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Companhia de Saneamento Basico do Estado de Sao Paulo (SBS)
Q1 2013 Earnings Call
May 13, 2013 10:00 am ET
Mario Arruda Sampaio
Hasan Doza - Luminus Management, LLC
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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's 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 Mr. Rui Affonso, Chief Financial Officer and Investor Relations Officer; Mr. Mario Arruda Sampaio, Head of Capital Market and Investor Relations; and Mr. Marcelo [indiscernible], Head of Accounting.
Now I'll turn the conference over to Mr. Arruda Sampaio. Sir, you may begin your conference.
Mario Arruda Sampaio
Okay. Good morning, everybody, and thank you for participating at this conference call, once more, to discuss our results. We have today a 5-slide presentation to discuss the main events of the period. And after that, as mentioned, we will go to our question-and-answer session.
Let's move then to Slide 3. I'll talk about our -- the company's billed water and sewage volume that came up 2% on the first quarter to over first quarter 2012. This increase in billed volume was due to the increase of 2.7% in water connections and 3.5% in sewage connections. This is in line with expected growth of approximately 2.5% in billed water volume and between 3% and 3.5% in billed sewage volume the latter influenced by the company's large investments in this segment.
The water loss ratio remained flat, closing the quarter at 25.5%. But we -- again, you would like to remember that last year, the company signed a very unprecedented loan agreement with JICA, the Japanese official bank, totaling at BRL 710 million to finance our corporate water loss reduction program. I believe we mentioned this before.
I'd just like to highlight that we are expecting that the initiatives of this first stage of the program should take -- start to take effect in the beginning of the second half of 2013 this year, as we are in the process of -- final process of bidding and hiring the work services. After that, we definitely should keep track and expect reductions in our water loss ratio.
Let's move now to financial highlights or Slide 4. Here, we see that the net operating revenue was positively affected by the 2% upturn in total billed volume and the 5.15% tariff increase as of September 2012.
Cost and expenses fell by 2.4% in the period. And if we exclude construction costs, the item costs and expenses climbed than -- a little bit more BRL 7.3 million, which is a percentage of net revenue again. Excluding, sorry -- which, as a percentage of net operating revenue, excluding construction costs, this figure increased from 51.8% in first quarter of 2012 to 54.2% this last quarter.
Adjusted EBITDA increased by 3.7% from BRL 888 million in first quarter last year to BRL 921 million this first quarter. The margin came to 34.8% versus 34.5% in the same period of last year. Excluding construction costs and revenues, the adjusted EBITDA margin came to 42.4% in first quarter 2013 against 43.3% last year. Net income then totaled BRL 496.2 million, a 0.9% increase.
Now let's go to Slide 5. Here, we discuss the main variations in costs in relation to the same period of last year. Excluding construction costs, overall costs climbed 7.3% year-over-year, due to the increase of 45.5% in treatment supplies, 28.4% in general expenses, 14.6% in taxes and 13.7% in payroll and benefits. We'd like to highlight the decline of 13.7% in services and 3.7% in electric power.
Now let's comment on these first. Treatment supplies, as mentioned, increased 45.5%. That is a BRL 20.3 million variation due to higher consumption of aluminum polychloride, a product that ensures water quality at -- when we are at maximum flow, which is where we are in this period of the year. Also, higher consumption of activated carbon. This is due to the weather and watershed conditions, which impacts the quality of the water we produce, associated with the price also increase for these elements of 11.73%. Also, higher consumption of lime, again, due to the higher treated volume and also associated with the price increase of approximately 7%. And for last, a higher consumption iron chloride in order to meet quality parameters in the treatment of the water, resulting again from the strong rain in the city of Cubatão, provides a lot of water for the metro region of Santos. Other reasons for the increased consumption of certain supplies included the startup of new sewage pumping stations and higher chlorine consumption due to increased turbidity and color of the Guaraú treatment station. And just so you know, the Guaraú treatment station is responsible for water that we provide to a significant portion of the metro region of São Paulo. So it has a very big impact.