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Table of Contents

Company Information / Capital Breakdown

Parent Company’s Financial Statements / Statement of Financial Position – Assets

(R$ thousand)

Parent Company’s Financial Statements / Statement of Financial Position – Liabilities

(R$ thousand)

Parent Company’s Financial Statements / Statement of Financial Position – Liabilities

(R$ thousand)

Parent Company’s Financial Statements / Statement of Income

(R$ thousand)

Parent Company’s Financial Statements / Statement of Income

(R$ thousand)

Parent Company’s Financial Statements / Statement of Comprehensive Income

(R$ thousand)

Parent Company’s Financial Statements / Statement of Cash Flows – Indirect Method

(R$ thousand)

Parent Company’s Financial Statements / Statement of Cash Flows – Indirect Method

(R$ thousand)

Parent Company’s Financial Statements / Statement of Changes in Equity / 1/01/2020 to 9/30/2020

(R$ thousand)

Parent Company’s Financial Statements / Statement of Changes in Equity / 1/01/2019 to 9/30/2019

(R$ thousand)

Parent Company’s Financial Statements / Statement of Value Added

(R$ thousand)

1. Quarter Highlights

The Company recorded net income of R$ 421.6 million in 3Q20, compared to net income of R$ 1,208.9 million in 3Q19, a decrease of R$ 787.3 million.

Adjusted EBITDA totaled R$ 1,513.6 million, a decrease of R$ 1,495.7 million over the R$ 3,009.3 million reported in 3Q19.

The main highlights of the 3Q20 result were:

(a) Economic instability worsened by COVID-19

The economic instability worsened by COVID-19 brought reflexes for the Company, especially:

(ii) postponement of the tariff adjustment, with estimated impact of R$ 65.6 million on operating revenue. The reposition of this impact has already been authorized by ARSESP and started in August 2020;

(iii) payment exemption for customers in the "Residencial Social" and "Residencial Favela” categories, in the approximate amount of R$ 51.6 million;

(iv) increase in the level of delinquency, with an impact of R$ 75.1 million in allowance for doubtful accounts;

(v) exchange rate volatility, increasing expenses with exchange variation of R$ 111.0 million, and

(vi) donation of 110 thousand basic food baskets, in the amount of R$ 12.4 million.

(b) Reduction to foreign currency exposure

The Company adopted the following measures during 2020, aiming to reduce exposure to foreign exchange exposure:

(c) Operation in the municipality of Santo André

The operation in the municipality of Santo André, started in August 2019, represented a reduction of R$ 1,204.6 million in gross operating revenues and an increase of R$ 84.3 million in expenses in 3Q20, when compared to 3Q19, as follows:

(1) Non-recurring revenue in 2019 results from the formalization of the agreement. (2) Refers to billing from retail operation.

(3) Costs and expenses, relates to the operation (excludes indirect costs and expenses).

(4) Reversal of non-recurring allowance for doubtful accounts results in 3Q19, from the formalization of the agreement.

(d) TAC – Retirees

On February 20, 2009, SABESP and the Public Prosecution Office of the State of São Paulo signed a Conduct Adjustment Term (TAC), in which the Company pledged to promote the gradual dismissal of retired employees. As a result of this TAC, the Company recorded a provision for the dismissal of these employees.

On October 11, 2019, the Public Prosecution Office closed the case regarding the TAC given its understanding that the legal requirements were achieved. Therefore, the Company reversed R$ 173.3 million in the Salaries and payroll charges and Pension plan obligations account in 3Q19, which was recorded as a non-recurring event.

(e) Signature of a Program agreement with the Municipality of Guarujá

In 3Q19, non-recurring expenses related to the conclusion of legal proceedings were recognized, arising from the signing of an agreement with the municipality of Guarujá, in the amount of R$46.9 million.

2. Profit (loss) for the period

R$ million

(*) Total shares = 683,509,869

Adjusted EBITDA Reconciliation (Non-accounting measures)

R$ million

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

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

In 3Q20, net operating revenue, including construction revenue, reached R$ 4,438.5 million, down by 18.0% over the same period in 2019.

Costs and expenses, which consider construction costs, totaled R$ 3,456.2 million, up 20.5% over 2019.

Adjusted EBIT totaled R$ 985.4 million, down by 61.3% over the R$ 2,545.4 million recorded in 3Q19.

Adjusted EBITDA, in the amount of R$ 1,513.6 million, reduced by 49.7% when compared to the R$ 3,009.3 million reported in 3Q19 (R$ 6,303.7 million in the last 12 months).

Adjusted EBITDA margin reached 34.1% in 3Q20, against 55.6% in 3Q19 (35.8% in the last 12 months). Excluding the effects of revenue and construction costs, the adjusted EBITDA margin was 44.0% in 3Q20, compared to 63.5% in 3Q19 (44.3% in the last 12 months).

The Company recorded net income of R$ 421.6 million in 3Q20, compared to net income of R$1,208.9 million in 3Q19.

3. Gross operating revenue

Gross operating revenue related to sanitation services, in the amount of R$ 3,639.1 million, which does not consider construction revenue, decreased by R$ 1,345.0 million, or 27.0%, from the R$ 4,984.1 million recorded in 3Q19.

The main factors that led to this variation were:

The decrease in operating revenue was offset by:

4. Construction revenue

Construction revenue increased by R$ 353.9 million, or 50.6%, in 3Q20 over 3Q19. The variation was mainly due to higher asset investments.

5.       Billed volume

The following tables show the water and sewage billed volume, on a quarter-over-quarter and year-over-year basis, per customer category and region. The volumes of Santo André, Mauá and the categories exempt from payment are presented individually.

(1) Unaudited

(2) Including coastal and interior regions

(3) Wholesale includes volumes of reuse water and non-domestic sewage

(4) Billed volume in the retail segment in 3Q20/9M20 and in the wholesale/retail segment in 3Q19/9M19 (5) Volume billed in the retail segment in 3Q20 and at wholesale in 3Q19

(6) Volume billed in categories exempt from paying water and sewage bill

6. Costs, administrative & selling expenses and construction costs

Costs, administrative & selling expenses and construction costs increased by R$ 588.6 million in 3Q20 (20.5%). Excluding construction costs, the increase was R$ 242.6 million (11.1%).

Costs, administrative & selling expenses and construction costs represented as a percentage of net revenue was 77.9% in 3Q20, compared to 53.0% in 3Q19.

R$ million

Salaries and payroll charges and Pension plan obligations

In 3Q20, there was an increase of R$ 152.4 million, due to the reversal of R$ 173.3 million in non-recurring TAC - Retiree expenses related to 3Q19.

This increase was offset by the following factors:

Treatment materials

Increase of R$ 11.5 million, or 17.1%, due to the higher use of algaecides and coagulants in several Water Treatment Plants in the Metropolitan Region of São Paulo, in order to maintain the quality of raw water.

Electricity

Electricity expenses totaled R$ 311.0 million in 3Q20, up R$ 28.5 million, or 10.1%, compared to the R$ 282.5 million recorded in 3Q19. Of the total expenses with electricity, the Free Market Tariffs (ACL) accounted for 49.2% in 3Q20 (37.7% in 3Q19) and the Regulated Market Tariffs (ACR) accounted for 50.8% (62.3% in 3Q19).

The main factors influencing this variation were:

General expenses

Decrease of R$ 134.2 million, or 37.4%, totaling R$ 224.4 million in 3Q20, compared to the R$ 358.6 million recorded in 3Q19, mainly due to:

Depreciation and amortization

Increase of R$ 64.3 million, or 13.9%, due to the start-up of intangible assets, in the amount of R$ 3.6 billion.

Allowance for doubtful accounts

Increase of R$ 112.7 million, mainly due to:

Other operating income (expenses), net

Other operating revenues and expenses recorded a negative variation of R$ 12.4 million due to the donation of basic food baskets, within the context of the COVID-19 pandemic.

7. Financial result

Financial expenses, net of income

Decrease of R$ 5.4 million, due to:

Monetary and exchange variation, net

The effect of net monetary and exchange variations in 3Q20 totaled R$ 383.9 million, lower than the amounts reported in 3Q19, especially due to:

8. Income tax and social contribution

In 3Q20, taxes decreased by R$ 395.8 million due to the lower taxable result recorded.

In 3Q19, non-recurring revenue was recognized in the amount of R$ 1,261.7 million, related to the agreement with the municipality of Santo André and the reversal of R$ 173.3 million in TAC - Retiree expenses.

In addition, the allowance for doubtful accounts increased by R$ 112.7 million in 3Q20, which was offset by the reduction in expenses with exchange rate variation, in the amount of R$ 411.0 million.

9. Indicators

a) Operating

(1) Total connections, active and inactive, in thousand units at the end of the period

(2) In million inhabitants, at the end of the period. Does not include wholesale

(3) In millions of cubic meters

(4) Does not include Guarulhos and Santo André

(*) Unaudited

b) Management’s Indicators

The following performance Management Indicators show: Gross Revenue, Operating Expenses and EBITDA, all measured based on billed cubic meter.

The historical series is presented since 2014, based on quarterly financial data disclosed by the Company, disregarding some non-recurring and material events that would distort the result.

All indicators were calculated based on average values of 3Q20, adjusted by variations in the IPCA consumer price index, to determine the behavior on a same-price base in the period.

Gross Revenue per billed cubic meter shows increasing average evolution, especially after the third quarter of 2015. In 3Q20, result fell by 8.6% year over year, influenced by the lower revenue from commercial and industrial customers, payment exemption for customers in the "Residencial Social" and "Residencial Favela” categories and postponement of the tariff adjustment.

Operating Expenses per billed cubic meter increased on a quarterly basis in a controlled manner, being compatible with the expansion of operations showing a stable average performance and reflecting disciplined cost management. In 3Q20, expenses fell by 11.5% compared to 3Q19.

Finally, the EBITDA per cubic meter increased in the period, basically due to the performance of Gross Revenue and Operating Expenses. Compared to the beginning of 2020, this indicator had a positive evolution in 3Q20, in spite of the 10.4% decrease compared to 3Q19.

Total Gross Revenue per Billed m³ - R$/m³

Figures at 3Q20 average prices, updated by IPCA

The following were not considered:

- Construction revenue

- R$928 million referring to the agreement with Guarulhos in 4Q18

- R$1,254 million referring to agreement with Santo André in 3Q19

- R$194.9 million referring to agreement with Mauá in 2Q20

Operating Expenses per Billed m³ - R$/m³

Figures at 3Q20 average prices, updated by IPCA

Expenses considered: personnel, treatment materials, general supplies, outsourced services, electricity, general expenses and tax expenses. Reversals excluded:

1.R$ 696 million referring to agreement with the State Government in 1Q15

2.R$ 307 million referring to the migration of the supplementary pension plan in 3Q16

3.R$ 173 million referring to the TAC - Retirees in 3Q19

EBITDA per Billed m³ - R$/m³

Figures at 3Q20 average prices, updated by IPCA

The following were not considered:

1. Revenue:

- R$ 928 million referring to the agreement with Guarulhos in 4Q18

- R$ 1,254 million referring to the agreement Santo André in 3Q19

- R$ 194.9 million referring to the agreement signed with Mauá in 2Q20

2. Reversal of Expenses:

- R$ 696 million referring to the agreement with the State Government in 1Q15

- R$ 307 million referring to the migration of the supplementary pension plan in 3Q16

- R$ 173 million referring to the end of TAC - Retirees in 3Q19

c) Economic

(1) Quarterly rate (%)

(2) Quarterly average

(3) Ptax sale rate on the last day

(*) Unaudited

10. Loans and financing

On September 30, Eurobonds, in the amount of US$ 350.0 million, maturing on December 16, 2020, were early amortized. The Company used cash for such redemption, and is in line with its strategy to reduce currency exposure. The Company formalized this month a financing agreement with Inter-American Investment Corporation – IDB Invest, in the amount of R$950.0 million, in two tranches: (i) the first, of R$508.0 million, whose funds will be used for investment in the New Pinheiros River Program and in Renewable Energy Plants; and (ii) the second, of R$ 442.0 million, whose funds will be used to refinance debt. The transaction has no guarantees.

Covenants

The table below shows the most restrictive covenants in 3Q20:

(1)“Other Onerous Debt” correspond to the sum of social security liabilities, health care plan installment payment of tax debts and installment payment of debts with the Electricity supplier

As of September 30, 2020, the Company had met the requirements set forth by its borrowings and financing agreements.

11. CAPEX

Investments totaled R$ 1,072.7 million in 3Q20. The investment in 9M20 was R$ 3,117.5 million.

Cash used in 9M20 referring to the Company’s historical investments totaled R$ 2,302.1 million.

1 Operations

Companhia de Saneamento Básico do Estado de São Paulo ("SABESP" or the "Company") is a mixed-capital company headquartered in the municipality São Paulo, at Rua Costa Carvalho, 300, CEP 05429-900, controlled by the São Paulo State Government (GESP). The Company is engaged in the provision of basic and environmental sanitation services in the São Paulo State, as well as it supplies treated water and sewage services on a wholesale basis.

In addition to providing basic sanitation services in the São Paulo State, SABESP may perform 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 September 30, 2020, the Company operated water and sewage services in 374 municipalities of the São Paulo State, 342 have already signed contracts, pursuant to Law 11,445/2007. Most of these municipalities’ operations are based on 30-year concession, program and service contracts, except for the municipalities of Guarulhos, Mauá, Mogi das Cruzes, Santo André, São Bernardo do Campo, São João da Boa Vista and Tejupá, which have a 40-year term.

The table below shows a summary of the contractual situation of the municipalities served:

The Company operates in the municipality of Juquitiba under authorization by public deeds, which are valid and governed by the Brazilian Civil Code. Revenue from sanitation services (excluding construction revenue) of this municipality totaled R$ 4,451 from January to September 2020 (R$ 4,088 from January to September 2019) and the total amount of intangible and contract assets for this municipality was R$ 81,754 as of September 30, 2020 (R$ 80,563 as of December 31, 2019).

The Company's shares have been listed in the Novo Mercado segment of B3 under ticker SBSP3 since April 2002 and on the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) Level III, under ticker SBS, 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, except for Saneaqua Mairinque, which, as of August 2020, no longer has a shared control.

Economic instability worsened by COVID-19

The global economic instability worsened in early 2020 with the outbreak of a new coronavirus, which was considered pandemic by the World Health Organization (WHO). Accordingly, SABESP has adopted and has taken several preventive measures to ensure the continuity and quality of the services provided to the population, given that the services rendered by the Company have become even more essential to the society in the context of the COVID-19 pandemic. It is worth noting that any interruption in water supply by a basic sanitation company may compromise compliance with WHO’s recommendations for everyone to keep good hygiene habits, such as washing hands correctly and more frequently.

The Company implemented a number of preventive measures so that its employees are not exposed to situations of risks, such as: (i) employees from the administrative sectors (especially) and those with more than 60 years of age are working under a remote system; (ii) restriction of domestic and international trips; (iii) use of remote means of communication; and (iv) anticipation of the influenza vaccination campaign; among others. The Company also took all necessary preventive measures so that employees with strategic functions can work without increasing the risk of contamination, thus ensuring the continuity in the provision of essential services.

Some of the economic and financial consequences arising from the COVID-19 pandemic include: (i) high exchange volatility and increase in new funding costs; (ii) reduction in billed volume and, consequently, in revenues from customers in the commercial, industrial and public categories, in the amount of approximately R$ 275.0 million from June to September 30, 2020 and R$ 598.1 million from January to September 2020; (iii) postponement of the tariff adjustment from May 11 to August 15, 2020, with an estimate net impact of R$ 65.6 million on the operating revenue from July to September 2020 and R$ 93.6 million from January to September 2020; (iv) increase in default and in the expectation of higher future losses, due to the decrease in the municipalities’ revenue and the increase in bankruptcy petitions, which negatively impacted estimated losses by R$ 112.8 million from July to September 2020 compared to July to September 2019 and R$ 298.9 million from January to September 2020 compared to January to September 2019; and (v) payment exemption of water and sewage bills for consumers in the Residential Social and Residential Favela categories in all operated municipalities from April 1 to September 15, 2020, reducing revenue by R$ 51.6 million from July to September 2020 and by R$ 116.9 million from January to September 2020, compared to the same periods in 2019. Opposed to the adverse effects, there was a positive effect, such as the increase in revenues from residential customers (except for the social and favela categories), in the amount of R$ 243.0 million from July to September 2020 and R$ 517.4 million from January to September 2020, and the postponement of the payment of 50% of the Regulation, Control and Inspection Fee (TRCF) from May to December 2020, for settlement in 24 installments beginning January 2021, of R$ 13.1 million from May to September 2020.

Because of the adverse effects, the Company reduced expenses and budget adjustments to preserve economic and financial sustainability and, on April 27, 2020 and July 10, 2020, it held the 25th and 26th issue debentures in the amounts of R$ 1.45 billion and R$ 1.05 billion, respectively. In addition to these initiatives, on April 28, 2020, the Company concluded the translation of a debt contracted with the Inter-American Development Bank (IDB), from US$ 494.6 million to R$ 2,810.9 million, reducing its exposure to the variation of the US dollar. In addition, as of September 30, 2020, the Company early amortized Eurobonds in the amount of R$ 1,910.1 million (US$ 357.8 million) to reduce currency exposure.

Management expects that the initiatives implemented because of the above-mentioned impacts, in addition to the signature of contracts with the municipalities of Guarulhos, Santo André and Mauá, improved water security, due to the works carried out, and the credit lines contracted for purposes of investments, will be sufficient to meet its commitments and not compromise the Company’s operating and financial continuity.

New Legal Sanitation Framework

On July 15, 2020, the Brazilian President sanctioned Law 14,026/2020 with 11 vetoes. Although they can be overruled by the Brazilian Congress, by extinguishing the program contract, the Law changes the scenario for operations in the sector, ensuring competition.

Additionally, the Law imposes performance goals that encourage operators to increase operating efficiency, and provides conditions for the National Water Agency (ANA) to establish parameters and guidelines in order to minimize regulatory uncertainties, thus creating a more stable and attractive environment for investments in the sector.

In this context, the Company believes it has competitive advantages, given that: i) contracts already include goals that meet or even anticipate those contained in the new regulatory framework, ii) it provides access to public and private capital, iii) it has high governance level and iv) it has great exposure to the market, thus being prepared to compete in the expansion of its market share.

Approvals

The interim financial information was approved by the Board of Directors on November 12, 2020.

2       Basis of preparation and presentation of the interim financial information

Presentation of the Interim Financial Information

The interim financial information as of September 30, 2020, 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).

Accordingly, this interim 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 as of September 30, 2020, 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, 2019, 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, in this interim financial information, the notes below were either not presented or are not as detailed as those in the annual financial statements (according to numerical references):

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 11);

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 23);

xiii. Insurance (Note 26);

xiv. Financial income (expenses) (Note 29).

All material information related to the interim financial information, and this information alone, is being disclosed and corresponds to the information used by the Company’s Management in its administration.

The amounts disclosed in the Notes to the interim financial information are in thousands of reais, unless otherwise stated.

3        Summary of significant accounting policies

The accounting policies used in the preparation of the interim financial information as of September 30, 2020 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2019, disclosed on Note 3 of such financial statements.

4       Risk Management

4.1 Financial Risk Management

Financial risk factors

The Company's activities are affected by the Brazilian economic scenario, making it exposed to market risk (exchange rate and interest rate), credit risk and liquidity risk. The financial risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance.

The Company has not utilized derivative instruments in any of the reported periods.

(a) Market risk

Exchange risk

Currency exposure implies market risks associated with currency fluctuations, since the Company has foreign currency-denominated liabilities, arising from long-term funding, in development institutions, at lower interest rates, in US dollar and yen.

The management of 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 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 portion of financial debt is indexed to the US dollar and Yen, in the total amount of R$ 3,729,145 as of September 30, 2020 (R$ 6,382,009 as of December 31, 2019). The exposure to exchange risk is as follows:

The 41.5% decrease in foreign-currency denominated debt from December 31, 2019 to September 30, 2020 was mainly due to:

The decrease was offset by the appreciation of the US dollar and Yen against the Real, as shown below:

From January to September 2020, the Company recorded R$ 2,474,804 in liabilities from the currency variation of the borrowing and financing agreements. As of September 30, 2020, if the Brazilian real had depreciated or appreciated by 10 percentage points, in addition to the impacts mentioned above, against the US dollar and Yen with all other variables held constant, the effects on results before taxes on the nine-month period ended September 30, 2020 would have been R$ 372,915 (R$ 675,049 for the nine-month period ended September 30, 2019), lower or higher, mainly as a result of exchange losses or gains on the translation of foreign currency-denominated borrowings and financing.

Scenario I below presents the effect in income statements for the next 12 months, considering the projected rates of the US 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.

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, it continually monitors market interest rates, in order to evaluate the possible need to replace its debt.

The table below provides the borrowings and financing subject to variable interest rate:

(i) CDI - (Certificado de Depósito Interbancário), an interbank deposit certificate

(ii) TR – Interest Benchmark Rate

(iii) IPCA - (Índice Nacional de Preços ao Consumidor Amplo), a consumer price index

(iv) TJLP - (Taxa de Juros a Longo Prazo), a long-term interest rate index

(v) LIBOR - London Interbank Offered Rate

Another risk to which the Company is exposed is the mismatch of inflation adjustment indices of its debts with those of its service revenues. Tariff adjustments of services provided do not necessarily follow the increases in the inflation indexes to adjust borrowings, financing and interest rates affecting indebtedness.

As of September 30, 2020, if interest rates on borrowings and financing had been 1 percentage point higher or lower with all other variables held constant, the effects on profit before taxes for the nine-month period ended September 30, 2020 would have been R$ 121,217 (R$ 93,943 for the nine-month period ended September 30, 2020), lower or higher, mainly as a result of lower or higher interest expense on floating rate borrowings and financing.

(b) Credit risk

Credit risk is related to cash, banks and cash equivalents, financial investments, as well as credit exposures to wholesale basis and retail customers, including 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 September 30, 2020 are the carrying amounts of instruments classified cash and cash equivalents, financial investments, restricted cash, trade receivables and accounts receivable from related parties in the reporting period. See additional information in Notes 6, 7, 8, 9 and 10.

Regarding the financial assets held with financial institutions, the credit quality that is not past due or subject to impairment loss can be assessed by reference to external credit ratings (if available) or to historical information about the bank’s default rates. For the credit quality of the banks, such as deposits and financial investments, the Company considers the lower rating published by three main international rating agencies (Fitch, Moody's and S&P), according to internal policy of market risk management:

(*) This category includes current accounts and investment funds in banks whose balances were not significant.

The available credit rating information of the banks, as of September 30, 2020, in which the Company made deposit transactions and financial investments in local currency (R$ - local rating) during the period is as follows:

(c)        Liquidity risk

Liquidity is primarily reliant upon cash provided by operating activities and borrowings and financing obtained in the local and international capital markets. The management of this risk 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, per relevant maturities, including the installments of principal and future interest to be paid according to the agreement. 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 date of September 30, 2020.

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, and the most restrictive are shown in Note 16 (c).

(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 September 30, 2020, 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.

(i) Refers to the scenario of interest to be incurred for the 12 months as of September 30, 2020 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 increase investments in infrastructure, provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

Capital is monitored based on the leverage ratio, which corresponds to net debt divided by total capital (shareholders and creditor’s equity). Net debt corresponds to total borrowings and financing less cash and cash equivalents and financial investments. Total capital is calculated as total equity plus net debt, as shown in the statement of financial position.

As of September 30, 2020, the leverage rate reached 38% compared to the 34% as of December 31, 2019, mainly because of the increase in net debt, due to the appreciation of the US dollar and Yen.

4.3 Fair value estimates

The Company considers that balances from trade receivables (current) and trade payables 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

The Company did not have financial assets classified as fair value through other comprehensive income and fair value through profit or loss. The financial instruments included in the amortized cost category comprise cash and cash equivalents, financial investments, restricted cash, trade receivables, balances with related parties, other assets and balances receivable from the Water National Agency (ANA), 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, except for cash equivalents and financial investments.

The estimated fair values of financial instruments are as follows: Financial assets

Additionally, SABESP has financial assets receivable from related parties, totaling R$ 791,910 as of September 30, 2020 (R$ 850,896 as of December 31, 2019), which were calculated in accordance with the conditions negotiated between the related parties. The conditions and additional information related to these financial instruments are disclosed in Note 10. Part of this balance, totaling R$ 721,094 (R$ 747,579 as of December 31, 2019), refers to reimbursement of additional retirement and pension plan - G0, indexed by IPCA plus simple interest of 0.5% p.m. On the transaction date, this interest rate approximated that of National Treasury Notes (NTN-b), with a term similar to the terms of related-party transactions.

Financial Liabilities

The criteria adopted to obtain the fair values of borrowings and financing, in preparing the interim financial information as of September 30, 2020, are consistent with those adopted in the Annual Financial Statements for the fiscal year ended December 31, 2019.

Considering the nature of other financial instruments, assets and liabilities, the balances recognized in the statement of financial position approximate the fair values, except for borrowings and financing, considering the maturities close to the end of the reporting date, comparison of contractual interest rates with market rates in similar operations at the end of the reporting period, their nature and maturity terms.

5        Key accounting estimates and judgments

The preparation of the interim financial information requires Management to make judgements and use assumptions based on experience and other factors deemed as relevant, which affect the values of assets and liabilities and present results that may differ from the actual ones.

The areas that require a higher level of judgment and greater complexity, as well as the areas in which assumptions and estimates are significant for the interim financial information are: (i) allowance for doubtful accounts; (ii) intangible assets arising from concession agreements and program contracts; (iii) pension plan liabilities; (iv) deferred income tax and social contribution, and (v) provisions.

6        Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits and high-liquidity short-term financial investments, mainly represented by repurchase agreements, fund shares (accruing CDI interest rates) and CDBs, whose original maturities or intention of realization are lower than three months, which are convertible into a cash amount and subject to an insignificant risk of change in value, totaling R$ 35,384 (R$ 2,076,713 as of December 31, 2019), which are deposited at a fund in Banco do Brasil, in which SABESP is the exclusive shareholder.

The fund exclusively aims at receiving resources from SABESP and, as of September 30, 2020, it was mainly comprised of investments in treasury notes, repurchase agreements backed by national treasury notes and fixed income financial assets.

Given that SABESP is the exclusive shareholder and has control over the fund, it should be consolidated in the interim financial information; however, since 99% of the balance has already been presented in the financial statements under Cash and cash equivalents and the remaining balance, referring to the fund's management and maintenance expenses, is irrelevant, the Company decided not to present the balances between Parent Company and Consolidated because there is no significant difference between such balances and because it does not generate significant disclosure to users of financial statements.

As of September 30, 2020, the average yield of cash equivalents corresponded to 88.24% of CDI (98.02% as of December 31, 2019).

7        Financial investments

The Company has financial investments in CDB, with daily liquidity, which it does not intend to use in the next three months, as shown below:

8        Restricted cash

(i) Refers to the amount deducted from the 7.5% of revenue earned in the municipality 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 São Paulo municipal government; and

(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.

9        Trade receivables

(a)        Statement of financial position details

(i) General customers - residential and small and mid-sized companies;

(ii) Special customers – large consumers, commercial industries, condominiums and special billing customers (fixed demand agreements, industrial waste, wells, among others);

(iii) Agreements - installment payments of past-due receivables, plus monetary restatement and interest, according to the agreements; and

(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.

Agreement with the municipality of Mauá

On June 16, 2020, the Company entered into a debt payment and receipt Consent Decree with the Municipality of Mauá (“Mauá”) and the Mauá Basic Sanitation (SAMA), aiming to settle SAMA’s existing debt upon the transfer of sanitation services to SABESP for 40 years.

The Company has not started the operation in Mauá yet, which was initially expected for August 2020, and now is expected for December 2020.

(b)        The aging of trade receivables is as follows:

The increase in the past-due balance was mainly due to higher default of the private sector.

(c)        Allowance for doubtful accounts

Expenses with estimated losses increased from R$ 50,898 between January and September 2019 to R$ 349,791 in the same period in 2020, due to higher default arising from Brazil’s economic instability, worsened by COVID 19.

The Company does not have customers representing 10% or more of its total revenues.

10        Related-party balances and transactions

(a)        Accounts receivable, interest on capital payable, revenue and expenses with the São Paulo State Government

As of September 30, 2020, and December 31, 2019, the disputed amounts between SABESP and GESP, corresponding to additional retirement and pension benefits paid (Law 4,819/1958), totaled R$ 1,255,306 and
R$ 1,195,217, respectively. The Company created allowances for doubtful accounts for such amounts.

(ii) Actuarial liability

The Company recognized an actuarial liability corresponding to additional retirement and pension benefits paid to employees, retired employees and pensioners of the G0 Plan. As of September 30, 2020, and December 31, 2019, the amounts corresponding to the actuarial liability totaled R$ 3,074,518 and R$ 3,046,255, respectively. For detailed information on additional retirement and pension benefits, see Note 20 (b).

(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.

On October 28, 2016, the Company entered into an agreement based on a Private Transaction Agreement and Other Adjustments aimed to settle the disputes fully and completely and SABESP will continue using the reservoirs.

As of September 30, 2020, the balance of the agreement totaled R$ 17,176 and R$ 84,953 (R$ 16,653 and R$ 87,231 as of December 31, 2019), recorded in Other liabilities, under current and noncurrent liabilities, respectively.

(d) Agreements with reduced tariff for State Entities that joined the Rational Water Use Program (PURA)

The Company has signed agreements with government entities related to the State Government 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 of the Company’s borrowings and financing and does not charge any fee for 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 charged. From July to September 2020 and 2019, the expenses related to employees assigned to other state government entities amounted to R$ 468 and R$ 1,008, respectively, and, from January to September 2020 and 2019, they amounted to R$ 1,735 and R$ 3,982, respectively.

From July to September 2020 and 2019, there were no expenses related to personnel assigned by other entities to the Company. From January to September 2020 and 2019, these expenses amounted to R$ 13 and R$ 139, respectively.

(g) Non-operating assets

As of September 30, 2020, and December 31, 2019, land and lent structures amounted to R$ 3,613.

(h) SABESPREV

The Company sponsors a private defined benefit pension plan (G1 Plan), which is operated and administered by SABESPREV. The net actuarial liability recognized as of September 30, 2020, amounted to R$ 305,447 (R$ 314,677 as of December 31, 2019), according to Note 20 (b).

(i) Compensation of Management Key Personnel and Fiscal Council

From July to September 2020 and 2019, expenses related to the compensation of the members of the Management and Fiscal Council totaled R$ 1,570 and R$ 1,587, respectively. From January to September 2020 and 2019, these amounts totaled R$ 4,749 and R$ 3,762, respectively.

Additional amounts of R$ 380 and R$ 360 referring to the Executive Officers' bonus program were recorded from July to September 2020 and 2019, respectively, and, from January to September 2020 and 2019, these amounts totaled R$ 1.100 and R$ 1,080, respectively.

(j) 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 arrangements.

The Company entered into a loan agreement through credit facility with the SPE Aquapolo Ambiental S/A to finance the operations of this company, until the borrowings and financing requested with financial institutions is granted.

As of September 30, 2020, the balance of principal and interest of this agreement totaled R$ 33,030, which was recorded in Noncurrent assets, under Other assets (R$ 34,992 as of December 31, 2019), at CDI + 1.2% p.a. As of January 27, 2020, the Company received R$ 3,000, of which R$ 1,231 for amortization of principal and R$ 1,769 for amortization of interest.

The loan originally matured on April 30, 2015 but was extended to October 30, 2015. On November 25, 2015, a new amendment changed the payment schedule for three annual installments, the first of which maturing on December 30, 2021 and the last on December 30, 2023.

(k) “Se Liga na Rede” (Connect to the Network Program)

The State Government enacted the State Law 14,687/2012, 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. Until September 30, 2020, the program total amount was R$ 126,900 (R$ 117,272 as of December 31, 2019); as of September 30, 2020 and December 31, 2019, there was no balance receivable from related parties. As of September 30, 2020, R$ 74,726 (R$ 65,099 as of December 31, 2019) was recorded under intangible assets. R$ 52,174 was reimbursed by GESP (R$ 52,174 as of December 31, 2019) from the beginning of the program until September 30, 2020.

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)).

Below is a summary of the investees’ financial statements in which SABESP holds equity interest valued by the equity accounting:

⁽¹⁾Amounts referring to July 31, 2020.