
|
-
|
-
|
-
|
(16,550)
|
811,504
|
|
Services contracts – São
Paulo
|
14,552,707
|
1,115,371
|
6,460
|
57,334
|
(4,784)
|
(279,986)
|
15,447,102
|
|
Software license
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
43
Notes to the Interim
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible right arising
from:
|
|
|
|
|
|
|
|
|
|
Agreements – equity
value
|
7,287,630
|
85,984
|
(5,253)
|
586
|
(1,615)
|
(3,599)
|
(83,071)
|
7,280,662
|
|
Agreements – economic
value
|
1,353,020
|
53,683
|
-
|
-
|
(21)
|
(1)
|
(36,977)
|
1,369,704
|
|
Program contracts
|
6,288,575
|
241,885
|
5,253
|
(1,471)
|
1,091
|
(151)
|
(134,495)
|
6,400,687
|
|
Program contracts –
commitments
|
850,530
|
4,832
|
-
|
-
|
-
|
-
|
(16,577)
|
838,785
|
|
Services contracts – São
Paulo
|
12,367,017
|
1,121,221
|
-
|
507
|
94
|
(292)
|
(270,449)
|
13,218,098
|
|
Software license
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
In February 2017,
the Company started operations in the municipality of Santa Branca and, in the
second quarter of 2017, it entered into a contract program with the
municipalities of Santa Cruz do Rio Pardo and Cândido Rodrigues for 30
years
.
(c)
General
information
During the period
ended June 30, 2017 there were no relevant changes in the criteria to account
for intangible assets and types of contracts. Further information is included in
Note 14 (d) to the Annual Financial Statements as of December 31,
2016
.
The Company has
obligations recorded in “Program Contract– Commitments” in current liabilities
in the amount of R$ 103,841 and R$ 109,042 as of June 30, 2017 and December 31,
2016, respectively, and noncurrent liabilities in the amount of R$ 47,723 and R$
69,051 as of June 30, 2017 and December 31, 2016, respectively
.
(d)
Capitalization of interest and other finance
charges
From January to
June 2017, the Company capitalized interest and inflation adjustment in
concession intangible assets totaling R$ 312,016, including the São Lourenço
Production System and Leases (R$ 293,352 from January to June 2016), during the
construction period
.
(e)
Construction margin
The Company acts as
a primary responsible to construct and install the infrastructure related to the
concession, using own efforts or hiring outsourcing services, receiving the
risks and benefits
.
44
Notes to the Interim
Financial Information
|
|
|
As a consequence,
the Company recognizes revenue from construction service corresponding to the
cost of construction increased by margin. Generally, the constructions related
to the concessions are performed by third parties, in such case, the margin of
the Company is lower, normally, to cover eventual administration costs,
and the responsibility of the primary risk. As of June 30, 2017 and 2016, the
margin was 2.3
%.
Construction margin
from April to June 2017 and the same period in 2016 was R$ 15,194 and R$ 19,773,
respectively, and from January to June 2017 and the same period in 2016, was R$
30,893 and R$ 32,667, respectively
.
The amounts related to revenue
and construction costs are presented in Note 23
.
(f)
Expropriations
As a result of the
construction of priority projects related to water and sewage systems, the
Company was required to expropriate third-parties' properties, and the owners of
these properties will be compensated either amicably or through
courts
.
The costs of these
expropriations are recorded as concession intangible assets after the
transaction is concluded. From April to June 2017, the total amount related to
expropriations was R$ 1,882 and from January to June 2017, expropriations
totaled R$ 4,783 (R$ 16,707 from April to June 2016 and R$ 18,923 from January
to June 2016
).
(g)
Public-Private Partnership
-
PPP
SABESP carries out
operations related to the PPPs mentioned below. These operations and their
respective obligations and guarantees are supported by agreements executed
according to Law 11,079/04
.
Alto Tietê Production System
As of June 30, 2017
and December 31, 2016, the amounts recognized as intangible asset related to
this PPP were R$ 376,517 and R$ 382,103, respectively
.
From January and
June 2017, a discount rate of 8.20% p.a. was used to calculate the adjustment to
present value of the agreement. The obligations assumed by the Company as of
June 30, 2017 and December 31, 2016 are shown in the next table
.
On a monthly basis,
SABESP assigns funds from tariffs to the SPE CAB Sistema Produtor Alto Tietê
S/A, in the amount of R$ 9,773, corresponding to the monthly remuneration. This
amount is annually adjusted by the IPC – FIPE and is recorded in a restricted
account, pursuant to the contractual operating proceeding. Should SABESP comply
with its monthly obligations with the SPE, the funds from the restricted account
will be released
.
The guarantee is
effective since the beginning of the operation and will be valid until the
conclusion, termination, intervention, annulment or caducity of the
Administrative Concession, or other extinction events provided for in the
Concession Agreement or in the law applicable to administrative concessions,
including in the event of bankruptcy or extinction of the SPE
.
45
Notes to the Interim Financial
Information
|
|
|
São Lourenço Production System
As of June 30, 2017
and December 31, 2016, the carrying amount recorded in the Company’s intangible
assets, related to this PPP, totaled R$ 2,283,410 and R$ 1,951,538,
respectively. Intangible assets are accounted for based on the physical
evolution of the works which, as of June 30, 2017, was approximately 74%, with a
counter-entry in the Private Public Partnership (PPP) liabilities account. As of
June 30, 2017, a discount rate of 7.80% p.a. was used to calculate the
adjustment to present value of the agreement
.
The obligations
assumed by the Company as of June 30, 2017 and December 31, 2016 are shown in
the table below, and the increase in intangible assets and liabilities was due
to the progress of works in 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alto
Tietê
|
33,193
|
293,007
|
326,200
|
31,898
|
309,858
|
341,756
|
|
São
Lourenço
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
33,193
|
2,526,187
|
2,559,380
|
31,898
|
2,217,520
|
2,249,418
|
As of June 30, 2017, the amount of R$ 9,189 million is recorded
under intangible assets as work in progress (R$ 9,156 million as of December 31,
2016), and in the period ended June 30, 2017, the major projects are located in
the municipalities of São Paulo, Franca and Itanhaém, totaling R$ 5,888 million
(including R$ 2,283 million from PPP São Lourenço), R$ 238 million and R$ 186
million, respectively
.
(i)
Amortization of intangible assets
The
amortization average rate totaled 4.0% and 3.9% as of June 30, 2017 and 2016,
respectively
.
(j)
Software
license of use
The software license of use is capitalized based on the costs
incurred to acquire software and make them ready for use. 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
.
46
Notes to the Interim
Financial Information
|
|
|
14
Property,
plant and equipment
(a)
Statement
of financial position details
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
92,507
|
-
|
92,507
|
92,494
|
-
|
92,494
|
|
Buildings
|
79,010
|
(35,495)
|
43,515
|
77,548
|
(34,286)
|
43,262
|
|
Equipment
|
325,590
|
(204,811)
|
120,779
|
338,696
|
(189,556)
|
149,140
|
|
Transportation equipment
|
10,980
|
(6,883)
|
4,097
|
11,141
|
(6,610)
|
4,531
|
|
Furniture and fixtures
|
23,697
|
(12,172)
|
11,525
|
23,633
|
(11,647)
|
11,986
|
|
Other
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(b)
Changes
|
|
|
|
|
|
|
|
|
Land
|
92,494
|
-
|
13
|
-
|
-
|
92,507
|
|
Buildings
|
43,262
|
86
|
1,355
|
-
|
(1,188)
|
43,515
|
|
Equipment
|
149,140
|
10,497
|
(10,838)
|
(33)
|
(27,987)
|
120,779
|
|
Transportation
equipment
|
4,531
|
-
|
33
|
(10)
|
(457)
|
4,097
|
|
Furniture and fixtures
|
11,986
|
276
|
(63)
|
(29)
|
(645)
|
11,525
|
|
Other
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
102,708
|
-
|
(258)
|
-
|
-
|
102,450
|
|
Buildings
|
45,891
|
-
|
(415)
|
-
|
(869)
|
44,607
|
|
Equipment
|
162,218
|
18,535
|
(4,882)
|
(67)
|
(16,576)
|
159,228
|
|
Transportation
equipment
|
5,692
|
96
|
-
|
-
|
(473)
|
5,315
|
|
Furniture and fixtures
|
8,418
|
318
|
4,359
|
(5)
|
(623)
|
12,467
|
|
Other
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
47
Notes to the Interim Financial
Information
|
|
|
(c)
Depreciation
The Company annually revises
the depreciation rates of: buildings - 3.0%; equipment- 17.0%; transportation
equipment - 10% and furniture, fixture and equipment - 7.0%. Lands are
not depreciated
.
The depreciation average rate was 12.9% and 10.9%, as
of June 30, 2017 and 2016, respectively
.
48
Notes to the Interim Financial
Information
|
|
|
15
Borrowings
and Financing
|
Borrowings and financing outstanding
balance
|
|
|
|
Financial institution
|
|
|
|
|
|
|
|
Local currency
|
|
|
|
|
|
|
|
10th issue debentures
|
41,294
|
109,487
|
150,781
|
40,967
|
120,343
|
161,310
|
|
12th issue debentures
|
45,450
|
317,454
|
362,904
|
45,450
|
340,165
|
385,615
|
|
14th issue debentures
|
40,219
|
152,650
|
192,869
|
39,802
|
178,571
|
218,373
|
|
15th issue debentures
|
342,769
|
342,078
|
684,847
|
97,692
|
672,657
|
770,349
|
|
17th issue debentures
|
144,391
|
773,469
|
917,860
|
140,144
|
904,094
|
1,044,238
|
|
18th issue debentures
|
32,784
|
216,562
|
249,346
|
32,436
|
223,840
|
256,276
|
|
19th issue debentures
|
-
|
-
|
-
|
199,461
|
-
|
199,461
|
|
20th issue debentures
|
-
|
496,240
|
496,240
|
-
|
495,533
|
495,533
|
|
Brazilian Federal Savings Bank
|
62,937
|
1,108,082
|
1,171,019
|
59,199
|
1,088,160
|
1,147,359
|
|
Brazilian Development Bank - BNDES BAIXADA
SANTISTA
|
16,702
|
25,053
|
41,755
|
16,603
|
33,207
|
49,810
|
|
Brazilian Development Bank - BNDES
PAC
|
11,089
|
55,322
|
66,411
|
10,987
|
60,293
|
71,280
|
|
Brazilian Development Bank - BNDES PAC II
9751
|
4,313
|
25,024
|
29,337
|
4,288
|
27,007
|
31,295
|
|
Brazilian Development Bank - BNDES PAC II
9752
|
2,355
|
20,610
|
22,965
|
2,341
|
21,659
|
24,000
|
|
Brazilian Development Bank - BNDES ONDA
LIMPA
|
23,357
|
157,420
|
180,777
|
23,219
|
168,083
|
191,302
|
|
Brazilian Development Bank - BNDES TIETÊ
III
|
30,233
|
294,584
|
324,817
|
30,054
|
307,862
|
337,916
|
|
Brazilian Development Bank - BNDES
2015
|
-
|
405,944
|
405,944
|
-
|
233,967
|
233,967
|
|
Leases
|
16,026
|
538,037
|
554,063
|
14,914
|
537,602
|
552,516
|
|
Other
|
1,023
|
10,255
|
11,278
|
746
|
10,829
|
11,575
|
|
Interest and charges
|
|
|
|
|
|
|
|
Total in local currency
|
|
|
|
|
|
|
49
Notes to the Interim Financial
Information
|
|
|
|
Borrowings and financing
outstanding balance
|
|
|
|
Financial institution
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
|
|
|
|
|
Inter-American Development Bank - BID 713 – US$
12,549 thousand (US$ 25,097 thousand in December 2016)
|
41,514
|
-
|
41,514
|
81,794
|
-
|
81,794
|
|
Inter-American Development Bank - BID 1212 –
US$ 87,364 thousand (US$ 92,503 thousand in December 2016)
|
34,002
|
255,015
|
289,017
|
33,499
|
267,979
|
301,478
|
|
Inter-American Development Bank - BID 2202 –
US$ 437,256 thousand (US$ 438,071 thousand in December 2016)
|
78,191
|
1,354,633
|
1,432,824
|
75,143
|
1,339,803
|
1,414,946
|
|
International Bank of Reconstruction and
Development -BIRD – US$ 81,548 thousand
(US$ 79,946 thousand in
December 2016)
|
-
|
269,457
|
269,457
|
-
|
260,224
|
260,224
|
|
Deutsche Bank – US$ 150,000 thousand (US$
150,000 thousand in December 2016)
|
124,058
|
364,870
|
488,928
|
-
|
480,244
|
480,244
|
|
Eurobonds– US$ 350,000 thousand (US$ 350,000
thousand in December 2016)
|
-
|
1,154,990
|
1,154,990
|
-
|
1,137,395
|
1,137,395
|
|
JICA 15 – ¥ 14,405,375 thousand (¥ 14,981,590
thousand in December 2016)
|
33,928
|
390,167
|
424,095
|
32,175
|
386,111
|
418,286
|
|
JICA 18 – ¥ 12,952,000 thousand (¥ 13,470,080
thousand in December 2016)
|
30,505
|
350,547
|
381,052
|
28,930
|
346,889
|
375,819
|
|
JICA 17 – ¥ 1,629,365 thousand (¥ 1,596,251
thousand in December 2016)
|
2,593
|
44,636
|
47,229
|
1,205
|
42,675
|
43,880
|
|
JICA 19 – ¥ 29,310,671 thousand (¥ 27,596,009
thousand in December 2016)
|
-
|
860,846
|
860,846
|
-
|
768,463
|
768,463
|
|
BID 1983AB (AB Loan) – US$ 82,404 thousand (US$
106,346 thousand in December 2016)
|
79,206
|
189,333
|
268,539
|
78,030
|
263,921
|
341,951
|
|
Interest and charges
|
|
|
|
|
|
|
|
Total in foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings and financing
|
|
|
|
|
|
|
|
Exchange rate as of June
30, 2017: US$ 3.3082; ¥ 0.02944 (as of December 31, 2016: US$ 3.2591; ¥
0.02792).
As of June 30, 2017, the
Company did not record balances of borrowings and financing raised during
the year to mature within 12 months.
|
|
|
50
Notes to the Interim Financial
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10th issue debentures
|
Own funds
|
2020
|
TJLP +1.92% (Series 1 and
3) and 9.53% (Series 2)
|
IPCA (series
2)
|
|
12th issue debentures
|
Own funds
|
2025
|
TR + 9.5%
|
|
|
14th issue debentures
|
Own funds
|
2022
|
TJLP +1.92% (Series 1 and
3) and 9.19% (Series 2)
|
IPCA (series
2)
|
|
15th issue debentures
|
Own funds
|
2019
|
CDI + 0.99% (Series 1) and
6.2% (Series 2)
|
IPCA (series
2)
|
|
17th issue debentures
|
Own funds
|
2023
|
CDI +0.75 (Series 1) and
4.5% (Series 2) and4.75% (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)
|
|
19th issue debentures
|
Own funds
|
2017
|
CDI + 0.80% to
1.08%
|
|
|
20th issue debentures
|
Own funds
|
2019
|
CDI + 3.80%
|
|
|
Brazilian Federal Savings Bank
|
Own funds
|
2017/2038
|
5% to 9.5%
|
TR
|
|
Brazilian Development Bank
- BNDES BAIXADA SANTISTA
|
Own funds
|
2019
|
2.5%+TJLP
|
|
|
Brazilian Development Bank - BNDES PAC
|
Own funds
|
2023
|
2.15%+TJLP
|
|
|
Brazilian Development Bank - BNDES PAC II 9751
|
Own funds
|
2027
|
1.72%+TJLP
|
|
|
Brazilian Development Bank - BNDES PAC II 9752
|
Own funds
|
2027
|
1.72%+TJLP
|
|
|
Brazilian Development Bank - BNDES ONDA LIMPA
|
Own funds
|
2025
|
1.92%+TJLP
|
|
|
Brazilian Development Bank - BNDES TIETÊ III
|
Own funds
|
2028
|
1.66%+TJLP
|
|
|
Brazilian Development Bank - BNDES 2015
|
Own funds
|
2035
|
2.5%+TJLP
|
|
|
Leases
|
|
2035
|
7.73% to 10.12%
|
IPC
|
|
Other
|
Own funds
|
2018/2025
|
12%
(Presidente Prudente) and TJLP + 1.66% (FINEP)
|
TR
|
51
Notes to the Interim Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-American Development Bank - BID 713 – US$ 12,549 thousand
|
Government
|
2017
|
4.82% (*)
|
US$
|
|
Inter-American Development Bank - BID 1212 – US$ 87,364 thousand
|
Government
|
2025
|
2.54% (*)
|
US$
|
|
Inter-American Development Bank - BID 2202 – US$ 437,256 thousand
|
Government
|
2035
|
2.09% (*)
|
US$
|
|
International Bank for Reconstruction and Development - BIRD – US$ 81,548 thousand
|
Government
|
2034
|
1.67% (*)
|
US$
|
|
Deutsche Bank US$ 150,000 thousand
|
-
|
2019
|
Libor+4.50%(*)
|
US$
|
|
Eurobonds – US$ 350,000 thousand
|
-
|
2020
|
6.25%
|
US$
|
|
JICA 15 – ¥ 14,405,375 thousand
|
Government
|
2029
|
1.8% and 2.5%
|
Yen
|
|
JICA 18– ¥ 12,952,000 thousand
|
Government
|
2029
|
1.8% and 2.5%
|
Yen
|
|
JICA 17– ¥ 1,629,365 thousand
|
Government
|
2035
|
1.2% and 0.01%
|
Yen
|
|
JICA 19 – ¥ 29,310,671 thousand
|
Government
|
2037
|
1.7% and 0.01%
|
Yen
|
|
BID 1983AB (AB Loan) – US$ 82,404 thousand
|
-
|
2023
|
Libor + 1.88% to 2.38%
(*)
|
US$
|
(*)
Rates comprising LIBOR + contractually defined spread
.
52
Notes to the Interim Financial Information
|
|
|
(i)
Payment schedule – accounting balances as of June 30, 2017
53
|
|
|
|
|
|
|
|
|
|
|
LOCAL CURRENCY
|
|
|
|
|
|
|
|
|
|
Debentures
|
87,109
|
896,675
|
1,014,145
|
423,198
|
199,280
|
178,718
|
255,722
|
3,054,847
|
|
Brazilian Federal Savings Bank
|
30,814
|
65,166
|
67,190
|
69,524
|
73,099
|
76,965
|
788,261
|
1,171,019
|
|
BNDES
|
44,025
|
98,051
|
112,053
|
94,013
|
93,568
|
93,568
|
536,728
|
1,072,006
|
|
Leases
|
7,842
|
29,088
|
30,573
|
32,187
|
33,941
|
35,849
|
384,583
|
554,063
|
|
Other
|
386
|
1,461
|
1,364
|
1,364
|
1,364
|
1,364
|
3,975
|
11,278
|
|
Interest and charges
|
|
|
|
|
|
|
|
|
|
TOTAL IN LOCAL CURRENCY
|
|
|
|
|
|
|
|
|
|
FOREIGN CURRENCY
|
|
|
|
|
|
|
|
|
|
BID
|
97,610
|
112,193
|
112,193
|
112,193
|
112,193
|
112,193
|
1,104,780
|
1,763,355
|
|
BIRD
|
-
|
-
|
8,984
|
17,967
|
17,967
|
17,967
|
206,572
|
269,457
|
|
Deutsche Bank
|
-
|
248,115
|
240,813
|
-
|
-
|
-
|
-
|
488,928
|
|
Eurobonds
|
-
|
-
|
-
|
1,154,990
|
-
|
-
|
-
|
1,154,990
|
|
JICA
|
33,512
|
67,025
|
113,669
|
113,669
|
113,669
|
113,669
|
1,158,009
|
1,713,222
|
|
BID 1983AB (AB Loan)
|
-
|
78,793
|
58,530
|
56,952
|
25,448
|
25,448
|
23,368
|
268,539
|
|
Interest and charges
|
|
|
|
|
|
|
|
|
|
TOTAL IN FOREIGN CURRENCY
|
|
|
|
|
|
|
|
|
|
Overall Total
|
|
|
|
|
|
|
|
|
53
Notes to the Interim Financial
Information
|
|
|
(i)
Main events in the six-month period ended
June 30, 2017
(a)
Debentures
As of
January 16, 2017, the Company amortized the second installment of the 17th issue
of series 1, totaling R$ 140,144
.
As of February
15, 2017, the Company fully paid the 15th issue of series 1, totaling R$
104,809, referring to principal and interest
.
As of
June 20, 2017, the Company fully paid the 19th debenture issue, totaling R$
212,648, referring to principal and interest
.
(b)
BNDES
As of
March 15, 2017, the Company raised R$ 170,000, corresponding to agreement
15.2.0313.1 - BNDES 2015
.
(c)
JICA
In 2017, funding
totaled R$ 20,243, referring to agreement BZ-P19 (JICA 19)
.
(d)
BID
In
2017, funding and amortization totaled R$ 33,346 and R$ 35,870, respectively,
referring to agreement BID 2202
.
In 2017, the
amortization referring to agreement BID 713 totaled R$ 41,549
.
(e)
AB
LOAN
In 2017, the
amortization totaled R$ 75,610
.
(e) Exchange
rate changes
The US dollar exchange
increased 1.5%, from R$ 3.2591 as of December 31, 2016 to R$ 3.3082 on June 30,
2017, increasing debt by R$ 58,975. In the same period, the Yen increased 5.4%,
from R$ 0.02792 as of December 31, 2016 to R$ 0.02944 on June 30, 2017,
increasing debt by R$ 88,612.
54
Notes to the Interim Financial
Information
|
|
|
(ii)
Covenants
As of June 30,
2017, the Company had met the requirements set forth by its borrowings and
financing agreements
.
The goals of the
Performance Improvement Agreement (AMD), dated May 28, 2007 and amended on
August 22, 2012, entered into between SABESP and the Federal Government, with
the Brazilian Federal Savings Bank and the BNDES as intervening parties, expired
on December 31, 2016 and were not renewed, pursuant to article 2 of Normative
Instruction 6, of March 14, 2013
.
(iii)
Borrowings and financing - Credit
Limited
|
Agent
|
|
June 30,
2017
|
|
|
|
(in millions of reais
(*))
|
|
Brazilian Federal Savings Bank
|
|
1,661
|
|
Brazilian Development Bank – BNDES
|
|
1,560
|
|
Inter-American Development Bank – BID
|
|
500
|
|
Japan International Cooperation Agency –
JICA
|
|
261
|
|
International Bank for Reconstruction and Development –
IBRD
|
|
61
|
|
Other
|
|
38
|
|
Total
|
|
4,081
|
(*)
Exchange rate as of June 30,
2017 (US$ 1.00 = R$ 3.3082; ¥ 1.00 = R$ 0.02944
).
SABESP in order to
comply with its Capex plan relies on a fund-raising plan. Financing resources
contracted have specific purposes, which have been released for the execution of
their respective investments, according to the progress of the works
.
Additional
information on borrowings and financing is presented in Note 16 to the Annual
Financial Statements as of December 31, 2016
.
55
Notes to the Interim Financial
Information
|
|
|
16
Taxes
payable
(a)
Current
assets
|
|
|
|
|
Recoverable
taxes
|
|
|
|
Income tax and social
contribution
|
74,238
|
32,365
|
|
Withholding income tax
(IRRF) on financial investments
|
4,303
|
7,057
|
|
Other federal
taxes
|
3,340
|
2,961
|
|
Other municipal
taxes
|
|
|
|
Total
|
|
|
The increase in
recoverable taxes was mainly due to an increase in “income tax and social
contribution” item, as a result of higher anticipation in the period
.
(b)
Current
liabilities
|
|
|
|
|
Taxes and contributions
payable
|
|
|
|
Cofins and
Pasep
|
42,624
|
49,132
|
|
INSS (Social Security
contribution)
|
36,554
|
35,376
|
|
IRRF (withholding income tax)
|
3,724
|
62,771
|
|
Other
|
|
|
|
Total
|
|
|
56
Notes to the Interim Financial
Information
|
|
|
17
Deferred taxes and contributions
(a) Statement of
financial position details
|
|
|
|
|
Deferred income tax assets
|
|
|
|
Provisions
|
531,109
|
524,129
|
|
Actuarial loss –G1 Plan
|
166,080
|
85,044
|
|
Pension obligations -
G1
|
85,044
|
167,922
|
|
Donations of underlying asset on
concession agreements
|
56,449
|
57,317
|
|
Credit losses
|
244,762
|
266,757
|
|
Other
|
|
|
|
Total deferred tax
assets
|
|
|
|
|
|
|
|
Deferred income tax
liabilities
|
|
|
|
Temporary difference on concession
of intangible asset
|
(475,623)
|
(492,341)
|
|
Capitalization of borrowing
costs
|
(403,773)
|
(374,512)
|
|
Profit on supply to governmental
entities
|
(88,334)
|
(92,365)
|
|
Construction margin
|
(90,330)
|
(91,790)
|
|
Borrowing costs
|
|
|
|
Total deferred tax
liabilities
|
|
|
|
|
|
|
|
Deferred tax asset,
net
|
|
|
(b)
Changes
|
|
|
|
|
|
Deferred income tax assets
|
|
|
|
|
Provisions
|
524,129
|
6,980
|
531,109
|
|
Actuarial loss – G1
|
85,044
|
-
|
85,044
|
|
Pension obligations - G1
|
167,922
|
(1,842)
|
166,080
|
|
Donations of underlying asset on concession
agreements
|
57,317
|
(868)
|
56,449
|
|
Credit losses
|
266,757
|
(21,995)
|
244,762
|
|
Other
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
Temporary difference on concession of intangible
asset
|
(492,341)
|
16,718
|
(475,623)
|
|
Capitalization of borrowing costs
|
(374,512)
|
(29,261)
|
(403,773)
|
|
Profit on supply to governmental
entities
|
(92,365)
|
4,031
|
(88,334)
|
|
Construction margin
|
(91,790)
|
1,460
|
(90,330)
|
|
Borrowing costs
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net
|
|
|
|
57
Notes to the Interim Financial
Information
|
|
|
|
|
|
|
|
|
Deferred income tax assets
|
|
|
|
|
Provisions
|
480,378
|
35,610
|
515,988
|
|
Pension obligations - G1
|
256,808
|
17,337
|
274,145
|
|
Donations of underlying asset on concession
agreements
|
53,206
|
3,203
|
56,409
|
|
Credit losses
|
213,171
|
8,947
|
222,118
|
|
Tax losses
|
58,829
|
(58,829)
|
-
|
|
Other
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
Temporary difference on concession of intangible
asset
|
(524,495)
|
15,417
|
(509,078)
|
|
Capitalization of borrowing costs
|
(309,648)
|
(27,552)
|
(337,200)
|
|
Profit on supply to governmental
entities
|
(81,055)
|
(6,043)
|
(87,098)
|
|
Actuarial gain – G1
|
(33,726)
|
-
|
(33,726)
|
|
Construction margin
|
(94,921)
|
1,648
|
(93,273)
|
|
Borrowing costs
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net
|
|
|
|
58
Notes to the Interim Financial
Information
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
186,345
|
128,242
|
|
Net change in the
period:
|
|
|
|
- corresponding entry in the statement of
income
|
(15,544)
|
(60,667)
|
|
- corresponding entry in equity valuation adjustments
|
|
|
|
|
|
|
|
Total change, net
|
|
|
|
Closing balance
|
170,801
|
186,345
|
(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:
|
|
|
|
|
|
|
|
|
Profit before income
taxes
|
1,514,557
|
2,180,610
|
|
Statutory
rate
|
|
|
|
|
|
|
|
Estimated expense at
statutory rate
|
(514,949)
|
(741,407)
|
|
Tax benefit of interest
on equity
|
42,009
|
7,659
|
|
Permanent
differences
|
|
|
|
Provision – Law 4,819/58 (i)
|
(29,656)
|
(33,706)
|
|
Donations
|
(3,292)
|
(469)
|
|
Other differences
|
|
|
|
|
|
|
|
Income tax and social
contribution
|
|
|
|
|
|
|
|
Current income tax and
social contribution
|
(492,843)
|
(751,203)
|
|
Deferred income tax and
social contribution
|
(15,544)
|
(3,087)
|
|
Effective
rate
|
34%
|
35%
|
i.
Permanent difference related to the provision for actuarial
liability (Note
19
b
(iii)).
59
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
party to a number of claims and legal proceedings arising in the normal course
of business, including civil, tax, labor and environmental matters. Management
recognizes provisions consistently with the recognition and measurement criteria
established in Note 3.15 to the Annual Financial Statements as of December 31,
2016. Management believes that the provisions are sufficient to cover eventual
losses, net of escrow deposits, as follows
:
|
|
|
|
|
|
|
|
|
|
Customer claims (i)
|
557,426
|
(83,930)
|
473,496
|
|
572,210
|
(97,171)
|
475,039
|
|
Supplier claims (ii)
|
352,870
|
(264,847)
|
88,023
|
|
332,667
|
(251,510)
|
81,157
|
|
Other civil claims (iii)
|
121,870
|
(13,781)
|
108,089
|
|
131,286
|
(12,652)
|
118,634
|
|
Tax claims (iv)
|
78,210
|
(3,033)
|
75,177
|
|
69,898
|
(2,986)
|
66,912
|
|
Labor claims (v)
|
297,791
|
(4,875)
|
292,916
|
|
285,413
|
(3,202)
|
282,211
|
|
Environmental claims (vi)
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
726,971
|
-
|
726,971
|
|
730,334
|
-
|
730,334
|
|
Noncurrent
|
835,114
|
(371,443)
|
463,671
|
|
811,224
|
(368,483)
|
442,741
|
60
Notes to the Interim Financial
Information
|
|
|
(ii)
Changes
|
|
|
|
Interest and inflation
adjustment
|
|
Amounts not
used
(reversal)
|
|
|
Customer claims (i)
|
572,210
|
18,090
|
29,828
|
(41,873)
|
(20,829)
|
557,426
|
|
Supplier claims (ii)
|
332,667
|
15,798
|
17,352
|
(12,293)
|
(654)
|
352,870
|
|
Other civil claims (iii)
|
131,286
|
5,283
|
6,496
|
(6,099)
|
(15,096)
|
121,870
|
|
Tax claims (iv)
|
69,898
|
4,327
|
5,033
|
(247)
|
(801)
|
78,210
|
|
Labor claims (v)
|
285,413
|
32,102
|
20,424
|
(22,380)
|
(17,768)
|
297,791
|
|
Environmental claims (vi)
|
|
|
|
|
|
|
|
Subtotal
|
1,541,558
|
91,830
|
88,159
|
(103,290)
|
(56,172)
|
1,562,085
|
|
Escrow deposits
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Interest and inflation
adjustment
|
|
Amounts not
used
(reversal)
|
|
|
Customer claims (i)
|
561,061
|
34,105
|
61,309
|
(26,025)
|
(56,386)
|
574,064
|
|
Supplier claims (ii)
|
296,660
|
4,903
|
32,723
|
(11,141)
|
(318)
|
322,827
|
|
Other civil claims (iii)
|
124,833
|
8,152
|
13,170
|
(2,787)
|
(17,300)
|
126,068
|
|
Tax claims (iv)
|
62,812
|
19,227
|
11,084
|
(263)
|
(9,348)
|
83,512
|
|
Labor claims (v)
|
283,991
|
21,410
|
16,727
|
(20,207)
|
(16,944)
|
284,977
|
|
Environmental claims (vi)
|
|
|
|
|
|
|
|
Subtotal
|
1,412,877
|
131,639
|
152,258
|
(60,423)
|
(118,739)
|
1,517,612
|
|
Escrow deposits
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(b)
Lawsuits
deemed as contingent liabilities
The Company is
party to lawsuits and administrative proceedings relating to environmental, tax,
civil and labor claims, which are assessed as contingent liabilities in the
financial statements, since it either does not expect outflows to be required or
the amount of the obligation cannot be reliably measured. Contingent liabilities
are represented as follows
:
|
|
|
|
|
Customer claims (i)
|
234,200
|
306,500
|
|
Supplier claims (ii)
|
1,404,300
|
1,422,000
|
|
Other civil claims (iii)
|
740,000
|
709,400
|
|
Tax claims (iv)
|
1,252,800
|
1,143,000
|
|
Labor claims (v)
|
642,200
|
533,600
|
|
Environmental claims (vi)
|
|
|
|
Total
|
|
|
61
Notes to the Interim Financial
Information
|
|
|
(c)
Explanation
on the nature of main classes of lawsuits
(i)
Customer
claims
Approximately 1,100
lawsuits were filed by commercial customers, which claim that their tariffs
should correspond to other consumer categories, and 710 lawsuits in which
customers claim a reduction in the sewage tariff due to losses in the system,
consequently requesting the refund of amounts charged by the Company and 50
lawsuits in which customers plead the reduction in tariff under the category as
“Social Welfare Entity”. The Company was granted both favorable and unfavorable
final decisions at several court levels
.
(ii)
Supplier
claims
These claims
include lawsuits filed by some suppliers alleging underpayment of monetary
restatements, withholding of amounts related to the understated inflation rates
deriving from Real economic plan, and the economic and financial imbalance of
the agreements. These lawsuits are in progress at different courts
.
(iii)
Other civil claims
These mainly refer
to indemnities for property damage, pain and suffering, and loss of profits
allegedly caused to third parties, filed at different court levels
.
(iv)
Tax claims
Tax claims refer
mainly to issues related to tax collections challenged due to differences in the
interpretation of legislation by the Company's management
.
(v)
Labor
claims
The Company is a
party to labor lawsuits, involving issues such as overtime, shift schedule,
health hazard premium and hazardous duty premium, prior notice, change of
function, salary equalization, service outsourcing and other. Part of the amount
involved is in provisional or final execution at various court
levels
.
(vi)
Environmental
claims
These refer to
several administrative proceedings and lawsuits filed by government entities,
including Companhia de Tecnologia de Saneamento Ambiental – Cetesb and the
Public Prosecution Office of the State of São Paulo, that aim affirmative and
negative covenants and penalty is estimated due to failure to comply in addition
to the imposition of indemnity due to environmental damages allegedly caused by
the Company. The amounts accrued represent the best estimate of the Company at
this moment, however, may differ from the amount to be disbursed as indemnity to
alleged damages, in view of the current stage of referred
proceedings
.
62
Notes to the Interim Financial
Information
|
|
|
(d)
Guarantee
insurance for escrow deposit
The Company
contracts guarantee insurance for the issue of policy, which was renewed on May
25, 2017, in the amount of R$ 500 million. Such insurance will be used in legal
claims where instead of making immediate cash disbursement by the Company, such
insurance is used until the conclusion of these proceedings limited to up to
five years
.
From April to June
2017, the Company used R$ 80,849, of which R$ 61,582 referring to the current
contract (R$ 81,627 from April to June 2016
).
Additional
information on provisions and contingent liabilities is presented in Note 19 to
the Annual Financial Statements as of December 31, 2016
.
19
Employee
benefits
(a)
Health
benefit plan
The health benefit
plan is managed by Sabesprev and consists of optional, free choice, health plans
sponsored by contributions of SABESP and the active participants, as
follows
:
. Company: 7.8% on
average, of gross payroll;
.
Participating employees: 3.21% of base salary and premiums,
equivalent to 2.8% of payroll, on average
.
|
(b) Pension plan
benefits
|
|
Amounts recorded in the statement of
financial position
|
|
|
|
Funded plan – G1
|
|
|
|
Pension plan liabilities as of
December 31, 2016
|
|
753,170
|
|
Expenses recognized in
2017
|
|
20,814
|
|
Payments made in 2017
|
|
|
|
Pension plan liabilities as of June
30, 2017 (i)
|
|
748,437
|
|
|
|
|
|
Unfunded plan – G0
|
|
|
|
Pension plan liabilities as of
December 31, 2016
|
|
2,512,080
|
|
Expenses recognized in
2017
|
|
131,465
|
|
Payments made in 2017
|
|
|
|
Pension plan liabilities as of June
30, 2017 (iii)
|
|
|
|
|
|
|
|
Total
|
|
|
63
Notes to the Interim Financial
Information
|
|
|
(i)
G1
Plan
The Company
sponsors a defined benefit pension plan for its employees ("G1 Plan"), which is
managed by Sabesprev, receives similar contributions established in a plan of
subsidy of actuarial study of SABESPREV, as follows
:
.
0.99% of the portion of the
salary of participation up to 20 salaries; and
.
8.39% of the surplus, if any,
of the portion of the salary of participation over 20 salaries
.
As of June 30,
2017, SABESP had a net actuarial liability of R$ 748,437 (R$ 753,170 as of
December 31, 2016) representing the difference between the present value of the
Company's defined benefit obligations to the participating employees, retired
employees, and pensioners; the fair value of the plan’s assets
.
(ii)
Private pension plan benefits – Defined
contribution
As of June 30,
2017, Sabesprev Mais plan, based on defined contribution, had 9,393 active and
assisted participants (9,453 as of December 31,
2016).
With respect to the
Sabesprev Mais plan, the contributions from the sponsor represent 100% over the
total basic contribution from the participants
.
(iii)
Plan
G0
Pursuant to Law nº
4,819/58, employees who started providing services prior to May 1974 and were
retired as an employee of the Company acquired a legal right to receive
supplemental pension payments, which rights are referred as "Plan G0". The
Company pays these supplemental benefits on behalf of the State Government and
makes claims for reimbursements from the State Government, which are recorded as
accounts receivable from related parties, limited to the amounts considered
virtually certain that will be reimbursed by the State Government. As of June
30, 2017, the Company recorded a defined benefit obligation for Plan G0 of R$
2,561,902 (R$ 2,512,080 as of December 31, 2016
).
(c)
Profit sharing
The Company has a
profit sharing program in accordance with an agreement with labor union and
SABESP. The period covered represents the Company fiscal year, commence in
January to December 2017. The limit of the profit sharing is one month salary
for each employee, depending on performance goals reached
.
In the second
quarter of 2017, a total of R$ 23,321 was accrued (R$ 23,192 in the second
quarter of 2016). From January to June 2017 and 2016, R$ 44,398 and R$ 41,921,
respectively, were accrued
.
64
Notes to the Interim Financial
Information
|
|
|
20
Services
payable
The services
account records the balances payable, mainly from services received from third
parties, such as supply of electric power, reading of hydrometers and delivery
of water and sewage bills, cleaning, surveillance and security services,
collection, legal counsel services, audit, marketing and advertising and
consulting services, among others. This account also includes the amounts
payable related to transfer of 7.5% of revenue from the São Paulo local
government to the Municipal Fund. The balances as of June 30, 2017 and December
31, 2016 were R$ 480,873 and R$ 460,054, respectively
.
21
Equity
(a)
Authorized
capital
The Company is
authorized to increase capital by up to R$ 15,000,000, based on a Board of
Directors' resolution, after submission to the Fiscal Council
.
In the event of
capital increase, issue of convertible debentures and/or warrants by means of
private subscription, shareholders will have preemptive right in the proportion
of number of shares held, pursuant to Article 171 of Law nº 6,404/76
.
(b)
Subscribed and paid-in capital
Subscribed and
paid-in capital is represented by 683,509,869 registered, book-entry common
shares without par value as of June 30, 2017 and December 31, 2016, held as
follows
:
|
|
|
|
|
|
|
|
|
|
|
State
Department of Finance
|
343,524,285
|
50.26%
|
343,524,285
|
50.26%
|
|
Companhia Brasileira de
Liquidação e Custódia
|
202,471,313
|
29.62%
|
206,955,305
|
30.28%
|
|
The Bank Of New York ADR
Department
(equivalent in shares) (*)
|
135,355,413
|
19.80%
|
132,401,813
|
19.37%
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*)
each ADR
corresponds to 1 share
.
The Annual
Shareholders’ Meeting of April 28, 2017 approved the distribution of dividends
as interest on equity totaling R$ 823,493, the transfer of retained earnings
balances, in the amount of R$ 1,976,250, to the Reserve for Investments
accounts, and the allocation of R$ 147,355 to the Legal Reserve
account
.
65
Notes to the Interim Financial
Information
|
|
|
The payment of
interest on equity totaling R$ 766,109, net of R$ 57,384 of withholding income
tax (from a gross amount of R$ 823,493) began in in June 2017, generating a
payout of R$ 765,933
.
Further information
about equity, such as shareholder’ compensation, dividends and purpose of
reserves, can be found in Note 22 to the Annual Financial Statements as of
December 31, 2016
.
22
Earnings
per share Basic and diluted
Basic earnings per
share is calculated by dividing the equity attributable to Company’s owners by
the weighted average number of outstanding common shares during the year. The
Company does not have potentially dilutive common shares outstanding or debts
convertible into common shares. Accordingly, basic and diluted earnings per
share are equal
.
|
|
|
|
|
|
|
|
|
Equity attributable to
Company’s owners
|
1,006,170
|
1,426,320
|
|
Weighted average number
of common shares issued
|
|
|
|
|
|
|
|
Basic and diluted
earnings per share (reais per share)
|
|
|
66
Notes to the Interim Financial
Information
|
|
|
23
Operating
segment information
Management,
comprised by the Board of Directors and Board of Executive Officers, has
determined the operating segment used to make strategic decisions, as sanitation
services
.
|
|
|
|
|
|
Reconciliation to the statement of income
(ii)
|
Balance as
per financial statements
|
|
Gross operating revenue
|
|
|
|
|
Gross sales
deductions
|
|
|
|
|
Net operating revenue
|
|
|
|
|
Costs, selling and
administrative expenses
|
|
|
|
|
Income from operations
before other operating expenses, net and equity accounting
|
|
|
|
|
Other operating income /
(expenses), net
|
|
|
12,509
|
|
Equity
accounting
|
|
|
1,597
|
|
Financial result,
net
|
|
|
|
|
Income from operations
before taxes
|
|
|
|
|
Depreciation and
amortization
|
318,023
|
-
|
318,023
|
67
Notes to the Interim Financial
Information
|
|
|
|
|
|
|
|
|
Reconciliation to the statement of income
(ii)
|
Balance as
per financial statements
|
|
Gross operating revenue
|
|
|
|
|
Gross sales
deductions
|
|
|
|
|
Net operating revenue
|
|
|
|
|
Costs, selling and
administrative expenses
|
|
|
|
|
Income from operations
before other operating expenses, net and equity accounting
|
|
|
|
|
Other operating income /
(expenses), net
|
|
|
23,073
|
|
Equity
accounting
|
|
|
3,467
|
|
Financial result,
net
|
|
|
|
|
Income from operations
before taxes
|
|
|
|
|
Depreciation and
amortization
|
649,971
|
-
|
649,971
|
(i)
See note 29 for further
information about non-cash items, other than depreciation and amortization that
impact segment results, and for additional to long-lived asset
information
.
(ii)
Construction revenue and related costs not reported to
the Company’s chief operating decision maker
.
68
Notes to the Interim Financial
Information
|
|
|
|
|
April to June
2016
(Restated)
|
|
|
|
Reconciliation to the statement of income
(ii)
|
Balance as
per financial statements
|
|
Gross operating
revenue
|
|
|
|
|
Gross sales
deductions
|
|
|
|
|
Net operating revenue
|
|
|
|
|
Costs, selling and
administrative expenses
|
|
|
|
|
Income from operations
before other operating expenses, net and equity accounting
|
|
|
|
|
Other operating income /
(expenses), net
|
|
|
16,183
|
|
Equity
accounting
|
|
|
(334)
|
|
Financial result,
net
|
|
|
|
|
Income from operations
before taxes
|
|
|
|
|
Depreciation and
amortization
|
294,182
|
-
|
294,182
|
|
|
January to
June 2016
(Restated)
|
|
|
|
Reconciliation to the statement of income
(ii)
|
Balance as
per financial statements
|
|
Gross operating revenue
|
|
|
|
|
Gross sales
deductions
|
|
|
|
|
Net operating revenue
|
|
|
|
|
Costs, selling and
administrative expenses
|
|
|
|
|
Income from operations
before other operating expenses, net and equity accounting
|
|
|
|
|
Other operating income /
(expenses), net
|
|
|
21,665
|
|
Equity
accounting
|
|
|
1,753
|
|
Financial result,
net
|
|
|
|
|
Income from operations
before taxes
|
|
|
|
|
Depreciation and
amortization
|
578,838
|
-
|
578,838
|
69
Notes to the Interim Financial
Information
|
|
|
(i)
See note 29 for further
information about non-cash items, other than depreciation and amortization that
impact segment results, and for additional to long-lived asset
information
.
(ii)
Construction revenue and related costs not reported to
the Company’s chief operating decision maker
.
Explanation on the
reconciliation items for the Financial Statements. The impacts on gross
operating income and costs are as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue from
construction recognized under ICPC 1 (R1) (a)
|
779,421
|
1,502,349
|
897,160
|
1,522,440
|
|
Construction costs
recognized under ICPC 1 (R1) (a)
|
|
|
|
|
|
|
|
|
|
|
|
Construction
margin
|
|
|
|
|
(a)
Revenue from concession construction contracts is recognized in
accordance with CPC 17 (R1), Construction Contracts (IAS 11), using the
percentage-of-completion method. See Note
13
(e).
70
Notes to the Interim Financial
Information
|
|
|
24
Operating
revenue
(a)
Revenue from sanitation
services:
|
|
|
|
|
|
|
|
|
|
|
|
|
São Paulo Metropolitan
Region
|
2,055,987
|
4,164,235
|
1,902,610
|
3,653,221
|
|
Regional Systems (i)
|
|
|
|
|
|
Total
(ii)
|
|
|
|
|
(i)
Including the municipalities
operated in the countryside and at the coast of the State of São
Paulo
.
(ii)
Revenue from sanitation
services increased by 6.5 % in the period ended June 30, 2017, when compared
with the same period in 2016
.
The main factors
for the increase were the 6.62% impact on revenue from the tariff increase as of
May 2016 and the 2.7% increase in billed volume, of which 2.9% from water and
2.4% from sewage services
.
The increase was
also a result of the end of the Water Consumption Reduction Incentive Program in
April 2016, whose bonuses totaled R$ 33.6 million, while the Contingency Tariff
(tax) came to R$ 64.1 million
.
(b)
Reconciliation
between gross operating revenue and net operating revenue
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sanitation
services
|
2,901,591
|
5,930,882
|
2,723,461
|
5,294,089
|
|
Construction revenue
(Note 13 (e))
|
779,421
|
1,502,349
|
897,160
|
1,522,440
|
|
Sales tax
|
|
|
|
|
|
Net
revenue
|
|
|
|
|
71
Notes to the Interim Financial
Information
|
|
|
|
25
|
Costs and expenses by
nature
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
|
|
|
|
Salaries, payroll
charges and benefits
|
512,056
|
929,479
|
424,325
|
810,462
|
|
Pension obligations
|
12,500
|
23,470
|
23,303
|
45,741
|
|
Construction costs (Note
13 (e))
|
764,227
|
1,471,456
|
877,387
|
1,489,773
|
|
General
supplies
|
40,078
|
74,598
|
41,402
|
76,398
|
|
Treatment
supplies
|
67,543
|
138,811
|
66,279
|
141,376
|
|
Outside
services
|
238,199
|
432,435
|
206,321
|
397,650
|
|
Electricity
|
187,390
|
386,716
|
242,145
|
481,736
|
|
General
expenses
|
136,727
|
262,072
|
109,170
|
223,366
|
|
Depreciation and
amortization
|
|
|
|
|
|
|
2,241,443
|
4,302,859
|
2,267,151
|
4,208,427
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
|
|
|
Salaries, payroll
charges and benefits
|
81,568
|
146,834
|
67,401
|
128,103
|
|
Pension
obligations
|
1,864
|
3,467
|
3,225
|
6,153
|
|
General
supplies
|
845
|
1,817
|
808
|
1,684
|
|
Outside
services
|
66,149
|
126,398
|
71,070
|
133,265
|
|
Electricity
|
198
|
375
|
203
|
434
|
|
General
expenses
|
22,692
|
44,478
|
25,589
|
45,533
|
|
Depreciation and
amortization
|
4,398
|
6,889
|
2,251
|
4,575
|
|
Bad debt expense, net of
recoveries
(Note 8 (c))
|
|
|
|
|
|
|
213,438
|
452,118
|
134,942
|
340,220
|
|
|
|
|
|
|
|
Administrative revenue
(expenses)
|
|
|
|
|
|
Salaries, payroll
charges and benefits
|
65,142
|
112,648
|
46,978
|
90,965
|
|
Pension
obligations
|
42,917
|
88,576
|
56,130
|
114,240
|
|
General
supplies
|
684
|
1,183
|
469
|
811
|
|
Outside
services
|
45,411
|
73,680
|
38,922
|
67,808
|
|
Electricity
|
279
|
484
|
451
|
1,030
|
|
General
expenses
|
80,149
|
142,950
|
31,908
|
122,416
|
|
Depreciation and
amortization
|
30,902
|
59,260
|
15,112
|
32,338
|
|
Tax
expenses
|
|
|
|
|
|
|
293,914
|
533,048
|
213,278
|
473,472
|
|
|
|
|
|
|
|
Operating costs and
expenses
|
|
|
|
|
|
Salaries, payroll
charges and benefits
|
658,766
|
1,188,961
|
538,704
|
1,029,530
|
|
Pension
obligations
|
57,281
|
115,513
|
82,658
|
166,134
|
|
Construction costs (Note
13 (e))
|
764,227
|
1,471,456
|
877,387
|
1,489,773
|
|
General
supplies
|
41,607
|
77,598
|
42,679
|
78,893
|
|
Treatment
supplies
|
67,543
|
138,811
|
66,279
|
141,376
|
|
Outside
services
|
349,759
|
632,513
|
316,313
|
598,723
|
|
Electricity
|
187,867
|
387,575
|
242,799
|
483,200
|
|
General
expenses
|
239,568
|
449,500
|
166,667
|
391,315
|
|
Depreciation and
amortization
|
318,023
|
649,971
|
294,182
|
578,838
|
|
Tax
expenses
|
28,430
|
54,267
|
23,308
|
43,864
|
|
Bad debt expense, net of
recoveries
(Note 8 (c))
|
|
|
|
|
|
|
|
|
|
|
72
Notes to the Interim Financial
Information
|
|
|
|
26
|
Financial income
(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
Financial
expenses
|
|
|
|
|
|
Interest and charges on
borrowings and financing – local currency
|
(65,960)
|
(130,810)
|
(73,108)
|
(168,328)
|
|
Interest and charges on
borrowings and financing – foreign currency
|
(29,436)
|
(51,618)
|
(24,373)
|
(61,958)
|
|
Other financial expenses
|
(27,982)
|
(51,233)
|
(25,165)
|
(48,104)
|
|
Income tax over
international remittance
|
(5,392)
|
(9,000)
|
(5,581)
|
(9,597)
|
|
Inflation adjustment on
loans and financing
|
(19,051)
|
(40,845)
|
(32,830)
|
(85,775)
|
|
Inflation adjustment on
Sabesprev Mais deficit
|
-
|
-
|
(378)
|
(746)
|
|
Other inflation
adjustments
|
(10,011)
|
(16,944)
|
(8,870)
|
(17,114)
|
|
Interest and inflation
adjustments on provisions
|
|
|
|
|
|
Total financial
expenses
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income
|
|
|
|
|
|
Inflation adjustment
gains
|
29,409
|
49,858
|
37,893
|
92,597
|
|
Income on short-term
investments
|
56,153
|
111,567
|
49,952
|
103,226
|
|
Interest income
|
17,376
|
25,622
|
18,813
|
51,499
|
|
Cofins and Pasep
|
(4,786)
|
(8,718)
|
(6,093)
|
(12,648)
|
|
Other
|
|
|
|
|
|
Total financial
income
|
|
|
|
|
|
|
|
|
|
|
|
Financial income
(expenses), net before exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
|
Net exchange gains
(losses)
|
|
|
|
|
|
Exchange rate changes on
borrowings and financing (i)
|
(212,077)
|
(122,635)
|
460,918
|
944,214
|
|
Other exchange rate
changes
|
-
|
(54)
|
(117)
|
(133)
|
|
Exchange
gains
|
|
|
|
|
|
Exchange rate changes,
net
|
|
|
|
|
|
|
|
|
|
|
|
Financial income
(expenses), net
|
|
|
|
|
(i)
The change in expenses mainly reflects the
4.4% appreciation of the U.S. Dollar
against the real and the 3.5% appreciation of the Yen in 2017, compared to the
depreciation presented in the same period in 2016 (9.8% and 1.4%
,
respectively)
.
73
Notes to the Interim Financial
Information
|
|
|
27
Other
operating income (expenses), net
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net operating
income, net
|
14,586
|
23,283
|
22,121
|
29,750
|
|
Other operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income
(expenses), net
|
|
|
|
|
Other operating
income is comprised by sale of property, plant and equipment, sale of contracts
awarded in public bids, right to sell electricity, indemnities and reimbursement
of expenses, fines and collaterals, property leases, reuse water, PURA projects
and services
.
Other operating
expenses consist mainly of derecognition of concessions assets due to
obsolescence, discontinued construction works, unproductive wells, projects
considered economically unfeasible, provisions and reversals of property, plant
and equipment and exceeding cost of electricity sold
.
28
Commitments
The Company has
agreements to manage and maintain its activities, as well as agreements to build
new projects aiming at achieving the objectives proposed in its target plan.
Below, the main committed amounts as of June 30, 2017
:
|
|
|
|
|
|
|
|
Contractual obligations – Expenses
|
964,544
|
2,145,446
|
902,988
|
2,569.236
|
6,582,214
|
|
Contractual obligations – Investments
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
The main commitment refers to
São Lourenço PPP. See Note
13 (g).
74
Notes to the Interim Financial
Information
|
|
|
|
29
|
Supplemental cash flow
information
|
|
|
|
|
|
|
|
|
|
Total additions to
intangible assets (Note 13 (b))
|
1,542,224
|
1,552,845
|
|
|
|
|
|
Items not affecting cash
(see breakdown below)
|
|
|
|
|
|
|
|
Total additions to
intangible assets as per statement of cash flows
|
670,319
|
854,534
|
|
|
|
|
|
Investments and
financing operations affecting intangible assets but not
cash:
|
|
|
|
Interest capitalized in
the period (Note 13 (d))
|
312,016
|
293,352
|
|
Contractors
payable
|
324,701
|
3,634
|
|
Public-Private
Partnership – São Lourenço PPP
|
189,730
|
353,749
|
|
Leases
|
9,727
|
10,554
|
|
Program contract
commitments
|
4,838
|
4,355
|
|
Construction margin
(Notes 13 (f) and 23)
|
|
|
|
Total
|
|
|
|
30
|
Events after the
reporting period
|
·
21th debenture
issue
As of July 13,
2017, the Company held the 21st issue of unsecured debentures, not convertible
into shares, in up to two series, for public distribution, with restricted
placement efforts, pursuant to CVM Instruction 476, totaling R$ 500,000. The
first series, totaling R$ 150,000, is due in three years and is remunerated by
the CDI + 0.60% p.a., while the second series, totaling R$ 350,000, is due in
five years and is remunerated by the CDI + 0.90% p.a. The proceeds of the
debenture issue will be allocated to refinance financial commitments maturing in
2017 and to recompose the Company’s cash
.
·
Second Ordinary Tariff
Revision
As of July 27,
2017, the Company submitted an official letter to the Sanitation and Energy
Regulatory Agency of the State of São Paulo (ARSESP – Agência Reguladora de
Saneamento e Energia do Estado de São Paulo) requesting a seven-day
postponement, for the beginning of Step 6 (Development of the Initial Technical
Note with Preliminary Tariff P0 and Weighted Average Capital Cost - WACC) and
Step 7 (Opening of Public Consultation and Public Hearing - Preliminary Tariff
P0 and Weighted Average Capital Cost - WACC) in the schedule established by
ARSESP Resolution 725/2017
.
75
Notes to the Interim Financial
Information
|
|
|
As of July 31,
2017, pursuant to SABESP’s request, as disclosed in the Material Fact of July
27, 2017, the Sanitation and Energy Regulatory Agency of the State of São Paulo
- ARSESP, published a Notice in which
:
(i)
it grants an additional seven-day term requested for final
clarification on the content of the information presented by the Company within
the scope of the preliminary step of the 2nd Ordinary Tariff Revision;
and
(ii)
it announces that it will disclose, by August 7, the amended
schedule of SABESP’s 2nd Ordinary Tariff Revision
.
As of August 7,
2017, the Sanitation and Energy Regulatory Agency of the State of São Paulo
(ARSESP) published Resolution 748 with the new schedule of the initial stage of
SABESP’s 2
nd
Tariff Revision
.
The Preliminary
Maximum Average Tariff (Preliminary Tariff P0) will be disclosed and authorized
by October 3, 2017, and applied pursuant to Article 39 of Law
11,445/2007
.
The Final Maximum Average
Tariff (Final P0) will be disclosed authorized by April 10, 2018
.
·
State Bill -
SABESP’s Corporate Restructuring
As of August 2,
2017, the São Paulo State Government ("Government") submitted to the São Paulo
State Legislature a Bill that provides for SABESP’s corporate
restructuring
.
The submission of
the Bill to the São Paulo State Legislature is a necessary step in the possible
capitalization of SABESP and is one of the stages that must be complied with;
the first of which already started and announced in the Material Fact disclosed
on May 12, 2017 - "Initial Studies for the Company’s Capitalization"
.
·
Second Ordinary
Tariff Revision – Initial Stage
As of August 11,
2017, the Sanitation and Energy Regulatory Agency of the State of de São Paulo -
ARSESP, announced the opening of Public Consultation nº 01/2017, referring to
the initial stage of SABESP’s Second Ordinary Tariff Revision and disclosed the
Preliminary Technical Note NT/F/003/2017 with Preliminary Tariff P0 and Weighted
Average Capital Cost
(WACC).
The main highlights
are
:
|
Initial Regulatory Remuneration Base –
BRRL0
|
R$
40.3 billion
|
|
WACC
|
8.01%
|
|
Preliminary P0
|
R$
3.62652/m³
|
|
Tariff Increase Index
|
4.365%
|
76
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.
77
Other Information Deemed as relevant by the
Company
|
|
|
1.
CHANGES IN INTEREST HELD BY CONTROLLING SHAREHOLDER,
BOARD MEMBERS AND EXECUTIVE OFFICERS
|
CONSOLIDATED SHAREHOLDING OF CONTROLLING
SHAREHOLDERS,
MANAGEMENT AND OUTSTANDING SHARES
Position as of June 30,
2017
|
|
Shareholder
|
Number of Common Shares (units)
|
%
|
Total Number of Shares
(units)
|
%
|
|
Controlling
Shareholders
|
|
|
|
|
|
Treasury
Department
|
343,524,285
|
50.3%
|
343,524,285
|
50.3%
|
|
Management
|
|
|
|
|
|
Board of
Directors
|
-
|
-
|
-
|
-
|
|
Executive
Officers
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Fiscal
Council
|
4
|
-
|
4
|
0.0%
|
|
|
|
|
|
|
|
Treasury
Shares
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Other
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
343,524,289
|
50.3%
|
343,524,289
|
50.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
Shares
|
339,985,580
|
49.7%
|
339,985,580
|
49.7%
|
78
Other Information Deemed as relevant by the
Company
|
|
|
|
CONSOLIDATED SHAREHOLDING OF CONTROLLING
SHAREHOLDERS,
MANAGEMENT AND OUTSTANDING SHARES
Position as of June 30,
2016
|
|
Shareholder
|
Number of Common Shares (units)
|
%
|
Total Number of Shares
(units)
|
%
|
|
Controlling
Shareholders
|
|
|
|
|
|
Treasury
Department
|
343,524,285
|
50.3%
|
343,524,285
|
50.3%
|
|
Management
|
|
|
|
|
|
Board of
Directors
|
|
-
|
|
-
|
|
Executive
Officers
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Fiscal
Council
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Treasury
Shares
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Other
Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
343,524,285
|
50.3%
|
343,524,285
|
50.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
Shares
|
339,985,584
|
49.7%
|
339,985,584
|
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,
2017
(shares)
|
|
|
Common
shares
|
Total
|
|
Shareholder
|
Number of
shares
|
%
|
Number of shares
|
%
|
|
Treasury
Department
|
343,524.285
|
50.3
|
343,524,285
|
50.3
|
79
Reports and Statements /
Unqualified Report on Special Review
Review report on the interim financial statements –
ITR
To the Board of Directors and Shareholders
Companhia de Saneamento Básico do Estado de São Paulo – SABESP
São Paulo – SP
Introduction
We have reviewed the interim financial information of Companhia de
Saneamento Básico do Estado de São Paulo – SABESP (“The Company”), included in
the Quarterly Financial Information – ITR referring to the quarter ended June
30, 2017, comprising the balance sheet as of June 30, 2017 and the statement of
income and comprehensive income for the three and six-month periods then ended,
and the statements of changes in equity and cash flows for the six-month period
then ended, including the explanatory notes.
Management is responsible for the preparation of the interim
financial information in accordance with accounting standard CPC 21(R1) -
Interim Financial Reporting and IAS 34 - Interim Financial Reporting, as issued
by the International Accounting Standards Board - IASB, as well as for the
presentation of this information in accordance with the standards issued by the
Brazilian Securities and Exchange Commission - CVM, applicable to the
preparation of Quarterly Information - ITR. Our responsibility is to express a
conclusion on this interim financial information based on our
review.
Review
scope
We
conducted our review in accordance with the Brazilian and International
standards on review engagements NBC TR 2410 - Review of Interim Financial
Information Performed by the Independent Auditor of the Entity and ISRE 2410 -
Review of Interim Financial Information Performed by the Independent Auditor of
the Entity, respectively. A review of interim financial information consists of
making inquiries, primarily of persons responsible for the financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
the auditing standards and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified
in an audit. Accordingly, we do not express an audit opinion.
Conclusion on the interim
financial information
Based on our review, nothing has come to our attention that causes
us to believe that the accompanying interim financial information included in
the Quarterly Information Form - ITR referred to above is not prepared, in all
material respects, in accordance with CPC 21(R1) and IAS 34, issued by the IASB
applicable to the preparation of Quarterly Information - ITR, and presented in
accordance with the standards issued by the Brazilian Securities and Exchange
Commission - CVM.
80
Other matters
Statement of value
added
We
have also reviewed the statements of value added (DVA) for the six-month period
ended June 30, 2017, prepared under the responsibility of the Company’s
management, whose presentation on the interim financial information is required
in accordance with the standards issued by the Brazilian Securities and Exchange
Commission – CVM applicable to the preparation of Quarterly Information - ITR,
and considered as supplementary information by IFRS, which does not require this
disclosure. These statements were subject to the same review procedures
described above, and based on our review, nothing has come to our attention that
causes us to believe that it is not prepared, in all material respects, in
accordance with the interim financial information taken as a
whole.
São Paulo,
August 14
, 2017
KPMG Auditores
Independentes
CRC
2SP014428/O-6
(Original report in Portuguese
signed by)
Marcio Serpejante
Peppe
Contador CRC
1SP233011/O-8
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 31, 2017
|
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.
81
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