Rui Affonso - Chief Financial Officer and Investor Relations Officer Mario Arruda Sampaio - Head of Capital Markets and Investor Relations Marcelo Miyagui - Head of Accounting

Good afternoon, ladies and gentlemen. At this time, we would like to welcome everyone to SABESP’s conference call to discuss its results for the first quarter of 2015. The audio for this conference is being broadcast simultaneously through the Internet on the website www.sabesp.com.br. In that same address, you can also find the slide show presentation available for download. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of SABESP’s management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of SABESP and could cause results to differ materially from those expressed in such forward-looking statements. Today with us, we have Mr. Rui Affonso, Chief Financial Officer and Investor Relations Officer; Mr. Mario Arruda Sampaio, Head of Capital Markets and Investor Relations; and Mr. Marcelo Miyagui, Head of Accounting. Now, I’ll turn the conference call over to Mr. Arruda Sampaio. Sir, you may begin your conference.

Thank you. Good morning, in fact, good afternoon everybody. Thank you all for attending one more earnings conference call. We have a 9-slide presentation and after that, as already mentioned, we will open for a Q&A session. Let’s start on slide 3. Here, we show the company’s billed water and sewage volume, which fell 11.7% between first quarter 2014 and first quarter 2015, due mostly to the decline in water availability and the measures adopted since 2014 to continue supplying water on an ongoing basis to the population, served mostly in the Metro region of Sao Paulo. It is worth noting that the substantial decline in billed volume in the first quarter of 2015 was also due to the high level of billed volume in the first quarter of 2014, which at that time was atypical due to the high temperatures and dry weather recorded in that period. We would also like to remind you that the measures to encourage consumption reduction began in February 2014 restricted to the Cantareira region which means they had a very limited impact. Moving to slide 4, let’s discuss the financial results. Net operating revenue fell 11.6% compared to first quarter, due to the granting of bonuses and the 11.7% reduction in total billed volume as we mentioned in the previous slide. The decrease was mitigated by the application of the tariff reposition index of 6.5% since December 2014 and the effect of the contingency tariff. Costs in selling, administrative and construction expenses fell 32.9% in the period. It’s worth noting that this decline in cost of expenses was influenced by the reimbursement of the agreement signed in March this year with the Sao Paulo state government totaling R$696 million as mentioned in detail during our first quarter call. Adjusted EBITDA increased 33.6% from…

[Operator Instructions] We have a question from [indiscernible].

Wanted to get a little bit your perspective on the cost structure of the company. Does the current amount of cost, excluding the R$700 million payment or provision reversal, is that a number that we should consider sustainable for the rest of the year or are there elements of the cost performance in the most recent quarter that would make it not indicative of how you think the cost performance should look like over the balance of 2015?

Okay, Doug, just a second. This is Mario. Let me tell you something. First, especially the R$700 million is a non-recurring event, so you should obviously not expect it on next month and so forth. We can say that our opex is fairly stable. We are obviously working on it in terms of trying to keep it fairly even more stable in terms of providing contributions to our margin. What we are, although you didn’t ask is, working and will work hard on our capex, already given that we did not get the 22.7% increase we asked the regulator.

That was going to be my second question. The question really was what recourse do you have at this point given ARSESP’s decision relating to the tariff adjustment given the company’s proposal to not agree with how ARSESP ultimately decided with respect to the extraordinary tariff revision?

From a formal standpoint, we don’t have a recourse, so that is the final number until we are into it. The ordinary tariff revision next is April 2017, obviously if there is anything further extraordinary we may revisit which is allowed the rules and regulations. So what we are saying is again is that we proposed an extraordinary tariff increase that in our view would balance from a financial and economic standpoint of the company, although we would still be fairly well pressed which did not happen. So we will have to compensate for that and we have no numbers set yet, we’re in discussion and we will further decrease the investment we’re planning for this year. So if you recall, last year, on an accounting basis, we did R$3.2 billion, on a cash flow basis about R$2.8 billion. We’re proposing this year R$2.36 billion and we should be – you should expect us to go down further on that. We do not have the number, we don’t know exactly where, the tariff announcement just came in, so we’re working on it, but obviously we’re going to balance out the company to go through this period without getting the full adjustment.

[Operator Instructions] Our next question comes from [Colleen Kelley] of Zen Investment Management.

My question is on the debt and the covenant specifically. It looks like at the end of the first quarter you were pretty close on the growth at EBITDA covenant which I think affects a pretty broad slot of your debt. And so understanding that the tariff increases going through, but I think not until June, it looks like you could remain very close to potentially even trip back covenant, the 3.65 times at the end of the second quarter. So wanted to understand how you’re thinking about that, are you in discussions with your lenders, what happens if you trip the covenant?

We will not comment on how we see ourselves further in the year for obvious reasons. We don't give guidance. As far as having and undertaking discussions with our lenders pertaining specifically this covenant, the answer is no. What we can say is that the company has alternatives to tell with the present financial situation we are, you have to consider that although it was not at the number we requested in terms of extraordinary tariff increase, we are going to start seeing the effects of the 15%, that is one point. As I mentioned in the last question, Doug's question, we will work to balance out the cash flow through capex that indirectly can have effect on total debt. So I think [indiscernible] short-term situation, saying short-term because we understand although this crisis is going further in time than expected, we should come back to a normal situation if there is something. We obviously have an eye open on the macroeconomic variables, they are being helpful today in this period, are very stringent to us, in fact exchange rate peak exactly in March 31, which obviously hit us on that. So this is what I can comment about that. The second question you made was specifically what can happen to – if we breach any covenant, is that it, Colleen?

Yes.

The way to answer that it will take us a long time, we have several contracts and several covenants and what I can say is those that are market related except for one which in fact is a bilateral loan with IDB, it’s an AB loan, except for that one which we – it is an incurring situation, which in fact, if we incur in one quarter, then we would have to waiver it or whatever or incur or whatever only once. So that's one. All the other local debentures and Eurobonds, in fact Eurobond is a maintenance covenant, if we incur it, it's not a covenant. In fact, the covenant is – there is a financial ratio, we have to – the 3.65, we have to maintain below that. If we surpass that, we then get into a limited debt situation. So there is a basket there. So on the local debentures, that one we would need to incur two times in 12 months to then have to renegotiate. So in summary, those are the more visible ones. But again, as I mentioned previously, we do have measures to take even if the situation from a cash flow perspective continues in such for us to go through this period without incurring into any financial indicator breach.

Just to clarify, if you violate the covenant at the end of the second quarter, there are no consequences if there is no further covenant violations in the next couple of quarters. Is that right?

If we violate the financial multiple two times in a row or two times in 12 months, then we are violating the covenant. So let's make sure that the differences between violating a financial ratio and violating a covenant. Okay, so that's important.

And there was no violation of the financial ratio, the 3.65 times at the first quarter?

No, we did not violate it. We were at 3.59, okay.

[Operator Instructions] At this time, there appears that we have no further questions. I’ll turn the conference back over to SABESP’s management team for the final remarks.

Okay, once more thank you for your participation and we will be back in August with our second quarter results. And again, myself and Angela available 24X7 for any doubts you may have and information you may need. So thank you and good bye.

Thank you, sir, and the rest of the management team for your time today. The conference call has now concluded. At this time, you may disconnect your lines. Thank you and have a great day everyone.