1.    Financial highlights

(*) Adjusted EBIT is net income before: (i) other operating revenues/expenses; (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 2015, net operating revenue, including construction revenue, reached R$ 11.7 billion; a 4.4% increase compared to 2014.

Costs and expenses, including construction costs, totaled R$ 8.8 billion, 5.2% lower than the R$ 9.3 billion recorded in 2014.

Adjusted EBIT, in the amount of R$ 2.9 billion, grew 51.5% from R$ 1.9 billion recorded in the previous year.

Adjusted EBITDA, in the amount of R$ 4.0 billion, increased 36.2% from R$ 2.9 billion recorded in 2014.

The adjusted EBITDA margin was 33.9% in 2015, versus 26.0% in 2014. Excluding construction revenues and construction costs, the adjusted EBITDA margin was 46.6% in 2015 (34.4% in 2014).

In 2015 the Company recorded a net income of R$ 536.3 million, in comparison to a net income of R$ 903.0 million in 2014.

2. Gross operating revenue

Gross operating revenue from water and sewage, not including construction revenue, totaled R$ 8.9 billion, an increase of R$ 41.4 million or 0.5%, when compared to the R$ 8.9 billion recorded in 2014.

The main factors that led to this variation were:

·         6.5% repositioning tariff index since December 2014;

·         15.2% tariff increase (7.8% ordinary tariff adjustment and 6.9% extraordinary tariff revision) since June 2015; and

·         Application of contingency tariff, with a R$ 499.7 million impact in 2015.

The increase in gross operating revenue was mitigated by:

·         Bonus granted within the Water Consumption Reduction Incentive Program, with a R$ 926.1 million impact in 2015, versus the R$ 376.4 million granted in 2014, leading to a decrease of 6.2% in gross operating revenue; and

·         Decrease of 6.8% in the Company’s total billed volume (8.0% in water and 5.2% in sewage).

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3. Construction revenue

Construction revenue increased R$ 418.7 million or 14.3%, when compared to the previous year. The variation was mainly due to higher investments in the municipalities served by the Company.

4. Billed volume

The following tables show the water and sewage billed volume, quarter-on-quarter and year-to-date, per customer category and region.

5. Costs, administrative, selling and construction expenses

In 2015, costs, administrative, selling and construction expenses, dropped 5.2% (R$ 482.7 million). Excluding construction costs, total costs and expenses dropped by 13.8%. As a percentage of net revenue, costs and expenses were 82.9% in 2014 and 75.3% in 2015.

5.1. Payroll and benefits

In 2015 payroll and benefits increased R$ 70.4 million or 3.3%, due to the following:

·         R$ 58.9 million in the provision for the pension plan, arising from changes in actuarial assumptions;

·         R$ 49.8 million, mainly due to the average wage increase of 9.7% in May 2015 and by the application of 1% related to the career and wage plan, since July 2015; and

·         R$ 12.1 million, due to the adjustment in healthcare expenses since July 2015.

Despite the above factors, there was a decrease of R$ 46.8 million, due to the smaller number of employees entitled to retirement (TAC).

 5.2. Supplies

In 2015, expenses with supplies decreased R$ 23.5 million or 11.6%, from R$ 202.1 million to R$ 178.6 million, mostly due to lower use of materials in preventive and corrective maintenance in water and sewage systems, expansion of computerized systems and conservation of properties and installations, in the amount of R$ 21.7 million.

5.3. Treatment supplies

Increase of R$ 8.1 million or 3.1%, mainly due to higher consumption of Polyelectrolyte, in the amount of R$ 6.6 million, at the Barueri Sewage Treatment Station.

5.4. Services

Services expenses, in the amount of R$ 1,162.6 million, dropped R$ 152.3 million or 11.6%, in comparison to R$ 1,314.9 million in 2014. The main factors that led to this decrease were:

·         Advertising campaigns, in the amount of R$ 67.4 million, mainly due to the intensification in 2014, for the rational use of water;

·         Lower expenses with water and sewage systems maintenance, in the amount of R$ 17.1 million;

·         Booking of non-recurring legal services in 2014, in the amount of R$ 13.0 million, related to lawsuits referring to the collection of debt from the municipality of Diadema, in which there was a court settlement for the provision of services in the municipality;

·         R$ 11.8 million drop with contracts for credit recovery; and

·         Lower expenses with the Program for the Rational Use of Water in 2015, in the amount of R$ 9.9 million, due to the intensification of the program in 2014 when the water crisis started.

5.5. Electric power

Electric power expenses totaled R$ 817.5 million, an increase of R$ 218.4 million or 36.5% in comparison to the R$ 599.1 million in 2014, chiefly due to the following:

·         Average increase of 63.1% in the regulated market tariffs, with a 7.9% decrease in consumption; and

·         Average increase of 161.0% in the grid market tariffs (TUSD), with a 13.3% decrease in consumption.

The increases were partially offset by the 4.1% drop in tariffs and the 1.0% drop in the free market consumption.

In 2015 the regulated market accounted for 38.1% of the total electric power consumed by the Company, the free market accounted for 32.6% and the grid market accounted for 29.3% of total consumption.

5.6. General expenses

General expenses dropped R$ 253.0 million or 35.2%, totaling R$ 466.7 million, versus the R$ 719.7 million recorded in 2014 mainly due to:

·         R$ 185.5 million decrease in the provision for lawsuits, mainly arising from court decisions in favor of the Company;

·         Reversal of the provision, totaling R$ 17.9 million, related to the recovery of amounts with the Government of the State of São Paulo – GESP due to the disposal of employees; and

·         Lower provision for the Municipal Fund for Environmental Sanitation and Infrastructure, in the amount of R$ 17.3 million, as a result of the decrease in revenues with the municipality of São Paulo.

5.7. São Paulo state government reimbursement

In 2015, the Company entered into an agreement with the São Paulo state government to receive the undisputed amount, related to the state’s debt with the Company, for the payment of the benefits to former employees (G0) dealt with by state Law #4,819, of August 26, 1958, that generated a credit in the result in the amount of R$ 696.3 million.

5.8. Depreciation and amortization

R$ 69.6 million increase or 6.9%, reaching R$ 1,074.1 million in comparison to the R$ 1,004.5 million recorded in 2014, largely due to the beginning of operations of intangible assets, in the amount of R$ 1.8 billion.

5.9. Credit write-offs

Credit write-offs decreased R$ 137.2 million, especially due to the reversal of the provision for losses with the municipality of Guarulhos, as a result of the receipt of court-ordered debt payments in cash.

6. Other operating revenues and expenses, net

Other net operational revenues and expenses reported an upturn of R$ 147.3 million, mainly due to the following:

·         An increase of R$ 81.6 million in other operating revenues, largely due to the sale of real estate, totaling R$ 48.4 million, and the proceeds of R$ 42.0 million related to the Depollution Program of Hydrographic Basins; and

·         A decrease of R$ 65.7 million on other operating expenses, as a result of higher provision for the write-off of works, projects and obsolete goods in 2014, in the amount of R$ 58.8 million.

7. Financial result

7.1. Financial revenues and expenses 

7.1.1. Financial expenses

Financial expenses grew R$ 120.9 million. The main reasons were:

·         R$ 35.1 million in interest and charges on international loans and financing, due to the higher appreciation of US dollar and the Yen versus the Brazilian Real in 2015 (47.0% and 45.9%, respectively), when compared to the previous year (13.4% and -0.5%, respectively);

·         R$ 53.4 million in interest and charges on domestic loans and financing, especially due to the higher appreciation of the CDI in 2015, in comparison to 2014 (13.2% and 10.8%, respectively); and

·         R$ 32.4 million in other financial expenses, largely due to the greater recognition of interest on works financed through leasing in 2015.

7.1.2. Financial revenues

Financial revenues decreased R$ 102.5 million, largely due to lower interest over instalment agreements held in 2015.

7.2. Monetary and exchange rate variation on assets and liabilities

7.2.1. Monetary/currency exchange variation on liabilities

The effect on the monetary/currency exchange variation on liabilities in 2015 was R$ 1,673.5 million, higher than in 2014, especially due to:

·         An upturn of R$ 73.4 million in expenses with monetary variation on loans and financing, due to the increase in the IPCA (Amplified Consumer Price Index) in 2015 compared to 2014 (10.7% and 6.4%, respectively);

·         Negative variation of R$ 1,647.0 million in expenses with exchange rate variation on loans and financing, due to a higher appreciation of the US dollar and the Yen versus the Brazilian Real in 2015 (47.0% and 45.9%, respectively), when compared to 2014 (13.4% and -0.5%, respectively); and

·         R$ 46.9 million decrease in other monetary variation, as a result of the lower provisions for the monetary restatement of lawsuits in 2015, chiefly due to court decisions in favor of the Company.

7.2.2. Monetary/Exchange rate variation on assets

An increase of R$ 76.3 million, especially due to the monetary update on the agreement with the São Paulo State Government, in 2015.

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8. Income tax and social contribution

Dropped R$ 320.6 million, due to the decrease in taxable income in 2015, versus 2014.

9. Indicators

9.1. Operating

As a result of the water crisis, there was a substantial reduction in the water production volume, down by 13.1% in 2015.

There was also a substantial decline in the index that measures water losses per connection per day (IPDT) which came to 258 liters/connection x day in 2015 versus 319 liters/connection x day in 2014.

This reduction was the result not only of loss control initiatives, but also of the water crisis and the consequent need to reduce the network pressure as a demand management mechanism.

9.2. Financial

10. Loans and financing

On March 30, 2016, the Company will partially settle the 19^th issue of debentures, in the amount of R$ 300 million.

11. Capex

In 2015 the Company invested R$ 3.5 billion, with R$ 2.6 billion in the São Paulo Metropolitan Region and R$ 853 million in the Regional Systems.

2015 Capex

Capex Plan 2016 – 2020: R$ 12.5 billion

The Capex Plan for 2016 to 2020 is R$ 12.5 billion of which R$ 5.3 billion in water and R$ 7.2 billion in sewage.

12. Conference calls

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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