CIA. DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO - SABESP
Rui de Britto Álvares Affonso
Chief Financial Officer and Investor Relations Officer
Mario Azevedo de Arruda Sampaio
Head of Capital Markets and Investor Relations

1. Financial highlights

Adjusted EBITDA Reconciliation (Non-accounting measures)

(*) Adjusted EBITDA is net income before: (i) depreciation and amortization; (ii) income tax and social contribution (income federal taxes); (iii) financial result and (iv) other operating expenses, net.

In 2Q13, net operating revenue reached R$ 2.8 billion, a 13.0% growth compared to 2Q12.

Costs and expenses, including construction costs, in the amount of R$ 2.1 billion grew 12.4% over 2Q12.

EBIT grew 15.0%, from R$ 621.4 million in 2Q12 to R$ 714.7 million in 2Q13.

Adjusted EBITDA increased 14.2%, from R$ 798.4 million in 2Q12 to R$ 911.4 million in 2Q13.

The adjusted EBITDA margin was 32.6% in 2Q13 in comparison to 32.3% in the same period of 2012. Excluding construction revenues and construction costs, the adjusted EBITDA margin was 42.0% in 2Q13 (41.4% in 2Q12).

Net income totaled R$ 361.7 million in 2Q13, 23.5% higher than in 2Q12.

2. Gross operating revenue

Gross operating revenue from water supply and sewage collection grew from R$ 2.0 billion in 2Q12 to R$ 2.3 billion in 2Q13, an increase of R$ 258.8 million or 12.6%.

The main factors that led to this variation were:

·         Tariff adjustment of 5.15% since September 2012;

·         The tariff repositioning index of 2.35% applied since April 2013; and

·         Increase of 3.5% in the Company’s total billed volume (3.3% in water and 3.8% in sewage).

3. Construction revenue

Construction revenue increased R$ 79.1 million or 13.7%, when compared to 2Q12. This variation was mainly due to lower investments in 2Q13, in comparison to the same period of the previous year.

4. Billed volume

The following tables show the water and sewage billed volume per customer category and region in 2Q12, 2Q13, 1S12 and 1S13.

(1) Unaudited

(2) Including coastal and countryside

5. Costs, administrative expenses, selling and construction

In 2Q13, costs of sales and services rendered, construction, administrative and selling expenses grew 12.4% (R$ 229.2 million). Excluding construction costs, total costs and expenses grew 11.8%. As a percentage of net revenue, cost and expenses decreased from 74.8% in 2Q12 to 74.4% in 2Q13.

5.1. Payroll and benefits

In 2Q13 payroll and benefits grew R$ 48.4 million or 10.9%, from R$ 443.6 million to R$ 492.0 million, due to the following:

·         6.17% increase in wages since May 2012 and of 8.00% since May 2013, and also the implementation of the Company’s new career and wage plan, with an impact of approximately R$ 31.0 million;

·         R$ 6.5 million upturn in the provision for the Defined Benefit Plan, arising from changes in actuarial assumptions;

·         Provision referring to TAC (Conduct Adjustment Term) of retirees increased by R$ 2.8 million, mainly due to wage adjustments in the period; and

·         R$ 2.8 million increase in overtime pay, mainly due to wage adjustment in the period.

5.2. Supplies

In 2Q13, expenses with supplies increased by R$ 6.2 million or 14.4%, when compared to the previous year, from R$ 43.2 million to R$ 49.4 million, mostly due to: (i) preventive and corrective maintenance in several water and sewage systems, in the amount of R$ 2.5 million; (ii) water and sewage network maintenance, in the amount of R$ 1.2 million; and (iii) fuel and lubricants, in the amount of R$ 0.5 million.

5.3. Treatment supplies

Treatment supplies expenses in 2Q13 were R$ 3.8 million or 7.4% higher than in 2Q12, from R$ 51.4 million to R$ 55.2 million. The main factors for this variation were:

·         Increase of R$ 2.9 million due to the higher consumption of aluminum polychloride in the Jundiaí, Taiaçupeba, Guarapiranga and Rio Grande dams, ensuring better water quality in these reservoirs;

·         Higher consumption of sodium hypochlorite, with an increase of R$ 2.2 million, due to the use of this product in replacement of “Cloro Gas” in the Hortolândia, Paulínia, Indaiá and Rio Grande water treatment station, due to higher efficiency in water treatment and higher handling operational security;

·         Higher consumption of aluminum sulfate, with an increase of R$ 1.2 million, due to higher consumption of this product at the Taiaçupeba water treatment station, aiming at reducing the concentration of iron and manganese in water, associated with price adjustments; and

·         Increase of R$ 1.7 million from the consumption of products, such as: (i) hydrogen peroxide, due to the odor increase I several sewage pumping stations in the Baixada Santista region; and (ii) oxygen, due to the increase in the average flow in the Taubaté/Tremembé Sewage Treatment Stations.

The increases mentioned above were offset, specially, by the lower consumption of activated carbon at the Taiaçupeba, ABV and Guaraú water treatment stations, due to better climate conditions and water quality, resulting in R$ 7.5 million decrease.

5.4. Services

In 2Q13 this item grew R$ 42.5 million or 16.8%, from R$ 252.6 million in 2Q12 to R$ 295.1 million in 2Q13. The main factors were:

·        Increase in the estimated services expenses, in the amount of R$ 12.2 million, due to the reversion of provisions in the amount of R$ 6.5 million in 2Q12 and the increase in the estimated expense in the amount of R$ 5.7 million in 2Q13;

·        Preventive and corrective maintenance in the water and sewage systems in the amount of R$ 9.0 million;

·        Maintenance in the water and sewage network connections, in the amount of R$ 5.9 million, due to the intensification of services in several areas of the São Paulo Metropolitan Region, and to price adjustment referring to the Global Sourcing contract; 

·        Hydrometer reading and bill delivery expenses in the amount of R$ 2.9 million, as a result of the new contracts and price adjustment in the São Paulo Metropolitan Region;

·        Paving services and replacement of sidewalks in the amount of R$ 2.9 million, related to the Corporate Program for Water Loss Reduction; and

·        Maintenance of properties and facilities, in the amount of R$ 1.8 million.

5.5. Electric power

This item decreased R$ 14.6 million, or 9.9%, from R$ 147.6 million in 2Q12 to R$ 133.0 million in 2Q13, due to the average decrease of approximately 22.7% in the Tariff for the Use of Distribution System (TUSD), as a consequence of Provisional Presidential Decree 579/12 and Law 12,783/13, resulting in a decrease of R$ 17.5 million. The decrease mentioned above was partially offset by a 15.4% increase in the tariffs of the free market, resulting in an increase of R$ 3.9 million in the period.

5.6. General expenses

General expenses increased R$ 62.6 million or 50.6%, from R$ 123.7 million in 2Q12 to R$ 186.3 million in 2Q13, due to:

·         Provision for lawsuits, in the amount of R$ 49.0 million, mainly related to environmental contingencies in the amount of R$ 25.6 million in 2Q13; and reversion of provisions with suppliers in 2Q12, in the amount of R$ 29.9 million; and

·         Provision for payment to the Municipal Fund for Sanitation Environment and Infrastructure, pursuant to the Service Agreement with the São Paulo Municipal Government, in the amount of R$ 6.4 million, as a result of the increase in revenues.

5.7. Depreciation and Amortization

Depreciation and amortization increased R$ 19.7 million or 11.1%, from R$ 177.0 million in 2Q12 to R$ 196.7 million in 2Q13, due to the transfer of works to the operating intangible asset, with a net increase of R$ 2.1 billion.

5.8. Credit write-offs

Credit write-offs decreased R$ 17.8 million or 48.6%, from R$ 36.6 million in 2Q12 to R$ 18.8 million in 2Q13, chiefly due to the reversion of provisions in the amount of R$ 15.3 million referent to installment agreements settled.

6. Net Financial expenses

6.1. Financial revenues and expenses

6.1.1. Financial expenses

In 2Q13 financial expenses dropped R$ 17.1 million, or 15.6%. The main reasons for this result were:

·         Decrease in interest and charges on domestic loans and financing due to lower interest rates and to the change in debt (issue of the 17^th debenture in February 2013 and anticipation of the amortization of the 11^th debenture balance);

·         Decrease in interest and charges on international loans and financing due to the lower appreciation of the Yen versus the Brazilian Real in 2Q13 (4.2%), when compared to the appreciation of 16.6% presented  in 2Q12; and

·         Decrease in other financial expenses, due to the reversion of interest over provisions for lawsuits regarding clients.

6.1.2. Financial revenues

Financial revenues increased by R$ 19.6 million due to the interest over installment agreements.

6.2. Monetary variation on assets and liabilities

6.2.1. Monetary variation on liabilities

The effect on the monetary variation on liabilities in 2Q13 was R$ 76.8 million lower than in 2Q12, specially:

·         Decrease in the exchange rate variation on loans and financing, in the amount of R$ 80.0 million, due to: (i) the lower appreciation of the Yen versus the Brazilian Real in 2Q13 (4.2%), compared with 14.6% appreciation in 2Q12; and (ii) the lower appreciation of the US Dollar versus the Brazilian Real in 2Q13 (10.0%) when compared to the 10.9% appreciation recorded in 2Q12;

·         Decrease in other monetary/exchange variation in the amount of R$ 4.2 million due to provision for lawsuits in the amount of R$ 4.7 million; and

·         Increase in the expenses related to monetary variation on domestic loans and financing, in the amount of R$ 7.5 million, due to the 17^th debenture issue in February 2013.

6.2.2. Monetary variation on assets

Monetary variation on assets increased by R$ 10.6 million in 2Q13, chiefly due to updates on installments agreements.

7. Income tax and social contribution

Income tax and social contribution expenses increased by R$ 131.6 million, mainly due to the accounting recognition in 2Q12 of additional amount of Interest on Own Capital declared in 2011, which decreased the tax basis in that period.

8. Operating indicators

The water loss ratio presented a light increase, closing the quarter at 25.3%.

Note that the funds obtained from JICA will finance the initiatives in the 1^st Stage of the Program, whose execution is scheduled to begin in the second half of 2013, when the ratio is expected to resume its decline.

(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. Not including wholesale
(3)    In millions of cubic meters at the end of the period
(*)    Unaudited 

9. Loans and financing                        

10. Events

For more information, please contact:

Mario Arruda Sampaio

Phone.(55 11) 3388-8664

E-mail: maasampaio@sabesp.com.br 

Angela Beatriz Airoldi                                                                         

Phone.(55 11) 3388-8793

E-mail: abairoldi@sabesp.com.br 

Statements contained in this press release may contain information that is forward-looking and reflects management's current view and estimates of future economic circumstances, industry conditions, SABESP performance, and financial results. Any statements, expectations, capabilities, plans and assumptions contained in this press release that do not describe historical facts, such as statements regarding the declaration or payment of dividends, the direction of future operations, the implementation of principal operating and financing strategies and capital expenditure plans, the factors or trends affecting financial condition, liquidity or results of operations are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. There is no guarantee that these results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.

Income statement

Balance sheet

Cash flow

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.