Companhia de Saneamento Básico do Estado de São Paulo - SABESP
Q3 2013 Earnings Call Transcript

Published: 18 Nov 2013

[Operator:]

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to SABESP Conference Call to discuss its results for the third quarter of 2013. The audio for this conference is being broadcast simultaneously through the Internet at the website www.sabesp.com.br. At that same address, you can also find a slide show presentation available for download. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of SABESP management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of SABESP and could cause results to differ materially from those expressed in such forward-looking statements. Today with us we have

[Mario Arruda Sampaio:]

Okay, thank you. Well, good morning, everybody. Thanks for joining us for this one more earnings conference call. We have a slide presentation and -- to discuss the main events during the period. And as usual, later, open for a question-and-answer session. Let's move then to slide, for slide, Slide 3, billed volume. This increase in billed volume in third quarter this year was due to the increase of 2.7% in water connections and 3.4% in sewage connections and to the increase of 1.9% in billed water volume and 2.1% in billed sewage volume, all this leading to a total increase of 2% in billed water and sewage volume in this quarter when compared to the same quarter last year. The lower billed water sewage volume increase is due in great part to higher rate volume lower temperatures in the period. These variables, we saw have a direct and big impact on water consumption and consequently, on sewage volume. Just for you to have an idea, the average temperature was 18.5 Celsius in July last year against 17% July this year. So for us, a cold period. The water loss ratio continues to decrease, closing in the quarter at 25%. It is also important here to mention that of the funds that we contracted with JICA at the beginning of last year, totaling about BRL 1.5 billion, around BRL 1 billion corresponds to the execution of services and the management of water loss program, which are in the final phases of contracting. The other BRL 500 million are related to the works itself and should be undertaken and accomplished by 2015. With this schedule, the relevant share of the water loss reduction initiatives will begin in the fourth quarter of this year, right now, as we go through the fourth quarter and we expect the ratio to fall, as of the beginning of 2014. But it's really important to bear in mind that the ratio won't drop immediately because it's a moving average of the last 12 months, okay. Now moving to the Slide. Let's comment briefly on our financial results. Net operating revenue grew 2.3%, most probably positively affected by the 5.15% tariff increase as of September 2013. Also the tariff repositioning index of 2.35% applied in April this year, the 2% increase in total billed volume, which we just mentioned and lower construction revenues in the period. Gross operating revenue, the one that disregards construction revenue and preferred taxes, on the other hand, grew 5.8%. The lower-than-expected drop in net operating revenue increase was mainly due to the conclusion of the implementation of the tacit services in the municipalities that we provide services and in the interior of the state of São Paulo in the second quarter of 2012. This led to a reduction of a number of unbilled water supply days and generated a lower revenue estimate in June 2012. This estimate reduction causes lower reversal in July 2012. What led to its substantial impact on the variations presented in the analyzed periods. So the impact due to how we measure and how we project revenues and then how we reverse that in the next quarter. Excluding these non-recurring events, net operating revenue would have grown around 4.6%, while gross operating revenue would have increased by 10%. Cost sales, administrative and construction expenses fell by 2.4% in the period. However, if we exclude construction cost, which fell by almost 60%, cost and expenses edged up by a mere 0.8%. When we analyze cost and expenses, as a percentage of net operating revenue, we notice a reduction from 73.4% in third quarter last year to 70% in this quarter. Adjusted EBITDA increased by 15.5% from BRL 902 million to BRL 1.042 billion this quarter. The EBITDA margin came to 37.6%, versus 33.3% the same period in the previous year. If we exclude construction revenue cost, the adjusted EBITDA margin reached 46.4% this quarter, versus 42.4% third quarter 2012. Net income, as you can see, totaled BRL 475 million, 31.3% above third quarter 2012. On Slide 5, let's discuss the main variations in cost, in relation to the same period of the previous year. Cost and expenses that increased 0.8%, as mentioned due to the upturn of 62.7% in treatment supply, 14.6% in payroll and benefit and in great part -- sorry, and 15.6% in depreciation and amortization plus and also 9% in services. So these are the ones we are going to highlight. On the other hand, we also like to highlight the decline of 16.8% in credit write-offs, 31% -- 36.1% in general expenses and 8.1% in electric power. Now specifically, on treatment supply, increase of 62.7% or BRL 24.5 million. This was mainly due to the higher consumption of chemicals associated with the lower quality of water and price adjustment, some of which these prices were associated for the exchange rate variations against the real. Payroll & benefits moved up chiefly due to the 8% increase in wages since May 2013. This also associated with the company's new plans for jobs and salary, with an impact of approximately BRL 27.8 million, and the BRL 9.7 million increase in the provision for the Defined Benefit Plan, in this case, due to changes in actuarial assumptions, mainly related to the discount and interest rate. Depreciation and amortization climbed BRL 28.2 million, or 15.6%, due to the transfer of works in progress to operating intangible assets, leading to a net impact of BRL 2.1 billion. Services increased BRL 23.5 million, or 9%, due to the BRL 12.5 million increase arising from the reversal of provisions for expenses in third quarter 2012, related to the conclusion of the first partnership agreement we had with the municipality of São Paulo. And also, 6 points -- due to BRL 6.6 million increase in expenses with the sewage network maintenance due to the intensification of preventive maintenance in several regions operated by the company. Credit write-offs fell by BRL 42 million, or 16.8% this quarter, essentially due to the need for additional provisions totaling BRL 41.2 million undertaking in third quarter last year. General expenses fell BRL 75.7 million, for the most part due to additional provision for risk related to labor losses, totaling BRL 27.9 million in third quarter last year 2012, together with the reversal of provision for risk-related environmental losses, totaling about BRL 20 million, and provisions for civil losses totaling about BRL 15 million this quarter. Electric power decreased BRL 11.7 million, or 8.1%, mainly associated to the average reduction of approximately 22.7% in the distribution system utilization tariff as a consequence of Provisional Measure 579 of last year, late last year, and Law 12,783 of this year. Let's now review items that affected our net income on Slide 6. In the third quarter of 2013, net operating revenue increased BRL 61.4 million, or 2.3% over the same period in 2012, due to the 2% upturn in total billed volume associated with the 5.15 tariff increase effective as of September 2012, and the tariff repositioning index of 2.35%, 2.35% applied to April this year. Cost and expenses, including construction costs, decreased by BRL 48.1 million, or 2.4%, over the same period in 2012. Net financial expenses and revenues, including monetary exchange rate variations have a BRL 10.6 million negative impact on the variation between the period. This was mostly due to 4 points

[Operator:]

[Operator Instructions] It appears that we have no questions at this time. I would like to turn the conference back to you, SABESP, for their final remarks.

[Mario Arruda Sampaio:]

Okay. Well, thank you, everybody, for participating and listening to the speech, and -- but we're always available in case you would like to cover some specific questions. Call us. Thank you and see you next quarter. Bye-bye.

[Operator:]

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.