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 second quarter of 2019. The audio for this conference is being broadcast simultaneously through the Internet on the website, www.sabesp.com.br, where you can also find the slideshow presentation available for download. [Operator Instructions]Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of 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 as we have Mr. Rui Affonso, Chief Financial Officer and Investor Relations Officer. Mario Arruda Sampaio, Head of Capital Market and Investor Relations; Sylvio Xavier, Head of Costs and Tariffs; and Marcelo Miyagui, Head of Accounting. Please note this conference is being recorded.Now I'd like to turn the conference over to Mario Sampaio. Sir, you may begin your conference.

Thank you. Thank you all for attending our conference call to discuss our second quarter 2019 presentation today. We will go through the main events and after we will have the usual Q&A session.Let's start on Slide 3, where we show billed volume increased by 2.6% for billed volume of water and sewage in the second quarter of 2019. As a result of essentially a 6.1% increase in billed volume of sewage and 0.2% increase in the billed volume of water.Let's go to Slide 4, let's comment on our financial results. We reported a net income of R$ 454 million in the second quarter of 2019. This compared to the R$181.9 million posted in the second quarter of 2018, represents a 149% bottom-line increase. This change was due to the R$329 million year-over-year increase in gross operating revenues from R$3.25 billion in the second quarter of 2018 to R$3.58 billion in the second quarter of 2019 due to the 3.5% tariff repositioning index and the 4.7% tariff adjustment also the increase in sewage volumes and the operation in the municipality of water use, in this case representing a revenue increase of close to R$91 million.Associated with this, the better financial results appears in the second quarter of 2018 at R$681.6 million or 81.4% is mainly explained by the effects of monetary and exchange rate variations on the foreign currency loans and financing. Second quarter net operating revenues increased 8.9% year-over-year from R$3.67 billion to R$3.99 billion. Costs, administrative and selling expenses and construction cost increased by 22.1%. The increase was distributed among expenses lines of which we can highlight the increase in expenses with services, general expenses and expenses with salaries charges, benefits and Social Security obligations.Due to all these changes the adjusted EBITDA totaled R$1.23 billion, a decrease of 10.9% or R$151 million from the R$1.38 billion recorded in the same period last year. Adjusted EBITDA margin in the quarter was 30.8% compared to 37.7% in the same period last year resulting in the margin of 39.4% in the last 12- months. Excluding the effects of revenue and construction costs, adjusted EBITDA margin in this quarter was 36.8% compared to 45.5 % margin in the second quarter of 2018. At the same time, the margin in the last 12-months reached 46.9%.Go to Slide 5, here we highlight the main changes in costs in the second quarter of 2019. As mentioned on the previous slide, costs, selling and administrative expenses and construction cost increased R$577 million or 22.1% year-over-year. Excluding construction cost, costs and administrative and selling expenses increased R$556 million or 28.3%. The main impacts on cost were R$134.9 million with outsourced services R$117 million was general expenses and R$91.4 million in salaries charges, benefit and Social Security obligation.It is worth mentioning that general expenses were also impact by non-recurring events such as the closure of lawsuits due to the signing of the contract service between the municipality of San Bernardo do Campo to the amount of R$39 million. In services, we also highlight the expenses related to all the partners and employees of SAAEs which is the Guarulhos water and sewage company approximately 1,000 employees who were signed to SABESP until June. This means that as of now the number of employees of the Guarulhos Service Company will be reduced to 400 in the next quarter.The breakdown of this and other changes in cost are presented in our earnings release. You can get more details there. But before moving on to the next slide, we would like to develop another analysis of the company's cost variation, which indicates that there has been no structural cost deterioration suggested when we simply compare this quarter to the last quarter. But then again let's go and see what this is. In this quarter, where we compared the variations of the company's cost and expenses before depreciation and amortisation, estimated loss with bade debt and construction costs, we observed a 27.6% variation compared to the second quarter of 2018. If we disregard the facts of the start up, the beginning of operations of Guarulhos the PPP Sao Lourenco both not present in the second quarter of 2018 results plus the impacts of non-recurring events this quarter then increase reaches 15.8%.Just noting the non-recurring events we consider are related to the San Bernardo do Campo that we mentioned before in the amount of R$39 million, such spread pension fund in the amount of R$26 million in losses with emphasis on a labor claim of R$35 million. Additionally, when we analyzed second quarter of 2018 costs, we noticed that it was typically low, more precisely 3.1% lower than the second quarter of 2017 in nominal terms. Therefore in order to better evaluate the variations of cost in the second quarter of 2018, we would use the comparison basis that seems to us to be more normalized and in line with previous quarter. In this case that of the second quarter of 2017 itself.If we estimate the nominal variation of cost in the second quarter of 2019 compare then to second quarter of 2017, adjusted for the fact of Guarulhos PPP and the non recurring events mentioned above, we will reach in nominal variations of 13.2%. If we exclude inflation for the period that is the EPCA inflation of 7.8%, we now have a real increase of 7%. But note this will increase and this is important a quote along with an increase in billed volume of 5.73% to period which is in line with the variation in costs in real checks.It also follows from this brief retrospective that we will have a new base, cost based in the future not only because of PPP Sao Lourenco and Guarulhos operation but also because of the assumption of the municipality of Santos something that we have already made a material fact. So it's difficult to see more accurately today what will be the effect of the assumption of two major new concessions that requires great effort from the company especially in the initial period. To get an idea by incorporating Guarulhos, we committed to remove 800,000 people from water rationing within one year. However, as we began the work we identified that the population subject to rationing or with some sort of relevant efficiencies in the supply of water approach one million people by the way all of which were free from this situation already in the initial months of operation, which means we definitely put a lot of effort and a lot of power and a lot of people to make this work.Well, meeting this challenge quickly obviously has led to extraordinary costs and expenses which is why you cannot say today what the recurring cost would be and what magnitude they will have.Go now to Slide 6, six summarizes the main year-over-year changes that in fact that the company's net income in the second quarter of 2019. As we already mentioned, net income total R$554 million (R$454 million, see presentation), net operating revenue increased R$325 million. Costs and expenses including construction cost increased R$577 million. Other operating revenues and expenses including the equity result fell by R$15.7 million. Financial result was a positive of R$681 million. And finally income tax and social contribution increased by a R$141 million due to the higher taxable income reported in the second quarter of 2019, largely explained by the increase in operating revenue and the improvement in financial income that offset the observed increase in costs and expenses.Let's move to Slide 7, like comment as disclosing our material fact. SABESP concluded negotiations with municipality of Santo Andre and signed on July 31st a contract for the provision of water and sewage services and the debt settlement agreement. In practice this means that the SABESP will no longer supply water on a wholesale basis to the municipality, but both water and sewage services directly to their end users. With this change, the service will be charged directly to the end-user and not the municipality as before eliminating the risk of major defaults from this platform.The municipality of Santo Andre has a population of approximately 692,000. And there is much to be done in basic sanitation. Same as the municipality of Guarulhos, Santo Andre have areas that suffered daily from water shortages. The problem that will be resolved by us in six months time. And to add to that they also have very, very high water loss rates. Today, we estimate at around 45%. Other commitments made in the contract to include works to increase sewage treatment in the municipality from the current 42% to 75% in three years, improving the conditions of the region's creeks streams and consequently contributing to the entire system of the metropolitan region.The agreement entered into effect runs for 40 years and SABESP will rest around R$917 million in this period, in the first year of the contract and amount of R$90 million will be transferred to the municipal fund. From the second year onwards, the amount equivalent to 4% of net revenue will be transferred to this fund and let's remember that this is the percentage allowed by the regulator to be passed on to tariff. So it will be passed on to tariff. Also there is a payment of R$70 million to be utilized by the Santo Andre operation to close water and sanitation activity. And again in the same way as the agreement we reach with the city of Guarulhos.So that took into consideration the historical default rates of the municipality that was already in court collection in the amount of approximately R$3.5 billion. Also the projected increase of this debt in the future flow of the company and the impact of this situation on its operation. In the negotiation also a discount of R$600 million was given on the interest and fine of the precatorios notes being issued. These notes as well as those already issues will be suspended in court, and will be given as security as guarantee for the business being progressively reduced over the term of the contract.And remember, if the service are interrupted by the municipality, these fees will be reactivated and in their original position in the Q before suspension and obviously will be charged. In other words, it's a very similar guarantee process that we incorporated in the Guarulhos contract. It is also important to mention the signing of contracts with coastal municipalities that the company already operated adapting all these old contracts to the sanitation law 11445 of 2007. These municipalities includes very big municipalities in population such as Guaruja, Bertioga, Mongagua, Itanhaem and Peruibe all of them in the Baixada Santista de Santos Metro region. Also in the North Coast, we signed a contract with the biggest municipalities from SABESP . In addition to that, as we already mentioned we adjusted the contract with the municipality of Sao Bernardo, just remember that in this case the city sits in the metro region of Sao Paulo.Well. That concludes the slides but we still have some comments, general comments that start with the comments on important disclosures made by ARSESP since our last conference call. On June 6, the regulator published the opening of public consultation number 6 of 2019 which deals with a methodology for applying the general quality index to be observed during this year and apply in the 2020 annual adjustment to inflation tariff increase. This mechanism seeks to increase the quality of services provided by SABESP by establishing indicator and targets that will be monitored by ARSESP that may affect revenues positively or negatively depending on the company's performance.On July 22nd, SABESP submitted its contribution and requested the application of the index to begin in 2022 coinciding with the ordinary tariff provision and together with a new x-factor parameter. And certification on the criteria for approximation of the values of things in the disclosed matrix. Another important disclosure made by the regulator was the opening of public consultations, which addresses the methodology and the criteria to update the regulatory asset base of the third ordinary tariff provision. The preliminary technical notes disclosed by ARSESP raised important discussion points such as the procedures were updating, the incremental regulatory asset base in accordance with the original accounting value. What was previously carried out by the replacement value methodology. And also the inclusion of new municipalities in the regulatory asset base.Given their complexity and impact of this manner, the company understood that the deadline for submitting the contribution was a sufficient, now requested ARSESP an extension which was accepted and moved from August 5 to September 24. Another matter, we would like to comment is the recent news related to the Pinheiros River depollution project mostly being carried out by the media. Firstly, it is worth mentioning that this program is in initiative of the Sao Paulo state government and its objective is to clean up the Pinheiros river body in a short period of time, improving its condition so that the population can effectively use and explore its surroundings.Another highlight is that the program involves not only for that, it also involves other state companies and departments such as EMAE, the Water Department DAEE and the environmental agency SABESP. Specifically for SABESP investments will be made in sewage collection and sewage transportation to treatment plants, serving the region. In addition, as there's still an impossibility of collecting all sewage from non-regular area, special sewage treatment plants for informal urban setting areas called EPI will also be built to further improve the conditions of streams flowing into the Pinheiros river, all with the objective of improving the water conditions in the river block.Note that these investments we are already foreseen in the company's investment plan. Only that some were reprogrammed and anticipated. Therefore there will be no change for impact on the value of the investment plan we have already disclosed. The last comment is on our most recent debenture issuance on July 24, we issued our 24th debenture in the amount of R$400 million, something important as this issuance represents a milestone for the company, not only because it's our first infrastructure debt debenture, but also because we have reached a demand of 5x greater than the offer value that is 5x book which indicates the company's solidity and growing interest sector the sanitation sector.In addition to this, the strong demand made it possible for us to obtain the lowest rate and best maturity of all the debentures we have issued. In fact, the 24th debenture had two series. The first in the amount of R$100 million with amortization the bullet on the seventh year and a rate based on EPCA plus 3.2%. The second issuance second tranche -- sorry series, it was in the amount of R$300 million with amortization on the 8th, 9th and 10th and a 3.37% spread over the EPCA.In terms of use of receipt, they will be mostly utilized for infrastructure investment to adapt and modernize water supply system in 71 municipalities all of which with the objective of reducing water loss rate.So that concludes our comment. Let's see if we have some questions now. Thank you.

[Operator Instructions]And our first question today comes from Hasan Doza with WAM Please go ahead.

Hi, good afternoon, Mario. Two questions. First on the Sao Lourenco system. First question is can you help please confirm the total cost including both OpEx and the interest expense associated with operating the Sao Lourenco system on annual basis?

Okay. What is the second question also, Hasan?

Sure. The second one I was going to ask is it's partly related to the first one is how much are you recovering in rates of the total cost which you are incurring for the Sao Lourenco system?

Okay. Let me just get the number and we'll comment in a second. Hasan, one more second, very detail, we will get done. We are struggling here to maybe understand better your question. You want to know the Sao Lourenco impact on OpEx or the monthly payment. Okay, so that specifically what is the OpEx impact of Sao Lourenco. In this quarter, just the OpEx, R$11 million.

Is that a good number to -- I'm looking more for an annual run rate. So is that a good number to annualize or what you gentlemen think is a good annual OpEx run rate of the -

But I recall from the contract is that there is the monthly payment which obviously includes the OpEx. And this is adjusted on a yearly basis. So if you were to analyze I would think that this would be a good start. I just don't know when the reset date, the adjustment date is. If it's next month or if it was last month. So I don't know, but again it is adjusted by inflation. It's not adjusted by the EPCA, adjusted by a local Sao Paulo EPC index. The slightly variation on a monthly, monthly basis, okay.

Got it. That's clear, thank you. And on the interest expense either you or Miyagui, can you please confirm either quarterly or an annual run rate, the interest expense associated specifically with the Sao Lourenco please.

Okay. Let me check here. Hasan, the interest for the Sao Lourenco this quarter was R$53 million and again I think if you want to use this number on an annual base, I won't confirm it will be the same but it is a number. It's a variation there, is an estimate based on an NPD of the contract at a discount rate, internal discount rate. So potentially it is not reliable. As for all these costs going through to the tariff, the answer is yes. In fact, the entire stock monthly installment including Opex, CapEx and interest, they all go through the tariff on the OpEx side. Okay, on the OpEx line.

I got it. I just want to confirm so your OpEx run rate is about R$40 million per year. As you said R$11 million this quarter and your interest expense run rate I'm rounding it's 50 so call it R$200 million annual. So these two costs R$240 million annual run rate, I just want to confirm. For example, when you received that 4.7% tariff increase on May of this year, was that R$240 million or whatever the exact cost is of the Sao Lourenco system both at the OpEx and the interest expense level. Were these costs included in that 4.7% tariff adjustment?

Okay. Hasan, first, let's do this a, the 4.7% is a tariff adjustment inflation. So you must be referring to the tariff reset of 3.5% of the year before. Said that on our business plan, the entire for the period payments, outlets to the Sao Lourenco contracts were registered as OpEx and yes they are considered in the three tariffs and on the 3.5 % increase. Although, you have to remember only today we are at full operation in Sao Lourenco, Sao Lourenco effectively started around August last year. So the answer to you is yes. It is captured fully by the business plan and by the tariff that is authorized by the regulator.

Okay. So final question on this plan. So when you go for your regular tariff adjustment in 2020 which is the inflation type increase in April or May of 2020. And you now have a full year run rate of operating the Sao Lourenco plan. Will you be as part of the regular tariff adjustment in 2020 be able to fully recover the costs of Sao Lourenco on an annual basis?

We will fully recover because it's already on the tariff. And we should maintain that recovery provided that the adjustment on a yearly basis for the Sao Lourenco payment is not exactly the same inflation in that but the similar inflation index. So ultimately what we're saying is, yes, the Sao Lourenco contract is being fully recovered in the tariff. And, yes, every year where there's a tariff adjustment on our tariff that adjustment is more than sufficient to capture the adjustment in the contract payment, yearly payment.

Perfect. That's very helpful. Thank you for the explanation. Just two quick remaining questions. Mario, can you please confirm or Miyagui the statutory tax rate that you're currently paying in Brazil? Statutory tax rate, yes.

34%.

That's fine. I got you and just want to close with your statement on the change in the employees from Guarulhos. You mentioned that it goes from a 1,000 to 400. So what's happening to those 600 employees? Can you just help me understand?

Yes. Let me tell you. First, they're not employees of SABESP. They are employees of the Guarulhos sanitation company, the one that is not operating the system anymore. So under the contract, we have the possibility to not to hire the employees but to pay them as service provided by them during a period. The first period, we paid the service for a slightly above 1,000. That agreement was until June this year, so yes until June on the service line we paid for 1,000 employees supporting our work as we take over the system. As of now, we are allowed to contract services from 400 which we will. We may remain with these 400 for four years after which we're not obligated to pay for their service, which doesn't mean that we may remain with 1 or 2, 10 whatever we think are good employees.But then only then if it happens they will become our employees. So it's not on the payroll salaries like this you will always see until we are provided-- they are providing the service in the service line.End of Q&A

It appears there are no further questions. I'll now like to turn the conference back over to SABESP for their final remarks. And this will conclude the question-and-answer session. I'd like to turn the conference back over to SABESP for their final remarks.

Okay. Everybody, thank you and again any questions you may have, please call me, Angela. We're here to answer and clarify any point and see you next quarter. Thanks. Bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time. And have a great day.