1) Where are COPASA´s shares traded?
2) What are the share rights, advantages, and restrictions?
3) What are the transfer restrictions of COPASA shares?
4) How individuals not resident in Brazil can invest in COPASA shares?
5) How and when does COPASA disclose its information?
6) How can I contact the investor relations area?
7) Why and how does COPASA calculate EBITDA?
8) 1Q10 Conference Call Main Questions
9) 2Q10 Conference Call Main Questions
10) 3Q10 Conference Call Main Questions
11) 4Q10 and 2010 Conference Call Main Questions
12) 1Q11 Conference Call Main Questions
13) 2Q11 Conference Call Main Questions
14) What are the impacts for the Company with the convergence with the International Financial Reporting Standards (IFRS)?
15) Sanitation Glossary
16) 3Q11 Conference Call Main Questions
17) 4Q11 Conference Call Main Questions
18) 1Q12 Conference Call Main Questions
19) 2Q12 Conference Call Main Questions
20) 3Q12 Conference Call Main Questions
21) 4Q12 Conference Call Main Questions
Where are COPASA´s shares traded?
The Company´s shares are listed for trading in the BOVESPA under the symbol "CSMG3". COPASA has entered into an agreement with the BOVESPA to list its shares in the "Novo Mercado" the highest level of the differentiated corporate governance practices.
What are the share rights, advantages, and restrictions?
Shareholders will be entitled to all rights and benefits ensured to common shares issued by COPASA, including the full receipt of dividends and other proceeds of any nature to be distributed as from their purchase date, pursuant to the provisions set forth in the Brazilian Corporation Law, Regulation Novo Mercado, and the Company´s By-laws.
Holders may exercise voting rights with respect to the common shares represented by COPASA´s GDSs only in accordance with the deposit agreement relating to the GDSs. There are no provisions under Brazilian law or under the Company´s By-laws that limit the exercise by GDS holders of their voting rights through the depositary with respect to the underlying common shares. However, there are practical limitations upon the ability of GDS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders.
For example, COPASA common shareholders will receive notice of shareholders´ meetings through publication of a notice in an official government publication in Brazil and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. GDS holders, by comparison, will not receive notice directly from the Company. Instead, in accordance with the deposit agreement, COPASA will provide the notice to the depositary, which will, in turn, as soon as practicable thereafter mail to holders of GDSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders, but only if COPASA requests the depositary to do so.
To exercise their voting rights, GDS holders must instruct the depositary as to voting the common shares represented by their GDSs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for GDS holders than for holders of common shares. GDSs for which the depositary does not receive timely voting instructions will not be voted at any meeting.
What are the transfer restrictions of COPASA shares?
COPASA´s common shares and the GDSs have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act) except to (a) qualified institutional buyers in reliance on exemptions from the registration requirements of the Securities Act and (b) persons outside the United States in reliance on Regulation S.
Each purchaser of the common shares or GDSs will be deemed to have represented and agreed as follows (terms used in this paragraph that are defined in Rule 144A or Regulation S under the Securities Act are used herein as defined therein):
(1) The purchaser (A)(i) is a qualified institutional buyer, (ii) is aware that the sale to it is being made in reliance on exemptions from the registration requirements of the Securities Act and (iii) is acquiring the common shares or GDSs for its own account or for the account of a qualified institutional buyer or (B) is not a U.S. person and is purchasing the common shares or GDSs outside the United States pursuant to Regulation S.
(2) The purchaser understands that the common shares and GDSs are being offered in a transaction not involving any public offering in the United States within the meaning of the Securities Act, that the common shares and GDSs have not been and will not be registered under the Securities Act and that (A) if in the future it decides to offer, resell, pledge or otherwise transfer any of the common shares or GDSs, such common shares or GDSs may be offered, resold, pledged or otherwise transferred only (i) in the United States to a person whom the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (ii) outside the United States in a transaction complying with the provisions of Rule 903 or Rule 904 under the Securities Act, (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if available), or (iv) pursuant to an effective registration statement under the Securities Act, in each of cases (i) through (iv) in accordance with any applicable securities laws of any State of the United States, and that (B) the purchaser will, and each subsequent holder is required to, notify any subsequent purchaser of the common shares or GDSs from it of the resale restrictions referred to in (A) above.
(3) Either (A) the purchaser is not, and is not acting on behalf of, an employee benefit plan or other plan subject to the prohibited transaction provisions of the United States Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the United States Internal Revenue Code of 1986, as amended ("Code"), or any entity which may be deemed to hold assets of any such plan, or a governmental, church or foreign plan which is subject to any federal, state, local or foreign law that is similar to the prohibited transaction provisions of Section 406 of ERISA or Section 4975 of the Code, and no part of the assets to be used by it to purchase or hold the common shares or GDS or any interst therein constitutes the assets of any such employee benefit plan or plan, or (B) its purchase, holding and disposition of the common shares of GDS does not and will not constitute or otherwise result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental, church or foreign plan, a violation of any similar federal, state, local or foreign law).
To ensure compliance with the foregoing and as required pursuant to the terms of Resolution No. 2,689 of January 26, 2000 of the CMN for non-Brazilian holders, any U.S. person that acquires COPSAS´s common shares or GDSs in this offering will be permitted to transfer such purchased shares solely in a transaction effected on the BOVESPA or another securities exchange in Brazil other than in a pre -arranged trade with a counterparty. To the extent that the provisions of Resolution No. 2,689 are modified in the future to permit transfers by non-Brazilian holders other than on the BOVESPA or another securities exchange in Brazil, COPASA will require, and each purchaser acknowledges and agrees, as a condition to any such transfer by a U.S. person that acquires the Company´s common shares or GDSs in this offering, that the transferee execute a document confirming each of the representations and agreements set forth above.
How individuals not resident in Brazil can invest in COPASA shares?
The investors residing outside Brazil , including institutional investors, are authorized to acquire securities, including COPASA shares, at the Brazilian stock exchanges, as long as they comply with the register requirements under Resolution nº 2,689 and CVM Instruction nº 325, of January 27, 2000, and amendments.
The investors registered under Resolution nº 2,689, except for certain circumstances, may carry out any type of transaction in the Brazilian capital market involving a security traded in the stock exchange, futures market or organized over-the-counter market. The investments in and remittances of, outside Brazil, earnings, dividends, profits or other payments related to COPASA shares are carried out through the foreign exchange market.
To become an investor registered under the provisions of Resolution nº 2,689, an investor residing outside Brazil shall:
- appoint representative in Brazil , with powers to perform actions relating to its investment;
- appoint an authorized custodian in Brazil for its investment under Resolution nº 2,689, which must be a financial institution duly authorized by the BACEN and CVM; and
- through its representative, register as a non-Brazilian investor with the CVM and register the investment with the BACEN.
Securities and other financial assets held by non-Brazilian investors pursuant to CMN Resolution n o 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the BACEN or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchange or through organized over-the-counter markets licensed by the CVM.
How and when does COPASA disclose its information?
All COPASA´s material facts, earnings results and other notices to the market are published simultaneously at CVM/Bovespa and at the investor relations area of the Company´s website (http://www.copasa.com.br), and sent later by email to persons registered to receive this information. To receive information by e-mail please register here.
Complete financial statements are published annually on the newspapers "Valor Econômico", "Diário Oficial de Minas Gerais" and "Estado de Minas". Quarterly financial statements, press releases, presentations, material facts and notices to shareholders are available in the investor relations area of COPASA´s website (http://www.copasa.com.br). Other information about the Company also may be obtained on the website of São Paulo Stock Exchange (www.bovespa.com.br) and at the Securities and Exchange Commission of Brazil - CVM (www.cvm.gov.br).
How can I contact the Investor Relations Area?
Companhia de Saneamento de Minas Gerais - COPASA MG
Rua Mar de Espanha, 525
Belo Horizonte - MG - Brazil
Tel: (5531) 3250-2015
Fax: (5531) 3250-1409
Paula Vasques Bittencourt
CFO and Investor Relations Officer
Why and how does COPASA calculate EBITDA?
EBITDA is a non-accounting measure prepared by the Company, calculated accordance with CVM Instruction 527/2012, consisting of net income plus taxes on income, net financial revenues, depreciation and amortization and its subsidiaries’ non-operating result. The EBITDA margin is calculated on total revenue (net water and sewage revenue, construction revenue, other operating revenues and revenue from the subsidiaries). Adjusted EBITDA excludes construction revenue/expenses. Although construction revenue does not have any immediate cash effect, it impacts the fiscal year in which it is recognized, considering that it is part of the calculation base for the payment of interest on equity/dividends and employees’ profit sharing.
The chart containing the values in the comparative periods is presented below.
|EBITDA Calculation (R$ thousand)
|(+) Taxes on income
|(+) Net financial income
|(+) Depreciation and amortization
|(+) Non-operating result of subsidiaries
|(=) EBITDA Margin
|Adjusted EBITDA (excluding construction result)
|Adjusted EBITDA Margin
EBITDA Margin is calculated considering the sum of Net Water and Sewage Revenues, Other Operating Revenues and Revenues from Subsidiaries.
For further information on EBITDA changes, please refer to 1Q13 Earnings Release.
What are the impacts for the Company with the convergence with the International Financial Reporting Standards (IFRS)?
Convergence with the International Financial Reporting Standards (IFRS)
The Company disclosed its first consolidated financial statements prepared in accordance with the IFRS for the 2009 and 2008 fiscal years. The disclosure is in compliance with Novo Mercado entry requirements and in anticipation of CVM Instruction 457/07, taking into account all the Pronouncements of the Accounting Pronouncements Committee (CPC) approved till December 31, 2009.
The main material effects on the balance sheet and income statement are presented below:
Revenue from construction contracts is recognized pursuant to CPC 17 - Construction Contracts, according to the percentage of completion method of accounting. The percentage completed is defined according to the stage of work based on a physical and financial schedule of each contract.
Contractual costs are recognized in the income statement as cost of services rendered, when incurred. All the costs directly attributable to contracts are considered when measuring revenue, which observes the cost method plus margin. As of January 1, 2011, the revenue based on the nominal weighted average cost of capital - WACC started to be fully attributed to the costs incurred in the contract work management, by investment return spread and margin transferred to services and supplies providers.
When the conclusion of a construction contract cannot be reliably estimated, revenue is recognized restricted to the costs incurred to be recovered.
Construction revenue, net of construction costs is used as the basis for the calculation of interest on equity/dividends to be paid, as well as employee profit sharing. As for taxes owed, the result of construction revenue (as well as other results from the convergence with IFRS standards) is recognized as a deferred temporary difference pursuit to Transitional Tax Regime (RTT).
With the adoption of IFRS, assets related to concessions were reclassified and started being recognized in the balance sheet as intangible assets or financial assets, which resulted in material adjustments in the Company’s financial statements.
Intangible assets are the residual value of construction revenue earned from the construction or acquisition of infrastructure by the Company. These assets recognized as intangible assets will be amortized during the concession period and represent the right to explore public services, charge users for the services provided and the unconditional right to receive cash for the construction of infrastructural assets, either directly from the government or from an entity indicated by it.
In comparison, assets that are not amortized during the concession period are recognized as financial assets, booked at the current value of the right and calculated based on the net value of the assets constructed with regard to the infrastructure, which will be compensated by the government, discounted based on the Company‘s Weighted Average Cost of Capital. Thus, financial assets reflect the amount the Company will receive if the concession is not renewed.
When it comes to whether concessions will be renewed or not, the Company believes that cities are highly interested in renewing their Concession Agreements with the Company, given, among other motives, the development of a close relationship with us, the recognition of the "COPASA" brand in the market, the high quality of water supply and sewage services we provide, the obligation to compensate the Company for the investments it has made, as well as the need for significant investments in water and sewage systems if they were to become providers of the services in question.
Assets recognized as "fixed" are those that are not related to the public service concessions, and mainly consist of the Company‘s administrative buildings. These amounts are represented in the financial statements by their historical cost, excluding depreciation and their impairment value, if applicable. Historical cost includes spending directly attributed to the acquisition of the item, as well as interest on financing the acquisition, from the date of acquisition until the item entered into operation. The financial charges capitalized are depreciated according to the same criteria and useful life determined for the fixed item they were incorporated into.
The following table shows the position of the Company’s financial, fixed and intangible assets in the period:
|Asset (R$ thousand)
Amortization and depreciation of assets
As for the amortization and depreciation of assets, those recognized as intangible assets will be amortized during the concession period. Amortization of these assets begins when they become available for use, in the location and condition necessary to perform the function that the Company has planned for them. This amortization reflects the standard in which the asset’s future economic benefits are expected to be consumed by the Company, or the term of the concession, whichever occurs first. The consumption standard of the assets is related to their useful economic life in that the assets constructed by the Company are included in the calculation basis for measuring the tariff charged for providing the concession services.
The amortization of an intangible assets ceases when the asset has been completely consumed or written-off, and is no longer a part of the calculation basis used to calculate the tariff charged for the concession services, whichever occurs first.
Thus, with the accounting changes, depreciation is only considered on assets that are not linked to public service concessions, such as general use goods, vehicles and the Company’s administrative buildings, which will be recorded as fixed assets.
COPASA MG understands that the useful life of each asset is estimated using meticulous criteria, and the use of different criteria or future changes to said calculations may affect the useful life of these assets and, consequently, impact future operating results significantly.
The table shows the rates of depreciation of fixed assets in accordance with the estimated useful life of each:
||25 - 40
||10 - 15
||3 - 5
|Furniture, fixtures and equipment
||3 - 8
Donations and Subsidies in Public Concessions
Assets received as donations: in conducting its activities, the Company receives assets as donations, such as water or sewage networks or reservoirs constructed by land developers, which are integrated to the assets of the infrastructure used to provide services. The new accounting practice determines that the donations received must be written off and new donations must not be recognized.
Subsidies received for investments: subsidies received by the Company for investment are costs assumed by our clients when requesting water and sewage network extensions to areas previously not served by the general network. As per the new accounting practices, the amounts received as subsidies for investments are deducted from the asset that originated them.
Recognition of actuarial liability
The Complementary Pension Plan adopted by the Company, in the form of a Defined Benefit plan, establishes that its contribution should be equivalent to that of its employees, in accordance with Supplementary Law no. 108 and 109 of May 29, 2001, with the amount being determined based on actuarial studies conducted.
These premises are regularly revised and may diverge significantly from actual results in accordance with changes in the market and economic conditions, regulators facts, legal rules, increases or decreases in layoff rates or the life expectancy of participants. These differences may materially impact the total expenses with the Company’s private pension entity.
According to IAS 109, the entity may opt to change its accounting policy and begin to recognize the total actuarial gains and losses as of the transaction date, and in doing so, should continue doing so for all plans in all the succeeding years, pursuant to item 93 of CPC 33. The Company opted to change the accounting policy on the transaction date and to recognize actuarial gains and losses as of January 1, 2008, as defined by items 93 and 93D of CPC 33.
Through the actuarial study, prepared by an independent actuary, the Company recognized in its financial statements a net actuarial liability of R$ 498.2 million in 2008 and R$ 469.5 million in 2007. In 2009, after the new actuarial report, there was a reversal of R$ 20.4 million and the actuarial liability came to R$ 476.0 million. These figures represented the difference between the current value of the Company’s liabilities related to participants, including employees, retirees, social security (INSS) pensioners and collateral assets.
Recognition of convertible debentures in accordance with IAS 32:
In accordance with the new accounting rules, convertible debentures are considered compound financial instruments, since they have both a debt and equity component. The fair value of the liability component of a convertible debt instrument is determined using the market interest rate for the same debt instrument if it were non-convertible, obtained from the financial institution that issued it. This value is recorded as a liability based on the amortized cost until the obligation is settled through the conversion or maturity of the debt instrument. The book value of the conversion option is recognized and included in shareholders’ equity, and is revalued in subsequent years. The residual value, representing the value of the capital conversion option, was considered as a profit reserve in shareholders‘ equity, resulting in a R$ 3.8 million increase in Shareholders‘ Equity on the date of the transition, January 1, 2008.
The Company calculates and records taxes on income in accordance with CPC 32 requirements, and also recorded deferred tax assets and liabilities for all adjustments resulting from the adoption of IFRS. Since the Company opted for the Transition Tax Regime, the adjustments related to the alterations introduced by Law 11,638/07 do not affect the current taxes payable. Moreover, the Federal Revenue Service had not yet pronounced on the realization of the temporary differences until June 30, 2010.
Accounting Policies, Changes in Estimates and Rectification of Errors
The financial statements for the fiscal year ended December 31, 2008, originally published on March 28, 2009, were adjusted after their publication in order to rectify an error identified by the Company in the valuation of the provision for contingencies relating to municipal services tax (ISSQN) in Belo Horizonte. After the error was identified, the Company began negotiating with the Municipality of Belo Horizonte, which resulted in an agreement between the parties, with a reduction in the fine and interest, as well the payment of the debt in installments.
The adjustments resulted in an increase in non-current liabilities amounting to R$ 216.7 million and an increase in deferred income tax and social contribution (Asset) of R$ 69.3 million, followed by reduced income and consequent reduction in shareholders’ equity of R$ 147.4 million as of December 31, 2008. This deferred tax asset of R$69.3 million will be recovered in the coming years.
Thus, the Extraordinary Shareholders‘ Meeting (ESM) of February 23, 2010 approved the formalization of Instruments of Transaction and Offsetting with the municipality of Belo Horizonte, referring to ISSQN, IPTU, Inspection Fees and others and credits of the Company regarding water supply and sewage services so that the amount of R$ 216.8 million owed by COPASA MG would be offset by the amount receivable from the Municipality. Said amount was booked in Clients under Non-Current Assets item and referred to water supply and sewage invoices issued until November 2002, totaling R$216.8 million.
Borrowing costs according to CPC 20
The cost of loans directly related to the acquisition or construction of an asset that requires a significant amount of time to be concluded and ready for use are capitalized as part of the corresponding asset’s costs.
All other loan costs are recognized as expenses in the period in which they occurred. Borrowing costs include interest and other costs incurred by an entity due to a loan.
As permitted by accounting rules, the Company capitalizes its costs net of revenue from loans pertaining to intangible assets related to the construction services for the public service concession contracts.
Recoverable value of assets
Each base date, the Company checks if there is any impairment of assets. If there are any indications of impairment, or when the annual test for impairment of an asset is required, the Company estimates the recoverable value of the asset. The recoverable value of an asset is the fair value of the asset or cash generation unit (CGU), minus sales costs or its value in use, whichever is higher, determined for each asset unless it does not generate cash flows that are independent of other assets or groups of assets. When the book value of an asset or CGU exceeds its recoverable value, the asset is considered impaired and is written off to its recoverable value. In estimating the value in use, the estimated future cash flows are discounted to the asset’s present value using a pre-tax discount rate that reflects the current market appraisals of the time value of money and specific risks inherent to the asset. An adequate valuation model is used to determine the fair value, minus the cost of sales. These calculations are confirmed using valuation multiples and other available indicators of fair value.
Losses of the recoverable value of present and future operations are booked in the statement of income under expenses pertaining to the function of the affected asset.
For assets that exclude goodwill, every base date a check is conducted about the existence of any indication that the losses of recoverable value earlier booked no longer exist or may have decreased. If any indications exist, the Company estimates the recoverable value of the asset or Cash Generating Unit. Any impairment previously recognized is only reversed if there has been a change in the premises used to determine the asset’s recoverable value since the last impairment was recognized. The reversal is limited so that the book value of the asset may not exceed its recoverable value or the book value that would be determined, net of depreciation, if no impairment had been recognized for the asset in the previous years. This reversal is then recognized in the statement of income.
Provisions, Contingent Liabilities and Contingent Assets:
A provision should be recognized if, and only if: (a) the Company has a present obligation resulting from a past event; (b) there may be an outflow of funds to settle the obligation; and (c) a reliable estimate can be made of the obligation amount.
The company had already booked provisions as it has already been a practice and common in previous operations. Hence, the change in accounting rules did not significantly affect the Company’s financial position.
Last Update on May 16, 2013