SBS Companhia Sanea

Adjusted EBITDA Reconciliation (Non-accounting measures)

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

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

In 1Q18, net operating revenue, which considers construction revenue, totaled R$ 3,699.6 million, a growth of 4% over the same period of last year.

Costs and expenses, which include construction costs, totaled R$ 2,631.4 million, 3.6% up on 1Q17.

Adjusted EBIT, in the amount of R$ 1,071.0 million, increased 4.9% when compared to the R$ 1,021.4 million reported in 1Q17.

Adjusted EBITDA, in the amount of R$ 1,399.0 million, increased 3.4% when compared to the R$ 1,353.4 million reported in 1Q17 (R$ 5,314.8 million in the last 12 months).

Adjusted EBITDA margin in 1Q18 was 37.8%, against 38.0% in 1Q17 (36.0% in the last 12 months).

Excluding the effects of revenue and construction costs, adjusted EBITDA margin resulted in 45.4% in 1Q18 (47.2% in 1Q17 and 44.9% in the last 12 months).

In 1Q18 the company recorded a net income of R$ 580.4 million, compared to a net income of R$ 674.4   million in 1Q17

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2.    Gross operating revenue

The gross operating revenue related to the sanitation services, in the amount of R$ 3,280.8 million, which does not consider construction revenue, increased by R$ 251.5 million or 8.3%, when compared to R$ 3,029.3 million in 1Q17.

The main factors that led to this increase were:

·          Tariff repositioning index of 7.9% since November 2017; and

·          2.1% increase in total billed volume, 2.1% in water and 2.0% in sewage.

The increase caused by the above-mentioned facts was offset by the recognition of higher estimated losses on wholesale revenue in 1Q18, in the amount of R$ 36.1 million, due to lower payment received in the period, mainly from the municipality of Guarulhos.

3. Construction revenue

Construction revenue decreased by R$ 75.7 million or 10.5%, when compared to the previous year. The variation is mainly due to the lower investments in the municipalities served by the Company.

4. Billed volume

The tables below show the water and sewage billed volume in quarterly terms, per customer category and region.

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5. Costs, administrative & selling expenses and construction costs

Costs, administrative and selling expenses and construction costs increased by R$ 92.2 million in 1Q18 (3.6%). Excluding construction costs, there was an increase of R$ 166.7 million (9.1%).

As a percentage of net revenue, costs, administrative and selling expenses and construction costs represented 71.1% in 1Q18, against 71.3% in 1Q17.

5.1. Salaries and payroll charges and Pension plan obligations

In 1Q18, there was an increase of R$ 41.6 million or 7.1%, chiefly due to the following factors:

·          Increase of R$ 22.2 million, mainly due to the salary increase of 3.71%, in May 2017 and the application of 1.7% referring to the Carrier and Salary Plan, in February 2018;

·          Increase of R$ 7.4 million in provision referring to TAC (Conduct Adjustment Term) of retirees;

·          Increase of R$ 5.7 million in overtime expenses; and

·          Increase of R$ 4.7 million in health care.

5.2. General Supplies

Increase of R$ 19.0 million or 52.8%, due to the following factors:
 

·          Increase of R$ 8.1 million, resulting from the greater application of materials for maintenance in networks and connections of water and sewage; and

·          Greater application of materials for conservation of properties, furniture and equipment, in the amount of R$ 6.7 million.

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5.3 Services

Growth of R$ 94.3 million or 33.3%, due to the following factors:
 

·         Higher estimate of expenses, in the amount of R$ 47.5 million, due to an increase in several services contracted in 1Q18, mainly in water and sewage connections and network maintenance;

·          Increase of R$ 15.8 million in advertising campaigns; and

·          Increase in expenses with credit recovery, in the amount of R$ 7.3 million.
 

5.4. Electricity

Electricity expenses totaled R$ 221.9 million in 1Q18, an increase of R$ 22.2 million or 11.1% compared to R$ 199.7 million in 1Q17. This variation was mainly due to:

·          Average increase of 0.8% in the free market tariffs ( ACL - Ambiente de Contratação Livre ), with an increase of 13.4% in consumption;

·          Average reduction of 9.9% in the grid market tariff ( TUSD - Tarifas de Uso do Sistema de Distribuição ), with a 12.3% increase in consumption; and

·          Average increase of 1.7% in the regulated market tariffs ( ACR - Ambiente de Contratação Regulada ), with a decrease of 6.9% in consumption.

In 1Q18, the ACL accounted for 36.2% of the total electricity consumed by the Company, TUSD accounted for 35.9% and ACR represented 27.9% of that amount.

5.5. General expenses
 

Increase of R$ 36.3 million or 17.3%, totaling R$ 246.2 million in 1Q18, against R$ 209.9 million in 1Q17, due to the following factors:

·          Higher provision for transfer to the Municipal Fund of Environmental Sanitation and Infrastructure, in the amount of R$ 17.2 million, due to the increase in revenue obtained with the municipality of São Paulo;

·          Increase in expenses related to water use, in the amount of R$ 4.9 million; and

·          Greater provisioning for lawsuits in 1Q18, in the amount of R$ 4.1 million.

5.6. Allowance for doubtful accounts

Decrease of R$ 37.5 million, mainly due to higher recovery of unpaid amounts in 1Q18.

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Decrease of R$ 1.7 million, mainly due to the following factors:

·          Increase of R$ 13.4 million in interest and charges on domestic loans and financing, mainly due to the lower capitalization of interest in works in progress in 1Q18, when compared to the capitalization recorded in 1Q17;

·          Increase of R$ 14.4 million in interest and charges on international loans and financing, mainly due to the appreciation of the US dollar against the real in 1Q18, compared to the devaluation in 1Q17 (0.5% and -2.8% respectively), and higher appreciation of the yen against the real in 1Q18, when compared to the appreciation in 1Q17 (6.3% and 1.9%, respectively); and

·          Decrease of R$ 27.2 million in other financial expenses, largely due to the lower provisioning of interest on lawsuits in 1Q18.

The effect on the net monetary/exchange rate variation 1Q18 was R$ 199.4 million higher than in 1Q17, with highlight to the R$ 201.3 million increase in the exchange rate variation on loans and financing, due to the appreciation of the dollar against the real in 1Q18, compared to the devaluation in 1Q17 (0.5% and -2.8%, respectively), and higher appreciation of the yen against the real in 1Q18, when compared to the appreciation registered in 1Q17 (6.3% and 1.9%, respectively).

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7. Income tax and Social contribution

The Company recorded a decrease of R$ 53.2 million, due to the lower taxable result presented in 1Q18, mainly resulting from the appreciation of the US dollar against the real, compared to the devaluation in 1Q17 and the higher appreciation of the yen against the real, when compared to the appreciation registered in 1Q17.

8. Indicators

 

8.1. Operating

8.2. Financial

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9. Loans and financing

10. Capex

1Q18 investments totaled R$ 689.2 million, including R $ 172.9 million related to the São Lourenço PPP.

11. Conference calls

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For more information, please contact:

Mario Arruda Sampaio

Head of Capital Markets and Investor Relations

Phone.(55 11) 3388-8664

E-mail: maasampaio@sabesp.com.br

Angela Beatriz Airoldi                                                                         

Investor Relations Manager

Phone.(55 11) 3388-8793

E-mail: abairoldi@sabesp.com.br

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

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