SABESP 2Q12 Financial Summary
Business Context and Reporting Period
Company: Companhia de Saneamento Básico do Estado de São Paulo (SABESP)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Second Quarter 2012 (ended June 30, 2012)
Business Overview: One of the world's largest water and sewage service providers by customer count, operating primarily in the State of São Paulo, Brazil. Financials are presented in Brazilian Reais (R$).
Key Financial Metrics
| Metric (R$ Million) | 2Q12 | 2Q11 | 1H12 | 1H11 |
|---|---|---|---|---|
| Net Operating Revenue | 2,475.0 | 2,339.8 | 5,052.7 | 4,634.4 |
| EBITDA | 798.4 | 775.5 | 1,686.7 | 1,429.7 |
| EBITDA Margin | 32.3% | 33.1% | 33.4% | 30.8% |
| Net Income | 292.8 | 479.6 | 784.7 | 662.4 |
| Earnings Per Share (R$) | 1.29 | 2.11 | 3.44 | 2.91 |
| Cash & Equivalents (End of Period) | 1,752.5 | 2,149.9 | 1,752.5 | 2,174.5 |
| Total Debt (Loans & Financing) | 8,569.7 | 8,423.3 | 8,569.7 | 8,596.3 |
Note: Total Debt calculated as sum of Current portion of long-term loans and Non-Current Loans and Financing from Consolidated Balance Sheet.
Material Changes vs. Prior Period
- Revenue Growth: Net operating revenue increased 5.8% in 2Q12 and 9.0% in 1H12, driven by a 6.83% tariff adjustment (effective Sept 2011) and a 1.4% increase in billed volume.
- Profitability Decline: Despite revenue growth, 2Q12 Net Income fell 38.9% year-over-year. This was primarily due to a non-cash exchange rate loss of R$ 281.5 million on international loans (USD and JPY appreciation against the Real).
- Adjusted Performance: Excluding exchange rate effects, 2Q12 Net Income would have been R$ 478.7 million (an 11.2% increase vs 2Q11). Adjusted 1H12 Net Income would have been R$ 865.6 million.
- Cost Increases: Total costs and expenses rose 6.5% in 2Q12. Key drivers included a 7.6% increase in payroll (wage hikes and actuarial liabilities) and a 42.8% spike in treatment supplies (activated carbon and lime due to algae proliferation).
- Construction Activity: Construction revenue grew 15.9% and construction costs grew 16.3%, reflecting higher investment levels.
Outlook, Risks, and Management Commentary
- Operational Outlook: Water loss ratio remains stable at 26%. Management expects a more substantial decline in this metric starting mid-2013 with the hiring of JICA-financed personnel.
- Capital Markets: In July 2012, SABESP contracted R$ 160 million in credit operations with Caixa Econômica Federal for sanitation works in smaller municipalities.
- Risks: Significant exposure to foreign exchange fluctuations on international debt (USD and JPY). Operational risks include climate conditions affecting water treatment costs (algae proliferation).
- Forward-Looking Statements: The filing contains standard disclaimers regarding future economic conditions, industry trends, and capital expenditure plans, noting that actual results may differ materially from expectations.
Investor Verification Checklist
- Exchange Rate Sensitivity: Verify the impact of Real depreciation on future earnings, given the R$ 281.5 million non-cash loss in 2Q12.
- Adjusted Earnings: Confirm the company's adjusted net income figures (excluding FX) to assess core operational performance.
- Cost Inflation: Monitor treatment supply costs, which surged 42.8% due to environmental factors; assess if this is a recurring trend.
- Debt Maturity Profile: Review the debt schedule (R$ 8.4 billion total) to understand near-term refinancing needs and interest rate exposure.
- Water Loss Reduction: Track the progress of the JICA-funded initiative to reduce the 26% water loss ratio.