SABESP 3Q22 Earnings Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited financial results for Companhia de Saneamento Básico do Estado de São Paulo (SABESP) for the third quarter ended September 30, 2022. SABESP is the basic sanitation company of the State of São Paulo, Brazil, providing water and sewage services.
Key Financial Metrics
- Net Income: R$ 1,081.1 million (3Q22) vs. R$ 468.6 million (3Q21).
- Adjusted EBITDA: R$ 2,136.2 million (3Q22) vs. R$ 1,789.3 million (3Q21).
- Adjusted EBITDA Margin: 35.7% (3Q22) vs. 34.7% (3Q21).
- Revenue from Sanitation Services: R$ 5,012.4 million (3Q22) vs. R$ 4,284.9 million (3Q21).
- Construction Revenue: R$ 1,350.2 million (3Q22) vs. R$ 1,186.1 million (3Q21).
- Net Operating Income: R$ 5,987.7 million (3Q22) vs. R$ 5,153.9 million (3Q21).
- Financial Result: R$ 118.5 million gain (3Q22) vs. R$ 520.6 million loss (3Q21).
- Cash and Cash Equivalents: R$ 1,788.8 million (as of Sept 30, 2022) vs. R$ 717.9 million (Dec 31, 2021).
- Total Debt: R$ 18,778.5 million (Total debt profile as of Sept 30, 2022).
- Foreign Currency Debt: R$ 2,617.6 million (14.0% of total debt).
- CAPEX (Investments): R$ 1,430.3 million (3Q22).
Material Changes vs. Prior Period
- Profitability Surge: Net income increased by 130.7% year-over-year, driven primarily by a significant improvement in the financial result and higher operating revenue.
- Revenue Growth: Sanitation revenue rose 17.0%, attributed to a 12.8% tariff adjustment effective May 2022, a 1.6% increase in billed volume, and a higher average tariff in non-residential categories.
- Cost Increases: Operating costs (excluding construction) grew 13.6%, mainly due to higher service expenses (R$ 113.3 million), salary adjustments (R$ 83.5 million), and treatment supplies (R$ 67.8 million).
- Financial Result Turnaround: The financial result swung from a R$ 520.6 million loss in 3Q21 to a R$ 118.5 million gain in 3Q22. This was largely due to a R$ 279.9 million reduction in exchange variation expenses on borrowings, resulting from the depreciation of the Japanese Yen and lower appreciation of the U.S. Dollar against the Real.
- Monetary Adjustments: A positive monetary adjustment of R$ 324.5 million was recognized on the São Paulo State Government (GESP) Agreement 2015.
Outlook, Risks, and Management Commentary
- Operational Volume: Total billed volume (water + sewage) increased 1.6% year-over-year. Commercial and Public categories showed significant volume growth (8.7% and 15.2% respectively), while Residential volume remained flat.
- Debt Covenants: As of September 30, 2022, the Company met all requirements of its loan and financing agreements, including Adjusted EBITDA/Adjusted Financial Expenses (2.80x) and Net Debt/Adjusted EBITDA (3.50x).
- Forward-Looking Statements: Management notes that future results depend on economic conditions, industry trends, and operating factors. There is no guarantee that expected results will occur.
- Risks: Key risks include fluctuations in exchange rates, interest rates (DI rate rose to 13.47% in 3Q22), and regulatory changes affecting tariffs and tax burdens.
Investor Verification Checklist
- Verify the sustainability of the 12.8% tariff adjustment impact on future quarters.
- Monitor the trajectory of the DI interest rate and its impact on domestic loan interest expenses.
- Assess the volatility of exchange rates (USD/BRL and JPY/BRL) given the foreign currency debt exposure.
- Review the details of the GESP Agreement 2015 monetary adjustment and its recurrence.
- Confirm the trend in delinquency rates, which drove a 14.5% increase in the allowance for doubtful accounts.