SABESP 3Q09 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the third quarter (July–September) and nine months ended September 30, 2009, for Companhia de Saneamento Básico do Estado de São Paulo (SABESP). SABESP is a major provider of water and sewage services in Brazil. Financial results are presented in Brazilian Reais (R$) in accordance with Brazilian Corporate Law.
Key Financial Metrics
| Metric (R$ Million) | 3Q09 | 3Q08 | 9M09 | 9M08 |
|---|---|---|---|---|
| Gross Operating Revenue | 1,749.1 | 1,717.2 | 5,272.1 | 5,003.2 |
| Net Operating Revenue | 1,629.0 | 1,593.0 | 4,906.0 | 4,646.5 |
| EBITDA | 617.1 | 697.4 | 1,907.6 | 2,107.9 |
| EBITDA Margin | 37.9% | 43.8% | 38.9% | 45.4% |
| EBIT (Earnings Before Financial Expenses) | 462.6 | 662.5 | 1,408.2 | 1,757.1 |
| Net Income | 195.7 | 231.1 | 916.6 | 894.8 |
| Earnings Per Share (R$) | 0.86 | 1.01 | 4.02 | 3.93 |
| Net Cash from Operating Activities | 555.7 | 518.7 | N/A | N/A |
| Cash and Equivalents (End of Period) | 386.3 | N/A | N/A | N/A |
Debt and Liquidity: Total loans and financing maturities are projected at R$ 6,074.1 million through 2015 and beyond. Current liabilities totaled R$ 3,539.5 million as of September 30, 2009, while current assets were R$ 2,082.7 million.
Material Changes vs. Prior Period
- Revenue Growth: Net operating revenue increased 2.3% in 3Q09 and 5.6% in the nine-month period, driven by a 0.2% tariff adjustment and 0.7% growth in billed volume.
- Profitability Decline: EBITDA fell 11.5% in 3Q09 and 9.5% for the nine months. EBIT dropped significantly by 30.2% in 3Q09.
- Cost Inflation: Costs and expenses rose 11.1% in 3Q09, increasing the cost-to-revenue ratio from 66.3% to 72.0%. Key drivers included a 36.7% increase in "Services" expenses (maintenance, network repairs) and a 24.6% rise in general expenses (judicial provisions).
- Financial Expenses: Net financial expenses surged 64.1% in 3Q09 to R$ 266.2 million, primarily due to a R$ 102.2 million increase in interest on lawsuit indemnities.
- Operating Efficiency: Water losses decreased by 6.4% to 26.5% due to the Water Loss Reduction Program, while the population served increased by 0.9%.
Guidance, Outlook, and Risks
- Financing Activities: In October 2009, the Inter-American Development Bank (IDB) approved a US$ 600 million loan for the Projeto Tietê. Additionally, a US$ 100 million loan was signed with the IBRD for the Water Source Program. The company also approved three private debenture issues totaling R$ 826 million with BNDES.
- Operational Outlook: Management continues to focus on the Water Loss Reduction Program and infrastructure expansion, including the Rio Grande Water Treatment Station.
- Risks and Contingencies: Significant provisions for judicial contingencies increased general expenses. The filing notes that forward-looking statements regarding dividends, capital expenditure, and future operations are subject to risks including economic conditions and regulatory changes.
- Unusual Items: A significant drop in "Other operating revenues" in 3Q09 compared to 3Q08 was due to a one-time fixed asset write-off in the prior year related to the GESP Agreement settlement.
Investor Verification Checklist
- Verify the sustainability of the 6.4% reduction in water losses and its impact on future revenue growth.
- Assess the magnitude of judicial provisions and lawsuit indemnity interest (R$ 173.9 million in 3Q09) as a recurring cost.
- Review the terms and covenants of the new US$ 600 million IDB loan and R$ 826 million BNDES debentures.
- Monitor the trend of "Services" expenses, which grew 36.7% year-over-year, to determine if this is a one-time catch-up or a structural cost increase.
- Confirm the impact of the 8.9% US Dollar depreciation on future foreign currency-denominated debt service.